GameFi: Current Status and Future
Kean
2022.10.27
Abstract
GameFi, due to its relatively user-friendly characteristics compared to other Web3 sectors, has attracted more Web2 users than other Web3 sectors. However, the global pool of 3 billion gamers has not truly transitioned into Web3, and most GameFi projects have short lifespans. Therefore, exploring how this industry can become more sustainable is crucial. This article outlines the current status, development, and future prospects of GameFi, comparing it with the traditional gaming industry.
According to DappRadar data, gaming and metaverse projects have successfully raised $2.5 billion. The GameFi gaming market has exceeded $8 billion and is expected to reach $50 billion by 2025 (data source: crypto.com).
According to a comprehensive analysis of data from DappRadar, Footprint Analytics, and Coingecko, as of October 17, 2022, the market capitalization of GameFi tokens has shrunk by 85%, and daily active users in GameFi have dropped from 1.06 million at the beginning of January 2022 to 4,846, a decrease of about 99.5%.
- Current Status of GameFi
1.1 Rapid Development Often Sacrifices Quality
GameFi is a mixed bag, with many projects being scams. The market has 70%-80% of GameFi projects inactive, averaging 200 users per day for five consecutive days. Although over 80% of projects launched in 2022 were active within 30 days of launch, data shows this does not last long.
Most projects fail to remain active. Data shows that 60% of projects die within 30 days of being active, and since last November, very few projects have remained active for more than three months.
1.2 Game > Finance
From the data listed in the abstract, we can see that the price of gaming tokens has a strong influence on the enthusiasm of current GameFi participants. When the price of the currency drops significantly, most GameFi projects see very few participants. Axie Infinity, as the pioneer of the GameFi 1.0 era, is played in a pet battle mode, where pets themselves are NFTs purchased with game tokens. If we evaluate the game based on the game itself, it has no playability in terms of graphics or gameplay. The so-called players in the game are similar to most current blockchain game players, most of whom play to earn money. A game without playability cannot have truly valuable (worthwhile) pets or equipment. Assuming it is a fun, popular, and vibrant game (currently, no blockchain game meets this standard). Comparing it to World of Warcraft, during the 1.0 era, there was a legendary weapon called the Ashbringer, which had sharp design and top-tier attributes in version 1.0, making it extremely difficult to obtain. Even so, after the Burning Crusade expansion, very few people were interested in such a top-tier piece of equipment. In my understanding, this is the bug of issuing tokens based on game items, as the value of game items to players does not come from a fictional consensus but from their objectively existing strength. As expansions continue to be released, the original equipment does not remain powerful; simply issuing NFTs based on them cannot make players pay. If NFTs or tokens are issued based on games, they should at least be games that can approach the gameplay of IPs like Genshin Impact or Pokémon, prioritizing the "play" aspect for players. Additionally, NFT items should have a collectible attribute greater than their practical attribute, like skins in League of Legends. Over-reliance on the "external circulation" model of continuously flowing funds leads to a situation where old players reinvest the funds from new players, and new players continuously pay interest and short-term returns to old players, creating the illusion that old players are making money. All tokens minted by old players need to be consumed by new players; otherwise, players will continue to sell, resulting in a token pool with only sellers and no buyers. In this case, token prices will enter a death spiral.
According to data from Footprint Analytics, after experiencing stable growth from July to September 2021 and an explosive period from October to November, the inflow of funds into the entire industry began to slow down due to the overall environment and individual projects. In this situation, the external circulation model of GameFi 1.0 quickly encountered problems, as external funds could not meet the demand for interest generated by internal funds, gradually turning the positive spiral into a death spiral.
Tokens cannot create games—but they can destroy them. We can envision a clearer future for a sustainable, decentralized GameFi space. Axie Infinity pioneered the GameFi 1.0 era, while GameFi 2.0 games represented by Stepn attempt to address the playability issues of GameFi 1.0 through the X2E model. However, as of today, the concept conveyed by Stepn has not been recognized by most players, and it has also struggled to find other revenue sources (brand collaborations, advertising, physical consumption, etc., require user profile support, which is often difficult for a GameFi product to provide to brands that consider such data crucial). If most participants in a GameFi are investing funds into the system with a consumption mindset, then these expenditures constitute the main income of the blockchain game system. This indirectly proves that the project provides some externality (interesting, fun, strong entertainment value) to encourage people to consume and pay for this externality. However, if the vast majority of participants in a blockchain game are participating with a speculative mindset, primarily aiming for profit rather than entertainment, and placing great importance on return on investment cycles and other metrics, then the system is closer to a Ponzi scheme. To break free from this predicament, a sustainable balance must be found between game currency economics and game playability.
