I think they've already explained what exactly it will be. Most pieces of equipment, as you use them, accumulate 'attachment points'; and, when this reaches a maximum level, you then have the option of converting the equipment into materia. The materia is an item that enhances equipment, presumably of the same type.
In the materia creation process, the equipment is destroyed, and materia is generated. When the materia is attached, you could consider the materia destroyed as well. Most likely that piece of equipment will converted into materia as well, thus destroying completely both pieces of equipment and the materia as well.
The only thing I am worried about is how diverse materia will be. NM and HQ versions are much much more expensive than their NQ counterparts, and the quality of materia should reflect this.
Here is an example: If a NQ Banneret Lance is worth 50,000 gil and when it is converted into materia which gives Attack +4. Now consider the a Banneret Lance+2 worth say 2 million gil. The difference in quality of materia should be reflected in this difference of price. It's hard to say just how much more Attack or whatever extra stats should be added, as it is determined more by player demand than anything else. I would say, a decent example could be: NQ Materia = Attack +4; HQ1= STR+2 Attack +4; HQ2= STR+3 Attack +6; HQ3 = STR+5 Attack +10.
Edit: Now say you have a Champion's Lance, worth 2,000,000 gil With NQ Materia = Attack +6; HQ1 = Str+3 Attack+10; HQ2 STR+5 Attack+12; HQ3 = STR+7 Attack +15
If you don't have a decent gap between the two types of materia, people will never convert the more expensive equipment when it is more cost effective to just use something cheaper. But if, the NM Gear gives significantly better Materia, then that would create a real demand for special equipment. I think this will be the hard balancing point on the whole Materia system.
This however is assuming that the materia crafting process works differently from normal crafts. In this example, the assumption is each piece of equipment is automatically converted into a certain type of materia and there is no effect on the quality of materia through the actual synthesis process. If in fact the materia synthesis are identical to other synthesis and the equipment just acts as simple ingredients, Higher quality equipment only raising durability and quality during synthesis, then I still think it would be necessary to encourage players to convert their HQ equipment into HQ materia by having higher quality materia.
That said, I think there will be a lot of materia available... the price of materia should be formed by the initial cost of the weapon itself + some gil to pay for the players time in accumulating attachment points. Unless ofcourse there is too much materia being generated, then players would end up losing by turning gear into materia, and would end up reselling the equipment. This is actually a very good mechanism that helps keep equipment in stock.
All in all, as a econ major and total econ dweeb, I can really appreciate how much potential the Materia system has.



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