What is GameFi? An introduction to play-to-earn and blockchain games
Author: Rick Delaney
Publication date: 2021.08.31
Link:
https://www.okx.com/academy/en/play-to-earn-gamefi-explained
Content summary: A beginner's guide to GameFi, including its history, common features, and top protocols
GameFi is one of the hottest topics in the cryptocurrency industry right now. Blockchain games seem poised to disrupt the $175 billion global Video Game market. Games like Axie Infinity and their over $1 billion in total in-game asset sales have already sparked interest from the traditional gaming industry — we are now seeing giants like Ubisoft rushing into the GameFi space.
This article mainly covers:
What is GameFi?
The history of GameFi
How do GameFi games work?
Play-to-earn
Asset ownership
DeFi features
Top GameFi protocols
How to start playing blockchain games
1. Create a Web 3.0 wallet
2. Acquire any assets required for the game
3. Log in through your Web 3.0 wallet
Decentralizing GameFi using DAOs
The future of GameFi
What is GameFi?
GameFi refers to the financialization of Video Games. Similar to the popular crypto term DeFi or decentralized finance, GameFi is a blend of the words "game" and "finance."
GameFi is a fairly broad term, as we will explain in this article, and games considered GameFi may have completely different financial elements. For example, some blockchain games reward players for completing in-game tasks, while others allow players to earn income from various assets they own.
It is worth noting that GameFi is not gambling. We consider games in this emerging field to require players to use a combination of skills and strategies to generate income. Although luck may be part of these games, it is not the main factor determining who wins or qualifies for economic rewards.
The history of GameFi
The origin of the term GameFi can be traced back to November 2019, when the founder of blockchain game publishing platform MixMarvel gave a speech at the World Blockchain Conference in Wuzhen, China, about how the underlying technology of cryptocurrencies could revolutionize the Video Game industry.
However, perhaps more famous (especially for Western readers), the term was first used by Andre Cronje, the founder of Yearn, in a tweet in September 2020. Since then, "GameFi" has been increasingly used to describe games with blockchain-supported financial elements.
Although the term has only recently started to gain popularity, the history of GameFi almost dates back to Bitcoin itself. Early Minecraft servers integrated with BTC, websites like Gambit.com in 2013, games like Bombermine, and p2p services allowing gamers to profit from mainstream games via BTC represent some of the earliest efforts in what we now consider the GameFi space. Later, projects like Huntercoin used blockchain technology for purposes beyond payments, enabling players to profit from mining cryptocurrencies within games.
Bombermine was an early game that combined financial elements with BTC. Source: Vice
The launch of Ethereum in 2015, due to the advancement of its programming language, provided new opportunities for Video Game developers. This meant programs could be stored and executed on-chain for the first time, enabling the creation of applications. These included blockchain games like CryptoKitties, which utilized the newly defined ERC-721 standard to represent in-game assets as non-fungible tokens.
In the years since, interest in NFTs has grown significantly, and blockchains optimized for performance have been launched, spurring tremendous innovation in the GameFi space. Today, we begin to see the fruits of these innovators' efforts, with blockchain games growing exponentially.
How do GameFi games work?
GameFi today comes in many different forms; the mechanisms by which players can generate income through their gameplay also vary. However, there are some important themes worth mentioning. Many of today's most popular blockchain games use a combination of the following features to monetize actions.
Play-to-earn
In some blockchain games, players receive economic rewards for completing game objectives. The funds obtained in these games usually come from native tokens held in smart contracts.
For example, in the popular Ethereum-based game Axie Infinity, a portion of the game's AXS token is reserved to reward the following actions:
Winning battles and tournaments
Caring for your land
Trading on the Axie Infinity marketplace
Breeding Axies
Axie Infinity is one of the most popular GameFi games to date, with gameplay centered around breeding and battling digital creatures. Source: Playtoearn.online
Asset ownership
A core concept of many blockchain games today is the ownership of scarce digital assets. Bitcoin introduced digital scarcity through the blockchain, and NFT technology built upon it. NFTs can represent various assets, including digital and physical ones, as well as in-game items.
Digital ownership of unique assets creates economic opportunities that were previously impossible. For example, in CryptoKitties or Axie Infinity, players can breed two creatures represented by NFTs to create a third creature. They can then utilize the game profitability of this new asset by selling or renting it to other gamers for use, distributing any generated income between the owner and borrower.
While not strictly games, online virtual worlds (metaverses) also enable their residents to monetize their time through asset ownership. Spaces like Cryptovoxels, The Sandbox, and Decentraland center around the concept of land ownership, where plots are freely traded on secondary markets.
Owners can monetize their land in ways similar to those in the real world. Besides directly selling owned land, they can develop attractions that may generate income, or rent it out to others for profit. Walking around one of these shared virtual spaces, you'll see various efforts to monetize land, such as casinos, virtual stores, and concert venues.
Interestingly, these worlds are beginning to see the emergence of economies. For example, in March 2021, Decentraland's Tominoya Casino hired real people to greet bettors upon arrival and serve as support staff. This is a trend many believe is still continuing. Some even estimate that as people take advantage of the new opportunities brought by these virtual worlds, the "metaverse economy" will eventually dwarf the real-world one.
Tominoya Casino on opening night in May 2021. Source: Decentral.games
DeFi features
Some GameFi projects introduce concepts from the DeFi space to reward gamers. Anyone with DeFi experience will be familiar with concepts like yield farming/liquidity mining and staking, which can provide a way to earn passive income from blockchain games. If you're new to DeFi, you can learn more about it and overlapping concepts with GameFi in our DeFi explained link (https://www.okx.com/academy/en/defi-explained).
