GameFi refers to blockchain-based games that allow their players to receive real-world financial benefits; it’s a confluence of gamification, decentralized finance (DeFi), non-fungible tokens (NFTs), and play-to-earn models (P2E).
GameFi ranges in sophistication– ranging from simple lottery-based games to fully-fledged out MMOPRGs.
Let’s first start with the gamification of DeFi. Here, DeFi applications (dapps) like decentralized exchanges (DEX) using automated market makers (AMM) incorporate gamification elements.
For instance, BSC’s Pancake Swap AMM is a lottery system that allows users to earn prizes every 12 hours. Users buy lottery tickets paying $5 in CAKE cryptocurrency; each ticket receives a random 6-digit combination, and if this combination matches the same numbers as the winning ticket, half of the lottery pool is paid out to the winner. If only some numbers match, the users are rewarded with a part of the total pool corresponding to the matching numbers.
Another early DeFi gamification example is DinoSwap’s raffle system. A raffle ticket costs 10 DINO. Users can buy as many tickets as they wish to partake in the weekly raffles. Every week two winners are selected randomly via Chainlink. 20% of the total proceeds is burned, and 80% is distributed equally to the two lucky winners.
These raffles and random number generation games can be thought of as GameFi 1.0.
The parallel popularization of DeFi (starting summer 2020) and NFTs (accelerating in 2021) gave GameFi a visual facelift and curb appeal that resonates with gamers around the world.
As the NFT sales continue to explode, we see that the GameFi concept transitions into NFT-based games that reward players with real-world monetary incentives.
For example, the most popular NFT-based game Axie Infinity has a token (AXS) with a total market cap that nearly hit $10B at its highest in 2021.
Such games borrow many elements from DeFi and merge them with play-to-earn mechanisms.
Token Economics is at the Center of the GameFi Projects
GameFi NFT projects issue their own tokens and build game economies around them.
Generally, a one-token economy is implemented where the token functions as both a utility and governance token. Utility tokens are used for in-game activities, like buying game characters, clothing, and other items. They’re also used for distributing rewards to the community of players. Governance tokens give voting rights to their holders.
Popular utility & governance gaming tokens include The Sandbox’s SAND, Alien World’s TLM, and League of Ancients’ LOA.
Some games prefer to issue two separate tokens for these functions. For example, the Splinterlands game uses the DEC as its utility and SPS as its governance token.
Then there are some games that issue even more than two tokens. The economy of the Gala Games’ Mirandus project, for example, relies on three tokens. Apart from the game’s own utility token Materium, there’s also the GALA token which is valid across all Gala Games blockchain platforms. The third token, Voxcoin, will be used primarily for rewarding incentives in the future.
One of the most popular blockchain games, Axie Infinity, also deploys a three-token economy: SLP is the utility token, AXS is the governance token, and RON is exclusively used for the transactions on Axie Infinity’s sidechain Ronin.
A Common Practice: Initial DEX Offerings (IDOs)
It’s common for GameFi projects to launch Initial DEX Offerings (IDO) to raise funds. For instance, the Ethereum blockchain-based, futuristic space-themed MMORPG Sidus Heroes game raised $21M during one public and three private IDO rounds for the game’s two native tokens, SIDUS and SENATE. The rounds included prominent blockchain platforms SpaceSwap, Blokpad, Ignition, Trustpad, Seedify, GameFi, and Red Kite.
GameFi projects allocate a certain percentage of the total token supply to such private or public offerings.
For example, the Legends of Mitra, a GameFi strategy defense game, allocated 10% of its utility token MITA to public sales and 2.5% to private sales.
Tokenomics include how the total token supply will be distributed to all other activities. Another GameFi project Sipher, a role-playing game, allocated 4% of the 1,000,000,000 total supply of the SIPHER token to public sales. 30.4% was allocated for game incentives and marketing, while for advisors and ecosystem developments. 39% was allocated in total.
GameFi Projects Incorporate DeFi Applications
Decentralized applications such as swapping, yield farming, staking, and mining are integral components of GameFi projects. Farming and staking are particularly common. The games either have already implemented these decentralized applications or declare they’ll do so in their roadmaps.
