WoW token supply and demand

Recently, Blizzard introduced it's own version of Eve Online's "PLEX", calling it the "WoW Token." Briefly, Blizzard's system works like this: You buy a WoW Token from the Item Shop and then list it for sale in a special kind of auction in the auction house. You cannot set the price, it is set for you, and you get paid that price when it sells. When the other player buys the token though a "buyout" (They cannot bid on the token, buyout is the only option.) it becomes soulbound and can only be used to buy game time from Blizzard.

Rampant speculation has ensued, with possible effects ranging from some mild inflation to tokens being the harbinger of the demon apocalypse that destroys all mankind.

So far, so good, nothing has really happened. I don't think anything is going to happen, either, unless Blizzard radically changes how the tokens work. And change it they eventually will, once they threw down by putting the tokens into the game, they're going to have to double down until it works. And by "works" I mean do what it's supposed to do, curtail illicit RMT.

Here's the problem: I don't think all that many people are buying these tokens.

First, let's lock down some definitions. There are 2 kinds of tokens, and I'm going to refer to them as such. The first token is the "RMT token", that's the one you buy in the Item Shop for real money and sell in the auction house for in game gold. The second is the "Game Time token", this is the one you buy in the auction house for in game gold and redeem for game time. The two are linked in that RMT tokens must exist before Game Time tokens can be created and sold. There can never be more Game Time tokens as there were RMT tokens.

The RMT token price is fixed at 20 dollars US. The laws of supply and demand then determine the price of the Game Time tokens in the auction house. In theory, if demand for the Game Time tokens exceeds the supply of RMT tokens, the gold price in the AH rises, otherwise it falls.

But I don't think that can work right with the given mechanics. Determining supply is easy, how many more RMT tokens have been sold than Game Time tokens have been bought? However, determining the demand for the Game Time tokens is nearly impossible other than "Well, there are none in the AH, so there must be demand." And of course, there is nothing stopping people from buying the RMT tokens and not listing them in the AH because the price was too low for them.

In the real world, a similar problem exists. Purchasers cannot buy goods until the goods are produced, and, no more goods can be purchased than have been produced, so it looks the same as our token transactions. The laws of supply and demand work in the real world, so they should work the same here too, right? Wrong!

The real world is massively different. In the real world, a producer expresses the desire to manufacture and sell a product, then distributors respond with the intend to buy those products. This symmetrical relationship weighs supply and demand equally to determine price and quantity. Orders are placed, things are manufactured, goods change hands. The process corrects and refines itself over time to adjust the price and quantity produced over time.

But that can't happen with the Game Time tokens. The observable demand for those is asymmetric to the observable supply of the RMT tokens. As I indicated before, determining the supply is easy. But the demand is a black box. All you know is how many were sold. You have no idea how many people WANT them. In order for supply / demand to be symmetrical, you have to know what the demand is with the same accuracy as you know the supply.

There is a website, https://wowtoken.info/ that is tracking the price and is producing a real time graph. Here is an image of that graph:

Notice that the price over time is a triangle wave, and that the slope of the wave is the same on both sides. Note also that the duration of the wave is fairly constant, flipping directions about twice a day. Also, note that the time to sell is currently 2 to 12 hours. I don't know if the time to sell is accurate, but if it is, that means VERY few tokens are selling since the auction is region wide. From this chart, we can make some observations and assumptions about how the algorithm that Blizzard uses to set the price of the Game Time token works. It appears that a drift direction is set, then the price drifts in that direction for 12 hours at a set percentage / hour (1 percent per hour.). After 12 hours, the next sale reverses the direction of the percentage / hour drift and the 12 hour timer is started again.

I don't see how the price is going to do anything but do what it's doing right now. It's pretty much dropped as far as it can, and doesn't have the demand side driver to pull it back up.

Except that it SHOULD have the demand side to drive it back up. You would think lots of people want to play for free, even though that means being slaves to their Garrisons or whatever, but if other people don't want to buy the RMT tokens, they can't buy the Game Time tokens. The price is just going to sit there, with sales idling along.

If the issue is the supply, then the obvious solution is to allow people to buy Game Time tokens that don't exist. Then, to “close the loop” use the difference in RMT token sales and Game Time token sales to servo the price to it's balance point where supply equals demand instead of this 24 hour duration triangle wave. Supply and demand would now be symmetrical and price fluctuated as they adjust. Essentially, you're just buying Game Time tokens directly, there is no auction really going on.

That will work great until supply catches up with demand. At that point, people buying RMT tokens will see delays in payment based on the volume of sales. This will crimp RMT token sales as people want their gold immediately, just like the illicit guys do it. After all, the price was already guaranteed, why should you have to wait?

Now comes the moral hazard. When that happens, and supply and demand are equalized but the WoW token systems fails to stamp out illicit RMT, they'll have to double down again and dispense with the “auction” entirely, giving people gold immediately for their RMT tokens as well as allowing people to buy the Game Time tokens immediately. Otherwise, they can't compete with illicit RMT sellers who deliver immediately. That would probably set off the Wiemar Republic grade inflation bomb that annihilates the economy.