Examples of blockchain games utilizing more common features from DeFi include Axie Infinity, Aavegotchi, and Nine Chronicles.
Top GameFi protocols
While the first GameFi games used Bitcoin, most modern blockchain games are on networks supporting smart contracts. Among them, Ethereum was the first and remains the most popular among developers and gamers.
However, Ethereum is optimized for decentralization and security rather than performance. Due to limited block space on Ethereum, those requiring the fastest settlement times must incentivize miners to include their transactions via inclusion fees. When demand exceeds the available block space, transaction costs rise quickly, and high gas fees scare users away. This poses a problem for blockchain game developers. If many actions taken by players require high transaction fees, a game will never reach the mainstream gaming audience.
Therefore, many developers are now moving from Ethereum's base layer to faster, higher-capacity networks. Examples include:
OKC
Polygon
Solana
Wax
Polkadot
BSC
REVV Racing is a P2E (Play to Earn) game built on Polygon, an Ethereum scaling solution. Source: Animoca Brands
How to start playing blockchain games
Each blockchain game is different. Therefore, we can only provide general guidance on how to get started with GameFi. For more advanced help, we recommend checking the documentation of the relevant game.
1. Create a Web 3.0 wallet
Unlike many of today's most popular web applications, most blockchain games do not use traditional username-password account systems. Instead, users can identify themselves to the game using a Web 3.0 wallet.
The wallet required to play will depend on the network hosting the game. For example, playing Axie Infinity will require an Ethereum-compatible Web 3.0 wallet, such as OKX Wallet or Metamask.
2. Acquire any assets required for the game
Many blockchain games require owning one or more in-game assets to play. For example, to play Axie Infinity, your Web 3.0 wallet must contain at least three Axies.
Other games may require purchasing in-game digital currency. In many cases, you can buy the above currency on exchanges or through the game itself.
3. Log in through your Web 3.0 wallet
Most popular GameFi games today are played in your browser. Therefore, you need to log in with the Web 3.0 wallet you created earlier to join the action.
To do this, visit the website of the relevant game and look for the option to connect your wallet. Your wallet will ask you to confirm the action by signing a message from the site. The wallet itself will create the signature, and you just need to click the "Sign" button to confirm.
As mentioned earlier, your Web 3.0 wallet will act as your account, and any progress will be saved through your wallet. It can also function as your inventory list and, depending on its interactivity and any assets held, can be used to play games.
Decentralizing GameFi using DAOs
Typically, Video Game development is highly centralized. Studios design, produce, and release titles, taking full responsibility for any future updates. However, many GameFi projects seek to extend decision-making power to the players themselves.
The mechanism they use to achieve this is called a decentralized autonomous organization. In a DAO (Decentralized Autonomous Organization), token holders can generate project update proposals and vote on them. Usually, these decisions directly impact the monetary characteristics of the project. For example, a DAO might vote to increase the reward for a certain action in the game as a promotional tactic.
To join a GameFi DAO, you must first own the project's governance token. Typically, the number of tokens held is proportional to the member's voting power. Essentially, the largest stakeholders have the loudest voice in guiding the project's direction.
Some games have their own native DAOs. A great example is the multi-chain title Alien Worlds, which has six DAOs, each representing a different planet in the sci-fi MMORPG.
Alien Worlds is a GameFi game using the Wax blockchain with tradable in-game NFT assets and a DAO. Source: Publish0x
Interestingly, some GameFi DAOs are not specific to a particular game. Projects like Yield Guild Games aim to help their members extract value from various blockchain games. YGG's main DAO and its sub-DAOs for specific titles pool in-game assets, allowing gamers to bring them into games and generate income for the collective.
The future of GameFi
Although GameFi's roots trace back to the origins of cryptocurrency, GameFi is just beginning to attract mainstream attention. The success of one of its flagship games, Axie Infinity, demonstrates the growth of the flagship market. In August 2021, Axie Infinity became the first blockchain game to surpass $1 billion in total token sales (with one-fifth occurring in just one week), and its DAU exceeded one million.
While previous blockchain games struggled to attract mainstream attention, the technology supporting them and the understanding of it are evolving, and new GameFi games are attracting large fanbases. For some industry commentators, gaming is the most likely path to widespread blockchain adoption.
Video Game players worldwide are already very familiar with the concepts of scarce digital items, tokenization, and in-game currencies. At the same time, blockchain technology empowers these gamers in a way with clear advantages—whether economically or in terms of game development. Therefore, it's not hard to imagine GameFi claiming an increasing share of the $175 billion global Video Game market.
Indeed, the Blockchain Game Alliance, aimed at raising awareness of GameFi, already includes many well-known companies, including mainstream game studios like Ubisoft and chipmaker AMD. Ubisoft stated in May 2021 that the focus of its sixth Entrepreneur Lab event would be on GameFi.
Given the success of Axie Infinity and the number of blockchain games currently being developed across various blockchain protocols, it is clear that GameFi has a bright future. However, it is still difficult to predict how this future will unfold. While the features discussed in this article will definitely remain prominent in many GameFi games, the rapid pace of blockchain technology development means that new innovations are not uncommon. Many of these breakthroughs will undoubtedly enter the Video Game space, bringing new and exciting ways to monetize new experiences.