Star Atlas: Possible IRL Future Value of POLIS using…Economics and Accounting 😃

Star Atlas

Star Atlas: Possible IRL Future Value of POLIS using…Economics and Accounting 😃

I’m an avid follower of Economics. Ever since my first exposure at high school, the experience of apply concepts like ‘Rational Self Interest’ to real life has been a fun past time. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything is one of my favourite books (and you should definitely have a read!)

So when a game came along promising to include an entire intergalactic economy I was hooked. Supply and demand. Governance and taxation. A transactional currency coupled with a governance token. A play to earn game with real life consequences.

Oh my!!!

My mind went (and continues to go) wild. Visions of capital markets funding expeditions to explore the galaxy filled my mind. A galactic insurance agency efficiently reducing the risk of exploring a galaxy was pretty much a guarantee in my mind. Incentive systems and taxation approaches.

In short, a petri dish of (virtual) opportunity.

It also promises to be an extraordinarily awesome game (just in case economics doesn’t fill you with as much exuberance as me 😃).

However, before I got too excited about all the in game opportunities, I thought I’d start by calculating the games Real Life Value. After all, in an efficient market, with rational self interest, that’s where I should start right?

Read on to see if you agree with my calculations 😺

A Few Quick Notes

1. This is NOT investment advice :) As a play to earn game there is real money involved, so make sure you do your own research! I’ve outlined my analysis, but you should definitely do your own and apply it to your own personal circumstances.
2. At the time of writing, Star Atlas is in its infancy. The below consists of research into the games promises (not yet delivered), some assumptions and a number of hypothesis. It may not turn out this way at all.
3. I’m an investor, so depending on when you read this, I may have a stake in POLIS. So make sure you do your own research from other sources 😃

The Game

For context, let’s dive into the game.

Star Atlas bills itself as a “grand strategy game of space exploration, territorial conquest, political domination and more”. Big claims.

Built on Unreal Engine 5 it’s a game which aims to combine a whole bunch of facets together. Here’s a few:

1. Stunning, photo-realistic graphics
2. Epic galaxy spanning adventures, with space ships ranging from little flyers called X4’s all the way to world destroying behemoths.
3. Combat, including PvE and PvP
4. Play to Earn Model
5. An entire economics system

Wait. What?

Yup. Economics. How good is that!

Using the play-to-earn model, built on top of the Solana blockchain, Star Atlas has dived deep into building a functional, in-game market economy. There’s an entire economics paper devoted to it. Things like:

1. Needing to supply your ships with resources (which then also need to be crafted)
2. Different zones offering scaling risk / reward returns. You can get high rewards if you’re willing to risk your ship being destroyed, or lower rewards if you want to play it safe.
3. Building of ships (including R&D) which can then be sold to players
4. Retail shopping for you know, SPACESHIPS 🚀
5. In game sporting activities (racing etc)

It’s like reading LitRPG series like Disgardium and Level Up! from Dan Sugralinov come to life.

So cool!

Analysis

Let’s get into our analysis.

If you want to follow along with my calculations, here’s a link to a Google Sheet called Star Atlas POLIS Analysis. Feel free to copy it or download it :)

Baseline Assumptions

We’ll start by assuming that all the promises mentioned in the previous sections are implemented. This is a fair assumption, as if it’s not true, we don’t have anything to analyse.

We’ll assume that development for a full minimum viable product (MVP)takes 3 years, with full product delivery occurring at 5 years. This is a reasonable experience based upon observations about No Mans Sky — a game with a similarly extraordinary vision.

We’ll also assume a couple of other factors:

1. Maximum number of tokens is 360 million. This is set in the economics paper, but can be changed with a super majority of votes.
2. Real world inflation will achieve 2–3% p.a. on average. This is the target range for most advanced economies.

Calculations Used

We’ll use a simple calculation method to land on the future value of our money.

1. To calculate the future value, we will use the Compound Interest formula where Accrued Amount = Principle(1 + r/n)^nt. There’s a great website with a built in calculator here.
2. Our target end date will be 2029, by which time all POLIS tokens will have been released.

POLIS in the Play To Earn Market

Our analysis starts by looking at another popular Play To Earn (P2E) game — Axie Infinity. This game is functioning, has a large following, and includes many elements which are similar to Star Atlas, although less sophisticated. It’s a useful place to start because it demonstrates that there is a market for this type of game, and it appears sustainable so far.

In 2021, Axie Inifinity hit a maximum market cap of $10 billion USD. We’ll use this as the starting value for Star Atlas.

Using our baseline assumptions, we can easily calculate that if Star Atlas is just as popular as Axie Infinity, it will be worth between $11.7 billion USD and $12.67 billion USD in 2029.

