Despite the play-to-win angle of blockchain games, I prefer to pay – Techdoxx

Deepak Gupta January 12, 2022
Updated 2022/01/12 at 12:28 AM

if there is a One thing venture capitalists have taught me is that aligned incentives can kill.

It’s a phrase you’ll hear often if you spend time with professional private market investors. But if I call my high school years, the phrase is really just the economic principle that individuals respond to incentives, rephrased in a slightly more targeted way.

In the land of venture capital, the idea works like this: individuals respond to incentives, so you want to ensure that everyone in a company, for example, has lined up incentives.

This is why startups often offer an equity layer to employees, giving them a small slice of ownership in the overall project. This align employee incentives for aggregate corporate success, something employers want because they are in the game of paying people as little as possible while still meeting human capital quality standards and not having a lot of employee turnover.

There are less crassly capitalist readings on why venture capitalists allow startups to sell shares to employees at below-market rates through options. I don’t buy them. Investors like returns and optimize for it, thanks to their own incentive structure.

VCs have a good show. They take money from existing capital pools, invest it in work that others are doing, and then take a share of the profits from the business, while also extracting a few hundred beeps a year from their total investment vehicle. Here again we see incentives aligned, with venture capitalists profiting when their sponsors’ profit. Team work.

I drag you through all of this to explain that the concept of aligned incentives runs deep in the startup and venture capital worlds, something that can sometimes blind people to other ways of doing business.

Games, for example. Crypto games in particular.

You see, the crypto community and its numerous supporters are very good at crypto games. Here, it seems, is a place where incentives can be aligned in a new and exciting way, translating gambling into related economic activity. All the fun of games, but with economic incentives aligned! What could go wrong?

Play to win?

Through the lens of aligned incentives, the concept of games to win on a blockchain excites venture capitalists. Users will play the game, generating fun and economic activity. The user gets part of the value and the company gets the rest. Everyone is happy, and the game can keep making money forever, right?

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