Flywheel has to be one of if not the most used term in the Splinterlands ecosystem for the last year or so. But as often as it is used, it also seems like people either don't actually know how it's exactly working of aren't even aware that something is going on there at all. In this article, I want to explain how the flywheel is actually working but also highlight, why Splinterlands is different than many of the other web 3 gaming projects we are seeing right now and lastly, why I'm really really bullish on the whole ecosystem. So let's get right into it!
To understand what this whole flywheel thing is meant to be we have to first take a look at how the tokenomics are set up in Splinterlands. We are talking about one of the most complex ecosystems in all of crypto here, so I'll leave some of the complexity out for now and will mostly focus on the parts that are relevant to understanding the actual flywheel. There's a lot more going on beyond that and if you are interested in that part, I did a lot of articles covering different parts of the Splinterlands economy and I'm also happy to answer any questions you might have in the comments.
So, Splinterlands has two main tokens that are of interest for us today. One is Dark Energy Crystals (DEC) and the other is Splintershards (SPS). SPS is used as the reward and governance token within the game, while DEC is used as the transactional token. DEC is soft-pegged to the dollar with 1000 DEC being equal to $1. This is achieved by Splinterlands always offering any and all of their services at the pegged rate. So whenever DEC goes below its peg there's an arbitrage opportunity to buy Splinterlands products at a discount.
DEC is basically used for everything within the economy and whenever you want to interact with the market in any form, DEC will be the token you need to do that. Beyond that, there are many other areas that require DEC like staking on land or burning it to upgrade your guild buildings.
And this is where the fun starts. You need DEC to interact with the market and many systems within the game, but how do you actually get DEC? Well, there are three options to you
- Buy Credits from Splinterlands
- Buy DEC from the market
- Burn SPS for DEC
We'll talk about credits later on because it's what really sets Splinterlands apart from the competition, but for now lets focus on the latter two parts. As long as DEC is below peg it's a no-brainer to just hit the market and buy the DEC you need as you are getting a discount that way. This is what had happened for the longest time after the last bull collapsed and we dragged ourselves through two years of crypto winter. Luckily, this is behind us now and we are now looking at DEC being at or slightly above peg. This fundamentally changes the dynamics. Because if you are buying DEC above peg, you are no longer buying at a discount but you are actually paying a premium. Say DEC is 1% above peg. Well now you are paying $1.01 for 1000 DEC but they are still only accepted for $1 in the Splinterlands store.
With this in mind, it actually becomes more interesting to buy and burn SPS to mint more DEC. You can, at any time, burn $1 worth of SPS to mint 975 DEC within the game. Even slightly below peg this often already is the better option as it's more convenient and you don't have to pay any market fees while doing so. The important part though is that every time somebody uses that path, it permanently reduces the amount of SPS in circulation. There's a total of 3B SPS that is every going to be minted and we've already about 97M of that total supply.
The cool thing is, as long as DEC is at or above peg, it's always better to buy SPS and burn it for DEC, no matter if SPS is at $0.03 or $3. This ensures that any value coming to the ecosystem from Fiat or other crypto currencies is always going to benefit the value of SPS. It's essentially a tool that makes sure that SPS is only getting scarcer over time and thus making the remaining tokens more valuable. Now obviously for this to work there has to be an influx of fresh money and/or players coming to the ecosystem. But even now, in the very early stages of this whole thing, it's already proving to work really well. Here's what we've been burning in recent days:
So even with the comparable low number of active users we have right now, SPS is burning every day. And that for obvious reason. Every micro transaction I do, every time I move a few bucks from somewhere into Splinterlands, I do it through SPS and thus I'm burning some SPS every single day. As more players come in, as more DEC sinks get introduced, this number is only going to go up. This is then going to push the token price up, resulting in more interest and more players joining, again moving the needle. It's a life cycle and the potential here is huge!
But that's not all. I've talked about that third option above which is buying credits with fiat or crypto. Credits are another transactional token for Splinterlands and you can always buy and use them at 1000 credits = $1. What's so special about that is that every time you buy something with credits, Splinterlands actually swaps your credits to DEC and completes that transaction in DEC. What's so crazy about this is the fact that this DEC is not minted out of thin air like basically any other crypto project would be handling it. The DEC is coming from the companies coffers and once the company is out of DEC, well, it will have to acquire more just like everybody else! This means that every time you are buying credits from the company you are actually aiding the flywheel because the company is going to buy and burn SPS like every other player out there!
To me, frankly, this is mind blowing as this is truly web 3, this is the company that is minting the tokens adhering to the exact same rules as every body else. Compare that with the big actors like GALA that only use web 3 as an excuse to charge more money for their products than what they could charge in web 2 but still will print their token into oblivion. Most other crypto projects out there are actually only interested in extracting value from their players - Splinterlands is actually aiming to provide additional value instead!
So how far are we from the company actually starting to buy and burn SPS? Let's look at some numbers:
Right now, the company holds 325M DEC in its wallets. It's safe to assume that they won't drain it to the last DEC before acting but let's work with that number for a more conservative approach.
Right now, we have a daily volume of close to $32k on the card market every day. Keep in mind that there are other markets operating at the same time, but again, let's only go with the main one. We don't know exactly what percentage of that volume is done in credits, but let's assume it's 50%. Also assume that market activity is going to be a bit slower during the next weeks and we still end up with at least 10M credits being used for DEC daily. That would mean that it would take roughly one more month to burn through all the DEC the company has left and that we can expect to see the burning start some time in mid January. So things are indeed pretty close!
With the current value of the SPS token of $0.033 this would then result in a daily burn of 300.000 SPS every single day! As the bull market evolves (which could still be 6-12 months away), this number is only going to go up and over time, we are bound to build millions of SPS that way. By the time we get to the next blow-off top I'm pretty confident we can get to some crazy numbers, in my opinion, at least 500M SPS is possible!
So yes, there are other games out there that are more shiny, run on a better known chain, have more active users, bigger investors, and what not. But none of them is like Splinterlands. None of them is trying to get to the same moon together with it's players in the way Splinterlands does! And that is why I'm really excited about all the things to come and this is also why I'm always going to support this ecosystem before any other. Splinterlands is what web 3 gaming truly should be!
And that's all from me for today, thank you all for reading and see you next time!