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Axie Infinity and similar GameFi projects and play-to-earn games are disrupting the traditional gaming industry as we know it. These play-to-earn crypto games are essentially blockchain-based monetizations of the gaming experience. What primarily differentiates them from traditional games is that players play to earn rewards rather than to win: think Monopoly, played for real cash.
Unsurprisingly, the ability to reward players for their time and effort is behind the rapid explosion in popularity of these play-to-earn games, commonly termed GameFi. Who wouldn’t love the idea of earning while having fun? In this article, we’ll take a deep dive into the world of GameFi games. We’ll also consider its origin, the various models for monetization and what to expect in the future.
GameFi, one of the hottest buzzwords in the cryptoverse, is a portmanteau of “Game” and “Finance.” It describes the gamification of financial systems to create profit from playing play-to-earn crypto games.
GameFi video game projects run on a blockchain’s distributed ledger, which enables players to have verifiable ownership of the virtual items in the game. In contrast to traditional gaming, where users play to win, GameFi projects adopt a play-to-earn model.
The first instances of the GameFi concept include early Minecraft servers integrated with Bitcoin; Gambit.com; online games like Bombermine; and peer-to-peer services with which gamers monetize their online efforts.
In a speech delivered at the World Blockchain Conference held in Wuzhen, China in November 2019, the founders of MixMarvel, a blockchain game studio, highlighted the possibilities of using blockchain technology to revolutionize the video gaming industry.
However, the term “GameFi” was first used to describe this new trend by Yearn.finance founder Andre Cronje in a September 2020 tweet. Since then, the term has been widely used to refer to video games embedded with blockchain-powered decentralized financial elements. These projects take advantage of the popularity of video games, combined with unique features of cryptocurrencies, to make GameFi a fascinating space.
Different GameFi projects typically have a few commonalities. In-game items such as avatars, land, costumes, weapons, gold, tokens and pets are represented as NFTs—non-fungible digital tokens that prove ownership of these digital objects. Game players acquire these items through game play, and can trade them on NFT marketplaces for profit or exchange them for cryptocurrencies — which can in turn be exchanged for fiat money.
Early GameFi titles used the Bitcoin blockchain, but the cost of transactions and the lack of speed prompted the adoption of the smart contract-enabled blockchain network, Ethereum.
Crypto game developers widely used Ethereum, and it’s still popular, but it has performance issues as well, due to limited block space. This vulnerability was highlighted when the viral popularity of CryptoKitties congested the Ethereum network in late 2017, causing Ethereum’s fees to skyrocket.
Because of block space limitations on the Ethereum blockchain, transactions requiring faster settlement times incentivize miners to add these ahead of others through the included fee model. As demand outstrips the block space available, the transaction costs spike, pricing some users out.
Of course, a game that requires exorbitant fees for in-game transactions will have difficulty gaining a significant user base. Faced with this problem, some crypto game developers moved from Ethereum’s base layer to faster networks. These large capacity networks include Solana, Polkadot, Polygon, Wax and BSC.
GameFi projects have many levels to progress through. Players can increase earnings by dedicating time to improving their characters, monetizing their land assets by developing structures that other players pay to visit, or battling other players in tournaments.
All data are stored on the decentralized public blockchain, which keeps track of what everyone owns. This means that players, not the game developers, own all of the assets.
As a player, any in-game asset you acquire is yours for keeps, even if a server is turned off or the gaming company suffers technical downtime. This makes crypto gaming a source of actual income for players even as they’re being entertained. Some gamers even make a full-time income.
There are even more benefits. DeFi concepts like staking, liquidity mining and yield farming are gaining a foothold in GameFi projects. These are all additional ways players can earn in-game passive income. Players can stake their in-game assets to earn annual interest and other rewards, which they can use to unlock new levels or to buy additional in-game items. At the same time, players can take out loans by collateralizing their game assets.
Unlike traditional game development, which is centralized, GameFi projects may involve users in decision-making. Some games let players decide future game updates by giving stakeholder voting power to members of the GameFi DAO (Decentralized Autonomous Organization).
A DAO allows token holders to propose project updates and vote on them, making GameFi truly participatory. These proposals usually have a financial impact, such as members of the DAO voting to increase the reward for a particular in-game action.
You must own a project’s governance token to be a member of the GameFi DAO. Typically, your voting power is directly proportional to the number of tokens you hold.
GameFi, like every other blockchain-based trend, has begun to shake up the traditional online gaming industry. Combining DeFi, NFTs and blockchain technology elements, GameFi is changing online gaming as we know it.
GameFi projects assume different forms, but most of the popular crypto and NFT games share features which set them apart from traditional online games.
