What Are NFT Games and How Do They Work？

NFT in Gamefi, from the origin to the explosion

With NFT becoming widely known, more and more people are noticing that digital credentials can be used in a broader range of scenarios, one of which is GameFi, combining NFT and DeFi. More practitioners and users are joining this digital track as Axie grows rapidly in the second half of 2021. Despite the fact that many people still refer to GameFi as a crypto project, there is a distinction between GameFi and previous projects. To understand it clearly, you must first understand the application and status of NFT in the chain game and then follow its development path.

Before we can understand what an NFT game is, we must first review what happened in CryptoWorld around NFT in 2020, which is referred to as the “first year” of NFT, and why an NFT game, which is derived from the NFT explosion, has now become the main direction of Web 3 development. One of the most important facts about NFT is that it is one of the most popular games on the Internet.

The History of NFT in the CryptoWorld

Dieter, the CEO of CryptoKitties, formally introduced the concept of NFT in 2017. The concept of NFT quickly gained popularity with the rise of CryptoKitties. When combined with the existing cryptocurrency system, these crypto items, which have been around since the 1990s, have become a well-known portfolio of crypto assets.

CryptoPunks and CryptoKitties are two early NFT projects from 2017, the former based on the Ether ERC-20 standard and containing 10,000 randomly generated NFT Avatars at a time when the blockchain industry was still exploring how crypto assets could be implemented in areas other than cryptocurrencies.

The arrival of CryptoPunks certainly gave the industry new life, and it was the world’s first true NFT project. The first bold adoption of images as crypto assets into the cryptocurrency space was a great inspiration to practitioners in an environment where Tokens of all kinds were proliferating in a single form.

The Dapper Labs team launched the ERC-721 standard, and based on ERC-721, the Dapper Labs team launched CryptoKitties, a crypto-cat game. Using the concept of “scarcity maximizes value,” the team creates each digital cat that is unique and cannot be replicated.

CryptoKitties quickly became popular and mainstream in the market due to the innovation in the presentation of the value of a project like CryptoKitties, and NFT began to take off.

NFT Stabilization and Development

In crypto space, the NFT ecosystem grew rapidly, and more and more practitioners began to work on NFT projects. During this time, OpenSea and SuperRare also emerged and began to dominate the market. Industry infrastructure, such as the repair and enhancement of the Web3 wallet, made it easier for users to join the NFT ecosystem.

Simultaneously, some early artists, celebrities, trendy brands, and so on began to experiment using the NFT form to distribute related works, which contributed to the early cases of combining NFT with real objects on the chain. However, following the initial investment frenzy, many single-form NFT projects began to reveal their own issues.

In addition to the Token-like investment property, users may struggle to find additional value outside of their purchased NFTs. The concept of scarcity equalling value gradually becomes a bubble, especially as more practitioners flock to this field. While market share is still increasing, the NFT program’s weaknesses are beginning to emerge.

Seeking recognition beyond investment value on top of Defi’s foundation, achieving a fundamental breakthrough with NFT’s own design and creativity alone is difficult. People are becoming more interested in whether NFT can open up more possibilities in future application scenarios. NFT can only create its own market future by allowing more users to join the ecology.

The rise of the NFT game

As the world’s biggest black swan event in recent years - the occurrence of covid - affected every aspect of the world, time quickly entered 2020.

Following the epidemic, governments in several countries, including the United Kingdom and the United States, chose to issue monetary stimulus. In the short term, traditional investment options lost favor, and more people became daring in their venture capital investments, looking to a seemingly untapped field - crypto assets.

In terms of threshold and format, NFT projects are more appealing to ordinary investors than traditional Token projects, and the resulting influx of hot money has provided an unprecedented opportunity for most NFT project practitioners.

And NFT, after a long period of market exploration and precipitation, finally ushered in its own explosion during this period. As a directional feature, NFT projects began to appear in a variety of categories, including Socialfi, Gamefi, and the clear vision of NFT development thus far - metaverse and other concepts - which began to attract many practitioners to enter the game.

Of course, the real explosion will not occur until 2021, but the exploration of the concepts in the above directions has already begun gradually.

NFT, like a growing green tree, has ushered in the development of various types of application scenarios, which can be classified into the following tracks based on the product categories involved: Game-NFT, Art-NFT, FI-NFT, and IP-NFT. The directional area corresponding to the Game-NFT concept will be the focus of our NFT game.

