GameFi: What Is GameFi? Explaining Gaming On The Blockchain. All about the technology that puts in-game items on the blockchain. Here, we break down the concept of GameFi, from its arcade-gaming history to the crypto business model dubbed ‘play-to-earn’.
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.
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.
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 is 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
The major component of GameFi
Before we move forward, let’s break down the main components of GameFi:
Blockchain
Blockchain technology is the foundation of GameFi platforms. The majority of blockchain games are built on the Ethereum network, although GameFi protocols like Polygon, Polkadot and Solana are increasingly being used as they have higher-capacity and speed features. Running a game on a blockchain’s distributed ledger not only enables player ownership but also ensures that all transactions are transparent, fair and open.
Non-fungible Tokens (NFTs)
In P2E games, NFTs are used to represent assets and enable transactions in the marketplace. In-game NFTs can be exchanged for other NFTs, the cryptocurrency of fiat money. Unlike traditional online games, P2E NFTs ensure that all in-game assets are unique and that they cannot be duplicated or fake in any way. A great number of P2E games are focused on encouraging players to pass through different game levels while monetizing virtual land and improving their digital characters (or avatars).
Play-to-Earn Model
In contrast to play-to-win games where players have to pay their way into and through gameplay, GameFi will reward you for just playing. As you keep progressing, you’ll amass digital collectables, in the form of NFTs, and cryptocurrency. In return, players usually have to complete tasks, including winning battles and daily quests. These assets hold value and can be traded and exchanged in the marketplace.
DeFi Components
Many GameFi projects also integrate decentralized finance (DeFi) elements. Some of the top GameFi games will let players generate passive income through staking tokens, while others might let you earn in-game rewards in return for locking your in-game assets and cryptocurrency in smart contracts as part of a yield farming feature.
When it comes to GameFi, Axie Infinity stands as one of the most successful games available and the title that helped pave the way for others in the industry.
Popular Play-To-Earn Games in 2022
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.
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.
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).
Game of Silks
Silks leverage 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.
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.
How to Get Started With GameFi
1. SET UP A CRYPTO WALLET
Set up a crypto wallet that is compatible with whatever game you want to play. While they don’t exactly store money the way a traditional wallet does, crypto wallets house encryption keys associated with digital assets, allowing you to retrieve, send and receive cryptocurrency. There are all kinds of wallets and currencies out there, but most games require specific wallets to work. You’ll need to check the given game’s official website to figure out which wallets they support.
2. CONNECT YOUR CRYPTO WALLET TO THE GAME
This will be your means of logging into the game as well. Unlike traditional online games that make you set up a username and password or ask for your email address, blockchain games use your crypto wallet as an account. When you connect your wallet, make sure you are connecting to their official website and not a fake look-alike.
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.
4. FAMILIARIZE YOURSELF WITH SPECIFIC GAME REQUIREMENTS
Many play-to-earn games require players to purchase their in-game cryptocurrency tokens or NFTs to get started. In general, it’s good to weigh the earning potential against the overall risks of a given game, including how long it takes to earn your initial investment back and start making profits. If you don’t have enough money to buy a token yourself, or don’t want to take on the financial risk, consider looking for an in-game scholarship program, which allows you to borrow NFTs from other players to get started. Granted, if you go that route, you will have to share your earnings with the NFT owners.
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