A deep dive into GameFi platforms
DeFi or decentralized finance is not merely a collective term for blockchain-based financial products and services; it is a movement that aspires to eliminate the opaque and tightly controlled legacy financial system, held together by decades-old infrastructure and processes. According to DeFi Pulse, the total value locked in decentralized finance has risen by over eight times since July 2020. In March 2022, the value stood at $79.1 billion, which is, in one word, impressive.
The gaming industry, on the other hand, is larger than the movie and music industries combined. According to a report by Investopedia, the industry will generate more than $260 billion in revenue by 2025.
So, what happens when you club these two wildly successful industries? You get GameFi— the result of a collaborative effort by the global communities of gamers and blockchain enthusiasts.
But what is GameFi? How does it work? And who benefits from GameFi platforms? This article answers every vital question around GameFi to offer you an insight into the economic aspect of decentralized gaming. Read on.
- What is GameFi and how does it manifest into use cases?
- How does GameFi work?
- How are GameFi platforms different from regular video games?
- The two most important benefits of GameFi
- How to get started with GameFi
- GameFi’s future
What is GameFi and how does it manifest into use cases?
GameFi is a portmanteau of decentralized gaming and finance, and GameFi platforms represent a confluence of cryptocurrencies, non-fungible tokens (NFTs) and the play-to-earn (P2E) gaming model. The convergence of gaming and DeFi manifests in two ways:
- Decentralized games having elements of DeFi.
- DeFi platforms having game-style mechanisms.
While decentralized games are incorporated with DeFi elements to open up financial opportunities for gamers, DeFi platforms are gamified with the aim of making financial services more fun and engaging for users by using board game/video game elements such as point scoring, leaderboards, competitions, rewards, badges, avatars, and real-time feedback.
Talking about DeFi integrated games, there are diverse options available in this segment that range from simple lottery-based games to massively multiplayer online role-playing games (MMORPGs)— all of which allow players to earn in-game rewards by combating other players, accomplishing tasks, and progressing through different game levels. The rewards are mostly in the form of cryptocurrencies and NFTs, which players can use outside of the game to trade on crypto exchanges and NFT marketplaces.
This confluence of gaming and decentralized finance has one obvious benefit— it attracts younger, tech-savvy and fun-loving users steeped in video gaming and social media.
The understanding of GameFi as decentralized games with DeFi functionalities can be best illustrated by Axie Infinity, a play-to-earn game where players can make real money by earning tokens, and trading in NFTs. DeFi ecosystems like MOBOX, on the other hand, present the concept of GameFi as gamified DeFi. For those who don’t know what MOBOX is, it is a DeFi platform that follows a play-to-earn model and is equipped with staking schemes, liquidity pools, yield farming tools, NFT environments, and the like.
Although there is not a general consensus on which solutions and protocols should be classified as GameFi given the nascent stage of this concept’s adoption, we now know about GameFi’s two major manifestations. But because we have more DeFi integrated decentralized games than we have gamified DeFi platforms, the following sections will focus more on the former.
How does GameFi work?
GameFi is characterized by its “play-to-earn” business model, and mainly refers to blockchain-based games that offer monetary incentives to players. This means that players receive financial rewards for playing these games and advancing through their levels. The incentives received mostly include NFTs, in-game tokens and cryptocurrency. When players earn in-game tokens, they can convert them into other more popular cryptos such as Ethereum and Bitcoin, which can then be swapped for fiat currency.
It is worth noting here that the concept of “play to earn” is not new. Still there is a lot of buzz around GameFi applications based on the play-to-earn model because of the innovative technologies that power them. Starting from blockchain technology and smart contracts to in-game tokens, there is a lot that set these games apart from regular games and make them a superior choice.
Most GameFi projects include NFTs in the form of plots of land, outfits, weapons and skins. These NFTs can not only be purchased and sold in-game but can also be used on DeFi platforms for yield farming and as collaterals.
There are diverse games in the GameFi space, and each one has its own mechanism and requirements. One such requirement is for players to possess crypto wallets to store their in-game tokens. But for your wallet to work, it must be preloaded with cryptocurrency. Many games also require that players purchase starter characters to start playing.
How are GameFi platforms different from regular video games?
Traditional video gamers can also earn digital currency and collect digital assets which they can use to upgrade their characters and undertake other similar in-game activities. These tokens and assets, however, cannot be traded in decentralized exchanges or NFT marketplaces as they hold no value outside of the game. Since players are prohibited from trading or monetizing their assets in real life, these assets don’t prove financially profitable for players.
In GameFi platforms, the assets and tokens earned by players are typically cryptocurrencies or NFTs. Although some blockchain games use virtual tokens instead of cryptos or NFTs, players will still be able convert their in-game assets to NFTs if necessary. GameFi platforms allow gamers to transfer their earnings to their cryptocurrency wallets and trade them on NFT marketplaces or crypto exchanges, which can then be converted to fiat money.
