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What is GameFi? ‘Play-to-Earn’ Gaming Explained

Here, we break down the concept of GameFi, from its arcade-gaming history to the crypto business model dubbed ‘play-to-earn’.
Aug 03, 2022
Game Fi 1

Thus far, earning money in games has largely been a one-way street. However, the psychology of gaming has changed. Players want to have a bigger role in the games they play. They want to be rewarded for their time spent online.

Enter GameFi — a portmanteau of gaming and finance, and one of the most talked about sectors in Web3. ‘GameFi’ refers to the financialisation of video gaming. It is characterised by its ‘play-to-earn’ (P2E) business model, and mainly refers to blockchain games that offer tokenised incentives to players while enabling frameworks for player-as-owner rather than the standard player-as-consumer.

Scroll on as we walk through the world of GameFi, covering everything from what it is and how it works to its origins and various versions of ownership.

What is GameFi?

As mentioned earlier, the term ‘GameFi’ is a combination of the words ‘game’ and ‘finance’, and was first coined in a 2020 tweet by Andre Cronje, the CEO of Yearn Finance. GameFi mixes blockchain technology, non-fungible tokens (NFTs), and game mechanics to create a virtual environment in which players may participate and receive tokens.

Until recently, video games were housed on centralised servers, giving developers and publishers the rights to everything within their games. This meant that players had no actual ownership or control over any of the digital items accumulated over hours — or years — of gameplay. These items range from weapons and costumes (also known as ‘skins’) to avatars and virtual lands — very few of which had any value outside of the game. As such, there was no real way for players to get compensated for their time spent online or share in the value of their earned in-game assets without following the route of professionalism (such as vlogging, Twitch streaming, or playing competitively in tournaments). 

This is not the case with GameFi projects, however. Players of these games can obtain in-game rewards by completing tasks and progressing through various game levels. Unlike traditional in-game currencies and items, these rewards have measurable value outside of the gaming ecosystem. 

For example, game items awarded in the form of an NFT or tokens for achievements can be traded on NFT marketplaces and crypto exchanges; hence, earning the sector the ‘play-to-earn’ moniker. 

It’s important to note that ‘play-to-earn’ is the popular nomenclature, but playing in GameFi doesn’t come without risk, including potentially high initial costs that a player might lose or fail to recoup. 

How Does GameFi Work?

Almost all blockchain-based games are accompanied by a corresponding in-game currency, marketplace, and token economy. Unlike traditional gaming, there is no centralised authority in control. Instead, GameFi projects are usually managed and governed by the community, with players even able to participate in decision-making.

While the mechanics and economics of individual GameFi projects may differ, there are a few commonalities:

  • Blockchain Technology: GameFi projects run on a blockchain’s distributed ledger. This keeps track of player ownership while ensuring that all transactions are transparent
  • Play-to-Earn Business Model: In contrast to traditional gaming, where users play to win, GameFi projects adopt a P2E model. These games incentivise players to play and progress within the game by offering rewards that have measurable value outside of the game. These usually come in the form of in-game cryptocurrencies or NFTs
  • Asset Ownership: In traditional gaming, in-game purchases are non-transferable investments locked within a single game. With P2E, players own their in-game tokenised assets. In most examples, they can exchange them for cryptocurrencies and, ultimately, fiat. Assets can range from a suit of armour to a plot of virtual land, which are tokenised on the blockchain
  • DeFi Solutions: Many GameFi projects may also include decentralised finance (DeFi) elements, such as yield farming, liquidity mining, and staking. These provide additional avenues for players to increase their token assets 

You may also be interested in: Consumer Insights into the Blockchain Gaming Landscape

The History of Gaming — From Pay-to-Play to Play-to-Earn

Until recently, games were split into two main models of monetisation: pay-to-play and free-to-play. However, a new model has started to emerge, dubbed ‘play-to-earn’. Here’s a brief overview of how gaming economics have shifted over the years.

Paid Games/Pay-to-Play (P2P): The First Video Games

It all started with arcade games back in the early 1970s. Arcade video games worked off a pay-per-play model. Like the name suggests, games were monetised per play. Arcade goers would have to stump up a small amount to enjoy one or two rounds of a game. This was hugely profitable. By 1982, the arcade video game industry was generating an annual revenue of US$8 billion, surpassing that of pop music (US$4 billion) and the Hollywood box office (US$3 billion) combined.

When home consoles arrived on the scene in 1972, game developers saw a need to introduce a new revenue model: single payment. Unlike pay-per-play, which requires ongoing microtransactions that a gamer would be less willing to make (having already invested in the console and game itself), this new method of payment meant that players could simply pay a one-off sum in order to gain total access to a game. Examples include FIFA and Super Mario Brothers.

In the late ‘90s, subscription models — games that require the player to pay a regular subscription fee in order to maintain access to all parts of a game — were introduced. This method was especially popular with MMORPGs (massively multiplayer online role-playing games) like Tibia, Runescape, and World of Warcraft. 

Source: World of Warcraft

Then came expansion packs and downloadable content (DLC), where users would be enticed to spend extra so as to unlock premium items like cosmetics/’skins’, additional maps and storylines, superior weapons, and in-game advantages.

