EVE Online really is a rabbit hole, the more I try to research this video game and it’s
financial systems the more stories the community in the game reach out to share with me.
So far in this series we have already explored how the massive wars you hear about in gaming
magazines are funded using everything from in game casinos to war bonds.
We have also explored how the game has it’s very own tax havens and how they were causing
the same kind of issues that tax havens do in the real world.
EVE online’s economy is so large and complex that it truly does rival some small nations,
what’s more than that is that it’s system are so realistic that they can genuinely be
used to model real world economic systems far more effectively than even the most expensive
models used by governments, universities and financial institutions.
Part of this is by design.
But it may not all be for the best.
So its time to learn how money works, and see how the market system in EVE online might
have been too well designed for it’s own good.
In an interview with the founder and CEO of EVE online, it was revealed that the Marketplace
in eve, (where buyers and sellers will trade items) was actually copied off the Nasdaq.
You see way back in 2002 when this game was first being developed the creators knew that
enabling free and effective trade between players would be key for making the game truly
immersive, as opposed to similar games at the time, that relied primarily on trading
with non-player-controlled characters that would offer fixed pre-determined prices.
So they needed to develop a system to make this happen.
There was RuneScape, which offered its now legendary trade squares to players looking
to exchange their wares, but the issue was that RuneScape servers were only home to a
maximum of 2,000 players at a time, whereas eve is hosted in a single server with a hypothetically
unlimited amount of players.
Trade was also not nearly as critical to day to day life in runescape as it was going to
be in eve online.
However those trade squares did give the game developers some idea’s.
You see the swarms of people shouting at one another the items that they wanted to trade
for what amount of money felt reminiscent of something.
A stock trading floor.
What they needed was the futuristic equivalent of this, something that could handle exchanges
for more items more frequently without the need for players to shout at each other in
one location.
Fortunately something like this did exists in the real world.
It was the Nasdaq.
The Nasdaq is a stock exchange just like the new York stock exchange or any other stock
exchange around the world, but at the beginning of the 21st century it was fairly unique because
it did not have a normal trading floor.
In fact all of it’s trades were handled digitally.
This was especially impressive considering the exchange was first launched in 1971, which
was well before most people had easy access to computers and the internet was about as
foreign to most people as the large hadron collider is to us today.
Either way the Nasdaq efficiently and transparently displayed thousands of companies to millions
of users which was absolutely perfect to the developers of EVE online.
The market in the game looks like this, it lists bids and offers, quantities, how long
the orders have been in the market and what the trading price history of each individual
item has been.
This means that the market in EVE has a lot more in common with a stock exchange than
it does with say a trade window in most other RPG’s.
This is a fantastic excuse to talk about market design.
You see we interact with markets all the time in our everyday lives.
There are the obvious ones like firing up robinhood to buy shares off of the stock “market”
but also ones that are more subtle by design.
Take something like uber eats for example
Something like uber eats is a fairly robust digital market place, it brings together hundreds
of different sellers, with millions of different buyers and even has the added complexity of
mixing that exchange of money for goods in with a service which is the delivery of those
goods.
Uber eats has to present a lot of different information to a lot of different people,
but it does selectively omit some information.
There is no publicly available record of how much your butter chicken has sold for over
time, there is also not a visible list of who is offering the lowest price for a cheeseburger
or a record of how many items traded when.
All of these are features that may very well impact peoples purchase decisions but ultimately
uber eats is a “consumer” market place, so leaving this information out leads to more
people just going f___ it, I deserve this 1am kebab, which ultimately means more revenue
for the businesses involved.
This kind of deliberate market inefficiency also extends to our old RuneScape trade square.
A potential buyer would have no way of knowing if the bow that they are paying 10 gold for
was being offered for sale buy another player for 5 gold before they logged on.
Likewise that seller would have no way of knowing that there is someone on a different
server that is willing to pay 15 gold, all because this market system of shouting out
bids and offers in one location at one time doesn’t make that information available.
Now of course given that the marketplace in eve online was build off the model of a stock
market, a type of market that craves access to information beyond all else, all of the
limitations of these other examples are not present in this game.
All players can access all of the information about the trading history of all of the items
in the game just by looking it up, if they are so inclined.
This market efficiency is the foundation of the economy that all of these youtubers including
myself keep harping on about.
Without a reliable way to effectively exchange essential goods people would be forced into
gathering those good themselves.
Without a market to facilitate exchange you would find that If you wanted to fly a certain
ship, you would have to go out mine the materials, to make the components, to then build that
ship…
The same goes for all of modules that you would need to put on that ship, and in a game
as large and dynamic as eve online, that could be a little intimidating.
But because this market really is so efficient it has allowed eve players to become hyper
specialised, almost to a fault.
You see this market is so efficient and easy to work with that most players need to do
very little to provide for themselves.