Again, projects allocate a certain percentage of the total token supply to such applications. For instance, League of Ancients allocated 8% of LOA tokens to yield farming; Bad Days allocated 2% of MNFT tokens to staking pools.
Let’s see how GameFi projects leverage DeFi applications.
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- 9DNFT’s COGI token can be swapped on Pancakeswap.
$COGI IS OFFICIALLY AVAILABLE ON @PancakeSwap
Buy at: https://t.co/OjcrE66e6h
Token Address: 0x6cb755c4b82e11e727c05f697c790fdbc4253957
Swap pair: BNB/COGI pic.twitter.com/DFJwE5fl2S— 9D NFT (@9DNFT) November 12, 2021
- Blockchain Monster’s BCMC token can be staked, farmed, and mined on QuickSwap.
- SolChick’s CHICK token holders can earn interest by yield farming on Raydium, Orca, and Cropper.
- Bad Day’s Marvelous MNFT token can be swapped on Pancakeswap, and Quickswap.
- Arenaswap has its own exchange with farming pools where users can use yield farming and staking for the game’s native tokens ARENA and PYRAM.
Some projects take these concepts even a step further. The Binance-Smart-Chain-backed MMORPG Elfin Kingdom GameFi project, for example, is building an asset issuance platform that allows others to create games and set up initial farm offerings (IFO). This means that players can stake not only the game’s native tokens but also the tokens of the partner games built on the platform for additional financial benefits.
The Rise of the NFTs
2021 was an explosive year for NFTs; NFT sales volumes hit $24.9 billion in 2021, compared to just $94.9 million in 2020. 28.6 million wallets were trading NFTs in 2021.
GameFi projects embrace the concept of NFTs because of the technology’s function within games. Primarily, NFTs provide gamers with true ownership of their in-game items and characters; every asset from heroes to weapons to skins is stored as a non-fungible token. Since these assets are created with limited supply, NFTs enable this scarcity to be blockchain-verifiable, as well as create a seamless mechanism for secondary markets.
The Most Popular Crypto Games
As of writing this article, per Dapp Radar data, the ten most popular NFT games in the last 30 days are
- Wax-powered Alien Worlds
- BSC-backed Bomb-Crypto
- Axie Infinity which runs on Ronin
- Hive blockchain’s Splinterlands
- Polygon-backed Sunflower Farmers
- EOS-powered Upland
- MOBOX, which runs on the BSC
- Ethereum-backed Crazy Defense Heroes
- BSC-powered X World Games
- Avalanche’s DeFi Kingdoms.
The Ethereum blockchain might still dominate the NFT art market and profile picture projects like BAYC. But, as you see from the list above, we see a combination of different chains when it comes to top GameFi projects. This is because Ethereum’s scalability issue is a major hurdle in the game industry which requires transactions from hundreds of thousands of gamers, if not from millions, to happen simultaneously.
Therefore, most GameFi projects either develop their own sidechains, such as how Axie Infinity did with Ronin, or use layer 2 solutions like Polygon or Avalanche.
GameFi’s Secret Sauce: Play-to-Earn Mechanisms
GameFi projects incorporate innovative play-to-earn models where players can collect in-game tokens by participating in-game activities like winning battles, completing daily tasks, or mining resources.
These tokens are assets that can be traded on DEXs or third-party exchanges. Players can convert them to real-world value by swapping for more established cryptocurrencies, like Ethereum or stable coins.
Here’s how GameFi NFT games use play-to-earn models:
Gods Unchained, the most popular trading card game on the Ethereum blockchain, deploys a model that allows players to create their own rare cards after winning the ranked battles and sell them in the marketplace to earn money.
Another NFT card game Splinterlands distributes the in-game token DEC once players win battles. Owners of those NFT cards can trade them in the marketplace as well.
During the gameplay of space-themed Alien Worlds, players can mine the game’s native token TLM while enjoying the journeys through the game’s planets.
The Wax blockchain-backed Farmers World also integrates a mining process as a play-to-earn model. This way, players can mine the resources required to run their farms and make money from their crops.
