Launched in the first quarter of 2021, GameFi, also known as Play-to-Earn (P2E) has rapidly created a sprawling blockchain-based gaming universe that despite some up and downs have been captivating casual gamers, developers, and users alike with its innovative and decentralized approach to giving virtual gaming assets real-world value.
GameFi, an amalgamation of the terms gaming and finance, brings a financial incentive to exploring a dungeon with your friends or earning money collecting digital trading cards. Up to now, something’s still missing, and it will be glaringly obvious to anyone looking past the dollar signs: Actual “real” gamers not versed in crypto.
It’s no secret that traditional video gaming has taken over the entertainment industry. After raking in an estimated 235 billion US dollars in 2022, this is small fry in comparison to traditional video games, which generates over seven times the movie industry’s revenue.
Has the success of web2 gaming significantly impacted the blockchain gaming industry, though? Have traditional gamers become interested in P&E (pay-and-earn) or P2O (play-to-own) models that blockchain games center their gameplay around? Let’s take a look at the current state of the crypto gaming industry in 2023.
Crypto gaming growth in 2023
Despite a huge jump in the value of Bitcoin and Ethereum, blockchain gaming industry experienced mild growth in early 2023. According to DappRadar, blockchain gaming dominance increased from 43% in Q4 of 2022 to 46% in Q1 of 2023, and unique active wallets participating in GameFi remained strong at around 44%.
The sector is expected to grow even stronger in 2023, with traditional gaming models such as play-to-earn falling out of favor and the industry focusing more on improving user experience and onboarding new and traditional gamers over crypto natives. In the same silent manner it took over the entertainment industry, blockchain gaming is quietly becoming the largest use-case for blockchain technology and NFTs.
Since November of 2022, the blockchain industry has declined by over $2 trillion, yet crypto gamers are still engaging with their favorite blockchain games at similar levels as during the peak of the last bull market.
New GameFi trends
DeFi projects are adapting to the current market by embracing innovative strategies to attract a wider audience. Through gamification and user-focused experiences, DeFi gaming projects are working to lower the barriers to entry and make the blockchain more accessible to new players not familiar with the crypto industry.
Unfortunately, even now many crypto games resemble Ponzi schemes that incentivize early users to buy up tokens to dump on the eventual players if they take interest in the game down the road. Tokens and NFTs are often created before game design or utility cases are created to raise funds. Despite the unimaginable $5.4 billion invested into blockchain games in 2022, many games will fail as successful long-term winners emerge to point future games in the right direction.
Let’s take a look at the latest developments in GameFi and how they’re going to make 2023 an interesting year in the crypto-gaming sector.
Tokenomics are evolving
Two token models have become the clear winners: single-token and dual-token. The single-token model uses one cryptocurrency for both in-game transactions and external trading. It’s simpler but can face issues like inflation and scalability. In contrast, the dual-token model separates in-game transactions and external trading, using two different tokens: a utility token for in-game use and a governance token for decision-making.
The dual-token model offers more versatility and incentives for participation. However, it can be more complex, and the value of the governance token heavily depends on the utility token. This can lead to a downward spiral if the market conditions change.
The single-token model is more straightforward but raises questions about governance, user retention, and inflation. Traditionally, a fixed-supply token is used, but it may not scale well with the number of users or game expansion. However, if in-game assets can only be bought with the token, they can act as both a utility and a store of value.
Ultimately, the success of either model depends on the game’s quality and user interest. As blockchain gaming evolves, the utility of tokens should become more important than speculative gains, ensuring that tokens hold value based on the services they provide in the game.
Incentive models
Play-to-Earn had been the go-to model for GameFi developers to quickly raise capital by selling in-game tokens and NFTs. When blockchain gaming was a hot narrative in 2022 this was a no-brainer for both investors and developers, but in a down market, developers had a tough choice to make: short-term profits or long-term players?
Play-to-Earn (P2E) is focused on earning in-game cryptocurrencies and NFTs, which can be sold for real money. However, this model often lacks engaging gameplay and long-term sustainability. Prioritizing currency rewards over a fun gaming experience often results in a lack of depth, quality, or variety.
