09.12.2021

GameFi: Prospects for Cryptocurrencies and the Play-and-Earn Concept in Gaming

The rise of gaming tokens has become one of the most notable events of this summer in the cryptoindustry. The growth leader was the AXS token from the Axie Infinity blockchain game, which in three months grew by more than 1500%, breaking into the top 50 assets in terms of capitalization and hitting the pages of world financial publications.

Let’s figure out what is happening in the blockchain-based gaming industry and what its prospects are.

Blockchain at the service of the gaming industry

Blockchain technologies have started to penetrate the gaming industry since 2014, when the first online casinos began to accept deposits in bitcoins. But only with the advent of non-fungible tokens (NFT) did it become possible to create games where players can be the full owners of digital characters and items. And where property appears, commercial relationships arise.

Back in 2017, the CryptoKitties project with NFT kittens, which could be bred and sold for tens of thousands of dollars, demonstrated that in online games one could not only spend money, but also earn money.

However, only by 2021 a critical mass of developers and players accumulated, which led to the formation of an entire market segment – GameFi (short for Game Finance) .

This term, proposed in 2020 by the well-known developer André Cronier, means the whole variety of game projects on the blockchain, including those using NFT.

There are several categories in the GameFi segment:

  • NFT games of various genres using the Free2Play and Play2Earn models;
  • game worlds or metaverse (metaverse);
  • projects that provide tools for the development and distribution of NFT games, as well as for the transfer of existing online games to the blockchain;
  • projects allowing NFT to be used in DeFi services.

Games that were created in 2020 and earlier mainly run on the Ethereum blockchain. However, high commissions forced developers to switch to cheaper and faster solutions. Quite a few games have already been released on the EOS, Tron and Wax blockchains. Since the beginning of 2021, the popularity of Binance Smart Chain has also grown. In addition, specialized blockchain platforms such as Flow have been launched, adapted for use in the gaming industry and simple NFT issuance.

Axie Infinity: Multiply, Fight, Earn!

The game made a big splash this summer, earning mentions in Forbes and other mainstream publications.

Axie Infinit is developed by Vietnamese studio Sky Mavis. The creators were inspired by the success of CryptoKitties in 2017 and combined its core principles with another popular game – Pokémon Go.

The rise in popularity of Axie Infinity began in June 2021, and already in August more than 1 million people played it daily. At the same time, the monthly trade turnover on its own marketplace Axie Infinity, where game NFTs are bought and sold, reached more than $ 1 billion. The revenue of Sky Mavis from Axie Infinity from 2018 to July 1, 2021 amounted to only $ 21 million, and in July and August this figure increased up to a fantastic $ 485 million

Since its launch, the game has been running on the Ethereum network, so all game actions cost the players dearly. In April 2021, Axie Infinity switched to a proprietary Ronin closed sidechain with much cheaper transactions.

Axie Infinity gameplay is built around axie creatures, each of which is an NFT token. They come in nine different classes with their own sets of combat characteristics.

Axi can grow, multiply and fight in two types of battles:

  • team versus team (PvP),
  • team against monsters (PvE).

Since Axis are not available to new players for free, the game requires an initial investment. As of the end of August, prices for the simplest axi on the Axie Infinity marketplace started at $ 200, while creatures with improved combat characteristics cost over $ 600- $ 700. Thus, in order to just start playing, you need to spend at least $ 600, and to assemble a combat-ready team, you need to invest at least $ 2000.

The most difficult and costly part of the game is axi propagation. These creatures have six body parts, the properties of which are encoded by a set of genes. When a pair of axi interbreeds, the offspring inherits the genes of the parents with a certain probability, in accordance with their dominance or recessiveness, and this determines its combat characteristics and cost on the Axie Infinity marketplace.

There are several nuances in axi breeding: interbreeding is impossible between brothers and sisters, as well as between parents and their offspring. In addition, an axi can reproduce no more than seven times in its life. All these rules prevent the creation of farms for mass breeding of Axi and the uncontrolled increase in their population.

The base game currency of the game is Axie Infinity Shards (AXS) token. It is necessary to level up and multiply the axi. One crossing requires the consumption of 4 AXS and from 150 to 3150 Smooth Love Portion (SLP) tokens, depending on which time the axi is multiplied.

The main income of players is made up of SLP tokens, which players receive in PvP and PvE battles. SLP tokens are traded on Binance, FTX and a number of other crypto exchanges, so players can easily withdraw their earnings to fiat.

