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Cathal. Since the economy isn't about making money on the site, or about getting rich -- but rather about an exchange between users a giant chunk of the FR economy IS already breeding based. We're already in a game with a breeding based economy. The economy right now just isn't rewarding people super in to breeding very well right now since dragons are becoming increasingly slow to sell and are dropping rapidly in price.
If you're asking about how a higher tier of expensive dragons would work, there's several ways I could think of
1) Increase perceived value of these dragons.
Example 1: Put in two breeds at once. Breed A and Breed B. Breed B could only be gotten through a mix of Breed A and some other specific dragon OR Breed B being mixed with Breed B, Breed A, or another specific breed.
Which would mean even if a dragon isn't particularly rare people would percieve it as valuable and pay more for it because it could be a gateway to Breed B. Very similar to how Wildclaws are used now, and how they're retained price relatively well despite initially being cheaper than commons.
Example 2: Add in a cool gene that can only be used by specific dragons, creating a perceived higher value for these dragons. This could be a breed restricted gene OR could be a gene that changes based on the dragon's element.
Much like Imps prices would be -- at least initially -- artificially inflated based on the fact that people -really want- these guys. Which is different than demand. Like, there might still be the same amount of people DEMANDing the item (that is, the same demand) but if there is a kind of mouth-frothing high amount of desire for the item then you get a situation like bidding wars at an auction (where an item can go for WAY ABOVE its value even though the 'demand' in that case might just be two people fighting over it).
2) Add in dragons that continue to change over time, and gain new breeding abilities based on how old they are OR add in new breeding abilities that are dependent on a dragon's level.
Like, maybe add in some colors/genes that are only attainable through breeding a 'special' (read, older or more high level dragon). You could even make it if a dragon is traded they lose these special abilities. The main problem I see with this would be that it would disproportionately reward players who can spend long continuous periods on the site OR who are early adopters.
3) Add in dragons that produce different offspring based on how many times they are bred.
The offspring could be either more or less valuable as time goes on. Either way would serve to restrict numbers of the variant offspring, while simultaneously increasing (or decreasing) the value of the parents -- making players have to make choices about how long they might keep a dragon, or how many times they might breed them.
4) Add in 'variant sprites' for several breeds that can pop up when one is breeding. Perhaps base them on the elements of the nest they are bred in, or, based on apparel the parent dragons are wearing when they are bred.
5) Add in a ways to facilitate studding, nest sharing, and multi-dragon exchanges (say, 2 dragons for 1 dragon in a trade) without making players take significant risks and having to fear about the trustworthiness of their partner. Put in game mechanics that facilitate people charging for studdings. Make it so that when you buy a dragon you like, you do not feel automatically compelled to go out and buy a mate for them. This would be ESPECIALLY useful for the high-tier breeding I am talking about.
6) Add in an infertility mechanic. Give players the option to spend money to render a dragon 'infertile' before they sell it. The infertility mechanic might be a permanent thing (the game equivalent of spaying or neutering a dragon) or, it might be a temporary thing. Infertile dragons would, of course, sell for a lot less than fertile ones. This would make it so that players who DON'T want to play a hardcore breeding game could get their paws on a pretty dragon that they like (and want to RP with or use in the coli) without messing up the high-tier breeders' plans. Maybe even make it so that infertile dragons have a higher-exalt price than fertile ones to encourage players looking to make a quick sale to render their dragons infertile.
The idea is that most of the dragon prices stay right where they are. But that new content is added that will provide gameplay for the people who want to buy, sell, and trade dragons for 500k. Game play that could be worked up to over several months solely via breeding dragons if one wished (eg. using plentifuls to make enough money to buy commons, using commons to make enough money to buy uncommons, using uncommons to make enough money to get into the limited and rare market). I WANT dream dragons to be accessable to people! I also want there to be a game for 'hardcore' breeders that ISN'T just made up of breeding triple obsidians and triple whites.