What is GameFi?

In this guide you will learn:

• What is GameFi?
• What is the Play-to-Earn (P2E) model?
• How does GameFi work?
• What are the main components of the GameFi ecosystem?
• How to get started with GameFi games?
• About the market cap and GameFi future.

GameFi, the fusion of the words game and finance, refers to Play-to-Earn blockchain games that provide financial opportunities to gamers. The intersection of gaming and finance is situated in a virtual environment driven by the use of blockchain technology, non-fungible tokens (NFTs), and smart contracts. 

In contrast to traditional video games, many games based on blockchain technology allow players to truly own digital assets, trade them on NFT marketplaces, and sell crypto earnings on exchange platforms. Such a gaming model enables users to earn rewards in the form of NFTs and cryptocurrency by completing quests, winning battles, and progressing through different in-game levels. 

The never-seen model of gaming basically connects gamers to the real-world economy. Before we could Play-to-Earn, we had to Pay-to-Play. This is one of the ways how the use of the blockchain technology incentivises gamers worldwide. 

The Play-to-Earn business model soon became very popular among users. According to the Metaverse Awareness Survey, 40% of respondents claimed that they are interested in both playing and earning within the metaverse. More than half of respondents further stated that they would be happy to work in a virtual video game if they could earn cryptocurrency.

Play-to-Earn model (P2E)

Most blockchain games these days incorporate the Play-to-Earn model as a novel and innovative method of gaming. The new model encompasses a totally different gameplay structure than that of traditional video games.

As the name suggests, the traditional Pay-to-Play gaming mode requires players to invest before they can start playing the game. For example, the popular video game Call of Duty required gamers to purchase licences or subscriptions. The Pay-to-Play model did nothing to provide financial opportunities or returns to gamers. 

The blockchain technology emerged as a game changer as it managed to give gamers full control over their in-game items and provided new revenue streams. Before blockchain gaming came into the picture it wasn’t possible to exercise ownership rights over in-game digital assets. Now you have the ability to own in-game assets and sell them to other players due to smart contracts, NFTs and the blockchain technology as its cornerstone. 

Most GameFi projects still require players to purchase crypto assets to start playing and earning. However, there are some P2E games that are free to play and still provide the possibility to gain financial rewards.  

If you are interested in the P2E concept and how gamers earn money doing the thing they love, why not read this article: “What is Play to Earn?”

How does GameFi work?

The new concept has gained popularity due to the potential to earn income, either actively or passively, while having fun in a virtual realm. The integration of gameplay, NFTs, and decentralised finance delivered an enhanced gaming experience with many opportunities to capitalise on. 

Rewards in GameFi come in many different forms, such as cryptocurrencies or in-game digital assets such as plots of virtual land, weapons, clothing, and avatars. Each GameFi project usually has a divergent model, game economy, and tokenomics. There are some similarities though if we consider the technical perspective. 

Digital assets that can be obtained while playing are essentially NFTs running on the blockchain. Such rewards can be earned by completing various tasks, building structures on a digital plot of land, or battling other players. 

NFTs can be then traded on NFT marketplaces. If you want to learn more about NFT marketplaces, you can read this article: “What is an NFT marketplace?”

There is also a possibility to earn passive income in some blockchain-based games. In other words, players can earn passive income by lending their in-game digital assets to other gamers or by staking. The ability to earn passive income expanded the user base of many P2E games. 

Additionally, keep in mind that there are particular GameFi ecosystem fees. Namely, GameFi charges a variety of fees such as trading and yield fees for the GameFi marketplace and the earning program and acceleration fees for launchpad and accelerator. All these fees are invested into the GameFi ecosystem to keep it up and running.

To explain the GameFi concept further, we are going to examine GameFi's main components.

Blockchain technology

Blockchain technology is the foundation of GameFi projects and the P2E model. A large majority of blockchain-based games are built on the Ethereum network. However, GameFi protocols such as Solana, Polygon, and Polkadot have gained a lot of popularity due to their higher degree of capacity and speed characteristics.  

Since blockchain technology is the cornerstone of GameFi, all other important features emerge from it. Running a video game on a blockchain’s distributed ledger enables ownership over digital assets and transparent transactions via smart contracts. 

NFTs and Digital Ownership of In-Game Assets

Due to the blockchain technology as a GameFi foundation, we have NFTs as unique and indivisible tokens that represent ownership over a particular digital asset. The concept of digital ownership is central to many blockchain-based games. NFTs can represent all types of assets, either physical or digital. 