With an active daily game, players’ earnings reach $ 500- $ 1000 per month. The Internet is already full of stories of people in developing countries fleeing unemployment, solving their financial problems and quitting their regular jobs thanks to the earnings in the game. It is especially popular in the Philippines: more than 40% of Axie Infinity players are from this country.

Axie Infinity game interface

NFT games: remakes, imitations, imperfections

Since the beginning of 2021, the number of NFT games has grown exponentially. Only in the Playtoearn.net rating there are more than 360 online games in the Free2Play and Play2Earn formats, where you can interact with NFT items and earn cryptocurrencies. They cover all known game genres – from card games to economic simulators, strategy games, arcades and racing.

We will mention just a few notable projects. For example, the RPG game CryptoBlades developed by Riveted Games. It is worthy of mention not only because of its unexpected popularity (up to 90 thousand players per day), but also because the SKILL game token experienced a dizzying rise from $ 1.05 to $ 184 in July 2021. Even after a deep correction, the asset is trading around $ 40.

In GameFi, as in the entire cryptoindustry, solutions that have proven their success are widely and without hesitation borrowed. For example, the NFT game  My DeFi Pet, which runs on the BSC blockchain, is very similar to Axie Infinity: it also involves raising and breeding pets. However, the mechanics of inheriting the characteristics of pets, like the whole gameplay, are much simpler. In July, the DPET gaming token experienced a tenfold growth. In those days, the game attracted more than 30 thousand players per day, but by the end of summer the attendance decreased tenfold.

A number of NFT games have not even reached the release stage yet, but their tokens are already traded on leading exchanges and are even included in the top 200 in terms of capitalization.

An example is  My Neighbor Alice, a mixed-genre multiplayer sandbox / social blockchain game developed by Antler Interactive. The release is scheduled for spring 2022, but the ALICE token, launched on Binance Launchpool in March 2021, already has a capitalization of over $ 300 million.

The situation is similar with the Illuvium project  . It is a decentralized RPG with an NFT collection that will run on the Ethereum network. The launch is scheduled for the end of 2021, but the ILV token already has a capitalization of more than $ 250 million, having risen in price more than eight times over the summer. This has been greatly facilitated by staking, with an annualized return of over 85%. While waiting for the release, ILV holders were able to earn both on staking and on the growth of the rate. The staking reward, paid in ILV tokens, is locked for 12 months, which saves the token rate from the pressure of sellers.

How much is a hectare of virtual land?

A special category of NFT games are virtual worlds, where players can own digital items and land in the form of NFTs and use them within the framework of the game economy.

The most famous tokenized virtual world is  Decentraland. This project began to develop by a group of enthusiasts back in 2015,  but the public release took place only in early 2020.

At auctions in 2017-2018, more than 45 thousand digital plots were sold, each of which corresponded to a LAND token of the ERC-721 format, confirming the right of land ownership. Now the plots can only be bought on the secondary market. In June 2021, the largest transaction with digital real estate, Decentraland, took place: investment firm Republic Realm acquired a block of 259 virtual parcels for $ 913,000. And the cheapest LANDs can now be bought on the built-in marketplace for $ 4,000 – $ 5,000.

The plots in Decentraland are purchased for a variety of purposes. They are rented out, virtual buildings are erected on them, mini-games, casinos, shopping centers with NFT goods and advertising platforms are opened.

Decentraland is governed by the DAO principle: the owners of LAND land plots and the owners of the MANA token have the right to vote. Interestingly, the value of the MANA token has long gone beyond Decentraland: it can be used as collateral for loans on the MakerDAO DeFi platform .

Other well-known virtual worlds have their own markets for tokenized land and domestic currencies, such as SANDBox (an analogue of MineCraft on the blockchain with the SAND game token) and Somnium Space (with support for 3D glasses and the CUBE token).

Axie Infinity also introduced the opportunity to own parcels in a virtual world called Lunation in early 2021. Its territory is divided into 90 601 land parcels, each of which corresponds to an NFT. The sites are valuable because they can be used to collect game resources and conduct PvE battles.

In February 2021, the largest purchase of an NFT plot for $ 1.5 million took place. And the cheapest plots of Lunation are now being sold on the Axie Infinity marketplace for $ 12,000.

At the moment, the most visited virtual world with the digital real estate market is the game Alien Worlds, which runs on the WAX ​​blockchain. According to DappRadar, at the end of August, more than 400,000 players entered the metaverse every day. The game is attractive in that, unlike Axie Infinity and other games with the Play2Earn model, it does not require an initial investment. The newcomer receives a basic set of tools for mining Trilium game tokens (TLM) ¸ that can be withdrawn and sold on crypto-exchanges.

