Analyzing xPet’s design mechanisms and economic system One step away from a great SocialFi product?

Unveiling xPet's Design Elements and Economic Framework A Promising Step Towards an Exceptional SocialFi Product?

Author: @BuidlerDAO Economic Model Team

Arrangement: @createpjf

Preface ✏️

@xpet_tech is a recent phenomenon in SocialFi. In just one week, it has attracted over 2639 ETH in funds and 7000+ on-chain users. The project is still in its very early stages, with many rules yet to be clarified and gameplay mechanisms still open for iteration. The project team has been quite active recently, and the most controversial move that has garnered attention is the direct liquidation of ETH deposited by users on December 4th, and the establishment of the $XPET/WETH liquidity pool on Uniswap. On December 6th, they also listed $BPET. To be honest, the direct liquidation was not done in the most genuine way. Considering that it is itself a coin without liquidity, it theoretically does not qualify for lending. Opening up the $XPET price without any prior explanation and directly liquidating it caught everyone off guard. Users’ doubts and concerns are not baseless, and caution is needed in investing until further clarification is provided.

Members of the Economic Model Team, including @Fisher_manQ, @observerdq, @0xLukeCrypto, @Janezh1111, etc., have abstracted it and deep-dived into it as an interesting mental game and case study of an economic model. Among them, the most interesting aspect for us is how the system can be designed to move towards a relatively balanced and sustainable state, and of course, we are also concerned about the injection of external value into the economic model 🙂

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What’s remarkable is the synergy between the design of the economic model and the product form based on the Twitter plug-in. While users rapidly multiply, the positive flywheel of the system’s economic model also accelerates.

The Longevity of System Vitality

“The quantity of XPET tokens available for conversion is equivalent to 50% of the XPET revenue earned the preceding day.” – XPET Whitepaper

Combining the game mechanism, we can deduce the following formula:

In summary, let’s continue with a simple deduction:

1. In the early mining phase, the total computing power is low, resulting in a small number of $BPET generated (denominator) and a large number of new $XPET (numerator). The earnings per unit of computing power are high. (Assuming that the daily generated $BPET will be converted, liquidity will be extremely scarce, and it will be relatively easy for the project team to control)
2. High returns incentivize more people to invite others to mine and purchase mining machines, thereby filling the $XPET reward pool daily.
3. This cycle continues until one day the growth rate slows down, and the return rate decreases to a point where it is no longer sufficient to attract new people and funds, leading the system towards death.

From the above path, it can be seen that in order to make the system more sustainable, it is necessary to extend the high-yield period as reasonably as possible. This corresponds to the formula, that is, to try different ways to increase the numerator, reduce the denominator, and see if the relative growth rates of the two can be maintained at a certain level.

• Increase the numerator:

• The protocol should be designed as smooth as possible to attract as many people as possible
• If the price of XPET can be at a reasonable level, it will help to reduce the user’s participation threshold and improve conversion

• Reduce the denominator:

• Some mechanism designs mentioned in the white paper will help achieve this, such as the stake interest of $BPET (increasing the consumption of BPET in the game) and the queuing black box mechanism (setting a limit on the exchangeable BPET using the min function)
• The commercial traffic income generated by Quest will also bring positive external effects to the system and can be used for repurchasing and destroying $BPET when the yield is declining

Starting from the formula, we have some other thoughts:

1. Stable XPET price may be a better solution

We believe that a fluctuating $XPET price design may be a bad move. With the current unstable $XPET price setting:

• When it rises significantly, the user’s entry threshold will increase significantly, which will undoubtedly hinder more players from entering
• If the $XPET price is too low, the yield will not be attractive and it will enter a spiral of decline

Therefore, a stable $XPET price may be the optimal solution for this system.

In addition, since the system has set a daily limit of 100 $BPET for withdrawal, users who spend unlimited money to upgrade their computing power will have a significantly longer payback period if they cannot withdraw smoothly, which is not cost-effective. For users, a better strategy is to spend a certain amount of money to upgrade the mining machine to a suitable level, where the daily amount of $BPET that needs to be converted is close to 100. As a result, the system will eventually form a distribution with a large number of users and relatively average rewards. This also helps to achieve long-term stability. This is probably the ideal state that the product designer wants to achieve. From this perspective, the team should not set the entry threshold too high, and attracting more users to join should be the top priority.

2. Set a decay mechanism for computing power

Currently, it seems that the team has never publicly mentioned a key issue – the lack of a decay mechanism for factory computing power. As time changes, the denominator in the formula expands infinitely, and the yield will continue to decrease. In this way, XPET loses its growth appeal. We tend to believe that the subsequent economic model design needs to introduce a decay mechanism for the factory to reduce the growth rate of the denominator. Ideally, the project team does not need to be the opponent of inflation, but uses various ways in the toolbox to adjust the numerator and denominator, achieving the purpose of a balanced system.

3. Dynamic optimal solution for computing power

As more and more users join, the competition is all about the production efficiency of mining machines. Due to the limited functionality currently available, the competition among users is relatively homogeneous (currently, there is almost only one optimal solution). Looking back at the form of existing games, we can imagine some possibilities for evolution: platforms can continuously add gameplay and regulation within the game, such as making pets sick, hungry, or even allowing pets to engage in Player vs. Player battles (increasing BPET consumption scenarios and introducing more randomness). By introducing these new mechanics, mining efficiency is compromised, making the competition between players more unique. There is never an optimal solution for unit computing power, nor is there a homogeneous optimal state. In this way, users will also be interested in constantly exploring how to achieve the optimal solution and increase their recharges in the process. And because the project continues to create new demands, the vitality of the game is constantly renewed.

Four, Our Confusion

Currently, the distinction between BPET and XPET functions is unclear, and their values are maintained at a 1:1 ratio within the game, with a certain discount outside the game due to limited BPET withdrawals. This has caused us confusion – if the exchange rate is 1:1, why do we still need the design of two tokens?

Furthermore, the whitepaper clearly states that “the number of XPET tokens that can be exchanged for BPET is equivalent to 50% of the XPET income earned the previous day.” After checking the contract address, there is indeed around 13 million XPET tokens transferred to the contract address 0xaa2506e41ce0353eb407cd4cb294bb03899c5d77. Currently, the accumulated number of XPET in this contract address is close to 13 million, with only about 1 million XPET tokens exchanged, and there are also nearly 200,000 BPET tokens waiting in the queue.

If there are no other exchange restrictions, having an abundant supply of XPET (13 million tokens) without rewarding BPET holders damages users’ rights.

The automatically triggered queuing mechanism is also very confusing. From browsing the data, there is no regularity to the queuing claims. This seems to be a bad situation, and the team needs to put more effort into the implementation of the code engineering.

Considering that the project has only been launched for a week, it may take time to improve or the product is not yet in a complete state. We will continue to follow the progress of the project and the iteration of the economic model. We welcome you to communicate and discuss with us.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!