Since the introduction of blockchain technology, the gaming industry has evolved tremendously. GameFi is at the forefront of the gaming revolution, providing gamers incentives for playing while improving the user experience through virtual and augmented reality. This enables a more immersive and realistic gaming experience that benefits companies and gamers.
GameFi is the name given to this industry’s development. It provides value and interoperability to in-game assets such as avatars, skins, real estate, and other fungible and non-fungible assets. These game assets can be traded inside and outside the gaming environment for the game’s native cryptocurrency, which can be converted to fiat money.
Developers have been given new tools to redefine in-game economics by embracing the P2E structure, which utilizes digital assets such as ownerships through NFTs and fungible assets like cryptocurrency to provide real value to gamers.
To help you understand this emerging industry, we have written this article that will cover all the essential details of GameFi.
What is GameFi?
The term GameFi originates from “game” and “finance.” It refers to blockchain games that allow players to generate income against their participation. This income is earned via tasks, battles against other players, and progression through the game’s different stages.
The GameFi ecosystem creates a virtual gaming environment using cryptocurrencies, non-fungible tokens (NFTs), and blockchain technology. This concept of blockchain-based games that combines the world of Decentralized Finance and Non-Fungible Tokens (NFTs) is now one of the most popular new markets to emerge from the crypto sector, gaining considerable attention from the crypto community and gaming guilds alike.
It’s unlike most standard online games, where players may purchase upgrades to get an edge over their opponents. Instead, GameFi adopts a “play-to-earn” strategy. Play-to-Earn encourages players to play and grow via games providing fair play and democratizing the gaming sector. It also provides users financial incentives for their participation so they may make a living out of fun if they desire.
GameFi projects use NFTs to represent different assets such as land, avatars, skins, weaponry, or even precious metals. These in-game digital assets can be transferred from one GameFi project to the other because of the NFT technology’s interoperability. These assets can also be traded on NFT marketplaces for cryptocurrency tokens. GameFi Tokens are usually classified into the in-game currency and the governance token.
Like the Internet technology boom of 1999, billions of dollars have already been invested in this emerging sector, and 2022 appears to be the year of games. It’s predicted that by the end of this year, the total amount raised through GameFi projects and the infrastructure that enables them will be over $10 billion, a 30 % increase from last year.
How does GameFi work?
All GameFi projects have varying mechanics, but the underlying model for all projects is the same. GameFi adopts the revolutionary Play-to-Earn (P2E) model. It differs significantly from the pay-to-play approach used by conventional video games. Pay-to-play demands players to make an initial investment before they can begin playing. Call of Duty, for example, requires players to acquire licenses or annual subscriptions.
Traditional video games rarely create financial rewards for users, and their in-game assets are managed and kept by the gaming company. In contrast, P2E games may provide players complete ownership over their in-game assets while simultaneously providing opportunities to earn money.
It is essential to understand that GameFi does not involve gambling. Players must use a combination of talent and strategy to generate revenue while playing. The financial rewards are given to players based on their game performance, not luck.
Examples of GameFi and Play-to-Earn (P2E) projects
- Gods Unchained, a popular trading card game on the Ethereum blockchain, uses a mechanism that enables players to build their unique cards after winning ranking fights and trade them on the marketplace to generate income.
- Another non-collectible card game, Splinterlands, awards the in-game token DEC to victorious players. Additionally, the NFT cards required for entering the game may later be traded on the market by their owners.
- The space-themed NFT game, Alien Worlds, allows players to mine the game’s native token TLM while traveling around the game’s different planets.
The most popular play-to-earn game is Axie Infinity, a monster-battling Pokémon-style game released in 2018 by independent developer Sky Mavis. In this GameFi game, players acquire Axies, which are represented by NFTs. Every Axie has specific weaknesses and strengths, and they can be engaged in exploration, combat, and breed with other Axies in the game. Axie Infinity Shard (AXS) tokens, which are rewarded for fighting in the game, can be used to vote on the game’s future.
