Recently, YGG Pilipinas signed a deal with the Japanese conglomerate Crooz Inc. to bring their game Project Xeno to the Pinoy web3 community. Over the next few months, you’ll be hearing a lot more about Xeno from us, so I thought I’d write a short analysis of their tokenomics model and how their approach differs from others that have come before.

On the surface, Project Xeno looks a lot like Axie Infinity. Players pilot a team of 3 xenos in PVP duels, with the winner receiving a handful of reward tokens ($UXE). There are 6 character classes, with each class being stronger against some classes and weaker against others. Each xeno has 3 innate skills, and each class has a set of action cards to choose from. You can improve your team by upgrading your xenos or buying weapons, and these are all paid for with $UXE or a credit card. Project Xeno has an open marketplace where players can buy or sell their NFTs, and the floor price of the xeno character NFTs as of this week is in the $140 range. So far, it all sounds very familiar, right?

There are two fundamental ways that Xeno differs from other play-to-earn games. The first is that each xeno NFT character can only earn up to $250 equivalent before it runs out of energy. Yes, that means that if you have 3 NFTs on your team, your total earning capacity is $750. And yes, you can play with a mix of NFT and non-NFT characters on your team, but only the NFT characters will generate any income for you. What happens when your xeno runs out of “income energy”? Your team is still playable in the arena, but the rewards stop flowing. To recharge your xeno and get those rewards flowing again, you’d have to burn another xeno. This keeps the global marketplace supply under control by forcing players to consume more NFTs as they get better at the game. This is in stark contrast to the veteran play-to-earn players who end up with dozens if not hundreds of unused NFTs in their wallets.

Project Xeno also puts hard limits on the rewards that the entire player base can earn on any given day. This is different from the Axie Infinity approach where each individual player had a limit to the amount of SLP they could earn per day. As Axie’s daily-active-user count became larger and larger, they had to keep reducing how much individual players could earn. With Xeno, the developers chose to define a shared rewards pool for the entire player community instead. How does that work? Every 24 hours, there is a pool of $7500 equivalent reward tokens. Every player who wins a duel during that period will receive a reward for as long as there are still coins in the pool. Once the pool is empty, players will have to wait until the next period before they can start earning again. This strategy makes the $UXE token supply very predictable. As more players join the game, the rewards pool will get larger also, but only if those players are actually spending money on buying or upgrading their NFTs. (Note that Project Xeno will likely tweak the reward timings, but the daily available total is currently still at $7500.)

I’m told that Project Xeno is seeing tens of thousands of daily active users in Japan right now, which is a great start for a game that only launched in May. I still have a lot of questions about how this tokenomics approach will scale to a larger market, but some of those questions can only be answered once we actually get to that larger market. Axie Infinity at its height was seeing 2.5 million daily active users, and the Project Xeno rewards pool would have to increase at least 20x to support that kind of growth. I also think the floor price is too high for the average pinoy gamer to enter without some form of lending program. Of course, a lending program like the original axie scholarships concept wouldn’t work if you have to keep burning other NFTs to keep your xeno “energized.” (Perhaps some form of financial assistance and repayment program would work instead?)

Depending on the level of your xeno and your player skill, it could take anywhere from 6 weeks to 6 months for you to consume its “earning energy.” The total amount you earn is always $250, but the amount-per-win increases dramatically based on your xeno’s level. The key marketplace dynamic to watch, therefore, is the difference between the NFT floor price (currently $140) and the potential rewards, which is always $250. If the difference is too small —less than $50— then new players will be less inclined to buy in. Current players would slow down their burning because they’d want to wait until they find an economical way to recharge. If the difference is too large —greater than $150— then you would have a gold rush, where players will try to buy as many NFTs as possible for future burning. (Don’t forget that all of these price discussions would actually need to be multiplied by 3 since you want 3 NFTs in your xeno squad.)

If you extrapolate all of the numbers I mentioned above into a rough personal income forecast, I think a player could make $50 a month from Project Xeno. Note that all of the math changes the instant that the floor price goes up or down. The current floor price of $140, multiplied by 3, implies a total capital outlay of $420, which is not a small amount if you’re a young pinoy gamer. The good news is that every time you win a match, you have a small chance to receive an NFT box with a mystery xeno inside it. In order to open that box, you do have to pay $80, but that’s at least a lower entry point than buying directly from the marketplace. As I mentioned above, YGG Pilipinas will be leading community growth efforts for Project Xeno here in the Philippines so stay tuned for exciting announcements coming very soon!