In-Game Currencies Are Leading the Crypto Space: Gain An Insight Into GameFi’s Future

2021-11-29, 10:27

[TL; DR]

1. In general, GameFi is the integration of game and DeFi, presenting decentralized finance in the form of a game.

2. The "Play-to-Earn" is, to some extent, the top attraction of GameFi.

3. The performance of GameFi's carrier—that is, the public chain that supports GameFi's operation—has blocked the growth of GameFi to a certain extent.

4. Liquidity is crucial to GameFi's long-term development.

5. GameFi may ultimately grow into a Metaverse form.

This year, NFT has provided a huge imagination space for the crypto industry, which has not only driven itself to make strides but also promoted blockchain games to a higher level.

The blockchain game market had attracted investment of US$1 billion in July alone, with most of the recent financings being initiated in the GameFi field, according to the data. For example, a total of 27 financing events were initiated in the crypto market during the first 5 days of the month, among which 14 were invested in the GameFi market.

What’s GameFi?

When it comes to GameFi, one may immediately associate it with DeFi (decentralized finance). Indeed, GameFi has a direct connection with Defi, just as the overlap of their names. Simply, GameFi is the integration of game and DeFi, presenting decentralized finance in the form of a game.

In other words, GameFi is based on DeFi as the underlying logic and games as the carrier. It creates cash by introducing common game modes such as PK game battles and social interactions after turning derivatives such as in-game equipment into NTF.

The origins of GameFi can be traced back to 2019, when Mary Ma, Chief Strategy Officer of MixMarvel, delivered speeches at the Wuzhen World Blockchain Conference in China, according to the data. The two-year growth has made GameFi one of the main trends of NFT following the on-chain artwork and avatar community.

The reason why Gamefi became a great focus recently lies in its "Play to Earn" feature, to some extent, which is also the top attraction of GameFi.

In-game assets such as props appear to belong to the player in name in traditional games, but the actual ownership is still owned by the game company. Players can only be "consumers" rather than "owners", which is a sticking point to be solved by the emerging blockchain games dedicatedly. However, the growth of blockchain games has gone through several stages from "handling problems" to "solving problems":

In the 1.0 era, Cryptokittys, a cat-raising game, in essence, was the most representative. The growth and reproduction of each cat were recorded on the Ethereum blockchain. However, the game finally died due to the lack of continuous playability which failed to make players feel excited after a burst of heat.

In terms of the 2.0 era, there were few people paying attention to the Dapp games for which no phenomenon-level application was introduced.

Regarding the 3.0 era, people witnessed the dramatic popularity of the leading Axie Infinity of GameFi, which attracted a large number of investors to enter the blockchain game field. First, DeFi burgeoned in 2020 and it has built a huge ecosystem in more than a year of development. Then, the popularity of NFT and the emergence of tokenized rare assets provided Gamefi with an enabling growth environment. Thus, GameFi came into being.

More importantly, GameFi is focusing on solving the "unsustainable" problem， dissimilar to the previous "small fights" of chain games.

For example, as of now, the total trading volume of Axie Infinity has reached $3 billion, and the number of traders has exceeded 1.03 million in accordance with the data from GameFi's leading game Axie Infinity. The reason why it could attract a number of players to participate is inseparable from its sustainable economic system.

The economic system of GameFi is driven by both reproduction and combat of the game. Players must purchase AXS/SLP (AXS is a game token; SLP is similar to a game coin) firstly in order to buy pet Axies that can fight with other players' pets. The winner can get tokens. Meanwhile, players can also directly sell Axies to get profits and obtain cash withdrawal by exchanging SLP for other cryptocurrencies or fiat currencies. This closed-loop system enables the game to keep on developing in a sustainable way.

Moreover, apart from Axie Infinity with entertainment features, there are two other types of pure-income projects.

One is the introduction of NFT mortgages in DeFi, with typical projects such as Aavegotchi and Meme; the other is the gamification of DeFi, with representative projects including ARCx and DEGO, which enable users to convert assets into NFT equipment and obtain rewards by completing tasks such as participating in liquidity mining.

All types of games will ultimately lead participants to the rate of return, a result that concerns participants the most.

