The GameFi sector has been one of the main contributors to the explosive growth of the cryptocurrency market over the past few years.

Gamers can earn incentives while playing thanks to GameFi, a combination of the words “finance” and “gaming.”

With consistent growth, the market has a token market cap of almost $9.2 billion. Notably, despite the crypto winters, GameFi networks have endured and thrived. 

By 2031, the sector is expected to be worth $74.2 billion.

What Is GameFi?

GameFi is a platform that combines blockchain technology, non-fungible tokens (NFTs), and game mechanics to build a virtual world where users may interact and earn tokens.

Video games used to be stored on centralized servers, allowing publishers and creators complete control over everything in their games. This meant that none of the digital objects that players had gathered over many hours or even years of gaming belonged to them. 

Few of these objects had any use outside the game, ranging from avatars and virtual territories to weapons and clothes (sometimes referred to as “skins”). Therefore, there was no practical mechanism for users to get reimbursed for their online time or have access to the value of their acquired in-game goods without undertaking a professional gaming career.

Players earn in-game rewards by completing objectives and moving through different stages in GameFi games. These prizes, as opposed to conventional in-game money and equipment, have monetary worth outside of the gaming industry.

The industry has been dubbed “play-to-earn” because of gaming products given in the form of NFTs as “accomplishment tokens” that may be exchanged on NFT marketplaces or cryptocurrency exchanges.

Even though “play-to-earn” is the preferred terminology, participating in GameFi involves risk, including the possibility of incurring significant upfront fees that a player might lose.

How GameFi Works

There is an in-game currency, market, and token economy in almost all blockchain-based games. There is no centralized authority, in contrast to conventional games. Instead, the community generally manages and governs GameFi projects, and users participate in decision-making.

Although each GameFi project has its own unique mechanics and economics, they have similar characteristics:

• Blockchain Technology: The distributed ledger of a blockchain powers GameFi initiatives. This maintains player ownership records and guarantees the openness of all transactions.
• In contrast to traditional gaming, where players play to win, GameFi initiatives employ a P2E business model. By providing incentives with measurable values outside of the game, these games encourage players to play more. These incentives typically take the form of NFTs or in-game money.
• Asset Ownership: In conventional gaming, in-game purchases are immutable investments that are trapped inside a particular game. Players own their tokenized in-game assets via P2E. In most cases, people can trade them for cryptocurrencies and, ultimately, money. On the blockchain, assets are tokenized and might include anything from a suit of armor to a piece of virtual real estate.
• Decentralized finance (DeFi) solutions, such as yield farming, liquidity mining, and staking, may also be a part of many GameFi initiatives. These provide participants more ways to grow their token investments.

Decentraland, The Sandbox, Axie Infinity, and Gala are examples of well-known blockchain gaming networks that use the P2E GameFi architecture.

Axie Infinity

Consider the Ethereum-based game Axie Infinity, which gained popularity in 2021 and became the most Googled NFT worldwide in March 2022. Players in Axie Infinity gather, breed, train, and engage in combat with “Axies.” Each Axie may be exchanged on the game’s market for real money, unlike other in-game products (to give you an idea, the most expensive Axie ever sold was for US$820,000).

Axie Infinity Shards (AXS), which can be purchased and sold on exchanges like Crypto.com, and Smooth Love Potion (SLP), which users earn by playing the game, are the two native cryptocurrencies of the game. AXS is also utilized as a governance token, enabling token holders to decide how the gaming experience will evolve in the future.

Having said that, there may be a significant barrier to entry for games like Axie Infinity. User purchases of three pet characters are required to launch the game. A typical team setup used to cost roughly $300, although prices have recently decreased by approximately one-third. 

Despite the price decline, this initial cost remains a significant barrier for many, especially given that the vast majority of blockchain gaming players now come from underdeveloped nations. Due to this barrier, gaming guilds have emerged, which allow NFT owners to lend out in-game assets (NFTs) in exchange for a percentage of the assets created. 

GameFi Is Boosting Growth

Because GameFi initiatives use cryptocurrencies to settle transactions, the use of digital currencies has grown significantly in recent years.

The number of Unique Active Wallets (UAW) connected to the blockchain gaming industry increased significantly in the third quarter of 2021, according to a report recently released by DappRadar, a platform that monitors activities on decentralized applications (DApps). 

These wallets made up roughly 49% of the 1.54 million daily UAWs registered during that time. The information supports the sector-disruptive potential of GameFi and the rising use of cryptocurrencies, which in turn encourages their uptake and use.

Another study report on the subject was recently made public by Chainplay, an NFT game aggregation platform, and it showed that 75% of GameFi investors entered the cryptocurrency markets as a result of their engagement in GameFi, demonstrating GameFi’s expanding influence on crypto adoption.

In addition to an expanding crypto universe, and growing retail crypto exchanges, GameFi has significantly contributed to the NFT market expansion. NFTs are used more often on the blockchain since GameFi largely relies on them for in-game assets. The growth of the GameFi market in 2021 closely mirrored the NFT boom.

Sales of GameFi’s NFTs increased from $82 million in 2020 to $5.17 billion in 2021. 

Closing Thoughts

Because GameFi is a part of the cryptocurrency sector, it is also impacted by its many ups and downs. As a result, activity in the GameFi sector increases during uptrends while it declines during downtrends.

GameFi platform developers must work hard to create captivating games and help crypto ecosystems withstand market declines if they hope to keep users onboard. 

Although the endeavor is easier said than done, GameFi investors are now focusing on enhancing gaming experiences with the clear objective of sustainability.

There are many obstacles for developers to overcome, but if they can draw gamers in with excellent gameplay, the future of blockchain-based gaming is more than promising.

Disclaimer: The information provided in this article is solely the author’s opinion and not investment advice – it is provided for educational purposes only. By using this, you agree that the information does not constitute any investment or financial instructions. Do conduct your own research and reach out to financial advisors before making any investment decisions.

The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech, and entertainment. Mr. Chalopin is Chairman of Deltec International Group, deltecbankstag.wpengine.com.

The co-author of this text, Robin Trehan, has a bachelor’s degree in economics, a master’s in international business and finance, and an MBA in electronic business. Mr. Trehan is a Senior VP at Deltec International Group, deltecbankstag.wpengine.com.

The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees.