All you need to know about GameFi

Introduction

2022 is an important year for the development of Play-to-Earn games. The influx of capital and users once led to the rise of blockchain games. However, the crypto bear market significantly impacted GameFi, resulting in a substantial loss of core players. Regardless, the momentum of blockchain game development remains significant. Data from RootData indicates that since January 2024, over 20 blockchain games have announced financing, with the total funding exceeding 100 million US dollars.

Source: rootdata

History of Traditional Games

From the 1980s to the early 2000s, notable video games included the Atari arcade series, which held a significant position in the arcade game industry. Iconic games from Nintendo’s NES, such as Super Mario Brothers and The Legend of Zelda, profoundly impacted the entire game industry.

Games like Sonic the Hedgehog on the Sega Saturn brought a new experience to arcade games. Games like Final Fantasy VII on the Sony PlayStation platform promoted the development of game production value and technology.

From the 1990s to the 2000s, the rise of personal computers led to the emergence of web and client games. Notable examples include the Warcraft series from the web games era, which opened up new possibilities for online social gaming. Furthermore, client games such as World of Warcraft and “StarCraft” became iconic in esports and online gaming.

In the 2000s, the client game market experienced steady development due to advancements in computing and processing capabilities. Notable games included PC games such as League of Legends and PlayerUnknown’s Battlegrounds, which set new standards for eSports and online games. Meanwhile, mobile games like Angry Birds and Clash of Clans marked the dawn of the mobile gaming era.

After 2010, as mobile device usage increased, the mobile game market expanded. Concurrently, new content platforms like VR and AR emerged. High-profile games such as Honor of Kings and Onmyoji dominated the mobile game market and became global leaders.

Classic titles in the VR market, like Beat Saber and Half-Life: Alyx, have ushered in a new era of virtual reality games.

Source: By author

What is GameFi?

GameFi merges the gaming and decentralized finance (DeFi) sectors. It aims to present decentralized finance products in a more engaging, gamified format, facilitating financial monetization. In GameFi, DeFi rules are gamified, while game props and derivatives are transformed into NFTs. The NFT properties of GameFi lend uniqueness and collectability to all assets, props, and characters in the game. Combined with the unique features of blockchain games, players can have full ownership of these assets in decentralized games.

What is Play to Earn (P2E)?

“Play to Earn” is an innovative game model that offers economic returns to players who participate in blockchain games. Unlike traditional games played solely for entertainment, “Play to Earn” merges gaming with economic rewards. Under the P2E mode, players can earn virtual assets by completing tasks, challenges, or trading within the game. These virtual assets can be traded in-game or converted into real money. In doing so, “Play to Earn” enhances entertainment and delivers economic benefits.

History of GameFi Development

In 2012, the advent of SatoshiDice marked the beginning of blockchain games. It became the first lottery-style game based on Bitcoin. This game allowed players to bet with Bitcoin and used preset odds and a random number generator to determine winners and losers.

In 2013, HunterCoin debuted as the prototype of a blockchain game. It runs on its blockchain, and player actions are submitted as transactions.

In 2015, with the launch of the Ethereum mainnet, more generalized blockchain games were introduced, including gambling games like vDice and Etheroll.

In 2017, Crypto Kitties created the first crypto game that allowed players to collect and breed virtual kittens, injecting new vitality into blockchain games.

In 2018, Axie Infinity tokenized assets as NFTs and created an open and fluid SLP economy, bringing more economic innovation to the blockchain games.

On August 7, 2020, Dark Forest released its first test version, which combined zero-knowledge proofs and on-chain game logic to create a fully on-chain game with hidden information, no admission threshold, and scalability, but also raised Ethereum performance issues.

In 2021, the Loot Project was released, becoming a symbol of a foundational layer IP, spawning numerous games and applications, and integrating Loot into gameplay and storyline.

In 2023, new types of blockchain games and autonomous worlds rapidly developed as emerging industries. Major public chain ecosystems actively cultivated the field of blockchain games, including infrastructure such as LootRealms on Starknet, GO L2, and SUI8192 on SUI, which also rapidly developed.

Source: By author

Features of GameFi

Decentralization

GameFi is built on blockchain technology, featuring its key aspect of decentralization. During the game’s development, operation, and construction process, everyone can participate fully. This significantly reduces the control of gaming companies over the game, thus better protecting the players’ rights.

DAO Governance

In GameFi, players have more freedom than in traditional games. They can use game governance tokens to participate in major decision-making votes, contributing to creating and improving game rules.

DeFi Attributes

A core feature of GameFi is the “Play To Earn” mechanism. While playing the game, players can enjoy the entertainment it provides and also have the chance to earn profits. These profits, including tokens and NFT assets, can be sold through the trading platform.

Types of GameFi

Classification by Gameplay

Sports

Representative game: StepN

StepN is a blockchain game that allows you to earn profits through sports activities using sneaker NFTs. It’s the first to introduce the Move-to-Earn concept in the Web3 world. When you use the StepN app during exercise and equip your Sneakers (sneaker NFTs), it rewards users with game incentives ($GST, $GMT, mystery boxes, etc.) based on data collected from the phone (like GPS, sports speed) and specific algorithms.

