GameFi—short for "game finance"—is a revolutionary concept in the gaming world that merges gaming with decentralized finance (DeFi). It allows players to earn real-world value through gameplay, combining elements of blockchain technology, non-fungible tokens (NFTs), and the metaverse. This model not only offers entertainment but also provides financial opportunities to its participants.
GameFi tokens, such as Gala Games (GALA), Decentraland (MANA), The Sandbox (SAND), and Axie Infinity (AXS), emerged as leading growth assets in 2021, marking the rise of this innovative industry.
The term GameFi was first coined by Andre Cronje, founder of the DeFi project yEarn Finance, in 2020. However, the integration of cryptocurrency with gaming started long before that. In fact, as early as 2014, certain online casinos were already accepting bitcoin for deposits.
Developers also began experimenting by incorporating bitcoin into mainstream games, such as the well-known sandbox game Minecraft. On the MinecraftCC server, players could earn bitcoin for in-game actions like building, killing monsters, and placing blocks. Although the bitcoin integration was discontinued in 2016 due to technical challenges, this server laid the groundwork for future blockchain gaming experiments.
Another pivotal moment came in 2017 with the launch of CryptoKitties, a game built on the Ethereum blockchain. It allowed users to buy, breed, and trade virtual cats as ERC-721 NFTs. The game was so popular that within its first week, it accounted for more than 11% of all Ethereum transactions, even causing network congestion on several occasions.
Since 2020, GameFi has rapidly expanded, with a growing number of games utilizing tokenized in-game assets, driven by the increasing popularity of DeFi and NFTs.
Traditional video games typically operate on a pay-to-play model, requiring users to pay for subscriptions, licenses, or in-game items to enhance their experience. These games run on centralized servers owned by the game developers, meaning players do not truly own the items they purchase within the game.
For example, a player might buy new armor or weapons to improve their character's performance, but these assets are confined to that specific game and cannot be transferred or sold outside of it. The player is essentially "renting" these items.
GameFi, on the other hand, introduces a new paradigm. By leveraging blockchain technology, GameFi projects combine gameplay and monetization, offering players full ownership of their in-game assets as NFTs. These assets are recorded on the blockchain, ensuring transparency and security, and giving players the ability to sell or trade them freely on decentralized platforms.
Moreover, GameFi rewards players with tokens for their in-game achievements. These tokenized rewards can be traded or exchanged for other cryptocurrencies or fiat money, providing players with tangible value for their time and effort.
GameFi spans a wide range of genres, from simple lotteries to complex multiplayer universes. For example, Gala Games is developing an ecosystem that integrates various game genres into a unified economy, allowing players to earn across different types of games.
While early GameFi projects were primarily built on Bitcoin and Ethereum, newer GameFi projects have shifted to faster and more affordable blockchain solutions.
For example, Axie Infinity originally launched on Ethereum but later migrated to the Ronin sidechain to improve scalability and reduce transaction costs.
Other blockchain platforms specifically designed for GameFi include Flow, created by the developers of CryptoKitties, and additional networks like Tron, BNB Chain, Wax, and Polygon, all of which have become popular choices for GameFi projects due to their speed and low fees.
GameFi offers a variety of models and categories, allowing players to engage in different ways:
· Free-to-Play: These projects require no initial investment, allowing players to jump in immediately. For example, Gods Unchained is a blockchain-based collectible card game where players can freely trade NFT cards and earn rewards for success, similar to the popular game Hearthstone.
· Play-to-Earn (P2E): The backbone of GameFi, these projects allow users to monetize their gaming experience. Players earn tokens or NFTs that can be traded or sold for real-world value. Leading examples include Axie Infinity and The Sandbox.
· Move-to-Earn: This innovative model rewards users for physical activities instead of in-game actions. The popular app STEPN tracks players' movements through GPS and rewards them with tokens for walking or running. To participate, users must own digital sneakers in the form of NFTs.
· Metavillages: These virtual worlds allow players to own not only digital assets but also plots of virtual land, represented by NFTs. For instance, in The Sandbox and Decentraland, players can buy and develop virtual real estate. Meanwhile, in My Neighbor Alice, players can purchase entire farms and develop them for profit.
Special attention should also be given to companies providing tools for GameFi development. For example, Enjin offers developer resources to integrate blockchain technology into existing games, creating cross-chain NFTs and enabling virtual economies.
GameFi represents the future of gaming, combining the thrill of gameplay with real-world financial rewards through blockchain technology. By offering players ownership of their in-game assets and new ways to monetize their experiences, GameFi is revolutionizing the gaming industry and paving the way for a decentralized, player-driven future.