The play-to-earn model characteristic of GameFi projects is revolutionary. Traditional online games make money through in-app purchases, affiliate marketing and advertising. As a player, you spend money buying in-game items to help you win or get an edge over other players. Of course, that spending goes directly to the game operators.
Also, if you’re like most players who grew up with online video game staples like Minecraft and PlayerUnknown’s Battlegrounds, you’ll be used to highly coveted in-game coins that have no value outside the game environment. Apart from the entertainment, you get nothing in return for your time and effort dedicated to playing these online games.
This is where play-to-earn crypto games flip the script: allowing gamers to add real-world value to their in-game purchases. In-game items and products are stored on a distributed public ledger or blockchain running on a crypto network. This blockchain technology allows in-game tokens and items to be traded for cryptocurrencies and, ultimately, actual cash.
To enhance the gaming experience and get ahead, online game players buy items like coins, weapons, extra lives, custom characters, outfits, avatars, accessories, etc., directly from the game. Traditional gameplay involves buying assets from stores owned by the game developers, enriching the developers and not the players. This can limit players’ online gaming experience, especially those who don’t have much cash to spend. On the other hand, with crypto gaming, these purchases are made with cryptocurrencies and often involve trading valuable assets amongst players.
Regular online games allow digital ownership. But they don’t have the value or monetary worth that crypto games offer. You cannot exchange your in-game assets
with other players for value. This is a striking difference from the decentralized operations of GameFi projects, where players own globally distributed digital assets that aren’t limited to gaming purposes.
Most GameFi games are free to download and play, which makes them more accessible than traditional games. While there are no upfront costs, some games may require you to purchase the in-game tokens, characters and other items to get started.
GameFi players have their assets and NFTs stored on the blockchain for life. This contrasts traditional games, which can be shut down any time, causing gamers to lose all of their in-game progress. All assets belong to the game developer, and players have no control over the life cycle of the gaming platform. If the game developer goes bankrupt, gamers can say goodbye to further development of the game.
Furthermore, traditional online games are not as secure as blockchain-based crypto games, making them vulnerable to attacks. Players can lose all of their assets in a hacking incident.
GameFi projects adopt simple gameplay mechanisms, an attribute that makes them easy to understand and navigate. This simple approach lowers the barrier to entry, driving considerable uptake. Players of all ages and experience can comfortably participate.
Although the origin of GameFi can be traced to the early development of cryptocurrencies, it’s only now beginning to gain mainstream adoption. An often cited example that demonstrates the growth of this exciting new trend is the massive success of Axie Infinity. The popular GameFi project became the first to surpass $1 billion in token sales in August 2021, and has seen over a million daily active players.
The constantly evolving technology behind crypto gaming has advanced to the point where new GameFi projects are attracting huge fan bases, as well as institutional funding. Industry experts believe crypto gaming to be the most likely portal for widespread adoption and use of blockchain technology. As GameFi projects gain a foothold with traditional gamers, familiarity with crypto can only grow.
As you might expect, GameFi is increasingly taking up chunks of the growing $175 billion gaming market. Video gamers have long enjoyed and familiarized themselves with the concepts of in-game currencies, scarce digital items and tokenization, all without gaining monetary value. Undoubtedly, there will be a greater appeal to GameFi projects that contain all of these elements while directly empowering users financially.
These are exciting times for GameFi. Leading industry players, such as game studios Ubisoft and MOBOX and semiconductor maker AMD, are part of the Blockchain Game
Alliance, an organization created to increase awareness of GameFi. Welcomed by developers and gamers alike, BGA claims to further the cause of crypto gaming by providing infrastructure for game development, and forums for developers and players to network, collaborate and share knowledge, in addition to creating common standards.
GameFi is rapidly growing, and the collective market capitalization of leading blockchain games has topped $14 billion. But given the massive size of the gaming industry, the total addressable market offers even greater opportunities for growth.
With the runaway success of crypto games like Axie Infinity and CropBytes, the future of GameFi seems bright. With many more GameFi games in the works, newer innovations are to be expected. Some of the crypto gaming projects currently under development include:
These newer games will unlock even more opportunities for gamified profit and a feature-rich gaming experience.
There is more. Gaming platforms like MOBOX are being designed to allow individuals to build their own NFTs and games with interoperability capabilities. The platform also features DeFi functionalities such as staking and liquidity pools, enabling gamers to generate income from their assets. This income can then be used to buy in-game upgrades or generate keys to unlock new NFTs.
The GameFi concept is clearly an improvement over existing online games that give users a decent return-to-player ratio. The play-to-earn mechanism is ultimately the passport to broader crypto adoption as blockchain and NFT games hint of what lies ahead. It’s not surprising, then, that this explosive trend shows no signs of slowing down. At this rate, GameFi and NFTs will become a rallying point for DeFi. With growing public interest and an influx of capital, prospects for this nascent industry are limitless.
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