POE is considered to be geared towards a more hardcore-gamer audience - with it's famously intimidating passive skill tree, highly customizable and optimizable skills and abilities - and most importantly for this article, an incredibly rich player-based economy.
A good indication of the size and dedication of the POE audience is the wealth of independently developed tools and calculators for the game (which is also a proof of the complexity of the game - as some of these tools are practically a must for efficient gameplay).
My personal experience with POE started about 3 years ago. A friend recommended, and it's free to play, so I thought "why not?". It took me almost a week to complete the game on normal difficulty (for comparison, it takes me ~6-8 hours today), while fighting through the many complexities of the character progression and skill mechanics - and making a million mistakes along the way. I quit then, but after a while the infinite possibilities for customization of skills and character builds tempted me back. I've been playing on and off ever since.
Any good game that has depth and complexity lets players discover more and more levels of gameplay - that naturally come with both character and player progression. Being part of the POE economy - namely trading items with other players - is an additional level of gameplay that is not directly related to the game itself, but is surprisingly rich and requires above average understanding of game mechanics to participate fully.
I've traded more and more in the past several months and recently (at the end of patch 2.6) started "flipping" game currency. Being part of the economy transformed the way I experience the game as a whole - this article summarizes some of my observations and calculations on the subject.
One of the most interesting decisions Grinding Gear Games (GGG) made when designing the core mechanics of POE was removing the gold. It is almost universally accepted and expected that any RPG has some form of basic currency that everything can be traded for - the proverbial "gold coins". The characteristic that defines "gold" is that it's the fundamental trading currency, but also that it has no intrinsic functionality - thus its value is defined solely by the other valuable resources/items a player can buy with it.
Any game where monsters occasionally drop loot and/or gold when defeated has an inherent inflation mechanism: the amount of total gold in the world is constantly increasing simply through players playing the game. Hence, the value of each gold coin diminishes - unless there are "money sinks" built in the game world economy that naturally remove some of the influx of gold from monster loot (equipment occasionally requiring costly repairs by an NPC is a popular example of such a sink - though perhaps not the best game design).
Once gold loses its value, players often turn to other currency that they use for P2P trading (like the classic Stone of Jordan in Diablo II).
GGG solved most of these problems by canceling gold all together. POE has no currency that is used only for trading - every single item in the game has some intrinsic functionality and value. Thus, there are many items that are considered "currency items" in POE - each does something different when consumed (providing a natural money sink mechanism):
|My currency item storage tab (end of patch 2.6 "Legacy League"). And even more types of currency were introduced in patch 3.0.|
"That's interesting, but how does it effect the player experience?" you might ask...
Trading in POE and the "Price of Exchange"
Let's say I find a good item while progressing in the game, but I don't need it at the moment (perhaps it doesn't fit my current character or maybe I already have a better one). Often I would try to "sell" it - list it publicly hoping to trade it to another player in return for some currency. The idea is that, like in any true free market, the item might not hold value for me - but does hold value for someone else, so we can make both of us better off via an exchange (assuming he gives something of value for me in return).
As in most RPGs, in order to trade the two players must be in the same game zone. This seemingly trivial requirement actually creates a natural friction in the trading process. Usually while I'm in the game I'm, well, playing the game - so when a potential buyer sends me a message that he is interested in something I have for sale, I must stop what I'm doing and go meet the buyer at some location (one of the towns or player "hideouts"). The process usually takes less than a minute if both players are used to trading in POE, but it's somewhat annoying and partially breaks the game flow.
So a few months back I've decided to stop selling equipment for cheaper than a certain price (1 "chaos orb"), figuring that smaller profit isn't worth my time - I'd rather keep playing the game itself. If the equipment doesn't sell for at least 1 "chaos" after some time, I'd just get rid of it to free up space in my "shop" storage.
Basically I've defined that an exchange must net at least 1 "chaos" of profit or shouldn't happen at all - that is my "price of exchange" (which varies between players of course).
In a sense this effect can be compared to the transaction cost in a real world stock market - where the exchange itself takes a small percentage of every deal as a brokerage fee, creating friction.
Currency trading in general refers to the act of trading one type of currency items for a different type - currency<->currency instead of equipment<->currency trading.
In that sense, players who make currency<->currency trades are like money changers in the real world. You could in principle earn some Euro directly before you go on your vacation - but no one actually does that. Everyone prefers convenience - even if it means paying someone a little extra.
Currency "flipping" is the act of trading the same 2 currencies back and forth, repeatedly, between different players. Let's say we're talking about alchemy orbs (which upgrade a normal item into a random rare one - alc's for short) and chaos orbs (which transform a rare item into a different rare item randomly - often denominated simply as c). 2 weeks before patch 3.0 the rates of trade I was offering were:
1alc -> 0.23C
The first thing you might notice is the fact that the rates aren't equal - the transaction is not reversible (you couldn't buy back 1C with the 3.125alc you would get by selling that 1C). This is similar to the gap between the buying and selling price of real world currency at money changers: they provide value in the form of convenience so they monetize some of it by giving slightly "unfair" exchange rates.
And just like real world changes, I prefer to buy and sell the same amount of each currency - on average, otherwise I'll run out of alc's (in this example) or stockpile too much of them. More on that later.
