Exploring the Evolution of GameFi: How Far Are We from the Next Hit Game?

DeFi and NFT lay the foundation for GameFi development

The Ethereum mainnet was launched on July 30, 2015, marking the beginning of the Web3 era. The deployment function of smart contracts supports the design and operation of decentralized applications (DApps). Based on this, a large number of popular DeFi projects have emerged, such as Uniswap and MakerDAO. The total market value of the DeFi sector grew from 50 million USD in 2015 to 100 billion USD in 2023.

At the same time, the NFT market has also experienced an explosion. The CryptoKitties project launched in 2017 is regarded as the starting point of the NFT boom. The total market value of the NFT market has risen from a few million dollars in 2018 to 8 billion dollars in 2023.

DeFi has brought a large amount of capital to the crypto market, while NFTs have shifted the blockchain focus towards entertainment and gaming. Together, they provide fertile ground for the development of blockchain games, on this basis, the concept of GameFi, which combines DeFi and blockchain gaming, has begun to emerge.

The concept of GameFi: its introduction and development

In the second half of 2019, MixMarvel's Chief Strategy Officer Mary Ma first proposed the concept of GameFi - "gamified finance" and "new gamified business." This concept combines elements of gaming and finance, aiming to introduce new business models and economic systems to the gaming industry through blockchain technology.

In September 2020, Yearn.finance founder Andre Cronje elaborated on his understanding and outlook of GameFi, bringing the concept of GameFi into the public eye. Andre Cronje believes that GameFi will become the future development direction of DeFi, where user funds can not only be used for financial transactions but also gain real application value in the virtual gaming world.

Since then, the GameFi sector has begun to experience its first wave of growth.

GameFi reshaping the gaming industry

GameFi combines DeFi, NFTs, and blockchain gaming technology, running game assets and part of the logic on smart contracts on the blockchain. It is managed by the decentralized autonomous organization (DAO), which is responsible for the development of the gaming ecosystem, ensuring users' ownership of assets in the game and their governance rights over the game. GameFi focuses on building a complete financial system, supporting activities such as item trading using the game's native tokens. Users can earn token rewards through the game and share in the benefits of game development.

GameFi can address some of the issues present in traditional gaming:

1. GameFi, built on blockchain technology, inherently possesses DeFi attributes, which can address the monopolistic practices of game developers and the prevalence of black markets.

2. Govern game development through DAO, allowing all players to share governance power over the game, breaking the absolute dominance of game developers.

3. GameFi aligns with the two major elements of technological advancement and innovation in game concepts in the development process of games, representing the cutting-edge application of blockchain technology.

The market value of GameFi has risen from $200 million in 2018 to $24.52 billion in 2023, with a growth rate of as high as 733.3% from 2020 to 2021. Although GameFi may currently face some challenges, there are still infinite possibilities for the future due to the strong involvement of traditional tech companies and the gradual maturity of technology.

Advantages and Characteristics of GameFi

1. DeFi + NFT token economy, building an independent financial ecosystem

GameFi focuses on bringing a complete financial system into games, creating blockchain games that incorporate financial attributes. The uniqueness and indivisibility of NFTs give each game item a distinct value. The "play-to-earn" model in GameFi allows players to earn NFT items or tokens in the game through time investment and initial financial input, enabling exchanges with real fiat currency and generating economic benefits.

2. Cross-chain asset interoperability + multi-platform operations, creating a large financial ecosystem.

The comprehensive application of technologies such as cross-chain technology, cross-platform compatibility, data synchronization and consistency, and decentralized account management is expected to create a unified and effective financial circulation, improving the liquidity of funds within the circulation.

3. Integrate AR and VR technologies to achieve an immersive experience.

By combining AR and VR technology, GameFi has the potential to turn sci-fi concepts like "Ready Player One" into reality. In 2023, the global AR and VR market size has exceeded $70 billion and is expected to surpass $400 billion by 2030.

The development history of GameFi

1. GameFi 1.0 Era: Fast-Running Ponzi Games

Early blockchain games represented by CryptoKitties and Fomo3D, while sparking a market frenzy, are essentially Ponzi schemes, lacking a complete financial system and gameplay.

2. The Era of GameFi 2.0: The Rise of the "play-to-earn" Model

GameFi projects represented by Axie Infinity and The Sandbox have combined the "play-to-earn" concept with complex financial mechanisms for the first time, creating attractive NFT creature worlds and virtual sandbox games. These projects not only attracted a large number of players but also gained favor from venture capital firms.

3. GameFi 3.0 Era: Fully On-Chain Games and Cross-Industry Integration

Currently, GameFi is developing towards fully on-chain games and the integration with technologies such as AI and the Internet of Things. Fully on-chain games will run and store all game logic, data, and assets on the blockchain, achieving complete decentralization and transparency. At the same time, cross-industry integration projects such as GameFi+AI and GameFi+IoT have also begun to attract capital attention.

The future development direction of GameFi

1. Emphasize IP effects and playability

Drawing on the successful cases of traditional game IPs on the blockchain, such as Axie Infinity and The Sandbox, future GameFi projects need to pay more attention to IP effects and game playability.

2. On-chain games

Run and store all the logic, data, and assets of the game on the blockchain, achieving complete decentralization and transparency.

3. Cross-border Integration

Combine with emerging technologies such as AI, IoT, and cloud computing to develop new GameFi projects.

4. The layout of traditional gaming companies

Traditional gaming companies such as Atari, Square Enix, and Capcom have started to explore bringing classic game IPs to blockchain platforms, which could become an important direction for the future development of GameFi.

Conclusion

GameFi, as a combination of DeFi, NFT, and blockchain games, represents a new stage in the comprehensive application of blockchain technology and game development. Although the current enthusiasm in the GameFi market has declined somewhat, with the improvement of infrastructure and technological advancements, GameFi is still expected to usher in a new wave of growth. Successful GameFi projects in the future are likely to be those that can combine high-quality IP, high playability, and a complete financial system. Investors and developers need to closely monitor the technological advancements, market trends, and user demands in GameFi to seize development opportunities in this field.