When the narrative surrounding GameFi began to falter, and the industry struggled to produce hit games like CryptoKitties and Axie Infinity, a new theory called “ServerFi” emerged. Introduced by Yale University professor Pavun Shetty in a recently published paper, this concept seeks to reshape the relationship between games and players. ServerFi emphasizes the privatization of in-game assets through synthesis and promotes the long-term sustainability of the game ecosystem by continuously incentivizing high-engagement players.

Could ServerFi become the saving grace for the blockchain gaming industry? How does it innovate compared to GameFi? This article will begin by defining ServerFi, then explore the development of GameFi and its associated challenges, and finally analyze the advantages and potential obstacles of the ServerFi model.

The Development of GameFi

Before introducing the concept of ServerFi, let’s first briefly explore GameFi. As the name suggests, GameFi combines “Game” and “Finance.” It refers to the integration of gaming with decentralized finance (DeFi), where in-game items are tokenized as NFTs (Non-Fungible Tokens), and decentralized financial products are presented in a gamified way.

At the core of GameFi is the “Play to Earn” (P2E) model. Unlike traditional gaming models such as free-to-play or pay-to-play, GameFi projects typically offer economic incentives to players. Players invest their time and effort to earn cryptocurrency and NFT rewards by completing tasks, battling other players, or leveling up within the game. This model redefines the relationship between players and games, allowing players to own their digital assets fully and potentially earn real-world profits through trading and other means.

Looking back at the development of GameFi, it can be roughly divided into four stages:

Early Stage (2017-2018)
The emergence of projects like CryptoKitties marked the beginning of the blockchain gaming industry. These early games were primarily built on the Ethereum network, with simple gameplay centered around pet collection and breeding. For the first time, the concept of NFTs was introduced within games. Still, the overall gaming experience was relatively poor, as the focus was more on the novelty of blockchain technology rather than engaging gameplay.

Growth Stage (2019-2020)
In 2019, Mix Marvel’s Chief Strategy Officer, Mary Ma, first introduced the concept of GameFi during a speech. Around the same time, the explosion of decentralized finance (DeFi) provided the financial infrastructure that GameFi needed. The introduction of more complex blockchain games, such as Axie Infinity, accelerated the growth of GameFi, offering players a deeper and more interactive gaming experience than earlier projects.

Source: Axie Infinity

Boom Period (2021-2022)
The Play-to-Earn (P2E) model, epitomized by Axie Infinity, achieved tremendous success, attracting millions of players to the GameFi space. This success led to an explosion of similar projects, such as The Sandbox and Decentraland, further diversifying game genres. Additionally, the GameFi ecosystem began to evolve with the development of multi-chain infrastructure, allowing projects to operate across various blockchain networks.

Adjustment Period (2022-Present)
By 2022, many GameFi projects experienced significant declines in token prices, and the lifespan of most games became extremely short. This raised concerns about the sustainability of the P2E model. As the market matured, a growing focus was on gameplay and long-term sustainability. Developers began exploring alternative models, such as Play-and-Earn, while improvements in cross-chain infrastructure continued to support the evolution of the GameFi space.

Problems in GameFi

GameFi, as an emerging gaming economic model, fundamentally transforms the relationship between players and games. By tokenizing in-game assets as NFTs, GameFi increases the liquidity and value of these assets and allows players to truly own their digital possessions, fostering the growth of broader gaming ecosystems. More importantly, the Play-to-Earn (P2E) model allows players to earn income, creating new gaming experiences and play styles.

However, GameFi has also revealed several significant issues throughout its development:

1. Overemphasis on Financial Aspects:
   Most GameFi projects focus too much on the financial aspects, often neglecting the core element of gaming—fun and quality gameplay. As a result, many GameFi projects prioritize economic incentives over creating engaging and enjoyable gaming experiences.

2. Unsustainable Token Economic Models:
   Whether utilizing single-token or dual-token models, GameFi projects struggle with sustainability. Inflation and economic imbalance frequently occur, leading to dependence on continuous external funding. If the inflow of new capital slows, these projects may face Ponzi-like scenarios, where token prices plummet and spiral into collapse.

