Sink Efficiency Ratio
The Sink Efficiency Ratio (η, "eta") is an economic metric that measures Web3 game token sustainability by dividing total tokens sunk (S_T) by total tokens emitted (E_T) over the same period. An η between 0.90 and 0.95 indicates healthy equilibrium; below 0.80 signals severe inflation; below 0.60 indicates an active death spiral.
Defined by Sean Sandoval in The P2E Bible (Buy One Media LLC, 2026), Ch. 4 (p. 78). Cite as: Sandoval, Sean. "Sink Efficiency Ratio." The P2E Bible, 2026, Ch. 4 (p. 78).
Formal Notation & Variable Definitions
| Symbol | Variable Name | Unit | Description |
|---|---|---|---|
| η | Sink Efficiency Ratio | Dimensionless | Ratio of token burn sinks to token creation faucets |
| S_T | Total Tokens Sunk | Tokens / USD | Total utility tokens permanently burned or locked in sinks per period |
| E_T | Total Tokens Emitted | Tokens / USD | Total utility tokens minted as play rewards or staking emissions per period |
The 6-Band Sustainability Scale
η ≥ 1.10 — Deflationary Risk (Thin liquidity, over-burning restricting progression).
0.95 < η < 1.10 — High Sinks (Deflationary bias, strong long-term asset retention).
0.90 ≤ η ≤ 0.95 — Equilibrium Target (Healthy state — GREEN target balance).
0.80 ≤ η < 0.90 — Mild Inflation (Monitor monthly for sink decay).
0.60 ≤ η < 0.80 — Critical Warning (Commit no capital — YELLOW alert).
η < 0.60 — Death Spiral Alert (Execute exit framework — RED Ponzi collapse risk).
The Mathematical Formula & Mechanics
η = S_T ÷ E_T (total utility tokens sunk divided by total utility tokens emitted over a 7-day or 30-day trailing window).
Faucets generate inflationary pressure (quest rewards, staking yield, daily logins). Sinks absorb liquid tokens (crafting fees, weapon repair, breeding costs, marketplace commissions).
Worked Example & Calculations
A game emits 10,000,000 utility tokens per week through gameplay rewards and staking (E_T). Its sink mechanics — crafting fees, character upgrades, and marketplace commissions — burn 4,000,000 tokens per week (S_T). η = 4,000,000 ÷ 10,000,000 = 0.40.
Because 0.40 is well below the 0.60 threshold, this economy generates 2.5× more tokens than it absorbs. It is in an active Death Spiral. Walk away.
Common Anti-Patterns & Mistakes
1. Misclassifying Staking Locks as Sinks: Temporary staking lockups are delayed faucets, not permanent sinks. If tokens are returned with interest, they compound future inflation.
2. Relying on F2P Cosmetic Sinks Alone: Non-payer conversion rates are rarely high enough to absorb reward-token emissions from active farmers.
FAQ
What is the healthy target range for Sink Efficiency Ratio?
0.90 ≤ η ≤ 0.95 is the equilibrium target. Below 0.60 triggers an automatic Death Spiral Alert.
What is the difference between a faucet and a sink?
Faucets create tokens (play rewards, staking); sinks remove them (fees, crafting, burns). A healthy economy keeps them in balance.