The two most important benefits of GameFi
1. Earn by playing
GameFi platforms’ business model, that is play-to-earn, is different from traditional pay-to-play and play-to-win models in many respects. In most traditional games, players pay real money for upgrades and assets. Although this buys them a better gameplay experience, they cannot compensate their spending by earning money playing these games. The scope of money making in such games is confined to game studios and indie developers. GameFi platforms are a deviation from legacy games in that they allow even players to make money playing their favorite games. And this provides the premise for financial inclusion in the gaming industry.
Interestingly, the money people make playing these games is significant. Let us take the example of the Philippines. Many people lost their jobs in this country in the wake of a national lockdown issued in 2020. Having nowhere to go and no work to do, many of these people signed up for Axie Infinity. Soon reports showed that Filipinos were earning more than the minimum daily wage they were previously earning, simply by playing Axie Infinity. They were now earning $50 per day against $8.15 they were earning prior to the lockdown. According to coinDesk, a lot of Filipino players also turned playing Axie Infinity into their full-time occupation.
2. Secure ownership
NFTs can be integrated into decentralized games to increase their monetization potential and give players true ownership of their assets. Because in-game items can be purchased and transferred on a distributed blockchain ledger, it is not the game developers who own them. Besides, no in-game item can be counterfeited or altered. Players can rest assured that any item purchased in-game will remain protected even if the game studio experiences a technical fault.
How to get started with GameFi
Every decentralized game is different. Thus, the instructions here offer general guidance on how to get started with GameFi. If you need advanced, game-specific assistance, it is advisable that you refer to the concerned game’s documentation. Let us now check out the steps on how to get started with GameFi:
1. Create a crypto wallet
You will need a compatible cryptocurrency wallet to access GameFi platforms. Since different games support different wallets, you might need more than one wallet to play your favorite games. So, whether you will need to create MetaMask, Trust Wallet or some other wallet or all of them will entirely depend on the games you choose to play.
To play a game running on a particular blockchain, you will need to first create and then connect a compatible wallet to that blockchain. To find out which wallets your chosen game supports, visit its official website. For instance, you can connect your crypto wallet to the Ethereum blockchain for access to all the games on its network.
Many GameFi platforms have now built their own wallets to reduce costs and boost performance; an example would be Axie Infinity. Axie Infinity was launched on the Ethereum blockchain, but later its team created a sidechain called Ronin on Ethereum. The Ronin network makes it cheaper to breed and trade Axies, which reduces the overall cost of playing. This means, you will need to create a Ronin Wallet to interact with Axie Infinity.
2. Connect the wallet with the game
You will need to connect the created wallet to the game in order to play it. Go to the website of the game and find the option to link your crypto wallet. Most websites offer a walkthrough on how to create and connect a wallet. You can follow them if available for a smooth onboarding.
Blockchain games are different from traditional online games. You don’t need to create a username or password. Instead, you use your crypto wallet to connect to the game. Hence, this is an extremely important step and needs to be done right.
3. Make sure you are familiar with the rules before you play
To get started with most GameFi platforms, you will need to purchase in-game tokens or NFTs to fund your purchases. While the requirements may vary from one game to another, you need to consider both the earning potential and the overall risk associated with playing a certain game. It is important to calculate how long it will take to get your initial investment back, and to start making profits.
For instance, you need three Axies to play Axie Infinity which can be purchased from the Axie Marketplace with Wrap ETH (WETH) tokens. Thus, it is important that you have these tokens in your Ronin Wallet to make in-game purchases.
GameFi platforms surged in popularity in 2021, and show no signs of slowing down. There are many popular play-to-earn games available on multiple blockchains such as Ethereum, Polygon, Harmony, and Solana. DappRadar, in fact, lists more than 1,400 blockchain-based games.
GameFi has roots that go back to the inception of cryptocurrency but it is only now that it is beginning to appeal to the mainstream audience. Axie Infinity is one of the most successful examples of GameFi platforms. In August 2021, Axie Infinity became the first blockchain game to cross $1 billion in token sales. According to activeplayers.io, Axie Infinity hosted an average of 2,670,416 players per day in the month of April, 2022. Its massive success clearly points at GameFi’s growing global appeal.
With the global gaming community embracing GameFi platforms, it will likely claim a much larger share of the $175 billion video games market in the future than its current market capitalization pegged at US $55.38 billion (as per data published on crypto.com).
With lucrative earning opportunities being offered to players by GameFi platforms, their fan base is constantly growing. Some industry analysts even predict that gaming will be the most popular route to widespread blockchain adoption. And we cannot agree more! With the growing popularity of GameFi platforms, gaming enthusiasts across the globe are making themselves familiar with concepts of tokenization, NFTs and in-game currency. Thus, in the process of becoming popular, GameFi is also popularizing many important blockchain concepts.
GameFi is clearly on the cusp of a bright future, given the success of Axie Infinity and other GameFi platforms running on different blockchain protocols. However, it is difficult to predict what new features and technologies will define future GameFi platforms as blockchain technology is constantly evolving. We will, undoubtedly, have much smarter blockchain innovations in the future, but how they will impact GameFi initiatives and provide new ways to monetize and enhance existing experiences remain to be seen.
If you are looking to build a GameFi app having immersive gaming elements and robust DeFi functionalities, then LeewayHertz is the best development company to partner with.
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