5 Principles for Building Feasible On-Chain Games
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5 Principles for Building Feasible On-Chain Games
Ponzi economics is a one-way ticket.
Navigating Web3 tides with focused insightsAuthor: Bohdan Melnychuk
Translation: MetaCat
Introduction
The period from late 2022 to early 2023 marked the beginning of the rise of on-chain gaming as a phenomenon. The fundamentals of this field are well covered in articles such as "Infinite Games," "Autonomous Worlds," or "Pureplay On-chain Games." This article will not discuss why on-chain games are needed; it assumes the reader already accepts that premise.
As interest in the space grows, I've noticed that many people—even those who have been building on-chain games for some time—still fail to fully grasp that this is an entirely new and atypical concept, one that cannot be effectively approached using traditional game design patterns or blockchain solutions borrowed from areas like DeFi.
Blockchain offers many advantages and opens up new possibilities, but it also does not forgive mistakes. Doing anything on-chain means consciously accepting numerous principles and constraints that must be followed to build viable systems.
The purpose of this article is: to assert and demonstrate the fundamental truths and principles that developers of full on-chain games should follow when striving to create enduring systems.
Additionally, it may serve those engaged in specific research into on-chain games as a set of foundational standards.
I will focus only on topics that may seem unclear or controversial to those particularly unfamiliar with on-chain games, to emphasize how fundamentally different this direction is from our prior understanding of games, and to encourage serious discussion.
Also, I declare that in this article I do not consider short-term on-chain games, fully centralized on-chain games, so-called "NFT games," or games relying solely on the EVM. Their properties and justifications deserve a separate article.
About the Author
My name is Bohdan Melnychuk, with an engineering background and a particular focus on game theory.
I began designing and researching concepts for on-chain games in 2017 and have continued developing them since 2020.
The game I'm currently developing is called Mithraeum. The theoretical foundation of this article emerged from years of development and testing within Mithraeum, observing real players forming around truly valuable systems.
Let’s begin with the core insights.
#1 Financialization is Inevitable
Any popular on-chain game will become highly financialized, regardless of the developer's intentions.
Being on-chain entails two critical characteristics: the absence of a natural regulator and minimal transaction costs (not to be confused with blockchain gas fees).
In traditional games, the natural regulator is the server admin or developer, who frequently uses their privileged position (e.g., ban hammer) to prohibit external economic activity and monopolize currency circulation. The very concept of on-chain games implies absolute autonomy, thus eliminating such regulators.
Conversely, this factor is multiplied by the killer feature of smart contract environments: low transaction costs enabled by trustlessness, transparency, and interoperability. Together, these factors give rise to the phenomenon of an Ultra-Free Market.
This phenomenon is the most significant game-changer, yet many game developers underestimate its power. If an on-chain game becomes popular, its "invisible hand" will financialize any valuable asset—including game progress—without requiring permission. This inevitably makes the on-chain game a deeply financialized system, at least compared to traditional games.
There is no direct equivalent to this in traditional games. For example, the Steam marketplace for game items isn't truly open—it is permissioned, custodial, and usually very limited. Even passive oversight by initially non-restrictive moderators (server admins) acts as a deterrent, since they can always change their minds and re-impose restrictions. Therefore, we cannot rely on traditional gaming experience to predict or simulate behavior in on-chain games.
Many mistakenly believe that prohibiting direct wallet-to-wallet transfers of in-game assets at the smart contract level is sufficient. However, even conditionally non-transferable assets can be wrapped into transferable derivatives by third parties using tools like account abstraction or prediction markets.
Design your financialization, or it will design you.
As an on-chain game designer, you must acknowledge the existence of an inevitable open market, incorporate it into your game design, and proactively build the foundational layer of financialization before the open market arrives.
I always use poker as an example. Due to differing player motivations, recreational poker and money-based poker are two distinct games.
Therefore, testing your game early with real value allows you to objectively validate your game design and economic model, and anticipate what might happen as your popularity grows. Deliberately delaying this may render your model unviable when faced with incoming financialization and rationalization.
#2 Game Design is Everything
Any trivial gameplay process in an on-chain game is meaningless because bots will automate it.
A game is a meaningful non-productive activity, where the motivation lies not in the outcome, but in the process itself.
However, due to hyper-financialization, this principle does not apply to on-chain games. This is also one of the main reasons why on-chain games cannot be considered pure games in the traditional sense.
As capitalization of in-game assets increases, the rationalization of gameplay intensifies, transforming "for fun" activities into full-time jobs or even serious business ventures.
In turn, this means: any trivial game mechanism that does not require special intellectual, creative, or social effort is meaningless, because opportunistic rational players will simply automate it.
It must be noted that this criterion filters out most known game genres, such as casual, shooter, action, and other simple game types.
Game design is a foundational pillar in on-chain games. Any imbalance in mechanics or economics amounts to an exploitable flaw and will be almost immediately leveraged by rational actors.
This liberates true game design masters and opens the door to more complex models, while closing it off to amateurs.
Enduring on-chain games will feature game designs far more innovative than anything imaginable in traditional games.
All on-chain game mechanics must include a non-trivial puzzle that cannot be solved once and for all. The best source for such puzzles is the players themselves. This is why on-chain games are inherently and predominantly PvP.
Financial markets serve as a good example—participants form part of a large puzzle determining price movements, which constitutes a non-trivial mechanism.
