April 28, 2023 - 23 min read
GameFi can be defined as the combination of video gaming and blockchain technology. GameFi creates new opportunities for players to use non-fungible tokens (NFTs) and earn cryptocurrencies while playing games, as well as allowing ordinary people to invest in new gaming projects. But before diving deep into GameFi, let’s talk a bit about the gaming industry.
Gaming is one of the fastest-growing industries on Earth. As of 2022, the size of the gaming industry was estimated to be approximately $200 billion, and it’s expected to grow by more than 12% per year. Some estimate that, by 2030, the video game industry could be valued at more than $580 billion. There are currently more than 3 billion gamers worldwide, and that number is also expected to explode in recent years.
Despite its massive growth, gaming has long had a serious problem: money. Gamers spend tens of billions of dollars on in-game items and in-game currencies each year– but historically, there hasn’t been a way to (legally) sell these items to earn real money from in-game activities. While black (and grey) markets exist, these methods of selling in-game items are often illegal and are rife with scams.
However, blockchain technology has changed all this, and it could cause the video gaming industry to grow even faster than current projections have estimated. Blockchain tech has allowed games to create in-game currencies and NFTs that can easily be traded on the open market, and it’s even allowed some people to ditch their jobs to play video games full-time.
In addition, the industry has opened up new possibilities for independent game developers, who can now use token raises, NFT sales, and other methods to raise money for game development. Since players know that they’ll be able to sell an item later for crypto– and eventually, exchange that crypto for cold, hard cash, the development of GameFi solutions has rapidly expanded the percentage of gamers willing to spend large amounts of money on in-game items and currencies.
These incredible benefits have contributed to the GameFi industry’s tremendous growth over the last few years. As of late March 2023, the top GameFi tokens had a combined market cap of nearly $10 billion, with the top tokens being ApeCoin (APE), Decentraland (MANA), Axie Infinity (AXS), The Sandbox (SAND), Chillz (CHZ), Render Token (RNDR), and Enjin Coin (ENJ).
According to research firm Business Research Insights, the GameFi and play-to-earn (P2E) gaming industry is expected to reach an impressive $38 billion in 2028. However, the industry could potentially grow even faster if blockchain tech ends up being integrated into major AAA game franchises like Call of Duty, Halo, or Grand Theft Auto.
In this article, we’ll discuss topics including how GameFi has created new opportunities for players and developers, some of the top GameFi blockchains and blockchain games, the role of gaming guilds, some of the challenges regarding GameFi development, and more– all to give you a clear understanding of what GameFi is and how it’s impacting people across the world.
While in-game currencies have existed for decades, there was really no way to cash out– other than to sell these currencies back to the game, which pretty much no game allowed, due to a lack of clear economic incentives.
Through the creation of gaming tokens and gaming cryptocurrencies, a game can issue a set amount of tokens and reward users with tokens for completing in-game actions. Gaming tokens can also be purchased on both major centralized exchanges and decentralized exchanges (DEXs). Therefore, the market determines the current price of an in-game token, and gamers can easily buy and sell tokens whenever they want.
In addition, since the game developers traditionally own a certain amount of tokens, they can also sell these tokens to raise money for game expansions or even to fund the creation of entirely new games.
As previously mentioned, having in-game tokens also revolutionizes the funding process since VCs and early-stage investors can purchase a game’s native token at a low price in order to fund the game’s development. This provides them with the ability to profit significantly if the game is a success. Since GameFi tokens also allow the public to invest in the tokens as a high-growth asset, the potential for investor profit is much higher when compared to traditional games, which can only rely on game sales and traditional in-game item sales to generate profits.
When it comes to developing a blockchain game, selecting the right chain is key. Regarding chain selection, developers must consider various factors, including transaction fees, developer resources, user base, and liquidity. While Ethereum was initially the most popular blockchain for GameFi, it has serious limitations, including incredibly high transaction fees and low transaction speeds, which make it impractical for many games.