The second thing you've perhaps noticed is that the prices are not round numbers, and it is impossible to split currency items into parts - so what does "0.23C" mean?
The trick is simple - most trades involve volumes larger than 1 of a currency item. In reality the rates are:
70alc -> 16C
The C->alc side is clear - 8 is the lowest number you can multiply both sides by and get round numbers, but the other direction could be written as 35alc -> 8C to get the same result - so why? This is where the "price of exchange" plays a role.
I have 2 goals while trading currency in the long run:
- Maintain an approximately even rate of inflow and outflow for each currency.
- Make sure I earn at least 1C of profit per trade (on average) - otherwise the trade doesn't overcome the friction of exchange.
And I have 4 "dials" to fulfill them:
- Exchange rate for C -> alc trades.
- Exchange volume for C -> alc trades.
- Exchange rate for alc -> C trades.
- Exchange volume for alc -> C trades.
Note that the second goal is not trivial. If I sell 25alc's and receive 8C in return - I did not make an 8C profit. Unlike the case of selling equipment - where the gear itself held 0 value for me in practical terms (it was just laying around in my stash), so getting paid 1C meant 1C clean profit - when trading currency I'm giving away something that does hold value for me. I use alc's all the time as part of normal gameplay - and the only reason I'm able to trade them away is because I don't need more than ~20 each day, so if I have 100alc's - 80 of them can be treated as "just laying" at the moment, but might become useful tomorrow. So how can we calculate profit per trade?
Assuming the first requirement (balanced trade per currency) is fulfilled (if it's not then this business model is not sustainable anyway), we can look at a single cycle of a chunk of currency I receive:
- Pay 16C to get 70alc's. That takes 1 transaction (our balance is now C: -16, alc: +70, transactions: 1)
- Pay 25alc to get 8C (C: -8, alc: +45, T: 2).
- Pay 25alc to get 8C (C: 0, alc: +20, T: 3).
- Pay 25alc to get 8C (C: +8, alc: -5, T: 4).
Since we are looking at long term averages we can simply say it takes 2.8 alc-selling transactions to "get rid" of the chunk of alc's from 1 alc-buying transaction, and nets a profit of 6.4C per cycle:
6.4 / 3.8 = 1.68C
If we do the same calculation for an exchange volume of 35alc -> 8C, we'll get Profit per Exchange = 1.33C - despite the identical rates of exchange - because it would require 1 additional transaction to complete the same currency cycle.
Alternatively we could ramp up the transaction volumes to get more profit per trade. So why don't we?
Free Market Forces
When a player wants to buy currency, usually he would go to the most prominent POE trading website (appropriately called poe.trade) and run the relevant search:
Which is ordered from best deal to worst deal by exchange rate. Obviously he would then try to buy the chaos orbs for the cheapest price - basically going from the top to the bottom (and there are much much more results than what you see here) messaging each seller until 1 responds and the transaction takes place.
Note that both of the cheapest price offers require very large trade volumes. If the buying player only needs 5C, or simply doesn't have so many alc's, these trades are irrelevant for him - so he would go on and message all the 1:3 sellers.
In order to get business, a currency trader must first offer a competitive price - preferably be in the first page of search results (just like a real product on Amazon would) - but also offer small enough trade volumes to be comfortable for most players.
So you can't increase the profit per transaction by setting a huge exchange volume - even if you were rich enough to be able to make the trades - because the vast majority of players don't want/have such large sums.
On the flip side, the sellers that offer the lowest prices can only do that by insisting on large trade volumes to maintain the desired profit-per-transaction value - as we calculated.
Personally, I usually set a competitive exchange price for both directions of the currency flip, then tweak (usually increase) the exchange volume until I reach the 1C profit per transaction benchmark.
Then I wait and see how many trade offers I get in each direction. Remember that the balance of currency "import" and "export" must be maintained, so I try to increase the exchange volume of the direction that's going "too well" - the larger the minimum trade amount is - the less players take it. Sometimes the exchange rates must be updated - either because I couldn't achieve balance just by volume manipulation or because the market price is shifting.
"But Michael", you might ask, "how are the exchange prices determined to begin with? Why does 1C cost 3 alc's and not 10? or 0.5?"
Let's imagine a grossly oversimplified situation: there are only 2 POE players in the world and only 2 types of currency (chaos and alcs for example). Also let's assume both players play on similar levels of content - and have the same drop rate of currency: 1C and 4 alc's per hour.
In principal, if the 2 players wanted to trade - a reasonably fair trade might be at an 1C:4alc exchange rate - since that represents the same amount of "labor" invested in collecting this currency. A more realistic capitalist/free market approach would be to understand that the price is actually determined by the relative abundance of resources - and not by the amount of effort invested in collecting them. In our case the second approach gives us the same result - since both players have the same "earning" rate so the abundance of currency items is also 1:4. Or is it?
During higher character level gameplay, alcs are often constantly used - which means they are consumed and no longer exist in the POE economy. If, for example, the 2 players consume a quarter of the alc's they find (and approximately none of the C), the relative abundance in this POE economy would be 1:3. Which brings us back to the real case.&nbs