Is Economic Complexity a Blight on Splinterlands?

On a recent post, I got a comment about the complexity of the Splinterlands investing ecosystem and how the constant changes probably scare investors away, and it got me thinking - because I believe it to be true.

The question was:

Why would anyone invest more in the game when the changes are so frequent?

But, I wonder, if this is a bad thing or not.

One of the problems with investment complexity is being able to choose a good strategy, but in crypto, there are a lot of maximizers and we can see how "simple" doesn't mean it is going to have longevity. For example, have a look at the majority of LP pools where it is simple, invest into the pool for a good return - the challenge though is, it becomes a Ponzi that doesn't last.

However, what the current couple billion hole that the Celsius network should teach us all is, there is plenty of money in crypto. The investment capital is there, it is just that it is stupid money trying to maximize gains without worrying about survivability of the venture. It is all short-term thinking without caring for survivability, especially in the market downturns.

So, "simplicity" doesn't mean longevity. And more than this, simplicity means that anyone can get into the market without having to think at all about what they are doing - it is all "set and forget" and most forget that what they have set, is a load of shit.

Now, back to the changing complexities and dynamics of Splinterlands.

For most people in Splinterlands, there are far too many options available to take advantage of them all at an optimized level, which leaves two main options in a false dichotomy kind of way:

1. Focus on a narrow selection to optimize
2. Focus on a broad investment strategy optimizing nothing

The problem with the first approach is obvious, because investing into a narrow selection means that if and when something changes, that entire strategy could be wiped out. For a simple example, if all the investment goes into maximizing a bot and then changes dilute the value of the bot approach, it could void a lucrative approach. Similarly, if all the investment is in cards, or SPS, or DEC etc - a change to the game and economics mechanics can see everything "wiped" out.

The problem with approach two is obvious also, because investing more broadly means not optimizing resources, since at any given point in time, there are likely a small range of potential investment strategies that offer the "highest" ROI. This means that longevity of the game matters, because for example, while the value of SPS might be dropping away, the value of DEC to buy card packs is increasing. While the value of cards are decreasing, the potential for investing into them and staking to LAND in the future makes it more lucrative. And there are many other examples possible.

However, looking at the traditional investment markets of stocks, which approach is taken? If someone is investing into Tesla, are they investing into the car production, the battery development or the selling of upgrades? Well, they don't have that choice at all - they only get to buy the stocks that represent the entirety of the business and hope that all of those various aspects pan out. This makes it far simpler in many respects, because most of the options are taken off the table.

Splinterlands doesn't have this simplicity, because there isn't one "token" that represents the entire game and those there are, can all be used in different aspects of the game or economy. This means that investors can buy into the game, without buying into all of the game. And as pointed out, this can be risky, because if an investor buys into a narrow set of the game and that set is removed or changed significantly to remove its value, everything can be lost very quickly.

In Splinterlands, this actually happens often with the changing meta of gameplay based on the introduction of new cards. For example, I bought a Chanseus the Great for $1080 four months ago and now it is worth $750. I also bought an Alpha Lightning Dragon for $1100 that is now available for $688. Obviously, not a great investment result. But, I also bought a Byzantine Kitty for 3200 which is worth $5500 currently - so that puts me up?

Well, not really.

But, at least I have something that is a scarce resource and could have various forms of demand or earning potential in the future. This "uniqueness" of the cards means that unlike a fungible token, not everyone can have one, even if they have the equivalent value of it in their wallet in a token or fiat. 688 USD worth of USD is the same as 688 USD worth of EURO, but neither of them are an Alpha Lightning Dragon worth $688 currently. In order for them to have the "same value" it would need to be put into the Splinterlands ecosystem and to buy a Lightning Dragon off the market.

Not including golds, there is a theoretical total of 232 maxes possible out of the total print run of 1861 cards and it is unlikely people holding individuals are going to be selling en masse - at least not yet. But, there are 6 maxes on the market currently.

The real value of these things are going to be down the track somewhere I hope. But, in order for that to happen, there has to be a "down the track" path to follow, which means a whole lot of other aspects of the game have to align in order to bring in more investment. But, if the investment strategy for return is too simple, that will never happen, because investors will pour into that aspect at that time and then, start to take profits on it when it is high enough. This is what happens on the crypto markets now, since there is so very little usecase backing any of the tokens.

Like it or not, Hive has one of the highest usecases and usages of all tokens on the market, but unfortunately, to really gain from that, it needs investors willing to look long. Instead "investors" are not doing that at all, they are buying Doge.

Haven't heard so much about it of late, eh?

These aren't investors buying these kinds of tokens and pushing them into the top 100, 50, 20 and 5 - it is the hype and that hype is built on nothing at all. It is "thin air" value and as soon as it gets to a high enough point that the first in are looking to get out, they will crash, pulling others down with it, as there was never that much value in the market cap, as that is the way cap value works.

However, what real investors into crypto will have to start looking at is what business potential* the tokens have behind them, meaning that venture capital is expecting a return and in order to get that return, an actual business with products and services needs to be built and, it has to capture customers willing to spend. This takes the "wild west" out of crypto in many respects, even without legislation, because investors themselves are going to start demanding real business practices to be followed, as they look to mitigate the lottery of it and instead look longer with more stability.

But, in order to have stability, it becomes about the business as a whole, rather than a single aspect of the business. This means that investors might look into buying a broader range of tokens in the ecosystems in a type of index fund scenario, which is pretty much what HIVE is on the base layer for all of the second-layer applications like Splinterlands. However, at this point in the cryptosphere, this hasn't been realized yet, as people are still playing the gamble game on individual tokens that have no usecase, rather than tokens that are fleshing out and underpinning entire industries to come.

Of course, I am biased in all of this as I am both invested into Splinterlands and into HIVE, but it is because of the relationship between the two that I was so willing to get into Splinterlands when I did, which is only a year ago. For me, the potential value of the Hive Network is immense because of the ability to build second-layer experiences on it, whilst not having to rely on that experience to fully maintain itself or go it solo in the market place. this makes Hive not only a platform to build upon, but a platform to invest into in order to compound all of the value aspects across each other over time.

This means that in the future, while there will be plenty of ways to invest into singular business concepts, there will also be the ability to invest into parts of those businesses too, maximizing interest areas for example. However, the overarching strategy wouldn't be to maximize the optimized aspect, it would be to grow the value of the entire platform.

This means that once it has established itself and the industry is more solidified in the mainstream, Hive will end up having three core investment approaches available, each with a different degree of risk and risk profiles. The base layer of HIVE that will offer the most stability and consistent return like an Indexed Fund. The business layer like Splinterlands as a game that is like a normal stock where in time they will be "proven" in the industry. And then, the individual startups and new "experimental" aspects of the established businesses, where people can invest into higher risk aspects of the emerging industry, in the hope of striking it big on low capital expenditure.

So, while the complexity might be growing, so too is the entire crypto industry and the need for real businesses that are run like real businesses to emerge. However, this means that investing gets "more difficult" in the sense that there is less clarity on what is the best approach to take, especially when referenced against needs. Gone are the days of just "buy Bitcoin and hold" as the best strategy to make significant gains, because even if Bitcoin hits 100K from here, it is only a 5x gain and, some of these crypto businesses are going to go 1000x from where they start.

Hopefully, some of them will be built on Hive.

For Splinterlands itself, the growing complexity is actually increasing the stability of the game, as fewer people are able to optimize all areas and therefore, there is more opportunity for new investors to get in and make larger gains. However, there is always risk involved and for some time to come, people will keep their dollars as dollars, their euros as euros and their renter mindset intact.

Taraz [ Gen1: Hive ]