Inflation - A Commerce Journey - Part 4 - Ep7

In the last edition of the Inflation Series, we will discuss how inflation has been integrated into economy-based games, specifically Hypixel Skyblock.

We will move topic-to-topic from the last episode (Inflation - A Commerce Journey - Part 3 - Ep6) and cover all the parts and how we've seen everything applied in the game.

In short, we talked about whether people had taken steps to safeguard themselves from inflation which reduces the worth of their savings, what steps they can take, and what they have taken already. We then discussed it they thought inflation would increase, decrease, or remain the same in the following year. And we ended the episode discussing how concerned the people are with inflation's effect on their financial security.

Protecting Against Inflation in Hypixel Skyblock:

Protecting yourself from inflation in Skyblock is never an easy task.

But before we dive into why, lets understand the situation of the Skyblock economy, It is a free market which allows players to sell whatever they desire to whomever they desire at whatever price they desire. This means multiple items can fetch billions upon billions of coins. Skyblock as an economy is hyper inflated, which leads to items which are limited in quantity growing in price exponentially, an item can increase its price 10-50x within a range of a year if the quantity is low, for example, If we take a "smitten rune" which is a cosmetic item, released as a valentine's day special, was listed for 950 Gems or 10 Dollars (840 Rupees) was listed on the Auction House for about 35 Million Coins during the sale, shortly after the sale ended it rose to 85 Million, and today its worth over 870 Million Coins, more than 20x the original price. 

Another item we can consider here is the "Stock Of Stonks"

• The Stock of Stonks was originally sold by Warren (NPC) for 200 coins. This item was intended to be valueless, to be used as a token simply to test if the Bazaar was working as intended.
• Less than a day after its debut, Warren stopped selling Stocks, because enough had been purchased to test the Bazaar comfortably. Players quickly listed the Stock on the Bazaar, and its price fluctuated wildly until it settled somewhere above its original cost price.
• During this time, Warren's GUI indicated that players would, one day, be able to sell Stocks back to Warren.

This shows the item lore or description.

• Warren was removed with the update on May 19, 2020, with the line in the changelog reading: "Warren is going on vacation for a long long time."
• Over time, the Stock's original purpose was forgotten, and players took time to think about the description on the item. Tempted by the potential of 100x riches, some players have hoards of Stocks ready to be turned into something else.

The item value peaked at about 6.7 Million Coins meaning the price rose 33,500x the original value!! All because of investor anticipation. Today its worth around 3.6 million coins as there was an update which allowed you to get this item again recently which crashed the item's price.

Both these cases show the insane levels of inflation in the economy.

The item prices are determined by something called price mechanism which is essentially supply and demand,

The Law of Demand:

• Inverse Relationship: As the price of a good or service increases, the quantity demanded by consumers tends to decrease, and vice versa.

• Factors Influencing Demand: This law is not absolute and can be influenced by factors like income, consumer tastes, expectations, and the availability of substitute goods.

The Law of Supply:

• Direct Relationship: As the price of a good or service increases, the quantity supplied by producers tends to increase, and vice versa.

Now this essentially means that:

• Supply goes up and demand is same then price go down.
• Demand go up and supply same then price go up.
• Both go up same units price stays same.
• Both go down same units price stays same.

Now lets look at the effects of inflation:

This graph shows the amount of coins moved by the bazaar every single day. You can see it starts off at a measly 30-50 Million coins but very slowly over the years moves up to spike at 1.7 Trillion Coins when the server was most active and settles at around 1.2 Trillion Coins and slowly grows. This effectively shows that the bazaar went from moving about 900 Million - 1.5 Billion coins a month to over 30 Trillion!

Now looking at the auction house:

Here we can see the same trend of moving a few Million coins worth of items per month to trillions upon trillions. This was majorly caused by the addition of new and rarer items as well as the Impending doom of hyperinflation. The fall after the spike was because a lot of items were moved from only being able to be sold on the auction house to the bazaar instead. The graph shows in the beginning that the auction house circulated about 27 Million coins which is now EASILY earned in an hour by the average player, some may even earn upwards of 100m/hr.