Players can buy land parcels on the planets of the Alien Worlds metaverse, receiving daily their share of the planet-generated tokens, as well as a commission from all players mining TLM on its parcel.

To help developers and players

With the growing popularity of NFT games and virtual worlds, an infrastructure has begun to form around GameFi, adapted to the needs of developers, players and investors in gaming assets. Let’s consider some of the most interesting projects in this segment.

 Since 2017, Enjin has been creating a platform that helps developers translate existing and new online games to the blockchain, as well as release game items in the form of NFTs.

In 2020, the Enjin Adopter program was launched, which has attracted dozens of game developers, helping them create, finance, monetize and sell their projects on the blockchain. To date, several online games are running on the Enjin platform: Lost Relics, 9lives Arena, Space Misfits, The Six Dragons, etc.

To bypass all the restrictions of the Ethereum network, in the spring of 2021, the company launched its own blockchain Efinity with the native EFI coin. The new network provides performance up to 1000 transactions per second and has its own NFT standard. It is understood that all game projects on the Enjin platform in the future will operate on this particular blockchain.

Another project from this area is  Ultra Games .  It started out as a decentralized and cheap alternative to platforms like Steam or the Google Play Store, which take 30% of developer income. By now, a whole ecosystem has formed on the basis of Ultra Games. It includes a platform for developing and distributing blockchain-based games, as well as tools for monetizing gameplay and creating decentralized marketplaces for trading virtual goods, a back office for developers and much more.

In June 2021, the launch of its own Ultra network (fork of EOS) took place with the native UOS coin, which provides free and fast transactions. This network has its own Ultra NFT standard and Ultra Wallet with the ability to interconnect cryptoassets.

An interesting approach is taken by  Gala Games , a  developer and publisher of NFT games. While there is only one Town Star (city simulator) game available to players, several more games are expected to be released in different genres, where the same NFT items will be used. In addition, there is a single store of NFT game items for all games, where prices are denominated in GALA tokens. Thus, a whole ecosystem with a single economy is formed from games in different genres.

GALA tokens also have a management function: their holders vote to include NFT games from other developers in the Gala Games ecosystem, which should be interesting for small teams experiencing difficulties with distribution and player attraction.

A special place in the emerging GameFi industry is held by the Yield Guild Games project  . It is a decentralized governance (DAO) gaming guild that invests in gaming NFTs and virtual worlds.

The project has attracted funding from venture funds Delphi Digital and Andreessen Horowitz. IDO took place in July 2021 and, as of the end of August, provided token sale participants with a yield of more than 3500%, and the capitalization of the YGG management token exceeded $ 900 million.

YGG holders have the right not only to participate in project management, but also to receive part of the income from operations with NFT assets, for example, from the resale or rental of game items, virtual land, etc. At the start, the project is focused on digital asset management in three popular games: Axie Infinity, Sandbox and League of Kingdoms. In Axie Infinity, the project already owns several thousand axis and leases them to Filipino players, receiving 30% of the SLP tokens they earn.

GameFi prospects and risks

According to many experts, the GameFi segment has a promising future. Developers get new tools for distributing and monetizing games, and millions of players around the world get the opportunity to combine gameplay with earnings.

The financial success of Axie Infinity is pushing hundreds of teams around the world to release NFT games in different genres, so many exciting releases can be expected in 2022.

However, potential risks are also visible. Most of the existing NFT games are graphically primitive (often at the level of flash games of the early 2000s) and have a repetitive gameplay. In terms of player engagement, they are still far from the top multiplayer online games such as World of Tanks, Fortnite or World of Warcraft, where millions of players literally live for years, wasting time and money.

Monotonous gameplay and low engagement lead to the fact that interest in new games quickly wanes, and after the excitement comes oblivion.

In addition, the existing economic models in Play2Earn games are stable only with a constant influx of new players with their money and hopes for a quick return on investment. It is likely that with the fall in popularity of the game, NFT items and game tokens will rapidly depreciate.

This suggests that in-game tokens are good for speculative play during a period of growing popularity of fresh NFT games, but hardly suitable for long-term investments.

The fate of infrastructure projects such as Enjin and Ultra, which provide blockchain tools for developers, is far less worrisome. As you know, in the days of the gold rush, the most profit is made not by the prospectors, but by the sellers of shovels.

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