Axie Infinity has become one of the most popular play-to-earn games, with 2.8 million daily players and a trading volume of $3.8 billion. Individuals from developing countries like the Philippines and Indonesia played Axie Infinity to support their families. This is unprecedented success in the gaming industry which was only made possible by GameFi.
Digital Assets in Games?
As explained, blockchain technology enables digital asset ownership, allowing players to monetize their in-game assets in several ways.
The two major types of crypto tokens used as digital assets in GameFi projects are:
- Non-Fungible Tokens (ERC-721):
Participants may acquire avatars, pets, homes, weapons, and other items like video games. GameFi allows these assets to be issued or produced as NFTs on the blockchain (also known as NFT minting). This enables participants to have complete control over their assets.
Breeding two pets in CryptoKitties and Axie Infinity will produce a third pet. The new asset may then be sold or rented out to other players, and the owners and borrowers will divide any cash gained from the sale or rental of the new asset.
- Fungible Assets (ERC-20 Tokens):
GameFi projects also incorporate a native token at the same time. This is similar to DeFi, where each protocol has a token for its economic system that provides financial advantages to the company.
A token is an essential element of a GameFi project; a project cannot be classified as GameFi if it lacks a token. Typically all GameFi tokens are ERC-20 tokens that can be traded or bought on crypto trading platforms like Coinbase and Binance.
In principle, any type of Fungible asset within a game can be represented by an ERC-20 token. For instance, the empire-building games require users to collect wood, gold, stone, and food in order to build their empires. All these types of assets are fungible assets that can be represented by the ERC-20 standard. Are these types of assets valuable? Yes, they are to the players of the game.
If someone combines the two concepts, can create lands as non-fungible assets within a game, where each land can produce different types of resources. These different types of resources can then produce both fungible and non-fungible resources with varying levels of scarcity and rarity
Popular GameFi Projects
Many GameFi projects are available right now, some in the development phase while others are ready to be played. Here are our favorite, most famous GameFi projects:
The online game Axie Infinity focuses on Axies, which resemble Pokémon. The objective of collecting Axies as virtual pets is to breed, collect, raise, and develop kingdoms for the Axies. Axie Infinity is distinguished from other online games’ seamless combination of conventional online gaming with blockchain technology. To reward players who have achieved a particularly challenging skill level, the Ethereum-based game offers a mechanism that allows users to manage their virtual assets through NFTs while also rewarding them with in-game currency known as Smooth Love Potion ($SLP).
The blockchain game “Cryptokitties” was published on Ethereum at the end of November last year. Non-fungible ERC-721 tokens represent the virtual kittens that players may own, trade, and generate in the game. The Ethereum blockchain records the properties and transactions of cats.
Developed by Dapper Labs, a Canadian startup, the virtual cat game allows players to breed and trade cats. Because of the game’s popularity, the Ethereum network became overburdened in December 2017, resulting in a record number of transactions and a significant slowdown.
Crabada is an entertaining Play and Earn NFT leisure game on the Avalanche network, which recently moved to its own subnet, Swimmer Network.
Users utilize a hermit crab NFT called ‘Crabada’ to earn cryptocurrency rewards in the form of in-game currency ($CRA and $TUS) through various gaming mechanics in the GameFi project.
Web and mobile versions of the game are also available for use.
The Takeaway – Future of GameFi
The number of GameFi projects has increased dramatically in 2021 and is expected to rise more in the upcoming years. DappRadar lists more than 1,400 blockchain games as of March 2022. Popular games are now available on several blockchains, including Ethereum, Avalanche, BNB Chain (formely Binance Smart Chain, BSC), Polygon, Harmony, Solana, and others.
As blockchain technology advances, the GameFi growth trend is projected to accelerate. The opportunity to own in-game assets and generate income from games makes GameFi incredibly appealing, particularly in underdeveloped nations.