What is GameFi? The top three things developers need to know
by Ramona Ciocea, Head of Business Development at Protokol
The global gaming market is projected to reach nearly $200bn by the end of 2022 and to hit approximately $340bn by 2027.
Within this sector, there is a dark horse on the horizon – GameFi. GameFi is the concept of being able to create value within a gaming environment that users can transfer outside of that environment. What this means in practice is the creation of real-world financial potential and digital assets which are owned by the players themselves, rather than the developers or game studios.
Underpinned by Web3 and blockchain technology, GameFi’s market cap rose to $55.38bn in February 2022. While this isn’t a huge portion of the overall gaming sector, funding is on the rise. Web3 and blockchain-based gaming projects have raised $6.9bn in 2022 so far. This growth shows a clear trend – players are increasingly asking for more control over, and impact on, the games they play.
For game developers ignoring this trend could mean risking out on a whole new generation of gamers. So what are the key things developers, studios and players need to know?
- From pay-to-play to play-to-earn
One of the key components of GameFi is the concept of play-to-earn games. Underpinned by blockchain technology, play-to-earn is a new breed of games which allow users to earn cryptocurrency, NFTs, or related rewards as they play. These kinds of games are fast becoming a staple of gaming, and allow players to get more out of their experiences. For instance, games like The Sandbox and Axie Infinity are quickly gaining popularity among gamers worldwide.
Typically, games will launch and associate their own blockchain-based tokens that players can earn and redeem within a gaming title. These tokens can then be traded within a game’s marketplace to purchase new digital items or other rewards, or even transferred to cryptocurrency exchanges and traded for real-world traditional currency like dollars or pounds.
Rewards earned in game can also potentially be sold for profit as they go up in value. For example, in Axie Infinity, you can earn SLP tokens. When you fight monsters and complete tasks, you are rewarded with SLP crypto tokens, which can be resold via exchanges for fiat currencies or used to buy NFT assets which make the game easier.
In the context of the financial downturn, layoffs and rising cost of living being felt by many communities across the globe, we could see play-to-earn continue to grow, as many look for ways to supplement their income.
Blockchain could cause a paradigm shift in the way people view and interact with the games they play. Blockchain-based Play-to-Earn games are an exciting new development, and are a great way for players to be rewarded for what they love.
- A new form of player rewards
The majority of play-to-earn works by rewarding players with digital tokens, but one alternative model that games have been taking for play-to-earn is rewarding players with NFTs. NFTs — blockchain-based tokens that cannot be forged or replicated — can be offered by game companies as exclusive collectibles for fans to earn or win. These collectibles can even be paired with unique experiences, with the NFT acting as a ticket exchangeable for coveted experiences or rewards.
NFTs can also be used by games companies and developers to use play-to-earn games to their full potential. More than just collectibles, developers can offer NFTs as unique in-game assets such as weapons which can be earned or exchanged by players and used in the game, with the potential for the owners of those assets to actually boost their value by playing, rewarding them for engaging with the game and its community.
Adding NFTs into the mix allows game companies and developers to foster more loyalty and engagement with their players, as well as creating new streams of revenue. We can only expect to see play-to-earn grow as the technology progresses, and game companies can look to the technology for new innovative changes to their games.
- A completely new gaming economy
Merge GameFi with other blockchain gaming concepts such as NFT-backed asset ownership and community voting and influence mechanisms, and we can create an independent, self-sufficient game-based economy which could increase community participation and ownership.
An early example of one of these gaming economies is Second Life, where players create virtual worlds, own parcels of land, and trade in the in-game currency ‘Linden Dollars’. These could be exchanged for ‘real’ dollars (at an unfavourable exchange rate), creating additional revenues for players, as well as developers and studios
Transfer this concept to blockchain and GameFi, and we suddenly have the same possibilities but with no single organisation, currency or exchange rate to which participants are beholden. It also gives developers creative freedom to expand their siloed game into a thriving virtual metropolis, attracting players with the promise of earning potential whilst they enjoy the aesthetics and playing experience the studio has worked hard to design.
GameFi represents not only a new financial opportunity, but a paradigm shift in the traditional power structures of the gaming industry. As GameFi continues to grow, gamers will be increasingly drawn towards models which offer them more control, autonomy and ownership over the games that they play. Developers who can understand and harness this trend now will be best placed to appeal to and capture this new generation of gamers.