Tokenomics

With further details of the WoW token released by Blizzard yesterday, it's time to review what will happen when it is released, which should happen in the Americas first. It will be rolled out there "in the weeks following Patch 6.1.2’s release". I imagine Blizzard will want to get Noblegarden over before the launch, so they can start collecting data in a "normal" period, rather than one where prices might be driven by a seasonal event. So let's say the Tuesday after Noblegarden, Tuesday 14 April. [Edit: it actually appeared the previous Tuesday, 7 April]

Blizzard have also firmed up the earthly price ($20 or the equivalent in your currency). What they haven't yet done is firmed up the Azerothean price. Gold is still selling on various "illegal" websites for about 1500g/$, so I think that 30 000g is a reasonable place to start. I imagine, though, that Blizzard will want to make this attractive to gold buyers, and put pressure on third-party gold sellers. That makes me think the initial price will be 40 000g for a token. [Edit: the initial price was 30 000g]

Let me first distinguish two tokens here. There is a WoW Token that Blizzard sells for $20. It has only one use: you can sell it in the Auction House for an Azerothian price set by Blizzard. When it appears in the Auction House, it is transformed into a WoW Token that can be bought at a price fixed by Blizzard, and it too has only one use: to add 30-days of game time to your account. As their icons are different (one looks like it's made of steel, the other is golden), I'm going to refer to them as the $teel WoW token (costs $ to buy) and the Gold WoW Token (costs gold to buy).

So let's look at the buyers of the $teel WoW token. Firstly, these are our avatars on earth (the 'players') rather than ourselves in Azeroth (the 'adventurers' or 'characters'). Players buy these tokens for $20, and presumably assign them to a particular adventurer who then lists them on the AH. Why would players do this? Because their adventurers are poorer than the players - they have less gold than they want, while the players have more dollars than they want.

The wants of the adventurers can be split into one-time wants and ongoing needs. Take the typical raider: she may want some pets, mounts and toys. These are one-time wants in the sense that once she has the item, she doesn't need another. To stimulate this want, Blizzard will have to release more pets mounts and toys that she can buy for gold (expect expensive flying licences for Draenor later this year).

Her ongoing needs are mainly for flasks, potions, food and repairs. She also needs gems and enchantments as she gets some gear. Up to now, she has been struggling to meet her repair bill, eats other people's food and skimps on flasks and potions. On a typical raid night, her bill should be about 250g for repairs, and another 250g on the other stuff, but she struggles just to scrape together the money for repairs. If she raids twice a week and does LFR/dungeons another night, she could easily want 1500g/week, though in reality she keeps the bill to 500g by skimping on consumables and not repairing damaged gear before and during LFR. Selling one $teel WoW token will initially cover these ongoing costs for about 26 weeks (if the initial price is 40 000g). Or fewer weeks, but leaving spare gold for one-time wants - mounts, pets and toys. For the sake of argument, let's say the gold lasts the average buyer 20 weeks, and then they will want to buy another.

Who are the buyers of the equivalent Gold WoW Token? They are players with a stockpile of gold, with nothing else worth spending it on. They will be wanting to buy 30 days' game time. If the cost of the token is 40 000g, they need to be earning 1333g/day to keep up. Otherwise, they will run down their stockpile and eventually will have to spend dollars again.

If the price is to remain in equilibrium at 40 000g, then the number of Gold token buyers, who want to buy a gold token every month, must be about the same as the number of buyers of Iron tokens at any time. But we've seen that they need only buy once every 20 weeks or so, while the buyers of Gold tokens want to buy every 4 weeks or so. So the pool of Iron token buyers must be about five times as large as the pool of Gold token buyers for this to be possible.

Now lets look at week 1. The prices will be around 40 000g/20$ that week. Almost every $teel token buyer will spend their $20 that week to get the gold they want. Every Gold Token buyer will be spending their 40 000g to get their free game time. All $teel token buyers will receive the gold they want. Blizzard will see to that. Even if it means printing gold, I very much doubt that Blizzard will return a token unsold to a player. If the pool of $teel token buyers is indeed five times the size of the pool of gold token buyers, all gold token buyers will be satisfied.

What will happen in week 2? Nothing much. Buyers and sellers of both currencies will have dried up, as everyone did what they needed to do on week one.