By combining a popular DeFi concept, staking, with NFTs, a new earning model, NFT staking, has emerged.
The Legends of Ancients game is a good example. By staking NFT skins, players can earn the in-game token LOA. They can also earn interest by simply holding their NFTs.
The Samurai Saga game has even its native NFT staking platform.
Blockchain Monsters and Crywar games also enable NFT staking.
In the Solana-backed card strategy game MixMob, the Mask NFTs play the central role. Players can wear them during the gameplay as avatars and, based on their performance masks, evolve dynamically, affecting how much the players earn the game’s MXM tokens. Mask holders are also rewarded with special NFTs.
In some games, like the BSC-backed defense game Warena, it’s possible to lease NFTs from the game’s marketplace.
DeFi Warriors is another NFT game that allows players to lend NFTs to other players through its marketplace.
Note that players usually must make significant upfront investments for some games to start meaningfully earning rewards.
Players of the farming simulation game TownStar by Gala Games must own at least one building or item NFT to complete the daily challenges. Only then can they earn the in-game token TownCoins.
Axie Infinity players must buy three Axies to start playing and earning SLP tokens by winning the battles.
Games are the Gateways into the Metaverse Lands
GameFi concept is becoming even more sophisticated with the integration of the concept of a broadly interoperable metaverse.
An increasing number of NFT games follow in the footsteps of the on-chain metaverse pioneers Decentraland, the Sandbox game, and Upland to sell virtual lands as NFTs.
For example, the gameplay of the Big Game, a cooperative space-themed RPG built on the Binance Smart Chain, revolves around owning virtual land plots called SPACEs. Players go on expeditions using time machines, and these land NFTs help them add more spaces to their time machines and unlock special game features.
The MMORPG Ember Sword is also building a game where the game map is divided into four types of land plots. Players can construct refinement stations, houses, and exchanges to trade game assets on these plots. Landowners receive 50% of the net revenue generated on their lands.
My Neighbour Alice also incorporate play-to-earn models that reward landowners in multiple ways. For example, landowners can rent their lands or grow crops on their lands and sell them to other players.
GameFi Guilds Help Strengthen The Ecosystem
GameFi projects partner with gaming hubs and guilds to extend their reach to gamers. These hubs provide millions of gamers with scholarships to play and test the games.
The advantages are twofold. First, the feedback gained from the scholars helps partnered games improve. Second, these play-to-earn hubs create a positive impact on the lives of scholars who typically come from countries with lower-income levels.
These guilds also invest in the partnered games’ NFT assets. One of the most well-known ones is the Good Games Guild which allows NFT owners to rent their NFTs to scholars from around the world. It’s also possible to stake the platform’s native token GGG.
GuildFi is another GameFi guild that enables staking.
An organization that functions in a similar vein is Avocado Guild. It also has its own token AVG, which was offered in a public sale on 27th December 2021 on the Copper Launchpad. Other guilds that strive to democratize the play-to-earn gaming ecosystem are Merit Circle and AAG ventures.
Final Thoughts: Crypto Games and the Future of GameFi
Thanks to the convergence of DeFi, games, NFTs, and metaverse, a new type of virtual gaming environment has emerged.
Players can directly earn the financial benefits that conventional games lack. A report by Dapp Radar stated that metaverse NFTs generated over $402 million in trading volume in Q4 2021, increasing by 615% compared to Q3 2021. In addition, more than 50,000 unique NFT traders registered in Q4 2021.
According to a report by Morgan Stanley, NFT and metaverse gaming landscapes have a $56 billion revenue potential by 2030 in the luxury sector only.
The crypto investment firm Grayscale estimates metaverse gaming worlds could grow to $400 billion in 2025, from $180 billion in 2020.
On the other side of the spectrum, there’re off-chain metaverse developments like Facebook’s rebranding into the Meta and virtual concerts in Fortnite. Furthermore, off-chain game giants like Ubisoft and Zynga plan to develop blockchain games.
GameFi’s future looks bright– let’s keep our eyes open and see where the best GameFi games of tomorrow take us.
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