GameFi is a combination of Game and Finance

GameFi, a combination of “game” and “finance,” is revolutionizing the traditional gaming concept. Whereas gaming used to be just a source of entertainment, it can now also be a source of income. Collecting characters, weapons, skins, and other accessories was once merely for collection purposes; now, these assets can also be converted into money. It’s no wonder that GameFi has become a major trend in the crypto industry.

Article Summary

🎮 GameFi blends gaming with decentralized finance (DeFi) to create a play-to-earn model. Through GameFi, players can earn incentives in the form of cryptocurrency or NFTs, which can be exchanged for real money.

🏆 Incentives in GameFi can be earned by completing specific missions, winning matches against other players, or advancing to the next level. 

📉 The market capitalization of GameFi has decreased by 81% from its peak of $29.18 billion in November 2021 to $5.52 billion by mid-August 2022. **However, institutional investment in the GameFi industry continues to grow, reaching $4.1 billion by the end of June 2022. 

💵 To play GameFi, players need to set up a crypto wallet compatible with the blockchain network on which the game is built. Additionally, some GameFi projects require players to own a certain amount of native cryptocurrency or specific accessories/equipment.

What is GameFi?

GameFi is a combination of gaming and finance in the form of Decentralized Apps (dApps). GameFi projects operate on a distributed ledger network, allowing players to own various in-game items that are verified.

By integrating gaming with finance, GameFi introduces a play-to-earn concept that is considered more beneficial to players than the traditional pay-to-play model.

In the pay-to-play model, players pay a certain amount of money to access specific features or items in the game. In contrast, the play-to-earn model provides economic incentives as players engage with the game and own items within GameFi.

GameFi merupakan perpaduan antara game dan finance. Sumber: Poloniex

Typically, these economic incentives are earned by completing missions or tasks, winning matches against other players, or advancing to the next level. Additionally, assets within GameFi can be traded with other players outside the game, usually through crypto exchanges or NFT marketplaces.

How Does GameFi Work?

The popularity of GameFi began with CryptoKitties, a blockchain-based game built on the Ethereum network. The smart contract technology pioneered by Ethereum paved the way for innovations including DeFi and GameFi. Recently, other smart contract and blockchain networks such as Solana, Polkadot, and Polygon have also been used to build GameFi projects.

As previously mentioned, GameFi operates on a play-to-earn model. Rewards can come in various forms, including cryptocurrency and in-game items such as avatars, weapons, costumes, or virtual land. Unlike traditional games where these assets hold no value outside the game ecosystem, assets obtained in GameFi have real value and can be traded. Consequently, players can earn real income through GameFi.

The ecosystem of a GameFi. Source: Messari

In addition to cryptocurrency, the GameFi ecosystem also involves non-fungible tokens (NFTs) as in-game assets. This allows these assets to be traded on NFT marketplaces. Through blockchain technology, GameFi also enables players to own digital assets that can be monetized. When combined with the metaverse, some GameFi projects allow players to monetize virtual land.

All data is stored on a public, decentralized blockchain network. This transparency allows anyone to view and track asset ownership. These assets belong to the players rather than the development team, unlike traditional games.

Advantages of GameFi

GameFi offers players the opportunity to earn returns. Returns can be earned by actively playing the game and completing certain missions. Additionally, users can earn passive income through GameFi features like staking, liquidity mining, and yield farming. 

GameFi provides easy and inexpensive access. Many GameFi projects are free to play and only require an internet connection, though some may require players to own native tokens or purchase specific items. 

GameFi has low barriers to entry. Not only is it inexpensive, but most GameFi games have simple systems that are easy to learn and play. This simplicity allows people of all ages and backgrounds to participate in GameFi. 

Participate in GameFi development. GameFi allows users to contribute to the decision-making process regarding project development through voting via Decentralized Autonomous Organizations (DAOs).

Current State of GameFi

The GameFi market cap has continued to decline from its peak at the end of 2021. Source: Footprint Analytics

According to Footprint Analytics, as of mid-August 2022, GameFi’s market capitalization was $5.52 billion. This represents an 81% decline from its peak of $29.18 billion in late November 2021. This data indicates that the GameFi industry is still affected by the broader crypto market conditions.

In line with the decline in market cap, GameFi’s weekly volume is also in a downward trend.

Source: Footprint Analytics.

In line with the drop in market capitalization, weekly GameFi volume has also been on a downward trend from its peak in November last year. Recently, the weekly GameFi volume for the period of October 2 – 8 was only $39.15 million, compared to $1.45 billion from November 7 – 13.