Week 5? Any $teel token buyer [who as you recall is a gold token seller] bought and sold in the first few weeks. They have their gold. It'll last most of them 20 weeks or so. But gold token buyers, who want free game time, need to use a new token; and unless they stocked up on week 1, they are going to have to buy one. While sellers are still thin on the ground, buyers will be turning up in their droves, camping the AH to snap up any that might appear. Prices will rocket.

So. Whatever the initial price is, be clear that it will rise steeply in week 5 if not before, and continue to climb until $teel token buyers run out of gold again, or see the gold value of a token as too mouth-watering to ignore.

Recommendation: buy Gold WoW tokens on day 1. Buy all you can afford. There will never again be such a concentrated glut of sellers. The price will never drop to 40 000g again. Don't buy $teel WoW tokens before week 5, once the upward price momentum of gold tokens is obvious.


Addendum: I expect Blizzard to be a little surprised by this. Once they see the inexorable rise of the gold WoW token, they'll be scrambling to find things for people to spend their cash on - expect expensive new mounts, new toys, new pets, soon. Also expect repair bills to rise and gold sources (such as quest rewards and mission rewards) to dry up. See also Plexing Warcraft for the social effects of this move.

Controlling the Market

Blizzard have announced their long-awaited PLEX scheme, the WoW Token. I wrote about it back in December: first about the idea itself, and then about the price. True to form, Blizzard have found a way to do this that minimizes player agency, and maximizes Blizzard's stranglehold on the world.

Of course Blizzard sets the dollar price, as it is the only manufacturer of WoW Tokens on Earth. But Blizzard has also decided that it alone will set the Azerothean gold exchange price, and once bought, the token cannot be resold. You can't decide what price you want to sell it to other players for, or what offer you will make to other players to buy it. You can't undercut other players, in order to make your sale happen earlier. You can't buy when there is a glut for resale when there is a famine. You can't bargain with other players at all. Your choice is this: sell at Blizzard's price or don't sell at all. Buy at Blizzard's price or don't buy at all.

Blizzard say that at any given moment, they calculate the gold sale price of a token dynamically, and that all tokens on sale will be at that price, but the price the seller receives is fixed at the moment of offering it for sale. How is that going to work? How can the price the seller receives be calculated dynamically when she puts it on sale, but the price of all tokens on sale be the same at any moment? There are a couple of possibilities.

1. There is a disparity between sale price and buy price. Blizzard takes a variable commission depending on the dynamically calculated price. For instance, let's say there are 10 WoW tokens for sale at 25k gold each. If I offer a WoW Token for sale, Blizzard might tell me that I will get 24k gold for it, and then Blizzard will list it at 25k, making a 1k commission. Or (as a variant of this):

2. Blizzard keeps it's price promise, and makes up the difference from its own gold mint. For instance, let's say there are 10 WoW tokens for sale at 25k gold each. If I offer a WoW Token for sale, Blizzard might tell me that I will get 20k gold for it, and then Blizzard will list it and all the others at 24k, losing 1k on the earlier, more expensive tokens. They might also take a fixed commission from the transaction to mitigate having to mint more gold.

3. In effect, there is only one token ever on sale. It is the oldest token in the queue. It cannot be undercut and will never return unsold from the AH. The dynamic price offered to new sellers is calculated depending on the size of the queue, but the price offered to buyers is the price of the oldest token.

4. A combination of 2 and 3.  The token on sale is always the oldest token, but it is on sale at the current dynamically calculated price (i.e. the price calculated for the newest token), while its seller gets the price that was dynamically calculated at the time she offered it for sale, less some AH fees. For instance, let's say there are 10 WoW tokens for sale at 25k each (and the sellers were promised 25k less commission). I offer mine for sale, and Blizzard calculates a new dynamic price of 24k for mine, less commission. The price of the other 10 are now set at 24k, and mine joins the back of the queue. When someone buys the oldest token for 24k, its seller still gets 25k less commission.

This is all just guesswork. Update: Blizzard have confirmed that it is option 4, and that there is no commision.

I don't understand why Blizzard doesn't trust its players to buy and sell these tokens normally*, nor why these tokens cannot be resold. If they are afraid of dupe bugs, they should first fix their game so that such bugs cannot occur.


* The reason stated on their blog made me laugh. They wanted to do it "without making players feel like they’re playing a game with their hard-earned money". That's exactly what we're doing when we pay our subscription.