There has been an economic panic in World of Warcraft. On Feb. 6, Blizzard changed the rules, allowing players to exchange WoW Tokens for Battle.net balance. That means that gold you earn or buy in World of Warcraft can now be used in any Blizzard property.

This has caused wild fluctuations in the value of the tokens, the value of WoW gold and, by extension, the time WoW players spend earning that gold.

Wait, what are we talking about?

WoW Tokens are Blizzard’s mechanism for allowing players to spend real money to buy gold, the in-game currency players can earn from killing monsters, completing quests and selling loot to vendors.

The in-game gold economy has been plagued by shady outfits trying to sell gold for cash since the game launched in 2004, and a litany of other problems, including players automating play or “botting,” item duping and widespread account theft by hackers looking to strip players’ characters and sell off their stuff came along with the business.

In 2015, Blizzard started letting players buy gold from each other using WoW Tokens, to try to control the process and mitigate damage. “Time is money, friend — but sometimes one is harder to come by than the other,” Blizzard says on the official page. “Now World of Warcraft players can use the WoW Token in exchange for game time or Battle.net Balance!”

You can buy a Token for $20 in the in-game cash store, and sell it on the Auction House, where another player can buy it with an amount of gold dictated by the current market value of a token. You can’t sell a token again once you’ve purchased it with gold, but you can cash it in for game time.

Compared to economy-heavy games like EVE Online, this is a very simple system for allowing real-world currencies and real-world commodities to interact with the in-game economy in much more complex ways. A Token is just a one-time transaction that allows players to buy and sell gold.

What changed?

Players can now also redeem the Token for $15 of Battle.net balance, which is credit that can be used in WoW’s cash shop for paid mounts, companion pets and account services like character transfers, name changes and level boosts.

You can also use Battle.net balance to purchase other Blizzard software, or to make in-game purchases of things like Hearthstone cards, Overwatch loot boxes and characters and cosmetics in Heroes of the Storm.

This mechanism allows the creation in-game of a commodity — subscription time — that has value without affecting gameplay or the scarcities of other valued items.

This means that it allows players to buy gold that other players are already producing in the economy without having to do business with shady characters in the illicit gold-selling industry, such as Donald Trump adviser Steve Bannon.

And, theoretically, the gold players get from tokens is created through legitimate means, rather than the cheating and criminal activity that filled the coffers of illicit gold-sellers.

There is no longer a World of Warcraft economy, there is a Blizzard economy.

What was the result?

Blizzard had announced players would soon be able to convert WoW Tokens into Battle.net balance, but the company never said when the feature was coming. When it was added to the game on Feb. 6 it wasn’t even during a normal server maintenance.

The rollout caught players by surprise.

A token was selling for 58,000 gold early that morning. The price had been hovering between 55,000 and 60,000 gold for a couple of months. By Tuesday morning, the price had rocketed to 115,000 gold. Gold-makers were panicking; the value of WoW gold relative to real money was in free fall. Players predicted tokens climbing to auction house prices as high as 200,000 gold.

The trend then reversed, and the price fell all the way back to 60,000 gold on Wednesday before recovering to around 80,000 Wednesday night. Over the weekend, prices have been fluctuating between 80,000 and 100,000 gold. When prices climb too high, people start paying cash to buy tokens and get gold, but the people with the gold stop buying tokens.

Prices fluctuated so much because nobody knows what a WoW Token is worth now. Since the WoW Token interface also doesn’t let you know how many tokens are actually for sale at any given time, it’s unclear whether buyers and sellers are rushing into and out of the market at different price points, or whether a single gold-rich buyer using a low point as an opportunity to liquidate can send the price skyrocketing.

After about two weeks, the extreme volatility of the first few days has subsided. Prices fluctuated between 87,000 and 91,000 gold over the Feb 18-20 weekend, but intraday price variance continues to be high relative to historical standards, and it's still unclear whether these prices are sustainable in the long term, or whether they reflect the temporary impact of a handful of players dumping lots of gold.

Supply and Demand

The WoW Token is a simple market. All the tokens are identical, and have a static real-money cost. When there are more people wanting to buy gold than people wanting to sell gold, the price falls. When there are more people looking to sell gold than buy it, the price rises.

As the gold price of a $20 token falls, more people with gold are willing to convert it into tokens, and fewer people with money are willing to buy gold at that rate. As the gold price rises, the value of the token begins to exceed the value of the time spent accumulating the gold for some market participants and they stop selling their gold. Meanwhile, other people with cash are enticed to enter the market because of the high amount of gold they can get for their tokens.

