I have been following the blockchain gaming industry since the time immemorial, and I should come right to the point: the majority of the play to-earn games turned out to be a disastrous economic project. Not in that the idea was bad, it is a brilliant idea. The opportunity to gain real value of the time you spend playing a game is quite a ground-breaking promise. But the execution? Terrible.
Game after game was released with that same fatality they were giving out the tokens as though printing money at a carnival, and there was no way to make sure that the tokens given were supported by actual economic activity. Players ran in, mined the rewards, sold the tokens on the market, and went. The economy collapsed. The project died.
And when I was going through the Pixels litepaper and reading it, one thing struck me. It is referred to as Return on Reward Spend RORS. And I consider it truly one of the most crucial economic concepts developed out of Web3 gaming space. Not that it is complex. Due to its simplicity, truthfulness and brutal expediency. All right, I will take you through it.
And what exactly RORS is.
RORS is, essentially, a ratio. According to the Pixels litepaper, it consists of the ratio of the amount of revenue spent in the ecosystem and the value of rewards granted to the player. The goal, which is established in the litepaper, is clear: RORS should be bigger than 1.0.
What it translates to in un-Wizardly language: to every single dollar in the form of $PIXEL tokens paid out to the player as player rewards, more than a dollar in the form of fee-based payment must be made to the Pixels ecosystem.
When, RORS exceeds 1.0, then the system will gain more than it costs in rewards. It is self-sustaining. When RORS is less than 1.0 the ecosystem is bleeding value giving more than it receives. It is the very same death spiral that killed the majority of P2E games prior to Pixels.
The litepaper is also quite precise on what is unlocked by a positive RORS. Pixels is a staking system that is rolled out in four phases. Phase 4 the next level, at which the ecosystem already starts accepting tokens such as USDC as a service of user acquisition becomes available only after a positive RORS is attained. It is no feat of marketing. It is a mathematically gatewayed achievement. The ecosystem must have to make expansion on its own.
Real-World analogy, The Coffee Shop That Cannot Pay its own loyalty program.
As an example, consider a small coffee shop which has chosen to implement a loyalty program
purchase 5 coffees, 1 free. It is a reward customer behavior. However, when the shop pays out so many free coffees that the price of the free ones costs more than the money recouped on the paid ones, then the program is killing the business. The ratio is monitored by a smart owner: with each free coffee provided, what did the loyalty program actually pay off in paid orders? It is precisely that ratio revenue generated to reward cost that RORS measures out to the Pixels ecosystem. Having a ratio greater than 1.0 implies that the rewards are self paying. The less than 1.0 value indicates that the shop is bankrupting the free coffee at a time.
So, why most P2E games never even had this?
This is what irritated me about the early versions of play-to-earn games. There was nothing like RORS. They had fixed emission schedules on the number of tokens they were supposed to emit on a daily basis without a feedback mechanism inquiring whether their emissions were reflecting similar value on the same..
Pixels litepaper takes this into consideration. It explains that previous P2E models established distorted incentives, which in fact weakened the player experience and health of the ecosystem. The team does not have qualms about this. They researched on what had gone wrong and constructed their economic model as a special reaction to those failures.
The litepaper outlines the solution of Pixels as an active system of data analysis that resembles next-generation advertising network based on massive data processing and machine learning to find out which actions of players can actually translate into the long-term value. Rewards are given to the only actions. The whitepaper refers to this as Smart Reward Targeting, and this is what makes RORS healthier.
Consider the meaning of this. Not all the logins are rewarded. Not all mouse clicks are made money. The system is monitoring - using data - to know which activities the ecosystem becomes stronger with and it sets the reward budget towards the activities with specificity. This is not the participation trophy economy. It is a performance economy.
Real-World Analogy How a Good Ad Network spends its Budget.
