Weekly Gauge #67: DeFi Gamification Applied to Governance Markets
Play the game of incentives
Gamification has emerged as a powerful tool to foster crypto adoption. It aims to enhance user engagement, participation, and understanding of complex financial concepts within the DeFi ecosystem. By integrating game-like elements, DeFi projects can promote behavior change and positively influence user behavior. This paper explores the historical use of gamification in DeFi, analyzes its strengths and weaknesses, and proposes methods to gamify the vote incentives market to achieve increased efficiency and sustainability.
Historical Examples of Gamification in DeFi
Several DeFi projects have successfully implemented gamification strategies to drive user engagement and adoption:
Examples:
Axie Infinity: The “play-to-earn” model has enabled players, particularly in regions with economic challenges, to earn a meaningful income by participating in the game. It has sparked discussions about the future of work, the merging of gaming and finance, and the potential for blockchain to reshape various industries
DeFi Kingdoms: Leveraged collectible trading card game NFTs and scarcity attributes to create an engaging and rewarding experience for users, aiming to give the native token of the DEX more utility and intrinsic value.
Fantasy Top: Transforms the crypto's most influential social media persons into NFT trading cards, allowing players to engage with the crypto community in a gamified manner. By encouraging players to actively follow and engage with crypto influencers on Twitter, it creates a loop of engagement that snowballs the project’s hype.
Role of NFT Gamification
NFTs have shown to be very effective in gamification by providing collectible rarity, exclusive benefits, and a secondary market for trading. They help educate users on complex financial mechanisms through interactive and rewarding experiences. While effective for adoption, NFT-based gamification has limitations, such as technical compatibility issues and the potential for Ponzi-like structures.
Objectives of Gamification
The primary objective of gamification in DeFi is to encourage users to adopt behaviors that are beneficial from the project's perspective. By linking these behaviors to game theory, projects can create a more efficient and sustainable ecosystem. One area that could benefit from gamification is the vote incentives market, which has proven to attract participants even when inefficient.
Governance Gamification by Levels
Crypto users often engage in these ecosystems with a mercenary mindset, seeking economically and socially valuable rewards. To align user behavior with project goals, we can highlight a multi-level approach to governance gamification.
What’s the complex mechanism to be gamified ?
Assessing the optimal distribution of incentives across markets (asset pairs), sensitive and responsive to punctual or periodic variations in revenue generation, traders behavior, and high level narratives.
1st Level: Customization
Governance Token (Foster holders involvement and loyalty)
Staking/Locking: Encourages users to control the supply and inflation of the token, earning additional yield and gaining influence over protocol operations and strategic decisions.
Gauge Voting: Increases rewards customization and efficiency by introducing competition and cooperation among governors.
2nd Level: Interaction
Voting Incentives (encourage gov participation, reward diversity, users/holders interactions)
Bribing: Users can earn value when $1 of bribe captures more than $1 of emissions, encouraging value extraction.
Fee Sharing: Core pool programs redistribute trading fees to governors as bribes for the same pools that generated the fees, incentivizing voters to direct emissions to high-revenue pools (ve(3;3)).
Observations:
From the briber's perspective, the recipient of the inflation is often not a committed token holder, challenging loyalty.
Bribers should ideally revert to liquidity mining when $/vote efficiency is below 1x, but empirically this does not always happen, indicating a need for better alignment mechanisms.
Hence, the game would require another level oriented toward alignment and sustainability.
3rd Level: Recognition
Encouraging Vote Stickiness and Reward Compounding
Leaderboards and Titles: Recognize top voters with leaderboards, soulbound titles, and transferable cosmetic collectibles. Create a positive social feedback loop helping to momentum.
Time or Volume-Based Rewards: Offer rewards based on voting accuracy or stickiness to encourage sustained participation.
Fee Rebates: Provide rebates on fees for consistent voters.
Market History Example:
Llama Airforce Union: Encourages reward compounding by reducing gas cost barriers.
Analysis of Game Theory in the Bribe Market
Conclusion and Opening
Gamification has the potential to revolutionize the DeFi space by making complex financial mechanisms more accessible and engaging. By carefully designing game-like elements that align with project goals, we can create a more efficient and sustainable DeFi ecosystem.
To further gamify the vote incentives market and encourage sustainability and efficiency, predictive markets and betting mechanisms could be explored. By predicting future market efficiency and allowing users to bet on outcomes, projects can create more dynamic and engaging governance systems with an edge for participants.