Either way, eventually, the market reaches equilibrium, a point at which the demand is pretty equal to the supply.

Allowing WoW Tokens to be used for Battle.net balance creates new demand for tokens. There are some players in WoW with lots of gold who have considerable excess even after paying for their subscriptions with tokens. There is a limit on the amount of subscription any player can use, and that amount of tokens doesn’t make a dent in the gold hoards held by some players. Now, assuming those players want to buy stuff in other Blizzard games, they have incentive to buy a lot more tokens.

This has caused wild fluctuation in the value of the tokens, the value of WoW gold and the time WoW players spend earning that gold

That suggests this change should result in a permanent increase in price for tokens. But how many of these people are there? And how much Battle.net balance do they want? And how many more people can be tempted to pay money for gold? Those are the big questions, and each one impacts the economy of these games.

Players in the other Blizzard games are likely to see some changes, but of a much less drastic nature. Hearthstone, Overwatch and Heroes of the Storm all have in-game currencies and economies, but these currencies are only used to buy items from Blizzard; players don’t trade with each other.

In HotS and Overwatch, players may just see more fancy cosmetic skins in their games. In Hearthstone, giving a bunch of players a new way to buy cards may result in seeing more complete decks at lower ranks of the ladder, but many of the “meta” decks are already inexpensive.

Prices might still be high

Prices of WoW Tokens have increased steadily since the feature launched in 2015, but that is a function of the declining value of gold rather than the increasing value of a token.

Throughout the Warlords of Draenor expansion, players with a lot of active garrisons were earning huge amounts of gold passively through garrison missions, and all that wealth sloshing around has inflated the economy. It’s an issue that’s still causing Blizzard to struggle, as we’re seeing with this change.

Gold in WoW has value based on the time it takes a player to earn it. The various methods of farming gold, such as growing herbs, yield maybe 20,000 gold per hour. That means at a price of 100,000 gold, a token represents about five hours of grinding, or offers a wage of $3 per hour. The idea of gold being worth a certain amount per hour is a useful way of framing this discussion, in fact.

How many hours will players grind for a token now worth $15? On the Chinese and European servers — which include Eastern European countries where minimum wages are less than the equivalent of $2 per hour — there are plenty of people willing to sell their time for these prices. There is more of a question of relative value in North America, where players tend to value their time more highly relative to subscription costs.

The idea of gold being worth a certain amount per hour is a useful way of framing this discussion

One useful data point is the cost of gold from illicit services. The WoW Token has taken a bite from their business, but these people are still out there, botting trade goods and stealing and pillaging accounts despite Blizzard’s continuing attempts to ban cheating accounts and confiscate illegal gold. The going rate for gold from these outfits is about $15 per 100,000 gold.

That means, if real players value their time at least as much as gold-sellers value a bot’s time, tokens should never be as cheap as illegal gold. But if it becomes as cheap to buy gold from other players than it is to buy it from gold-sellers, the players who patronize illegal services will switch to tokens. That means more tokens in the market, and therefore, lower prices, so the gold-seller price should impose a ceiling on WoW Token prices.

Further, players with large stashes of gold are currently converting all their in-game wealth into Battle.net balance right now, which is likely pushing prices up. Some of these players have lots of gold income from expansive auction-house rackets, and these players may keep buying tokens … but many of them are just liquidating the stashes they earned from their Draenor garrisons.

Once this wave of demand works its way through the market, the price of a token is likely to come down a bit.

There’s no way to know for sure

It seems likely that price uncertainty and a short-term rush to convert gold into Battle.net balance is pushing WoW Tokens to higher gold prices than they will ultimately become when demand plateaus. But it’s going to be an interesting ride to that eventuality.

If the new Battle.net balance has given rich players a new incentive to liquidate, and the spiking prices are a result of them trying to sell all their gold at once? Prices for tokens could settle much lower once that stash of gold has been depleted. This seems likely, because there’s a compelling new reason to sell gold, but no new reason to buy it. Blizzard has a good way to drain those gold reserves from the market.

But since the WoW Token interface provides so little information about the volume of buyers and sellers, and since we don’t know who is driving the price fluctuations, it is impossible to tell for sure. This is an interesting experiment, and it’s going to impact much more than World of Warcraft.