Pixels resembled a Web3 success story in 2024

Best game by number of people who play daily

20 million dollars. An economy of tokens creating actual economic activity. It had broken the code that dozens of GameFi projects had broken and failed to break.

And the figures were deceiving

Under the headline statistics, the $PIXEL economy was steadily getting worse. Value was being nibbled away by token inflation

A sizable percentage of the player base had learned the extraction game - earn tokens, dump tokens, exit - with minimal concern of the long term health of the ecosystem Rewards were pouring in to users, who were in effect running an arbitrage business on the protocol, rather than on it. The game had gained a following, only not the correct following

That is the tension that Web3 gaming has experienced since the beginning: How do you create a token economy that incentivizes participation without turning into a reward farm that falls under its weight?

Pixels is now providing an answer very publicly, very deliberately

The Diagnosis

The self-evaluation of the team is rather candid as compared to a Web3 project

The whitepaper does not hide the issues in the footnote, it opens with them

The aggressive token emissions were excessive. Reward targeting was being too crude. The system was tuning to the indicators of engagement that appeared well on a dashboard but did not match actual ecosystem health

The main conclusion: not every DAU is created equal. A user who makes tokens and sells them off immediately is not an asset he is a liability with a login streak

The Rebuild

There are three structural pillars of the revised model that are worth comprehending.

First, data-backed incentives

Pixels are abandoning generalized reward distribution in favor of more precise targetinganalytics to recognize users who will re-invest earnings back into the ecosystem, instead of turning them into liquidity

It is aimed at making the reward system smarter, rather than smaller

Second, friction on extraction. By imposing higher withdrawal fees on $PIXEL, it is intended that the extraction loop becomes less appealing, but the fees are paid back to stakers. This is a conscious decision to forgo short-term user volume in favor of long-term token health

It is sure to drive away some users. It seems that is the point

Third, a new publishing model based on stake-to-vote-and-earn. Players have the opportunity to invest their $PIXEL in determining the games that are published on the platform and receive returns on the performance of those games

This aligns incentive structures when you vote on a game, you will have a financial interest in its success, and thus be more inclined to support it, promote it, and remain involved in the ecosystem surrounding it.

The Bigger Bet

The Pixels pivot is intriguing not because of the redesign of tokenomics. The ambition is the ambition behind it

The team is not defining Pixels as a single game with a token, but rather a decentralized user acquisition and monetization layer to both Web3 and Web2 gaming, essentially an economic rail of decentralized AppsFlyer or Applovin, using $PIXEL and $vPIXEL as economic rails.

The measure of the North Star that propels this vision is RORS Return on Reward Spend. All tokens issued must produce quantifiable, long-term benefits to the ecosystem

It refers to a performance marketing borrowed discipline applied to a token economy

What This Costs

The team is upfront that user metrics will take a hit. Closing the extraction loop causes the extractors to go away. That's a bitter but inevitable fix in case the underlying economics is ever going to work

The pivot of failure is not the $PIXEL reset. It is a project correction that has grown so rapidly as to be able to see clearly what it was getting wrong, and has opted to be accountable rather than managing the narratives

That is less common in Web3 than is appropriate.