3. Difficulty in Balancing New and Old Players:
   GameFi projects often fail to balance the interests of early and late-stage players. Early players typically acquire valuable assets at lower costs, while latecomers face higher entry barriers. Speculative players also exacerbate this problem by dumping tokens for short-term gains, destabilizing the market and hindering the formation of long-term communities and ecosystems.

In response to these issues, ServerFi introduces a new reward model to address these challenges. By enabling asset synthesis within the game, ServerFi allows players to become, in a sense, “shareholders” of the game. This gives them a stake in game management and decision-making, promoting a more community-driven and decentralized approach to game development.

ServerFi vs. GameFi

In simple terms, ServerFi allows players to accumulate and combine various NFTs and digital assets within the game to gain control over the game’s server. This concept merges in-game economics with server ownership, offering players a new way to participate and earn rewards.

Conceptually, ServerFi and GameFi share many similarities:

1. Both are built on blockchain and smart contract technology, ensuring transparency and immutability.
2. Both change how players interact with games by combining gaming, finance, and social elements.
3. Both emphasize player ownership of in-game assets, allowing players to earn economic incentives through gameplay.
4. Both transform the traditional role of players by introducing governance mechanisms where players and communities can influence decision-making.
5. Both have the potential to evolve into cross-game ecosystems.

However, ServerFi offers a deeper level of participation and ownership for players, which could lead to greater player loyalty and community involvement. This model requires close collaboration between game development teams and player communities to create an ecosystem where players are granted more rights, ultimately leading to sustained long-term value for the game.

Compared to GameFi, the theoretical advantages of ServerFi are more pronounced, potentially offering a more sustainable and player-driven gaming experience.

First, ServerFi emphasizes “long-term participation, long-term development, and long-term value.” In contrast to GameFi, where profits mainly stem from in-game activities, NFT assets, and token appreciation, ServerFi offers more diversified revenue streams, such as server operation and management income. Achieving these deeper ecosystem rewards requires a long-term process, naturally attracting players focused on the game’s sustainability and long-term value. This, in turn, filters out short-term speculative players, leaving behind loyal and highly engaged value-driven users.

Second, ServerFi introduces a dynamic competitive environment where players must continuously contribute to earn and maintain server rewards. This system fosters healthy competition between new and veteran players, increasing community engagement. Simulated experiments on collective behavior have shown that sustained positive feedback and competition lead to overall server value growth. As a result, ServerFi helps mitigate the risks of relying heavily on external funding, a common issue in GameFi projects, thus making it easier to maintain game stability over the long term.

Source: ServerFi - A New Symbiotic Relationship Between Games and Players

Lastly, the ServerFi model is more decentralized than GameFi because it shifts server control to the player community, making players co-creators of the game. Players gain more control over the game servers as the game progresses, ultimately achieving a community-driven ecosystem. This aligns perfectly with the ideals of the Web3 industry, truly fulfilling the mission of decentralization.

However, the ServerFi model is only theoretically effective and has yet to undergo real-world market validation. There are indeed several critical challenges to address during its implementation, such as:

• Defining server value and management boundaries: How will the value of servers be determined, and what are the limits of player control?
• Ensuring fair distribution of rights: How will equity be fairly distributed between project teams and player communities, free-to-play and pay-to-play users, or even between different servers?
• Building a robust technical infrastructure: How can the system ensure server stability and security as control becomes decentralized?
• Managing the transition to community governance: How will the shift to player-led governance smoothly integrate into the game operations?
• Addressing legal and regulatory issues: How will server ownership, data management, and privacy be handled, considering the potential legal and regulatory implications?

Most importantly, maintaining the fun factor is crucial for ServerFi’s success. After all, gameplay enjoyment is the foundation of long-term value for both GameFi and ServerFi. Without engaging and entertaining gameplay, neither model can truly succeed, regardless of its financial or decentralization mechanisms.

Conclusion

The emergence of GameFi and ServerFi represents significant innovations in gaming economic models and player engagement, signaling the gaming industry’s evolution towards being more open, value-driven, and decentralized.

In theory, ServerFi offers a potential solution for GameFi’s challenges, such as avoiding Ponzi-like schemes and the death spiral scenario. However, its success will depend on real-world implementation and market testing. We look forward to seeing more innovative games emerge, pushing the boundaries of what decentralized gaming can achieve.