EVE Online’s Short Squeeze And Real-World Economy Ambitions

The studio behind EVE Online calls it the “endlessly scalable storytelling engine.” That’s according to Hilmar Veigar Pétursson, CEO of CCP Games and the project manager who oversees all things EVE. Over the last 18 years, Pétursson and the rest of the team have put together a virtual economy so complex that it rivals that of a small country, like Pétursson’s own Iceland. As well as having a fully-functional bank at one point – which was then robbed by its in-game CEO, who proceeded to illegally exchange 200 billion ISK for real money – EVE experienced its very own short squeeze last year, not too dissimilar from the bizarre scenario we recently witnessed with GameStop.

EVE’s economy is founded upon arbitrage, meaning that profits are generated from simultaneously selling and purchasing the exact same asset in separate markets. In the case of EVE, this was originally accomplished by monetizing literally everything in the game. In the early days, some items were sold by NPCs to facilitate progression, but modern EVE places the onus of creating and destroying objects and resources entirely on players.

“Some people specialize in building spaceships,” Pétursson says. “Other people specialize in mining minerals or providing protection. Then you have an ecosystem – you have to mine minerals to make spaceships, you have to use spaceships to kill the people mining the minerals. To achieve that arbitrage, we immediately identified that we would have to create a sophisticated market system so that the arbitrage could occur between different types of labour inside the system.”

This “sophisticated market system” was originally based on NASDAQ, the index used to display almost every single listing on the Nasdaq stock market. Pétursson explains that similarly to how kids are trading on Robinhood today, he was working with Datek and E-Trade back in the late ‘90s, capitalizing on the peak of the dot com bubble. For those unacquainted with this phenomenon, it was an online stock trading trend that saw tremendous growth in tech-related companies due to (now justified) speculation on the future of the internet. This led to the creation of a structure that resembled both a commodities trading system and the stock market, falling somewhere in the middle and allowing people to trade in concrete resources while still speculating on external alterations made by the developer. You can make a living from harvesting minerals, or by procuring them from someone else and converting them into intermediate products. Or, you can attempt to pull off a short-squeeze – both methods are valid.

“It’s a pretty sophisticated system,” Pétursson says. “It has obviously benefited from 18 years of battle-testing. We have been rendering this market system for 18 years and have had various economic activities occur throughout that timeline, which has allowed us to enhance both the economy model and the trading infrastructure. I would almost say it’s on par with a small country. I can say that because I come from a very small country – the MAU of EVE Online is higher than the country of Iceland. It’s an infrastructure that matches something like that.”

When you consider all of this, it’s no surprise that EVE experienced its very own short- squeeze last year. Pétursson explains that because the game features a truly open market, technological advancements and market dynamics are constantly occurring within EVE itself. This is often a direct product of players anticipating an upcoming change and acting on it by speculating about its impact. According to Pétursson, the best example of this happened with the short-squeeze for tritanium, one of the base materials in EVE Online that CCP was changing the acquisition and manufacturing conditions for.

“That created a very interesting speculation frenzy where the price of tritanium shot up quite aggressively in April last year,” Pétursson says. “If I look at the price of tritanium now, in February this year, it’s actually under – well, it was before the speculation spike. So it was an overcorrection based on speculation. You can imagine there are people taking a bet on the changes we’re doing to the ecosystem to drive up the price of tritanium. I am sure, because I know EVE players, that many people did the reverse of that action.

“People are shorting an element in the classical sense of, in this case, if somebody had stockpiles of tritanium. I would have gone to somebody with stockpiles of tritanium and said, ‘Hey, can I borrow your tritanium for a year? I’ll return it then’. I would have taken that tritanium and sold it into the speculation bubble, and taken a good bet against it. It was a pretty good bet. There was a good period of time in October last year that [this] short would have looked squeezed if you look at the market graph.”

You can check out the graph for yourself below.

Pétursson explains that EVE actually used to support margin trading, meaning that you could do all of the above using capital that wasn’t even technically yours. Obviously this meant that the game had its own margin brokers, which combined shorting with non-capital expenses, eventually leading to scams that caused the whole system to be shut down.

“There were no interest payments, so the margin trade was free, which was just an immature implementation of margin trading,” Pétursson says. “That led to pretty persistent scams where people would create sell orders on margins. EVE only has a contract system where you can do formal contracts – it’s almost like a smart contract on blockchain.”