Similar to traditional video games, players can own avatars, houses, weapons, tools, and even animals. The big difference is that, in GameFi, such digital assets can be created as NFTs in the blockchain. In simple words, a player can gain authentic and verifiable ownership of in-game assets. 

The concept of exercising the right of ownership over digital assets, specifically in-game items, created economic opportunities that were not possible before. NFT holders now can monetize their assets in the same manner they can in the physical world.  

Decentralised Finance

Decentralised Finance (DeFi) is a new form of finance that does not rely on central financial institutions as intermediaries. Central financial authorities are, for example, banks. Instead of using intermediaries, decentralised finance relies on smart contracts. 

The introduction of decentralised finance to the gaming industry made crypto gaming even more decentralised. In comparison to old fashioned gaming where traditional game studios had all the power, many GameFi projects enable their communities to participate in the decision-making process in the form of decentralised autonomous organisations (DAOs). 

DeFi brought to the table a bunch of new concepts to incentivise and reward gamers. You probably heard of liquidity mining, staking, or yield farming. All these new concepts stem from DeFi. Basically, gamers get the opportunity to stake their in-game tokens to earn rewards, access new gaming levels, or unlock other exclusive items. 

If you want to read more about decentralised finance and the opportunities it provides, take a look at: “Earning from DeFi”.

How to get started with GameFi games?

There are already many blockchain games in the market. As the word keeps spreading about the GameFi concept, hundreds of new game projects are emerging every month.

Due to the popularity of many GameFi platforms, gamers found themselves in a need of a service to collect information about their favourite game. You can do that by checking a gaming marketplace. Gaming marketplaces look into games and recommend games after evaluating them.

Even though each game has its own characteristics, there are a few common steps you will have to follow in order to get started with GameFi. If you want advanced guidance, choose a game and read its relevant documentation, such as the game’s white paper. 

Here is how it usually works: 

1. Create a Web3 crypto wallet

To step into the GameFi realm, the first thing to do is to acquire a compatible crypto wallet. You can, for example, open a Trust Wallet or Meta Mask.  

Depending on the blockchain game you are playing, you might also need divergent crypto wallets to link them to different blockchain networks. Some games even have their own crypto wallets to enhance overall performance and reduce fees. 

A majority of games run on the Ethereum blockchain. You can start by connecting your crypto wallet to the Ethereum blockchain.  

If you want to learn more about storing and securing crypto, you can read about it here.

2. Link your crypto wallet to the game

Before you can start playing a blockchain-based game, you will need to link your crypto wallet to your chosen game. This is a simple step since many crypto wallets are user-friendly.

Visit the chosen game's website and look for the option to link your wallet. Your crypto wallet will ask you to confirm the action by signing a message from the mentioned website. Then the crypto wallet itself will create a signature and you just have to confirm it by clicking on the 'sign' button.

The purpose of linking crypto wallets to a blockchain game is to store and manage game tokens and to interact with divergent blockchain applications. 

3. Check the game's requirements

Many GameFi projects require users to purchase their cryptocurrency tokens or NFTs to start playing the game. Even though such requirements may be different for each blockchain game, you should always do your own research and consider the risks and earning potential.  

For example, if a P2E game requires an initial big investment to start and the rewards are small in comparison to the investment size, you are more likely to lose what you have invested.

What is the market cap and future of GameFi?

GameFi has already attracted a lot of attention and expanded its user base. It is expected to become one of the largest industries as it has a big potential to grow and prosper. The number of GameFi projects has boomed and is expected to continue growing.

In 2022 the GameFi market cap was estimated to be $55.38 billion. Over a period of four years, namely from 2018 to 2022, the compound annual growth rate of the total GameFi market cap was 180%. 

That is not unusual if we take into account that more than 2.7 billion gamers are familiar with the idea of tokenisation, in-game assets, and the scarcity of digital items. Blockchain technology incentivises gamers in a way traditional game studios weren’t able – financially and socially. 

The GameFi industry is expected to develop at a rapid pace, especially taking into consideration the development of blockchain technology and the interest in the Metaverse concept. 

On the other hand, the ongoing crypto winter and some other factors may have slowed its growth a bit. A big factor in the development of GameFi is the emergence of crypto regulations, namely how the regulations are going to be designed and whether regulators will be able to strike a balance.