This is why developers have moved to other blockchains, including Layer-2s, like Polygon, since they provide much of the security (and a similar developer experience) as Ethereum while being significantly faster and less expensive. Overall, most game developers typically attempt to stick to EVM-compatible chains, as these chains use Solidity as a primary programming language, allowing them to access a wider developer base. However, many chains are built specifically for– or mainly for GameFi, and these chains have gained a lot of traction in recent months and years.
According to data from Footprint Analytics, as of early Q2 2023, some of the most used GameFi blockchains were:
Below, we list some of the top blockchain games of 2023.
Alien Worlds is currently one of the most popular blockchain games by player count. The game, built on Binance Smart Chain, and has since been deployed on Ethereum and WAX, consists of a complex and interactive metaverse that simulates Earth’s economy. Players can earn the in-game Trilium (TLM) token, as well as purchase a variety of unique NFTs.
MOBOX isn’t a single game but a group of games created in the same ecosystem, which combine NFTs with elements of DeFi yield farming and liquidity pools. Some of the most popular games in the MOBOX ecosystem include MOMO: Token Master, MOMO: Block Brawler, MOMO: ChainZ Arena MOBOX Edition, MOMO: MOland Defense, and MOMO: Clash of MOland.
According to the company:
“MOBOX has built a unique infrastructure that builds on the growing DeFi ecosystem and combines it with Gaming through unique NFTs. Using Liquidity Pools, Yield Farming, and NFTs, the GameFi infrastructure will not just find the best yield strategies for users but also generate unique NFTs that can be used across a multitude of games….by providing liquidity to certain CRATES (pools), CRATE contracts will automatically deliver the best yield for users by utilizing optimal yield farming strategies.”
Axie Infinity is perhaps the most popular blockchain game in existence– or at least, it was. Like Pokemon, the game permits users to breed animated pet character NFTs called Axies. Players battle these Axies against each other in order to win the game’s SLP token, which is required to breed Axies. In contrast to SLP, AXS is Axie Infinity’s main token, which, at the height of the 2021 crypto bull run, had a market cap of billions of dollars and was, by far, the world’s largest GameFi asset by market cap. Since then, the Axie Infinity token has fallen dramatically, and many players have exited the game.
During Axie Infinity’s surge of popularity, thousands of players, particularly those in the Philippines, were able to rely on the game for a full-time income, often being able to earn up to $350 a week (and sometimes, more) from gameplay alone. In addition to its history of full-time players, Axie Infinity is well-known for its extremely expensive NFT sales, with one Axie selling for more than $300,000 and a piece of in-game virtual land selling for a whopping $2.3 million.
Despite its extreme popularity in during the crypto bull run, Axie Infinity has taken heat for a variety of issues, including complaints that the game is not fun to play and that players mainly engage with it to make money. In addition, the game has a high entry cost; during the height of the crypto boom, players often had to pay $1,000 or more just to purchase their first Axie (a requirement for playing), which made it inaccessible for many players. This high entry cost led to a system of wealthier players offering “scholarships” to new players, in which they would front much of the cost of the new player’s first Axie in exchange for a percentage of the player’s earnings.
Axie Infinity initially used the Ethereum blockchain but, due to scalability issues, created its own sidechain, the Ronin Network. As we mentioned earlier, the Ronin Network bridge suffered a famous $650 million hack in March 2022, though most players have been reimbursed since then.
Decentraland is generally considered to be the world’s largest virtual land game. It’s generated a lot of buzz due to some of the incredibly high prices for its in-game land NFTs, with one virtual land plot selling for a staggering $2.4 million in November 2021, during the height of the 2021 bull market. Decentaland utilizes the Ethereum blockchain, which makes buying and selling in-game assets relatively easy but has led to serious issues with lagtime, as well as causing a variety of technical difficulties for players.
Much like other virtual land games like The Sandbox, users can generate their own unique NFT items using the game’s builder tool, which also allows them to create prize competitions and other in-game events.
Decentraland was one of the first major blockchain games to switch to DAO-based governance, which controls the game’s major smart contracts, and allows token holders to vote on resolutions that impact the future of the game, including auction dates, rules involving in-game wearables, as well as deciding which token holders are permitted to join the Security Council, the game’s primary governance group.