The last information release was in 2023. During this year the bazaar managed to circulate 287 Trillion Coins and the auction house circulated 488 Trillion Coins, Coins cannot be bought directly but instead players can buy Gems through the Hypixel Store which can be used to get in game cosmetics which can then be sold to other players, averaging the amount earned per dollar spent can come around to 3 Million Coins = 1 Dollar in 2023 specifically which means that the real life worth of the coins circulated in the Hypixel Skyblock Economy//GDP of Hypixel Skyblock comes around to be $245,000,000 or 250 Million USD. 

Skyblock faces BIG problem when it comes to inflation, the currency is too easily creatable, or in other words it can be spawned out of thin air, which also means there is more money in players pockets which means they can buy more and more expensive items which drives the demand for said items but the supply remains around constant which In turn increases the costs of everything around, which forces players to spend more/Earn more and this causes an endless chain.

Now the major problem started when there was a new Game Update "The Garden" which was a huge update to the farming skill of the game, before hand people would take 9-12 Months to farm even 500 Million Of a crop for example Potatoes. This update enabled people to do it in weeks. Now because the supply of this is so big and the use of potatoes isn't anything special or extreme the prices are near 0, 0.5-1 Coin Per Potato, Now in Skyblock you have NPCs or Non Playable Characters. These NPCs have a set price for every item in the game, they give you money in exchange for items, but where does this money come from? Its the Skyblock equivalent of Governments printing money! That's right, it comes out of nowhere, its essentially spawned in from thin air. NPCs have an infinite demand for an item, its essentially a case of "If u have it ill buy it!", no matter how high supply gets the price will stay the exact same. Essentially meaning that its a void of infinite money, the more you create the more you get.

Even if prices on the bazaar are lower and you sell it Via the bazaar, players tend to buy it cheap and sell it to an NPC for profit. Potatoes alone spawn in over 20 Billion Potatoes x 3 Coins a month = 60 Billion Coins, Maybe even more as NPC transactions are completely undocumented.

To show the inflation effect:

The method of obtaining any items were not made easier and supply stayed the same! Yet the prices increased DRASTICALLY! 

The inflation rate from Feb 2023 - July 2023 was shown above which essentially shows a yearly inflation rate in 2023 of over 150%! Our global economies function at about 4.5-6%!

All these methods are termed as "Coin Generators".

Now lets look at the opposites, AKA "Coin Sinks".

This is essentially where coins are taken away from players and not given to anyone else, this is about the only way that coins can be removed from the economy, things under this category include NPC bought items, Losing coins by Death, Dark Auctions (Bidding on items sold by an NPC named Sirius)

To figure out if the economy is being inflated or Deflated we look at The coins Generated vs Coins Sunk:

Coins Generated > Coins Sunk = Inflation,
Coins Generated < Coins Sunk = Deflation.

The data about how many coins are generated and sunk are not available to the Public, but after talks with the game developers I got access, from June - July 2023

• Coins Generated: 21.7 Trillion
• Coins Sunk: 16.6 Trillion
• Total Growth: 5.1 Trillion

These are where all the coins were generated in this month, we will do deeper dives into each aspect in other episodes.

Now to review the Coin Sinks:

After viewing all of this data which i hope did not give you a headache, we can come back to the question of what is the best investments, well in simple terms, the best investments are cosmetics or items with EXTREMELY low supply but HIGH demand later on, such as item skins//cosmetics. You can buy these for cheaper when they get released and sell it later (weeks/months/years) for returns that will surely beat inflation.

And after reviewing this, we can surely say that the Skyblock economy will not slow down any time soon; Inflation will continue to dominate.

And if we talk about the pros and cons of inflation in the game, well they mostly match a real world economy;

Pros:

• Indicates Economic Growth
• Players make more money
• It stimulates players to make better investments
• Increases Spending throughout
• Boosts Productivity
• Adjusts relative prices
• Assets increase in price
• No recession.

Cons:

• Erodes Purchasing Power
• Uncertainty for Investments
• Savings fall in value
• Possible Recession
• Inequality
• distorts relative prices.

Well that's it for the Inflation series, ill see you in the next episode with an even cooler topic!

Stay tuned for updates.