Card games

Representative game: Spells of Genesis

Spells of Genesis (SoG) combines card game (TCG) mechanics with point-and-shoot aspects of arcade games. Players must collect and combine cards to create the strongest deck to fight against enemies.

Lottery games

Representative game: Fomo3D

Fomo3D is a gambling-type money game on Ethereum, or more simply, a lottery game. The last player who purchases a KEY (the token used in the Fomo3D game) at the end of the game wins a huge prize.

Life simulation games

Representative game: CryptoKitties

CryptoKitties is a game developed by the Canadian team Dapper Labs. Players can buy, collect, breed, and sell virtual cats.

Launched in 2017, CryptoKitties is one of the earliest projects to leverage blockchain technology and NFTs for entertainment and leisure. Its popularity once led to congestion on the Ethereum network, an iconic event that further increased the game’s fame.

Classification by Token Design

Single-Token

In the game, all economic output and consumption activities are tied to a single token, simplifying economic regulation. However, this also introduces risks, such as the potential “death spiral” of the token.

Representative game: CryptoMines

Dual-Token

Most games utilize a combination of primary and auxiliary tokens. Typically, the consumption and output of the primary token are associated with the auxiliary token. Occasionally, the output of both tokens is distinctly linked in the Player vs. Player (PVP) and Player vs. Environment (PVE) systems. The primary token can generally be used in most game scenarios.

Representative game: Axie

Multi-Token

Often used in games with more resources: SLG, open-world

Representative games: Farmer’s World; Star sharks

Development Phases of GameFi

Phase I - NFT Era

In 2017, NFT-based games like CryptoKitties began integrating blockchain’s financial properties with NFT and game mechanics. On December 9, 2017, the game achieved over 14,000 active users in one day. However, the Ethereum network became congested due to the high gas fees. Although the game lacked a tokenomic model and had very simple graphics and gameplay at that time, NFT assets were already beginning to emerge.

Phase I Characteristics: The market primarily features NFT and simulation mini-games driven by innovation. While these games may not offer strong playability, they have paved the path for the emergence of the blockchain game market.

Source: etherscan

Phase II — Play To Earn

During 2019 and 2020, the GameFi concept was introduced, and NFT assets became increasingly important in gaming. Concurrently, game graphics and gameplay saw significant enhancements. GameFi revolutionized the gaming economy, shifting from a closed exclusive model to an open market one. Blockchain technology introduced open trading and asset issuance protocols into blockchain games, leading to a game economy encompassing numerous games and significantly expanding market depth.

Phase II characteristics: New players must first purchase in-game items or assets to start the game. Although they can earn back their costs through the game, as the number of tokens increases, the game’s playability, durability, and economic model need to remain stable. If they don’t, the value of the tokens might decrease, making it more challenging for players to break even.

Phase III - X To Earn

A batch of high-quality game products began to surface in the third phase. These products were developed by independent game teams with a blockchain background, but with the addition of more 3A game companies and members, the overall game quality significantly improved. These relatively high-quality games have drawn the interest of a few traditional players who have joined the blockchain game player community. This shift has gradually brought blockchain games into the public eye, and GameFi is becoming a standard feature of games. Currently, games like STEPN strive to enhance virtual spaces’ offline scalability and social aspects. The game aims to resolve the traditional GameFi dilemma of balancing entertainment and investment by offering spiritual value, sports concepts, and social features.

Existing Issues With GameFi

Mechanism Risks

A key challenge faced by blockchain games is sustainability, as most players are more focused on earning tokens rather than enjoying the game itself. As the price of tokens and the threshold for entry continue to rise, if the speed of new players entering the game cannot keep up with the output speed of old players, it may cause a turning point in the project’s development, or even eventually lead to a death spiral in the price of tokens.

Traditional game players generally play for entertainment, whereas blockchain game players often aim to earn economic benefits. This difference has led to the evolution from spending in traditional games to the “play to earn” model in blockchain games. Current web3 games are making huge efforts to attract players, but they still face challenges in reaching users from the traditional gaming market. Unless the web3 game can go beyond its current audience, this situation is unlikely to change.

Regulatory Issues

In the past, many gambling activities were disguised as online games, using game props and virtual currencies that could be freely exchanged for legal currency. To combat gambling in the field of online games, relevant departments have issued regulations. These prohibit game platforms from providing channels to exchange game currency into legal currency.

Conclusion

From the inception of blockchain games to their current development stage, we’ve seen constant innovation and rapid changes. However, we must not overlook the issues that have surfaced during this evolution. As time progresses, the GameFi sector will undoubtedly experience heightened competition. When traditional AAA game manufacturers venture into blockchain games, we will observe how blockchain technology can enhance these games, making them more appealing. That will signal the true era of blockchain games.