Decentraland has seen major corporations invest in in-game land and hold in-game events to advertise their products, with major investors including Samsung, Adidas, Atari, PricewaterhouseCoopers, and Miller Lite. In addition, renowned auction house Sotheby’s even held a major in-game auction of NFT items. In March 2022, Decentraland hosted Metaverse Fashion Week, which hosted a variety of popular fashion brands, including Tommy Hilfiger, Perry Ellis, Dolce & Gabbana, Nicholas Kirkwood, and Elie Saab, among others.
Pegaxy is an extremely popular NFT horse-racing game, and, like The Sandbox, uses the Polygon blockchain. Pegaxy allows players to race and breed fantasy NFT horses, which they can sell for profit Pegaxy has a highly developed in-game economy and, much like Axie Infinity, has seen incredible growth among players in Southeast Asia and The Philipines as it allows players to generate a relatively predictable income. Pegaxy has two native tokens, the main PGX token, as well as the VIS token, a utility token specifically used to breed in-game horse NFTs. In addition, Pexagy gameplay requires little skill, as races are automated,
The Sandbox is perhaps the second most popular metaverse land game. Unlike Decentaland, however, The Sandbox allows players to use significant creativity, as they can create extremely complex virtual items, products, and buildings using the Sandbox’s in-game generators, Voxel Editor and Game Maker. Players can use materials and elements like water, soil, sand, lightning, and lava, as well as mechanical devices, to create customized in-game NFT items. As of early April 2023, The Sandbox’s SAND token and Decentraland’s MANA token had a similar market cap of around $1 billion.
Much like Decentraland, The Sandbox was initially built on the Ethereum blockchain, which led to significant speed and lag issues for players, so in 2022, they switched to the popular Ethereum Layer-2 blockchain, Polygon. This requires players to bridge their Etheruem assets to the Polygon blockchain, which requires extra time, risk, and effort but has resulted in significant speed increases for players, making the game significantly more user-friendly.
The Sandbox was initially relatively centralized, but in 2022, just like Decentraland, they transitioned to DAO governance, allowing token holders to vote on the game’s tokenomics and overall development.
In addition to its overall popularity, the platform is well known for its partnerships with celebrities like Snoop Dogg, Steve Aoki, and Deadmau5.
Bomb Crypto is another one of the most popular blockchain and NFT games on the market today. The game, which claims to have 1 million active players, allows players to build a squad of NFT bombers, fight monsters, and participate in mining Bcoin tokens for rewards. Players engage in group bomb battles and must pay a certain amount of tokens in order to participate in each battle, after which the winner gets the loser’s tokens.
While in-game currencies are an essential part of GameFi, NFTs are also a key element. In many blockchain games, almost every in-game item is an NFT, which can be purchased and, later sold on the open market. With Ethereum being, by far, the most popular blockchain for GameFi, most gaming NFTs are ERC-721 NFTs. However, some games are transitioning to the ERC-1155 NFT standard, which provides significantly more flexibility and utility.
ERC-1155 NFTs are “dynamic” NFTs, meaning that the NFT can change and evolve over time. For example, if an in-game sword was an ERC-1155 NFT, it could gain power and new abilities as it defeats more enemies. It could also lose power if the player using it loses a battle or match. Therefore, dynamic NFTs allow in-game items to become significantly more unique and valuable over time, since items will have different characteristics depending on how they are used.
In addition, on a technical level, ERC-1155 NFTs allow for batch minting, which can save significant time and money compared to individual minting. Minting NFTs on the Ethereum blockchain can be incredibly expensive– sometimes costing thousands of dollars during peak usage times. In addition, game developers often need to quickly mint tens of thousands of NFTs to introduce an in-game item in sufficient quantity. Fortunately, ERC-1155 NFTs quickly and easily solve both of these problems.