Solid, but not amazing. It would leave us with a token value of $32.55 USD each.

Compound Annual Growth Rate of Video Game Market

According to a recent report, the Compound Annual Growth Rate (CAGR) of the Video Game Market is 14.5% per annum. It’s projected to be this way until 2026, and starts from a baseline of $155.9 USD billion in 2019.

There’s no reason to think that growth will slow at that point. The report includes allowances for the impact of COVID19, during which gaming increased dramatically.

The report isn’t clear if this includes allowance for inflation, so we’ll do both, leaving us with:

1. CAGR including inflation 14.5%: $29.5 billion or $82.06 per token
2. If CAGR plus minimum inflation: $33.9 billion or $94.26 per token

Yay for compounding growth!!!

If the game stays as relatively popular in the market as AXS, it will be worth ~36.33 billion USD in 2029

What About the Revenue from POLIS?

That’s right. As a taxation mechanism for the game, along with rights vote, it’s easy to see that POLIS will generate some form of revenue (that’s not including staking mechanisms).

This isn’t captured in our numbers yet, so let’s add it in.

We’ll derive a maximum and minimum amount of projected revenue. We’ll also assume that all revenue returns are returned back into POLIS tokens monthly in the form of purchasing new POLIS tokens.

Here’s our values:

1. Minimum. The S&P 500 returns on average since 1871 have been 4.31%. This would be a reasonable minimum return as if you return less than that, you might as well go back to the stock market. It’s certainly less risky.
2. Maximum. Returns in blockchain can sometimes hit over 100% year on year growth. It’s a massive growth rate, and makes sense given the extreme growth potential of the market. However, it would be unreasonable to assume this as an ongoing return rate, as it would be quickly unsustainable. For this calculation we will use a 15% revenue rate. This brings it more in line with a sustainable long term trajectory. Incidentally, this also provides a risk premium for investing in a market which is considerably more risky than the S&P500.

Let’s put in some numbers.

We’ll assume a starting point of 1000 tokens. Using our same compounding formula, but this time returning a number of tokens rather than a $$$ figure we can calculate that we would have the following:

1. 1,410.83 tokens by 2029 at S&P500 levels of returns
2. 3,295.51 tokens by 2029 with a reasonable level of return

We’ve already established that each token would be worth ~$82 in 2029 (conservatively), so this would mean our total token value would be:

1. $115,775.82 USD conservatively
2. $270,435.97 USD reasonably

Bet everyone reading this is REALLY hoping for the reasonable return!

Here’s a quick pic from the game to break it up 🚀

What If It’s A Way Cooler Game Than Axie?

By now I’m sure you’re asking yourself an obvious question.

What if it’s a way better game than Axie Infinity?

I’m glad you asked. Let’s drop that in our calculations.

We’ll assume that the coolness factor won’t be apparent until year 3 (MVP), and that it will be 50% cooler than year 3 by year 5 (full release).

I.e. if the game is 10% cooler in year 3, it will be 15% cooler by year 5.

We’ll also assume that the coolness factor will be reflected in our POLIS. This is a reasonable assumption, because if the game is cooler, there’ll be more demand, which will increase the price. We’ll also assume that all the number of POLIS won’t increase, so the effects will be fully reflected in the POLIS price.

We’ll set our value of More Cool Than Other Games (MCTOG) to be 10% in year 3. This is reasonable, as no matter how cool Star Atlas is, in three years it is almost inevitable that there will several competitors in the market with equivalent products. The barriers to entry, while high, are countered by significant amounts of capital and talent available.

In the spreadsheet you’ll see that I’ve staged the calculations accordingly.

Here’s the numbers: $90.4 billion USD, with a per token value of $251.10.

Pretty cool hey!

So What?

So we’ve got it out there. We’ve calculated a possible future value IRL for Star Atlas.

What does that mean?

Right now, at the time of publishing, the value of POLIS is $3.52 USD. You can check the latest price on CoinMarket Cap here.

If the calculations I’ve outlined above are correct (and there’s absolutely no guarantee they are), if you invested $1000 USD today, and we had a conservative CAGR, reasonable return and all other things equal, you would end up with ~$96,000 USD in 2029.

Boom.

Also, if you want to try playing around with the values and modelling different scenarios, feel free to use the spreadsheet.

Hope That Was Fun

I hope you enjoyed reading this as much as I enjoyed writing it!

If you’re keen to get involved in the game economics, join the Discord channel and say hello. Myself and a few friends generally hand out in the economics channel and we’d love to say hi.

Until then,

Ciao 😄