The combination of NFT and DeFi realized Gamefi-NFT with the launch of the FLOW public chain, ushering in its spring. In general, Gamefi is our generic name for these products, which are a hybrid of DeFi and Play-to-Earn (P2E) blockchain games.

This is the origin and most common definition of NFT games at the moment.

How do NFT Games work?

For starters, any Gamefi project is an ecosystem enabled by transferring asset ownership to players and incentivizing greater loyalty, engagement, and active management of these gaming communities. To understand how GameFi projects work, we must first understand how such projects improve player incentive consistency and how NFT plays a key role in this.

In the virtual world, NFTs can take many forms: characters, objects, lands, decorative personalized features such as digital clothing, game props, and so on. P2E allows users to earn the most valuable NFTs through in-game actions, then sell them for cryptocurrency and exchange them for fiat currency, allowing them to “earn while playing,” as many Gamefi projects do.

This innovation eliminates proprietary, custodial ownership of gaming assets while maintaining security and proof of ownership through the underlying logic of NFT decentralization. As a result, many Gamefi projects’ economic systems rely on the circulation of both governance pass and game pass tokens. At the same time, the majority of Gamefi’s governance passes circulate as Tokens outside of the P2E product. When we consider Gamefi in the context of the metaverse as a whole, we can logically conclude that Defi is fully compatible with P2E.

This is one of the reasons why many NFT projects with logic similar to the gaming industry have emerged in recent years. It’s a software package that comes with investment property.

The greatest potential of P2E games is their ability to decentralize markets for the creation, ownership, and exchange of digital assets, as well as the potential created when these markets are linked to traditional economies and fiat currencies. The ability to convert digital time, effort, and income into real-world disposable income, would be enormous.

NFT and Defi Applications from Gamefi

To limit the content that is ultimately published as NFT, the Gamefi project still relies on some form of centrality in the application of the NFT direction.

The difference is that the addition and combination of Defi ultimately result in users choosing to join a Gamefi ecosystem, which allows them to choose a more diverse portfolio of investments within an ecosystem to bring more risk resistance to their assets, in addition to the investment and application attributes highlighted above (after all, Gamefi products must be somewhat game-like).

A Gamefi ecosystem is essentially a combination of any gameplay within the product and Defi, in which the developer packages every action of how a user can participate, and in a way that is interesting enough to give all users a certain amount of participation output combined with the traditional game task rewards.

We control the economic output for a period of time in P2E in the form of output-depletion-synthesis by purchasing NFT tickets, and we combine the governance tokens and game tokens to maintain the operation. High-value NFTs will eventually become a common goal for all users as they continue to participate and the community grows in size.

Why isn’t this the only one? Because, aside from the NFT direction, most Gamefi projects also place a greater emphasis on Defi, where both governance passes and NFTs can be pledged. In some Gamefi projects, you can even see the entire mining pool in action.

Dependencies on core values

However, while focusing on what Gamefi can offer, it’s important to remember the other pillar of how Gamefi works - the project developers.

All NFT-based projects, in essence, revolutionize the traditional game format by putting the project in the hands of users. Many high-quality Gamefi projects quickly gained a devoted following, spawning massive communities and even DAOs in the ecosystem.

Gamefi is a typical example of what many people, who don’t know enough about the metaverse, understand in a one-sided way. What really keeps it going is the real value that Gamefi provides to all users - breaking down barriers between different areas of CryptoWorld and bringing their economies together, which is also why Gamefi is able to attract a steady stream of new users.

Of course, most project owners will implement various measures to attract more users to the operation, such as Axie Infinity’s academy incentive policy in Southeast Asian countries, the long-term rewards campaign in P2E, and even the development of Ronin’s exclusive sidechain in Ether.

This article has already covered a lot about what NFT games are and how they work, and it is too short to introduce the projects’ origins and the principles that govern them.

Each Gamefi project contains a diverse set of elements, which explains why many high-quality Gamefi projects have been recognized, and the NFT concept is rapidly gaining traction, extending to a new application scenario that combines DeFi and games - GameFi. The combination of a more diverse universe economic system of NFTs may give birth to more novel applications in the future, which will be enough to look forward to, and it isn’t far away.