In addition to being dynamic and allowing batch minting, dynamic NFTs are also “semi-fungible,” meaning they can transition from being a fungible token (similar to an ERC-20 token) into a non-fungible asset. For example, if a “ticket” to gain early access to a game (or a level within a game) is an ERC-1155 NFT, that ticket could be traded on the open market and would be identical to all other ticket tokens, allowing the market to determine the price of the ticket. After the event or promotion has ended, the token no longer becomes fungible and instead can become a unique collectible item.
While GameFi has created incredible new opportunities for gamers, investors, and developers, there are also a variety of challenges inherent in developing blockchain games. In addition to deciding which blockchain to develop a game on (as previously discussed), developers must decide which parts will be on or off-chain, design proper tokenomics, and find developers with enough experience to build high-quality games.
Deciding which parts of a game will be on or off-chain is one important factor developers must consider before and during the game development process. While some early blockchain games attempted to put most of the game on chain, this typically resulted in extremely slow gameplay and a poor user experience Therefore, except for the tokens and NFTs, developers are often choosing to place as much of the game as possible off-chain in order to improve user experiences.
Tokenomics is yet another challenge for blockchain game developers. Developers must attempt to issue enough tokens to raise money for the game but not enough to make the token hyperinflationary. In an ideal scenario, a game’s token will increase in value over time, making it a good investment for players and outside investors. However, if the token price increases too much, too quickly, it could begin to exclude players who can’t afford to pay increasing prices for in-game items.
Like any asset, token prices vary due to supply and demand, so balancing prices can be extremely difficult. However, developers can make sure to limit the number of new tokens printed in order to avoid inflation, and, if they keep enough tokens in reserve, can also burn tokens if prices begin to decrease too quickly while printing more tokens if they feel that prices are increasing too fast.
In addition, finding the right developers to create a game can also be a challenge. Blockchain developers are in high demand, and most of them don’t have much gaming experience. In contrast, while there are a larger pool of Web2 gaming developers, most of them don’t have much experience in blockchain. As the industry grows, it’s likely that this will change, but right now, finding the right talent is still a serious challenge.
Finally, we should note that there has been a backlash among some gamers, particularly when they believe that game developers are introducing tokens and NFTs as a way to extract more money from gamers without actually giving them real opportunities to profit. For instance, in December 2021, the developers of first-person shooter S.T.A.L.K.E.R. 2 decided to cancel integrating NFTs into their game due to a strong online backlash. In addition, some major games and gaming companies (like Fortnite) have sworn off developing NFTs, as they believe that they are rife with scams and could actually degrade the player experience.
In order to reach its full potential, the industry will have to overcome these challenges by proving that GameFi tokens and NFTs are safe. More importantly, they will need to prove that blockchain tech gives more money to players than it takes away– which is hard to do in many situations.
While all blockchain-based games offer players new ways to earn from playing– some games actually allow players (and other investors) to participate in the game’s governance. For instance, the popular virtual land game Decentraland began as a centralized project; however, they later created a DAO, which now governs the game. The Decentraland DAO, like other gaming DAOs, determines how the game’s funds will be spent, how and when new tokens and NFTs will be issued, and makes decisions on how to improve gameplay further.
The Decentraland DAO, like most DAOs, operates on a one-token, one-vote system. However, this system can become problematic over time. This is because one-token, one-vote systems are often dominated by whales (wealthy investors) and early-stage investors, meaning that the average player has little stake in the game’s governance. However, there are a variety of solutions that may be able to help address this problem. One solution involves the use of Soulbound tokens (SBTs). A Soulbound token is a token that cannot be transferred from one wallet to another.
One of the biggest challenges for GameFi is the process of onboarding non-crypto native gamers to Web3 games. Getting a wallet, purchasing or exchanging tokens, and buying NFTs (all while maximizing safety) can be confusing for those who already aren’t immersed in the world of crypto. There are a variety of solutions to this, some more effective than others. One solution involves providing ample educational materials that new players can engage with in order to learn. However, this takes a lot of time, and potentially players might easily give up before they learn enough to begin playng the game.