Free-to-Play Games (F2P)/Freemium: The Next Chapter of Gaming 

In the free-to-play (F2P) business model, players have access to the core of the game free of charge, but are encouraged to spend money on enhancements, such as additional lives, unrestricted playing time, digital currency, personalised avatars and special cosmetics, extra content, and an ad-free experience. 

During the early days of the Apple App Store, which launched back in July 2008, the majority of early mobile games like Angry Birds, for example, were based on the traditional premium model (i.e., paying for the game up front). 

In October 2009, the App Store introduced in-app purchases for free apps, enabling players to purchase digital items, such as in-game currency and resources, to enhance their experience. 

Soon after, popular mobile apps like Angry Birds, Temple Run, and Plant vs. Zombies would switch from the premium model to what we call ‘freemium’. Video games like DOTA 2 and Team Fortress 2 quickly followed suit, adopting the free-to-play business model while offering purchasable cosmetics. Other popular F2P games include Fortnite, Call of Duty: Warzone, and Apex Legends. Today, well over 90% of apps in the App Store and on Google Play are free. 

Source: Apex Legends

What these two monetisation models have in common is that, in order for a player to make money off of playing P2P or F2P games, they would typically need to either stream their gameplay or win eSports tournaments. In short, only very select players are able to monetise their time spent online playing P2P and F2P games. 

Play-to-Earn (P2E) and the Advent of GameFi

In 2017, Ethereum launched CryptoKitties, the first widely recognised blockchain game. Shortly after, a number of other decentralised blockchain games were launched, including Ether Shrimp Farm, Ether Cartel, and Pepe Farm. These games use a P2E economic model, which provides players with the opportunity to monetise their time spent playing games.

However, it wasn’t until the global pandemic in 2020 that the P2E model really took off. With many homebound due to lockdown restrictions, P2E games offered token-generating opportunities for the average person. 

As mentioned earlier, before P2E, the economics in games generally flowed from the player to the publisher. With the P2E model, however, players are compensated for their efforts and time spent online with digital assets that have value outside of the game and which may appreciate over time. Because these assets are stored on a blockchain, they are owned by the players, not the game developer. It’s important to note that the value of digital assets is volatile and may also depreciate over time.

In P2E games, in-game assets are usually represented as NFTs, which players can obtain through in-game advancement and gameplay (such as taking part in specific tasks, challenges, duels, and competitions). The advantage of these NFTs is that they can be exchanged for cryptocurrencies that can then be traded for fiat on third-party exchanges, spearheading a whole new world of digital economies. Examples of popular P2E games include Axie Infinity, The Sandbox, and Decentraland.

Source: The Sandbox

Unlike traditional video games, where developers control all in-game economics, players in P2E games have ownership and control over their digital assets. They can even contribute to game decisions and help shape the future of the game through the accumulation of tokens. 

Take Axie Infinity, for example, an Ethereum-based game that rose to prominence in 2021 and became the world’s most Googled NFT in March 2022. In Axie Infinity, players collect, breed, train, and battle creatures called ‘Axies’. Unlike conventional in-game items, each Axie can be traded on the game’s marketplace for real money (for context, the most expensive Axie ever sold was for US$820,000). 

The game has two native cryptocurrencies: Axie Infinity Shards (AXS), which can be bought and sold on exchanges like Crypto.com, and Smooth Love Potion (SLP), which is what players earn through playing the game. AXS is also used as a governance token, allowing token holders to vote on the future development of the gaming experience.

With all that said, games like Axie Infinity can have a high cost of entry. In order to start playing, users must buy three pet characters. Previously, building out an average team would have cost around US$300, but prices have since cooled by about a third. 

Despite the drop in price, this initial cost is still a huge barrier for many, especially as the vast majority of blockchain game players currently hail from developing countries. This hurdle has led to the rise of gaming guilds — platforms that enable NFT owners to lend out in-game assets (NFTs) in return for a share of the assets generated — which reduce the considerable upfront costs for would-be participants. The most well-known guild is Yield Guild Games (YGG)

Source: Axie Infinity

1. Axie Infinity

Axie Infinity is an NFT-based online video game developed by the Vietnamese studio Sky Mavis. On it, players are able to collect, breed, raise, battle, and even trade token-based creatures, known as ‘Axies’. At its peak in November 2021, the company reportedly had 2.7 million active daily users.

2. Decentraland

Created by Ariel Meilich and Esteban Ordano, Decentraland is a virtual world that runs on Ethereum. In it, players are able to buy virtual plots of land as NFTs using the MANA cryptocurrency. They can then buy and sell the land they own, or rent out such assets to other players on the platform.

3. The Sandbox

The Sandbox is a virtual metaverse where players can play, build, own assets, and put their virtual experiences to use. It provides its users with the tools to create their very own 3D games and experiences, which they can then share, rent out, or sell in exchange for tokens. The Sandbox uses several different tokens to ensure a circular economy between the four types of users on the platform: players, creators, curators, and land owners. These tokens include SAND, the utility token used throughout The Sandbox ecosystem; LAND, a digital piece of real estate in The Sandbox metaverse; and ASSETS, a token created by players who build user-generated content (UGC).