They simply need to make as much money as possible in as short a period of time as possible
and use that money to buy anything they may need.
While this type of role specialisation is very useful in the real world, it’s not
exactly something that always makes for a great video game which is supposed to be you
know… fun.
Massively Multiplayer Online Games tend to have a lot of very repetitive tasks simply
by design, but when you combine this inherent “grindiness” with the push to specialise
and trade, then things can go a bit too far.
A common question EVE players will ask is how much ISK (the in game currency) per Hour
and activity makes.
This is exactly the same as asking how much you get paid per hour working a job, only
this time it’s in a video game.
The problem is that if a task in game doesn’t make enough money then most players won’t
bother doing it, because they would be better off spending their time on whatever task does
make them enough money.
Now this causes two major problems.
The first is that it can make it very difficult for the game developers to indtroduce new
features into the game, because if the feature does not generate enough profit for the players
it will be mostly ignored, and if it generates too much profit then it will be relentlessly
farmed day and night destabalising the wider economy.
The second issue is causes it significant burnout amongst newer players.
EVE online is famous for having a very steep learning curve and in the context of everything
we have seen in this series that makes sense.
Imagine you were a newborn baby that knew nothing about the world and you were thrown
out onto the street and expected to find a high paying job.
Naturally many new players decide that they are happy working just one job and give up
after failing to carve out a piece of the incredibly competitive game for themselves.
Now this is a real shame for two reasons,
The first is that EVE really is a fantastic game once you get over that initial learning
curve, there are people that have played the game for almost 20 years now and still enjoy
logging in to see what this virtual world has to offer.
But the second reason is that there are some tasks in the eve economy that do need to get
done, but won’t be done by the more elite players.
Think of these as the virtual space video game equivalent of minimum wage jobs, great
for people just starting out, but if people are in these roles long term, you may have
a problem with your economy (Cough ahem)
AAAANNNYYYWAY
On the opposite end of the spectrum from these entry level jobs, the richest players in this
game almost inevitably become market traders because it simply offers the highest possible
level of income assuming you have enough capital.
These players will create multiple accounts in the game that don’t even fly spaceships
anymore, they simply sit in trade hubs across the virtual galaxy and trade in game assets
speculatively back and forth with one another.
Some of the wealthiest of these traders have in game assets that would be worth the equivalent
of millions of real world dollars if only they were allowed to exchange them without
breaking the games rules.
(Although the might actually be about to change according to the games CEO)
Either way in a game that is infamous for financial fraud the reputation of these ultra
wealthy individuals is very important amongst their peers.
Why?
Because it allows them to borrow assets off of eachother.
Why is that important?
Because it allows them to short sell.
The most famous example of this occurred when changes to mining in the game were announced
by the developers which would make raw materials far more easy to extract.
Now normally you would expect that to push the price of these resources down and this
expectation was shared by most of the market speculators in the game at the time.
So those with the connections and resources to do so, set up deals with large industrial
entities to borrow strategic reserves of these raw materials, only to turn around and sell
them straight onto the open market.
This meant that they could lock in the price that these materials were trading at while
they were still very hard to mine in the game.
It was hoped that after the changes, as more supply flooded the market the price of these
materials would drop where they could be purchased back at a lower price, returned to their original
owner, and a nice healthy profit could be taken on the difference.
This worked out pretty well for most of these traders as the price of this in game commodity
did indeed fall to it’s lowest point ever, but the problems started when these speculators
had to back out of their positions.
The game developers slowly reversed the changes they had made to mining which meant materials
became slightly harder to mine over time, this was combined with sweeping changes made
to the game and a massive in game war, so late last year the price of this commodity
almost doubled within the space of a month.
This mean that a lot of these wealthy long term speculators were forced to cut their
losses and close their positions before they went bankrupt.
This resulted in one of the largest trading days in the games history.
A logical short position based on a reasonable expectation of future decline being foiled
by people playing on the internet hmmm, I wonder where I have heard that before.
Now you might just ask, why didn’t these speculators just not pay the people they borrowed
off back?
At the end of the day scams in EVE online are commonplace and widely accepted…
Well as we saw earlier, reputation is everything for the uber rich of eve online, sure they
might loose a few trillion isk on this deal, but nobody would give them the facilities
needed to take short positions in the future which would end up costing them a lot more.
So yeah, I guess some players even have an in game credit scores… great.
Never the less, most eve players were blissfully unaware of this going on at all as they continued
to bury their heads in their own in game jobs to carve out a living in the most realistic
virtual economy ever created.
Now this was the third and potentially final instalment in my series on the financial system
of EVE online, I will leave a link to the other two video’s in the description.
Once again I would like to thank the players and the staff that run this game for offering
up such great suggestions to research and make a video on.
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How Money Works.