Not all users of the advertisement by a professional digital advertising team will incur the same sum. They take data to determine which users have the greatest chance of a purchase, signing a contract, or becoming a long-term customer and target the budget at them. That impression of any bouncer which makes them bounce in 3 seconds is highly under compensated; a click of any convert is better-compensated. This is the same logic applied by Pixels to game rewards. The contribution to the well-being of an ecosystem is used to assign value to player action and use this to distribute rewards not randomly but in an intelligent manner.
The Reputation System: Your Action will cost you.
The Reputation System is one of the most interesting systems related to RORS in the Pixels litepaper. And I would like to be clear this is directly described in the whitepaper, and, therefore, all that I am going to discuss, derives directly out of that source.
When a player decides to withdraw $PIXEL out of the Pixels ecosystem and transfer it out of it he/she pays a fee. The litepaper refers to this as Farmer Fee. How do we calculate the amount of that fee? The reputation score of the player.
A highly renowned player (developed as a result of actively engaging in quests, events, and authentic gameplay) is charged less. The one paid by a player of weak reputation is greater. And the following is what makes it truly smart: the project team does not pocket those fees. They are repurchased by stakers the individuals that are funding the ecosystem on a long-term basis.
It is an inbuilt punitive of short-term extraction and reward of long time loyalty. It has a direct cause and effect on RORS, as it implies that players attempting to attempt to game the system or farm rewards without providing actual value are the ones that end up subsidizing those who do.
Real-Life Comparison Airline Miles and Loyalty Level.
Tiered programs of loyalty exist in many large airlines. More prolific flyers who spend more and travel more are offered elite status - and are charged less, have priority access and get better perks. Infrequent fliers that travel by the airline once a year pay full rates and receive no special treatment. The system will reward individuals that invest in the relationship genuinely and penalise those who do not. Reputation System of pixels operates in the same way: When you have a good record inside the ecosystem, it becomes expensive to make it cost you something to get value out of it.
The Publishing Flywheel The Publishing Flywheel - RORS as a Growth Engine, Not a Safety Net.
I would like to ensure that I do not give you the impression that RORS is merely a defense measure - a circuit breaker to prevent economic breakdown. The Pixels litepaper shows it as a more ambitious thing: the piece of a Publishing Flywheel which drives the growth of the whole ecosystem.
This flywheel is explained in the litepaper in three interlinked steps:
By getting improved games, we get more player information.
The richer the data, the more accurate can be the computation of rewards, which will save a terrific sum of money on its user acquisition.
The reduced user acquisition price brings additional-quality games to the Pixels universe.
RORS is located at the hub of this loop. The flywheel accelerates when the spending on rewards is efficient - when each dollar of available rewards will produce over a dollar of ecosystem revenue. More intelligent targeting is based on better data. Better targeting will result in more healthy RORS. Better games are attracted to Healthier RORS. Best games produce best data. And on it goes.
This is described in the litepaper as a self-sustaining cycle with each turn increasing the health and profitability of the ecosystem in general. It is not about surviving the economy but it is about ensuring that there is a stronger growth with every cycle.
Real-World Analogy- Amazon Flywheel of marketplace.
Amazon has actually referred to its own expansion as a flywheel: more sellers mean more selection, more selection means more customers, more customers means more sellers, and the ability to reduce costs and improve suggestions through better data on all that action makes Amazon be able to attract yet more customers. One part of the loop feeds other. Pixels uses virtually similar logic to describe its ecosystem. Gooder Games are better data. Enhanced information enhances reward efficiency (RORS). Better games are attracted by better RORS. It is a self-reinforcing loop, meaning that in case the RORS metric remains healthy.
Four-Phase Staking Rollout RORS as a Gateway.
The true extent to which Pixels takes RORS seriously can perhaps be best seen in how it organizes the rollout of staking. The litepaper tells about four different stages, and each stage can be opened according to specific requirements. RORS is the gating condition for the most important phase.