We must also remember that transactions cost money. Therefore, making every in-game transaction strategic will be most effective. This means: you should strive to embed as much player intellectual effort as possible into each transaction. Off-chain metagame elements such as social interaction, diplomacy, intrigue, and content creation can greatly enrich core gameplay.
#3 Immutability is the Key to Prosperity
If any entity exists that can change the rules of an on-chain game, it becomes such a powerful player that no other mechanism matters except the rule-changing mechanism itself.
Imagine if a casino owner could instantly alter the rules of Texas Hold’em or Blackjack. What if players could do the same?
The hyper-financialization of on-chain games blurs the line between players and project teams. When the distinction between project and player is unclear, any mechanism allowing rule changes—whether multisig or DAO—becomes a gameplay element in itself.
Regarding DAOs as entities capable of changing rules, we must recognize that a DAO, by nature, does not aim to improve the product—it seeks only to increase the benefit of the majority.
In positive-sum "games" like DeFi or venture DAOs, this can lead to product improvements because all participants share aligned incentives.
But isolated game loops are zero-sum—every gain by one player is another's loss. Thus, as we observe, a DAO aimed at enriching its participants will exploit its rule-changing ability to benefit the majority at the expense of less influential minorities.
No one builds a skyscraper on shaky foundations.
A second key argument is: on-chain games have the opportunity to become foundational metagames and platforms upon which other structures, projects, or protocols can be built.
This opportunity must not be ignored, as it is one of the primary advantages of on-chain games—one they pay dearly for.
Therefore, if your on-chain game is intended to be the foundation of an entire ecosystem—and potentially evolve into one—that foundation must be as solid as possible.
In other words, I won’t build something worth millions on top of your protocol if changes in your protocol could violate the rules of mine.
When a virtual universe becomes immutable, it becomes real.
For these reasons, the rules of on-chain games must ultimately become immutable. Only then does the virtual world become trustless and autonomous, strengthening the confidence of residents, builders, entrepreneurs, and capital.
It should be noted that while the core rules of on-chain games are unchangeable, they can still be "changed" via forks. Each player can thus choose which version to remain in, setting the engine of evolution for on-chain worlds—but this grand model deserves its own article.
#4 Ponzi Economics is a One-Way Ticket
Most crypto games today are merely variants of fool's errands.
Ponzi schemes: the greater fool game. From a game design perspective, this is a race against time. The core problem with this type of "gameplay" is its transience, rendering the project essentially disposable.
A strange trap is that the typical economic models of most traditional games are inherently Ponzi-like. Traditional games avoid becoming actual Ponzi schemes due to their closed economies, whereas on-chain games naturally have open economies.
In most games, inflation curves shift over time. Assuming players enter gradually rather than all at once, earlier entrants gain an economic advantage.
Rewarding early entry is not inherently bad, but if this strategy becomes the primary driver of success, the game is destined to collapse under the weight of its own assets.
No potential participant wants to be exit liquidity or a scapegoat—they seek opportunity and upward mobility.
By incentivizing early entry, you get one player. By incentivizing skill expression, you get players continuously.
Clearly, to prevent a "Ponzi economics engine," gradual inflation of game assets must be prevented.
If your on-chain game has mechanisms for continuous asset creation (minting), it must also have mechanisms for continuous asset burning. More importantly, your game design must enforce balance to ensure assets are adequately burned. We discussed this issue in detail in another article.
#5 Quality Over Quantity
Three players can already be considered a success… if each is worth millions of dollars.
In traditional games, one of the primary measures of success is player count. But how do you measure this in the on-chain world? A single person can hide behind multiple addresses or base game assets, just as many people can operate through a single address or asset.
Moreover, there's the contentious question of whether we should count metaplayers—such as speculators holding in-game assets, or guild members like leaders, negotiators, and programmers, who can influence the game without directly playing it.
We must recognize that here too, traditional approaches fail. The key difference is that due to financialization and the lack of natural enforcement against multi-accounting, player commitment translates into scalable value.
From a business standpoint, the effective metric for measuring the success of an on-chain game is the capitalization of its assets. The balance between player quantity and quality becomes crucial. Given that viable on-chain gameplay demands intelligent player commitment, and blockchains themselves face technical scalability limits affecting transaction costs, we conclude: prioritize quality over quantity.
Player quality, in turn, acts as a "lubricant" for network effects. A top-ten arena will always be more spectacular and prestigious than a thousand mediocre ones.
By default, any on-chain game will be niche and unlikely to attract mass audiences—at least until the broader crypto space achieves wider success. But unlike traditional games, being niche is no longer a ceiling on value growth for on-chain projects.
Conclusion
Overall, the key assumption to accept and remember is the inevitability of hyper-financialization—the root cause underlying all the sharp points described in this article.
Based on this, we can predict that viable, eternal on-chain games may exhibit the following attributes:
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Financialized assets
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Complex game design
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Non-trivial mechanics
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Strict balance between inflation and deflation
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Immutable core contracts
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Intellectual gameplay
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Challenging competition and PvP across all aspects
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Diverse possible strategies
The key capabilities for an on-chain game team should be professional game design and blockchain engineering. Only individuals with these skills can adapt the concept of games to technological limits and hyper-financialization by maximizing on-chain advantages and minimizing drawbacks.
It is important to remember that stereotypes and clichés from traditional games may not apply here. In fact, the experience of most traditional game studios may do more harm than good.
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