Players essentially took EVE’s arbitrage to the next level by simultaneously running buy and sell orders for the same resources on the same station, deliberately changing the prices in order to trick less savvy players into thinking they’d just spotted a bargain. This had a massively negative impact on the game.

“Because the margin trade for the buy [order] was not backed with any capital, the margin order would fail and the system made the margin call – the other account would get banned because they didn’t meet their margin,” Pétursson explains. “But the same person is selling the item through the contract system and thus made the money over there. We made the change to the margin trading system to close this exploit. I would like to implement a robust system around margin trading in EVE where you both have to bear the cost of the margin you are using, but there are pretty big challenges in doing this in an MMO. So many people have multiple identities and many characters or accounts inside the game. When you have throwaway accounts, even if you can ban them, we don’t really have full legal recourse to you as an individual human, so we have to come up with elegant ways to implement that.”

This is where Pétursson looks to blockchain for inspiration, citing mechanics such as stablecoins – cryptocurrencies that are backed by some form of “stable” asset – and liquidity providers for stablecoins as particularly robust structures that are highly relevant to EVE.

“A blockchain is an extremely trustless environment, like an MMO,” Pétursson says. “So, when I’m looking for inspiration on what to bring to EVE on this front, I often look at what the blockchain kids are up to. They have some of the most sound economy theft game because they have such a low trust environment to begin with. You have to make everything extremely robust from so many social and economical attack vectors. I think there will come a time where we will improve these systems in EVE. It’s not a priority right now, but GameStop [and] blockchain are providing such good material in reality. We’re making a science-fiction game, and right now the real world is beating us in science fiction. So we have to level up our science fiction to take inspiration from these activities.”

Interestingly, Pétursson’s ideas around blockchain go much deeper. At the moment, while you’re able to put money into EVE Online, exchanging in-game currency for real-life money is prohibited by CCP. Pétursson wants to change that over time, but it’s a lot more complicated than it might seem at face value – and, even at face value, it’s pretty complicated.

Pétursson explains that CCP is currently developing EVE under a mechanism called “EVE Online Forever.” EVE is due to enter its third decade on the market in 2023, and CCP has some pretty big plans for the future of the game. One subject Pétursson specifically points out is the concept of being able to feed your family and fund your retirement from playing video games, mentioning that streamers and professional esports players are able to treat gaming as a full-time job now.

“I wish to come up with a sound model to do that in EVE,” Pétursson says. “[But] it’s not a trivial thing. Streaming and esports often take place in reality, not inside the game or inside another economy. There are ways to do this – how you cross-trade value between different blockchains is an inspiration in how you can achieve that without everything being regulated like a bank or a security. Because as happened with Second Life, they ended up being regulated like a bank. You don’t really want to be running a game under that criteria – it limits what you can do creatively.

“The legal frameworks which are now being written in real time around all this cryptocurrency and blockchain activity are formalizing an area where you might be able to do something like that while still being fully compliant with the various jurisdictions we have to operate in. We definitely have an ambition to do it, but it’s not something you rush into. You’re extremely interrupting real world economies and legal frameworks and taxation. The blockchain world is trailblazing that.”

It’s strange to think about it, but EVE Online’s short-squeeze is indicative of CCP’s successful incorporation of real-world structures into the game as it ventures even further into replicating the complexities of actual economics. In the age of cryptocurrencies, this kind of hypothetical trading is of immense value, too, especially when it comes to analyzing the ways in which people adapt to new security measures implemented by CCP.

“Often we have issues where people are doing grey market illegal activity in EVE,” Pétursson says. “They’re using robots to play the game [or] trading outside of the regulated means, so we have to intervene. We have to make sure we’re regulating how much asset value is in the game based on how much is going in and out every single day. But the human animal is such a smart phenomenon you just can’t create stable conditions where it’s just going to run through. People find ways to abuse the system in good and bad ways and you have to keep up – and believe me, keeping up with EVE players is no small task.

“The lines are blurring everywhere. It’s not just between EVE. It’s between science fiction and reality. When you see Redditors taking down hedge funds, I look at us and say, ‘Well, what have we done lately?’”

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Cian Maher is the Lead Features Editor at TheGamer. He’s also had work published in The Guardian, The Washington Post, The Verge, Vice, Wired, and more. You can find him on Twitter @cianmaher0.

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