Although GameFi 2.0 products led by Stepn appear to have more diverse profitability, they currently cannot avoid gradually entering a death spiral.
- Future of GameFi
2.1 Attitudes of Traditional Gaming Companies Towards GameFi
Accenture states that as of April 29, 2021, the traditional gaming industry is valued at over $300 billion. Meanwhile, Mordor Intelligence estimated the gaming market at $173.7 billion in 2021. Naavik and BITKRAFT estimated the global gaming market size in 2021 to be $335.5 billion.
Several traditional gaming giants have announced their plans related to GameFi and blockchain gaming:
Ubisoft has been collaborating with several blockchain gaming companies like Tezos and Aleph. Additionally, Ubisoft CEO Yves Guillemot has been committed to integrating games and finance.
Square Enix, the developer of the popular Final Fantasy video game series, is also investing in decentralized blockchain games. Square Enix President Yosuke Matsuda stated in a congratulatory letter that starting in 2022, integrating decentralized games will become a "major strategic theme" for Square Enix.
In a February 2022 interview, Microsoft CEO Satya Nadella said, "The essence of the metaverse is to create games." In December 2021, Microsoft's venture capital department led a $27 million investment in Palm NFT Studio.
Epic Games has mentioned that it is "open to supporting games based on cryptocurrencies or blockchain assets" in its game store. This stands in stark contrast to its competitor Valve, which prohibits the use of blockchain technology or NFT games on its Steam platform.
From the attitudes of some leading traditional gaming companies, it is not difficult to see that, excluding public relations factors, they maintain an open attitude towards participating in the GameFi ecosystem. Once these traditional gaming companies enter the GameFi field, it will inevitably create a situation where good games drive out bad ones. More importantly, they will open the door to GameFi for 3 billion gamers.
2.2 Barriers and Pathways for Traditional Gaming Companies Entering the GameFi Field
For traditional game developers, they already have a mature game development path and personnel structure. Therefore, the biggest difficulty for them in entering GameFi lies in the general lack of developers, primarily reflected in two aspects: 1) blockchain developers and teams; 2) building economic models and finding a balance between token economics and gameplay. Both of these points test the decision-makers of traditional game developers on their judgment and determination for the future, both requiring high costs in terms of time and money. Regarding blockchain development, traditional gaming companies have several options: 1) build their own GameFi team; 2) choose a team within the GameFi circle and authorize chain transformation; 3) directly acquire a mature Web3 company. Building their own GameFi team requires traditional gaming companies to invest significant time and money (including trial and error, learning). Although GameFi SDKs have emerged in the market to accelerate the speed of chain transformation, as of now (especially in the Web3 world where contract vulnerabilities are frequent), the GameFi SDKs available (such as Mirror World, Canoe, etc.) can only reduce the time, experience, and personnel needed for game on-chain, traditional gaming companies still need a team proficient in blockchain contracts. For traditional gaming companies, choosing to authorize GameFi project parties to develop GameFi versions of game IPs is undoubtedly the quickest way. However, the problems are also evident; first, having an external team conduct chain transformation may sacrifice gameplay for profit, significantly impacting the original IP; secondly, game developers themselves can gain very little Web3 experience from this, making it likely a narrowing path for traditional game developers. The threshold for GameFi SDKs is not high, and as traditional gaming companies or developers expand their demand for chain transformation, short-term GameFi SDK providers will likely compete across different chains and service forms, ultimately leading to the emergence of a dominant product that supports multiple chains to efficiently assist traditional game developers in completing game on-chain.
3. Conclusion
Fun First, Profit Second
Sascha Zehe, Co-Founder of Polemos Dao, tweeted on February 14, 2022: "Besides P2E, we should not forget the immense potential of GameFi for other types of players. This sector needs to cater to all players to become what it should be: fun first, profit second."
The current state of GameFi is the opposite: many native GameFi games always focus first on profit. For example, in this article, author Lindsey Tam mentions that playing Axie Infinity feels like a chore. Many players echo this sentiment.
Vitalik Buterin once wrote in his bio: "I happily played World of Warcraft from 2007 to 2010, but one day Blizzard removed the damage element from my beloved warlock's life siphon spell. I cried myself to sleep that night, realizing the potential consequences of centralized services."
Let us not forget the original intention of creating GameFi; only fun games can make players willingly spend time and money to join thrilling virtual adventures.
References
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Matsuda, Yosuke. “A New Year's Letter from the President.” Square Enix, 1 January 2022, https://www.hd.square-enix.com/eng/news/2022/html/a_new_years_letter_from_the_president_2.html. Accessed 18 February 2022.
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