The following is how this works, straight out of the litepaper:
Phase 1 (Beta): There are few hand-selected games one can stake. All games are allocated a specified number of monthly rewards.
Phase 2: No longer fixed game rewards. The higher the amount of $PIXEL invested in a game the bigger the reward pool of that game. Resource allocation begins to be motivated by community preference.
Phase 3: The stage of Curation is eliminated altogether. Any game that reaches a minimal level of activity can become a part of the ecosystem. The system is opened and decentralized.
Phase 4: Activated when the ecosystem is in a positive RORS. By this stage, Pixels starts to accept other tokens as well such as USDC to purchase acquisition services.
Phase 4 is fascinating to me as it is not a timeline milestone. It is a performance indicator. Its ecosystem cannot go to the most mature and open stage until it demonstrates mathematically that it is producing more than it is forfeiting through rewards. That is the type of economic discipline I do not often observe in crypto projects, where roadmaps are typically pegged to dates on the calendar, instead of directly to medical approaches.
Real-World Analogy - A Kind of Startup that cannot raise its second round until it hits a profitable place.
ODA: many startup funding engagements consist of tranches based on milestones. An investor will only consider releasing the second round of capital once the startup meets some revenue goal or is found to be having a positive unit economics. Whether it is six months does not make a difference, the money is tied until the metric was reached. Pixels uses the same rationale to its own ecosystem expansion. Phase 4 additions are limited by a requirement of RORS > 1.0. The community will not get the most open, powerful version of the ecosystem until the ecosystem has shown that it is able to sustain itself economically.
What This Implies When You Have a Mind to Participate.
I would be cautious in this case, since I am a writer and a researcher, but not a financial advisor, and it is my task to tell you what the litepaper means, not to make any recommendations on what you do with this information. Nevertheless I do believe that there are some practical implications worthy of contemplation.
The RORS framework alters the aspect of the Pixels ecosystem participation. When you are a player, the score on reputation will have a direct impact on your withdrawal fees. Your fees are kept down by being truly active--not merely farming. With stakers, this means that you are voting on the games that receive an ecosystem resource, and that you will be rewarded based on the performance of the games that you have staked. The stronger the performance of a game on the economic front, the greater your returns on staking.
This implies that active staking - selecting games with good RORS performance - is a radically different activity than the sort of passive token-holding that most P2E games promoted. Litepaper directly outlines that the stakers are involved in a decentralized publishing model. It is not a token you are holding. You are assisting in the selection of games that are financially supported and those ones that are not.
This is also further layered by the $vPIXEL token, which is covered in the litepaper. It is a spend-only reward, which is pegged 1:1 to $PIXEL, is intended to be used within the ecosystem and does not attract Farmer Fees. It motivates the players to continue value flowing within the ecosystem, instead of draining it right away - which, naturally, is healthy to the RORS.
Conclusion: RORS The Accountability That the Industry Required.
Since using the Pixels litepaper, I begin to do everything to get there again: RORS has been made into accountability written into the code of an economy. The majority of blockchain games projects were promise-based. Pixels constructed a measure.
The principle that the expenditure on reward has to be remunerated in proportional ecosystem income does not constitute a radical concept, but good economics. The way it has taken the blockchain gaming industry years of failures to get to where it is today speaks as much to the hype cycles of crypto as it does to the underlying logic, which actually is little more than common sense being applied to a new context.
The thing I find incredibly impressive about the RORS framework is not about the math - the math is easy. It impresses me with the dedication to be used as an actual gate, as an actual condition upon which the ecosystem will have to fulfill before it is allowed to open its next phase. Such discipline is quite uncharacteristic of any industry. It is virtually unknown in crypto.
Any ultimate success of Pixels will be determined by its execution whether the games are fun, whether the data infrastructure is implemented as claimed, and whether the community will interact in the ways that the litepaper proposes. However, RORS is one of the most truthful and consistent concepts in this domain that I have come across.
And that makes it worth knowing all by itself.