Play-and-Earn (P&E) improves gameplay and builds a solid community, offering both financial and non-financial incentives for long-term engagement. An example is Alien Worlds, which revolves around planetary DAOs and voting systems.
Play-to-Own (P20) shifts the focus from in-game tokens to NFTs as rewards. Upland is an example where the native token, UPX, has a fixed price and can’t be traded on the open market. Players invest in the game to earn valuable property NFTs that can be sold.
Free-to-Own (F2O) aims to drive mass adoption by removing financial barriers. Upcoming games like Limit Break offer free NFTs, making profits from trading royalties instead of high mint fees. Free crypto games that rely on royalties to generate a profit stand the best chance of onboarding Web2 gamers. Not needing to purchase an NFT or tokens beforehand will certainly be attractive to first-time blockchain gamers that don’t want or know how to make a purchase via crypto.
How games reward players will be one of the largest issues for GameFi adoption. Token use cases won’t matter unless defi games find the proper way to distribute tokens to players that want to use them for fun rather than just an investment.
Web2 talent is coming to Web3 gaming
AAA gaming studios of all sizes are still committed to adding NFTs to their headliner franchises in 2023. Square Enix reiterated their intent to add NFTs into their Final Fantasy series, arguably the most well know JRPG (Japanese Role Playing Game) series of all time. They have yet to announce which blockchain they will partner with, but MetaKing Studios, a web3-focused game development studio backed by several companies including Square Enix, recently partnered with Polygon Labs to release Blocklords, its own game.
Polygon also partnered with Immutable X this year to create Immutable zkEVM, a blockchain specifically designed for Web3 gaming. Polygon’s zk-rollup and EVM compatibility with the Immutable X product suite will make it much easier for AAA studios to design and launch their own games without worrying about scaling, transaction costs, or security.
Illuvium, the most anticipated release of 2023, will launch on Immutable X later this year. The open-world fantasy game will feature AAA graphics powered by Unreal Engine 5. Players will explore a new planet and capture the deadly alien beasts that rule there to earn ILV, the in-game currency also used for governance.
Some games to try out in 2023
Here are some games both new and existing that you should keep an eye on in 2023:
- Illuvium: As mentioned earlier, Illuvium is an open-world fantasy game featuring AAA graphics and an immersive storyline. Players can capture alien creatures, called Illuvials, and use them to battle other players or trade them as NFTs.
- Star Atlas: A space-themed MMO game that combines real-time strategy, exploration, and virtual economy management. Players can own spaceships, land, and other assets as NFTs, and participate in governance decisions through the game’s native tokens.
- Ember Sword: A free-to-play MMORPG that lets players own NFT-based cosmetic items, land, and resources. With a focus on player-driven economies and a vibrant open world, Ember Sword aims to create an engaging gaming experience with a focus on social interactions.
- Hunters On-Chain: Train, upgrade, and battle NFT-based characters in this exciting play-to-earn game on the Polygon Network. Explore a unique world, where your hunters evolve and compete against others to earn valuable rewards.
- Axie Infinity: Breed, raise, and battle Axies in this engaging online world. Engage in strategic gameplay, complete quests, and participate in tournaments to earn rewards and tokens in this play-to-earn sensation.
Does 2023 look bright for GameFi?
Despite the challenges and growing pains that GameFi has faced and will continue to face in 2023, there is still ample reason for optimism. As developers strike the right balance between fun, funding, and function, the industry is bound to mature and learn from past mistakes. The focus on user experience, attracting Web2 gamers, and improving tokenomics will drive the evolution of blockchain gaming. Moreover, with the influx of talent from traditional gaming studios and the ongoing development of innovative projects, the future of GameFi looks brighter than ever. As long as the GameFi industry prioritizes entertaining and engaging gameplay over making a quick buck, gamers will look past the early blunders of blockchain games to come and have some old-fashioned fun.