A different and potentially more effective solution is to allow new players the ability to play a game for free up to a certain level, after which they will need to get a wallet and buy tokens and NFTs. Since the player is already engaged in the game, they are far more likely to learn what they need to know in order to keep playing it. In addition, games can be semi-custodial, meaning that they will hold tokens or NFTs for the player up to a certain value amount, after which the player will be required to transfer the assets to their personal wallet in order to keep playing. Some games that bridge the gap between Web2 and Web3 are considered Web2.5 games, though this is an informal designation and not universally used.
There are several ways that individuals and institutional investors can invest in GameFi. The first and most obvious is buying tokens of existing games that are already trading on the open market, such as Axie Infinity (AXS) or Decentraland (MANA). This is probably the least risky and easiest way to invest, but it may not be the most exciting (or the most profitable).
Another way to invest in GameFi is through private token rounds– but these opportunities are generally only available to VCs and angel investors. However, the use of GameFi launchpads, also known as IGO (Initial Game Offering) launchpads, has made early-stage GameFi investing available to the masses. GameFi launchpads are essentially the same as other crypto launchpads, but they focus mainly on gaming tokens.
These launchpads generally allow individuals who have signed up and undergone KYC (Know Your Customer) procedures the ability to invest in a GameFi token before it officially launches on a decentralized exchange (DEX). This allows the investor to (potentially) pick up the token at a lower price than if they had waited for the public sale. Sometimes, a potential investor needs to get on a whitelist in order to invest early, while in other cases, this may not be necessary. In some situations, there are multiple investor tiers, meaning that a whitelisted investor may be able to purchase the token at a slightly lower price than one who is not whitelisted.
Often, to invest, an individual will need to initially purchase a certain amount of the launchpad’s native token and will need to exchange that token for the GameFi token they wish to invest in (after, of course, paying a fee.)
Some of the top GameFi launchpads in the industry today include:
Traditionally, a gaming guild has simply been a group of players that play a game together. However, the advent of blockchain technologies, gaming guilds have soared to an entirely new level. Many gaming guilds have hundreds of millions of dollars of capital, often held both in the guild’s native token as well as in other GameFi tokens. In addition to issuing their own tokens, many gaming guilds operate as DAOs to promote decentralization and community asset ownership.
Gaming Guilds are having an increasing influence on the GameFi industry, particularly due to the fact that some guilds own a large proportion of the tokens of certain games. This means that guilds can significantly impact the game’s future and development. For instance, guilds can threaten to sell off their tokens in a certain game if they feel the game developers are going in the wrong direction.
Conversely, they can reward games and game developers by purchasing more tokens if they feel the game is going in the right direction. In addition to influencing existing games, gaming guilds are also playing a significant role in the development of brand-new games and, in many cases, are acting like mini venture capital firms by providing the capital to help smaller blockchain game developers thrive.
In addition, gaming guilds themselves have been funded by venture capital funds. In 2021, several gaming guilds received funding from well-known VCs, like Andreessen Horowitz (a16z), DeFiance Capital, and Pantera Capital. In 2021, the gaming guild GuildFi raised $6 million in VC funding, while the well-known gaming guild Yield Guild Games (YGG) raised more than $22 million.
In addition to Yield Guild Games, some other well-known gaming guilds included Merit Circle, UniX Gaming, Play It Forward ,DAO, Avocado DAO, BlockchainSpace, MetaGaming Guild, Perion, Earn Guild, YGG SEA, Ancient8, Hooga Gaming, and Salad Ventures.
GameFi is clearly one of the blockchain industry’s fastest-growing sectors, and while crypto markets have gone up and down, interest in blockchain games has continued to grow rapidly. As there are more than 3 billion active gamers in the world, the possibilities for industry growth are truly incredible. Gaming tokens and NFTs to provide real ownership opportunities for gamers, and within a decade, we could easily see blockchain games being the standard rather than the exception.
While the industry faces many challenges, including educating non-crypto gamers about blockchain tech, interoperability issues, a lack of developer talent, scams, and resistance from traditional gaming studios, many of these issues will likely be overcome in the coming years. Overall, the future of GameFi is extremely bright, and players, game developers, and crypto investors should continue to watch the industry closely for exciting new projects, products, and financial opportunities.
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