But is the rate of return the only issue that blocks the growth of blockchain games? Certainly not. Then, the most discussed topic in the next stage will be: where should GameFi exert its strength to achieve long-term development?

Possible Problems Haunted Around GameFi

1. Performance of Carriers

GameFi may immediately remind people of DeFi (decentralized finance). Indeed, GameFi has a direct connection with Defi, just as the overlap of their names. In general, GameFi is the integration of game and DeFi, presenting decentralized finance in the form of a game.

Scalability and long transaction confirmation time are not only the stubborn disease of Ethereum, but also the obstacles to the growth of player numbers. It is inappropriate to carry a number of game formats, especially large-scale games, in the traditional Layer 1 chain due to the imperfect blockchain framework. It is because of this that a batch of public chains focused on carrying blockchain games, such as KardiaChain, have been born.

The data shows that there are now over 34 addresses on KardiaChain, with more than 14.83 million transactions. However, the current trend is that the growth of GameFi is likely to be underpinned by high-performance Layer 1, Layer 2, and side chains.

For example, Ronin, an Ethereum side chain, requires players to invest before entering Axie Infinity. The investment transaction is done in the side chain Ronin and Katana, its decentralized exchange. Ronin provides on-chain custody services for Axie Infinity and future game products. The token RON is used to pay for gas fees.

Other notable GameFi platforms include Immutable X and Gala which are designed for GameFi's Ethereum Layer 2 project.

2. Sustainability of the Games

In terms of the game content, GameFi games cover Sandbox games represented by Sandbox and Decentraland, turn-based games typical of MyDeFiPet and Illuvium, RPG games including Mist, Ember Sword and Guild of Guardians, and farm social games represented by Townstar and My Neighbor Alice, as well as competitive games. It's worth noting that some of these games are even better than today's traditional 3A games and seem to be a series of content "innovations" following the innovation of Axie Infinity's simple mechanics. 3A games are games whose development needs high cost and consumes vast resources and lasts a long period.

The investment of cash will make many players hesitate even though blockchain gameplay seems to be getting more exquisite and more intriguing. Some would argue that GameFi is nothing more than mining in a game's guise, which is true, to some extent, but not quite.

GameFi requires us to exchange certain assets for in-game NFT items to participate in the game, which means that players will lose all their assets if they cannot sell the NFT. The liquidity risk will only grow greater, especially for new games that lack mobility and own few players.

Furthermore, some pseudo chain games under the banner of GameFi will certainly come into being due to the complicated market. They will undoubtedly pose a greater risk because they lack playability and sustainability and only pursue short-term high returns.

Some insiders also said that GameFi is similar to Matryoshka dolls in essence. "All this still happens on the premise that someone is willing to accept the rules. The stable income of mining output coupled with various functions is crucial to the current success, enabling its output of governance tokens to play a part."

In short, liquidity is the key to GameFi's long-term development.

May “Metaverse” Be the Ultimate Form?

Game developers are racking their brains to solve the sticking points of GameFi. So far, some chain games have begun to move closer to the explosive concept of “metaverse".

For example, Sandbox begins to follow up the metaverse, enabling players to transform each piece of land to build their own kingdom. Although these individual project agreements are not enough to set up the metaverse territory in a broad sense, we can also peek into that metaverse may drive GameFi to grow.

The interoperability of various chain games can be achieved in an efficient NFT market in an interconnected virtual world. Perhaps we will all get together in this digital community to socialize and play games in the next generation of the game world, with blockchain surely playing an irreplaceable role. Since blockchain infrastructure, token, NFT and other tools are conducive to reproducing and reconstructing economic, political, cultural and other social elements in the digital space, forming a sustainable digital space for human activities, metaverse, to some extent, will become “a breeding ground” for GameFi.

Besides, this rich virtual world will certainly provide more novel gameplay for blockchain games. The vast metaverse can fully support game developers to carry various games on it and attract more players to join by constantly enriching the game forms rather than just by means of financial profits, steadily keeping capital in this economic system in circulation. "Everyone will be God, and everyone will become the ‘top player’ in that future virtual world."

Author: Lisbeth, Gate.io Researcher
* This article represents only the views of the researcher and does not constitute any investment suggestions.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.

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