Introduction

Illuvium, a prominent Web3 gaming project, integrates decentralized finance (DeFi) into its play-to-earn model through staking and liquidity mechanisms. These mechanisms not only enhance the in-game economy but also offer players opportunities to earn passive income and participate in governance. This report will cover:

• The staking options available in Illuvium and their impact on the play-to-earn experience.
• The liquidity pools offered by Illuvium and their role in balancing player rewards and economic sustainability.
• The measures Illuvium has implemented to ensure the long-term viability of its staking and liquidity mechanisms.

Staking Mechanisms in Illuvium

Illuvium offers two primary staking options: staking ILV tokens individually or staking ILV/ETH liquidity pool tokens. [1a] [2a] Players can choose between flexible and locked staking, with locked staking offering multiplier rewards. [1b] Staking rewards can be claimed as ILV with a 12-month lock-up period or as sILV2, which can be used immediately in-game: [2b] [3a]

• Staking ILV tokens individually provides a straightforward way to earn passive income, though the rewards are relatively low compared to the ILV/ETH liquidity pool. [2c]
• The ILV/ETH liquidity pool offers higher rewards, accounting for 80% of all staking rewards, but requires players to stake both ILV and ETH tokens. [2d]
• The integration of sILV2 allows players to use their staking rewards in-game, enhancing the play-to-earn experience by providing immediate utility for rewards. [3a]

Liquidity Pools and Their Role

Illuvium's liquidity pools, particularly the ILV/ETH pool on SushiSwap, offer players the opportunity to earn rewards by providing liquidity. [2e] [2f] These pools generate rewards through both staking and transaction fees, with the ILV/ETH pool offering an estimated APR of 49.29% as of March 2024: [2g] [2h]

• The ILV/ETH liquidity pool requires players to stake both ILV and ETH tokens, but it offers significantly higher rewards compared to staking ILV alone. [2d]
• The liquidity pool rewards are distributed every 14 days, with stakers receiving a share of the transaction fees generated in the pool. [2j]
• While the ILV/ETH pool offers higher rewards, players must also consider the risks of impermanent loss due to the volatile nature of cryptocurrency prices.

Ensuring Long-Term Sustainability

Illuvium has implemented several measures to ensure the long-term economic sustainability of its staking and liquidity mechanisms. One key measure is the distribution of game revenue to stakers, which incentivizes long-term participation: [4a]

• Revenue from in-game purchases, merchandise, IP rights, and tournaments is distributed to stakers, ensuring a steady stream of rewards. [4a]
• The use of sILV2 for in-game purchases helps control the supply of ILV tokens, reducing inflationary pressure and promoting token value stability. [4c]
• The lock-up period for ILV rewards (12 months) encourages long-term staking, reducing the likelihood of mass withdrawals that could destabilize the economy. [2k]

Conclusion

Illuvium's staking and liquidity mechanisms significantly enhance the play-to-earn experience by offering players multiple avenues to earn rewards while contributing to the game's economy. The integration of staking rewards into gameplay, through the use of sILV2, ensures that players can immediately benefit from their participation.

• The availability of flexible and locked staking options, combined with high-yield liquidity pools, provides players with choices that suit their risk tolerance and investment goals.
• Revenue distribution to stakers and the use of sILV2 help ensure the long-term sustainability of the game's economy by controlling token supply and incentivizing long-term participation.
• Future research could explore the impact of impermanent loss on liquidity providers and the effectiveness of governance mechanisms in maintaining a balanced and fair economy.

References

[1] DappRadar. Illuvium Governance Token and Staking Opportunities. DappRadar. 24 Aug 2021. Available from: https://dappradar.com/blog/illuvium-governance-token-and-staking-opportunities

[2] BlockBeats. First Class Warehouse Research Report: Public beta is coming, in-depth analysis of the 3A blockchain game masterpiece Illuvium. BlockBeats. 8 Apr 2024. Available from: https://www.theblockbeats.info/en/news/52859

[3] illuvium.io. 28. Everything you need to know about staking $ILV. illuvium.io. 4 Mar 2024. Available from: https://illuvium.io/news/28-everything-you-need-to-know-about-staking-usdilv

[4] Crypto Saving Expert. In-depth Review of Five New Play-to-Earn Games Part 11: Illuvium Tokenomics. Medium. 2 Jan 2023. Available from: https://medium.com/@CryptoSavingExpert/in-depth-review-of-five-new-play-to-earn-games-part-11-illuvium-tokenomics-6242933f31be