Number of users and GameFi volume as of the end of September 2022. Source: Footprint Analytics

From the same data, it is noted that in September, the number of new GameFi players grew by 10.36% to 1.78 million. However, the total number of GameFi players in September decreased by 5.49% to 19.27 million. Meanwhile, GameFi volume in September also fell to $202.20 million from $340.25 million previously.

The Future of GameFi

Challenges Facing the GameFi Industry

Research titled “The Global Web3 Gamer Study” by Coda Labs reveals that the majority of people playing Web3-based games do so primarily to earn cryptocurrency. This indicates that GameFi adoption has not yet fully addressed players’ needs, as the number of users engaging with the game itself remains low.

Furthermore, gamers who have not yet played GameFi games tend to have a negative perception of both GameFi and NFTs. The survey rated GameFi at 4.5 and NFTs at 4.3 (on a scale of 1-10). This suggests significant challenges in achieving widespread GameFi adoption.

Mainstream gamers tend to still have a negative sentiment toward GameFi.

Source: The Global Web3 Gamer Study.

Another challenge facing the GameFi industry is the sustainability of games. For a game to continue thriving and growing, players must engage with it long-term. According to data from DappRadar, the number of players for Axie Infinity, the largest GameFi project by market capitalization, dropped by 95% from its peak of 744,190 on November 26 to just 35,420 on August 20. Similarly, another popular GameFi, Defi Kingdoms (DFK), saw a decline in active players from 36,670 in December to only 5,290 by August 19.

The significant drop in players for these two games may indicate that many Web3 games struggle to retain players over the long term. This decline could be due to uninteresting or unsustainable gameplay. Additionally, players might be primarily focused on profit, posing challenges for developers and the GameFi industry moving forward.

Potential of the GameFi Industry

Reflecting on the trends of 2021, the GameFi industry demonstrated promising potential. Last year, according to Drake Star Partners, fresh funding of $3.6 billion flowed into various GameFi development companies. Notable institutional investors such as Andreessen Horowitz, Coatue, and Softbank were actively investing in the GameFi industry.

The number of GameFi projects continues to grow, although its growth is no longer significant.

Source: Binance Research

Apart from the growing number of GameFi projects, another indicator of the industry’s potential is the continued influx of institutional investment through private investments. In the first half of this year, total funding into the GameFi industry reached $4.1 billion, significantly higher than the previous year’s figures.

Funding from institutional investors continues to flow into the GameFi industry throughout this year.

Source: Binance Research

The largest investment came from Epic Games, which invested $2 billion in the GameFi industry. Andreessen Horowitz and Immutable also contributed $600 million and $500 million, respectively. Additionally, traditional video game companies like Square Enix have allocated $300 million for blockchain development. Other companies like Ubisoft, EA, and Tencent are also gradually entering the blockchain gaming space.

With this influx of funding, developers have the resources to improve game development. This, in theory, could lead to higher adoption rates and further growth of the GameFi industry. The entry of traditional video game companies is expected to increase competition within the GameFi ecosystem, potentially leading to more innovation.

Popular GameFi Recommendations

Here are some popular GameFi recommendations you can try if you decide to explore GameFi games:

Axie Infinity

Axie Infinity is the largest GameFi by market capitalization. Source: The Lunacian

Axie Infinity is an NFT-based GameFi project and one of the most popular games. It’s similar to the Pokémon series, where players build teams with characters called Axies. Each Axie is an NFT with a unique body shape that determines its skills and rarity. Axies can be used to battle other players in either arena mode or adventure mode.

Axie Infinity has two native tokens: Axie Infinity Token (AXS) and Smooth Love Potion (SLP). To earn AXS, you need to rank on the PvP leaderboards. SLP can be earned by completing adventure mode levels and winning matches.

To play Axie Infinity, users need to create a Ronin Wallet and own 3 Axies, which can be purchased through the Axie Infinity marketplace or borrowed through a scholarship program. Then, users need to create and set up an Axie account and download the Axie Infinity app.

Splinterlands

Splinterlands is the second most popular GameFi game. Source: DappRadar

Next is the NFT-based game Splinterlands. According to DappRadar, Splinterlands currently ranks 2nd among the most popular games, with 147,050 daily active users. The game revolves around collecting and trading cards. The cards feature Splinterlands monsters that can be used in battles against other players. There are over 500 monster cards available for players to use.

To play Splinterlands, users need to connect a MetaMask, Venly, Wombat, or WAX wallet and then create an account for Splinterlands. The game can be played for free at the basic level, but to fully enjoy the game, users must pay $10.

Once you can access the play-to-earn features, there are four ways to earn from this NFT game. Splinterlands has a native token called Splinterlands (SPS). To earn, users can participate in tournaments, complete daily missions, buy, sell, or rent cards, and burn cards they own.

The Sandbox

Another leading GameFi project is The Sandbox, which features a blockchain-based metaverse concept. Through The Sandbox, users can create, build, and buy digital assets or land. The Sandbox has a limited supply of 166,464 lands.

The Sandbox metaverse offers users a decentralized platform to create 3D worlds that can be traded and monetized. In terms of graphics and interface, The Sandbox resembles Minecraft. The best way to earn money while playing The Sandbox is by trading land and other objects and completing in-game tasks.

The Sandbox has partnered with several major companies and celebrities, including Atari, Rollercoaster Tycoon, Snoop Dogg, The Walking Dead, GameFi Ventures, and more. The Sandbox’s native token is SAND, which is used for transactions involving land and assets within the metaverse.

Era7

Era7: Game of Truth is a GameFi NFT card-trading game. Source: Play2Earn Diary

The next play-to-earn GameFi project is Era7: Game of Truth, a card-trading game built on the Binance Smart Chain network. Era7 also uses NFTs, making the cards within the game tradeable assets. Players can engage in PvE or PvP battles by assembling and organizing cards to create the strongest deck.

As Era7’s cards are NFTs with value, players can obtain high-value cards through matches, trading, or synthesizing specific cards. Era7 has two native tokens: Era and GOT. To acquire Era, users can earn it through matches, liquidity mining, or community incentives. Era tokens are used for transactions within Era7. GOT tokens can be obtained by purchasing with Era tokens or through play-to-earn. GOT is used for summoning or synthesizing.

According to DappRadar, this game has shown significant growth recently. At the time of writing, Era7: Game of Truth ranks 10th with 22,970 users, and its volume and balance are $24,130 and $29.2 million, respectively.

StepN

While the aforementioned games follow a play-to-earn model, StepN introduces a different concept: move-to-earn. StepN is a GameFi that has gained considerable attention recently. As the name suggests, users earn rewards by moving. The move-to-earn concept is more lifestyle-oriented than traditional gaming. Rewards are earned through physical activities, such as walking.

Users earn the native token Green Satoshi Tokens (GST) when walking or running. However, despite sounding intriguing and easy, using StepN can be quite expensive. To earn GST tokens, users must first purchase virtual shoes from the provided marketplace.

At the time of writing, the floor price is 1.39 SOL (about $43.5). Additionally, to earn more, users need several pairs of virtual shoes, which means a higher initial investment. The good news is that StepN will soon launch a leasing feature, allowing users to borrow virtual shoes from others and share the profits earned.

Preparation Before Playing GameFi

Before starting to play GameFi games, there are several general preparations you should make:

1. Prepare a Crypto Wallet Since GameFi involves transactions and storing virtual money and NFTs, setting up a crypto wallet is essential. Choose a wallet compatible with the blockchain network on which the GameFi is built. For example, if a GameFi is built on the Ethereum blockchain, Ethereum-based wallets like Metamask can be used. Don’t forget to connect the wallet to GameFi.
2. Check Requirements While GameFi games can be downloaded for free, each game has different requirements and conditions. If a game is free-to-play, players can start playing and earning rewards immediately. However, some GameFi games may require users to purchase NFTs like characters or accessories, own a certain amount of GameFi’s native crypto tokens, or buy specific equipment beforehand.
3. Don’t Forget to DYOR Just like with other crypto assets, users should Do Their Own Research (DYOR) when choosing a GameFi. Given that some GameFi games require players to invest a certain amount of money, it’s crucial to calculate potential returns and risks. For instance, find out how long it will take to recoup the initial investment and start making a profit. If the required capital is too high, check if the GameFi offers “scholarships” or allows players to borrow from others or gaming guilds (Yield Guild Games, Merit Circle, and Avocado DAO) with a profit-sharing system. Ensure that the chosen GameFi is reputable and not a scam.

Conclusion

As the GameFi industry is still in its early stages, there is a long road ahead for its development. Undoubtedly, GameFi holds great potential for future growth and success. However, the industry also faces significant challenges that need to be addressed to ensure its sustainability.

Learn more knowledge of crypto through various articles on Safubit Academy. All articles on Safubit Academy are created for educational and informational purposes only and are not intended as financial advice.

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