4. Game of Silks

Silks leverages a blockchain-enabled metaverse to create a digital parallel of the real world of thoroughbred horse racing. Each digital Silks Horse NFT is a derivative of a real-world racehorse, meaning that every time the racehorse wins a race or breeds offspring in the real world, the owner of its corresponding Silks Horse will earn tokens (STT). In addition to Silks’ Horse NFTs, users of the platform can own, trade, and interact with Silks Avatars, Land, Stables, and a wide variety of other in-game NFTs. They can also earn rewards through its unique staking mechanism.

5. CryptoBlades

Launched on the BNB Chain and developed by Riveted Games, CryptoBlades is a P2E web-based RPG (role-playing game) that rewards players with SKILL tokens after defeating enemies and participating in raids. Players can trade their characters and weapons in an open marketplace or bet their SKILL token earnings to receive additional tokens as a reward.

Blockchain games were responsible for half of all blockchain usage in 2021. As of February 2022, the GameFi market cap has climbed to US$55.38 billion

You can view the top GameFi coins and gaming tokens here.

How to Get Started With GameFi

1. Create a Crypto Wallet

In order to make in-game transactions and store the virtual currencies and NFTs collected during gameplay, you will need a crypto wallet. There are many different wallets available, like the Crypto.com DeFi Wallet, but most games demand the use of specific wallets. Be sure to visit the game’s official website to see which wallets it supports.

2. Connect the Wallet With the Game

Unlike traditional games that require a username and password, blockchain games use your crypto wallet as your account. To avoid scams, only use wallets downloaded from official app stores that are explicitly linked to the wallet’s official website. Further, as an additional security precaution, it’s recommended that you use a different wallet for each game you play.

3. Add Funds to Your Wallet

You will need to pre-fund your crypto wallet with a compatible cryptocurrency in order to purchase any starter items (i.e., characters or native crypto tokens) required to play the game.


You may also be interested in:
What is a Crypto Wallet? A Beginner’s Guide

The Future of GameFi

With an estimated 3.24 billion gamers across the globe, there is a huge opportunity for growth in the emerging GameFi sector. In 2021 alone, investors poured over US$3.6 billion into crypto gaming startups, making 2021 a landmark year for the burgeoning industry. 

For many industry commentators, gaming represents the most likely route to widespread blockchain adoption. This is an opinion supported by a DappRadar x BGA Games report, which found that blockchain games attracted 1.22 million unique active wallets (UAW) in March 2022. 

With that said, there is resistance to blockchain-based games from the gaming community — particularly when it comes to game mechanics and NFTs. 

Roadblocks to Widespread Adoption:

  1. Game Mechanics — Currently, and partly due to its name, the primary draw of blockchain games might be described as money-making — a fact that some gamers tend to abhor. If GameFi is to go mainstream, it has been suggested that the focus will need to shift from the ‘crypto first, game second’ mentality that is currently so prevalent, to one that puts the gaming experience first. If the playability of the game is not of a high enough standard to attract and retain gamers without a financial incentive, then it has very little chance of converting traditional gamers and engaging audiences outside of crypto. 
  1. NFTs A common criticism of GameFi’s detractors suggests that the incorporation of NFTs in games is just another shameless cash grab. As covered earlier, gamers have long been subjected to various monetisation experiments, from downloadable content to randomised loot boxes — all with varying degrees of success. From the perspective of some gamers, NFTs are simply a new way for developers to dress up the very same microtransactions that gamers have loathed for decades — without actually bringing any real value to the game. There are also concerns that, on top of being expensive, these NFTs will deliver unfair in-game advantages, further diminishing the entire gaming experience. 

Many GameFi enthusiasts chalk this rather negative outlook down to a gross misunderstanding of blockchain technology and how it works. As with crypto in general, one of the biggest roadblocks to mass adoption is a lack of understanding. To address this and assuage any concerns, it’s integral that developers invest time and energy into improving not only the gaming mechanics, but the public understanding and perspective of blockchain technology and GameFi.

According to a recent research report by Crypto.com, Naavik, and BITKRAFT Ventures, it is estimated that the blockchain gaming market will grow at a compound annual growth rate (CAGR) of 100%, from US$1.5 billion in 2021 to US$50 billion in 2025. This is 20 times the forecasted ~10% CAGR for the traditional gaming industry. If blockchain games can provide gamers with equal value (or fun) as traditional games — with the added potential for earnings — then there really is no limit to GameFi’s potential.

Wherever you stand on the topic of GameFi, there’s no two ways about it — it was one of the hottest crypto sectors that came out of 2021. It is one to keep an eye on.

Due Diligence and Do Your Own Research

All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any NFTs or crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction.

The term ‘play-to-earn’ refers to the general concept in which a gaming platform provides a participant with rewards, such as in-game tokenised assets. Participating in a play-to-earn product does not guarantee positive returns. Play-to-earn products do not come without risk, and participants can incur high initial costs, which may be partially or completely unrecoverable. 

Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.

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