GameFi is a term for blockchain-based play-to-earn (P2E) games. GameFi is a combination of the words Game and Finance. The GameFi industry exists at an intersection of DeFi technologies and the gaming industry. In GameFi projects users have an opportunity to earn real value assets.
Users of traditional non play-to-earn games have long ago sought an opportunity to monetize their gaming experience. For example, on eBay limited edition cards for the blue murloc eggs from the World of Warcraft game are still on trade. However, these types of items have no use outside of the game. Additionally, no traditional game supports or encourages the monetization of in-game items and users’ gaming experience.
GameFi projects exist at an intersection of blockchain, cryptocurrencies, NFT and DeFi technologies. GameFi exploits the play-to-earn model and positively reinforces the monetization of user gaming experience by users themselves. The play-to-earn model revolutionizes the gaming industry in that instead of being just consumers, players now also become active developers of in-game economies. Most GameFi projects, however, require an initial investment from the players’ part. Such investments include the purchase of in-game currencies, NFTs, and the like. One of the most popular GameFi projects Axie Infinity offers users the so-called Scholarship which is a system for renting Axie NFT creatures. Users can then breed and trade these Axie creatures, as well as put them in battles against other players’ axies and get rewards for winning the fight.
Most of GameFi projects are also DAOs, decentralized autonomous organizations. This means that they’re governed by holders of projects’ governance tokens. Among such GameFi DAOs are projects like the Decentraland DAO, The Sandbox DAO, Aavegotchi, etc.
In traditional Pay-to-Play games users pay for receiving a gaming experience. GameFi games, on the other hand, operate on Play-to-Earn model. Play-to-Earn model is a blockchain-based business model that lets users earn real-value assets such as in-game tokens, cryptocurrencies and NFT objects. NFTs can be in the form of skins, limited cards, weapons or virtual land. These assets can then be traded in and outside of the game. Thus, GameFi projects provide users with an opportunity to monetize their time and gaming experience.
Each GameFi project designs its own economic model and provides users with different ways to earn. Depending on the game, users can earn by completing tasks, winning battles, breeding NFT creatures, and so on. Some GameFi projects also include yield farming, liquidity pools and staking.
There are also Move-to-Earn projects that emerged as a subcategory of Play-to-Earn games. In Move-to-Earn games users earn for being physically active.
History of GameFi
History of GameFi can be traced back to the emergence of Bitcoin in 2013. At the time, several Minecraft servers integrated Bitcoin, making it possible for users to monetize their gaming experience. However, the term GameFi was first introduced at the Wuzhen World Blockchain Conference in November 2019 by the founders of MixMarvel platform. The term became widespread thanks to a tweet by Yearn Finance founder Andre Cronje in September 2020.
The development of the ERC-721 standard for non-fungible tokens, or NFTs, has become crucial for the emergence of the GameFi industry. NFTs are used to mark the uniqueness of digital items. One of the first acknowledged play-to-earn GameFi projects is CryptoKitties released in 2017. In CryptoKitties users collect, breed and trade kitties that are NFTs.
The industry has seen a major rise in 2021 with some of the leading developers of traditional AAA games — such as Ubisoft — expressing an intention to evolve towards GameFi. In the same year, the success of Axie Infinity, one of the most popular GameFi projects, attracted public attention. In august 2021, total sales of Axie Infinity amounted to $1 billion. That same year, S.T.A.L.K.E.R. 2 developers’ plans to adopt NFT caused a public outrage. The developers decided to abandon the idea due to the users’ negative reaction.
Popular GameFi projects
GameFi projects include games in different genres from card games to full-fledged MMORPGs. One of the most popular play-to-earn card games is Splinterlands. As of May 2022, the daily trading volume of the Splinterlands SPS token is $2,923,290, according to Coinmarketcap. According to DappRadar, as of May 19, 2022, the total number of daily unique active wallets in Splinterlands is 335,175.
The most successful GameFi project that has attracted public attention in 2021 is Axie Infinity. Axie Infinity was inspired by the Pokémon franchise. In Axie Infinity, users can collect, breed and trade Axie creatures. Axies can be put in battles. Axie Infinity’s revenue in 2021 amounted to $1.3 billion. During the Covid-19 pandemic, for a large number of people in developing countries – in the Philippines in particular – the game has become the main source of income. In March 2022, the game was hacked and nearly $615 million was stolen.
Other popular GameFi projects include virtual worlds where digital land is monetized. There users are also provided with a variety of digital experiences. Such projects include the Decentraland, The Sandbox, etc.
It is impossible to predict the life cycle of many GameFi projects due to the fact that the industry is still in its early days. Some GameFi projects are criticized as fraudulent and similar to Ponzi schemes. In some GameFi projects user earnings are completely dependent on cash inflows from new users. The GameFi industry has also been criticized as the gambling industry.
There are some ethical questions concerning the age of users. If GameFi is recognized as a full-time occupation and is subject to taxes, would it be legal to let underage users into play-to-earn games?
GameFi has the potential to attract a larger audience into the world of cryptocurrencies. Most GameFi projects are not new to the crypto community. The interface and design of most GameFi projects are not user-friendly to those who have never interacted with the world of crypto. Also, in most GameFi projects the entry level is very high. This altogether limits new users from entering the GameFi industry. Furthermore, there is a chance that users from developing countries will “work” for the benefit of those who have all the initial resources to easily enter play-to-earn games.
Finally, most existing GameFi projects are criticized for their poor gameplay.