GameFi has opened a new door to gaming, but how sustainable is it?
Hello everybody,
Last week in our newsletter, we talked about the evolution of GameFi and how NFTs and blockchain gaming could be the most significant contributor to onboard billions of users into the crypto space. If you haven't read it yet, I bet you should here.
In this issue, we want to take a different approach and look at GameFi from different perspectives, especially the economic sustainability of GameFi.
Firstly, we agree that incentivizing gamers for their gameplay with Crypto that is convertible and transferable to fiat is a game changer for the most obvious reason that it allows you to earn while you do what you love, play games.
But the economy of GameFi is not as simple as it sounds. It is a complex one. In many ways, designing a game economy is like designing a nation’s economy, creating, distributing, spending, and transferring.
While there are many ways to look at GameFi economy, we can boil it down to two main aspects:
Tradable and convertible in-game items as NFTs- There are mainly two types of NFTs in blockchain-based games, access NFTs and utility NFTs. Access NFTs allow players to start playing the game and earn for the gameplay, while the utility NFTs are tools that help players get better and more efficient. These NFTs are tradable from the in-game marketplace or the external marketplace like Fractal or OpenSea. NFTs are the proof of ownership linked to the player's wallets (like Metamask, Coinbase, Phantom); they have the freedom to sell them at their desired price.
In-game currency as a token- Tokenomics is an important part of any blockchain-based project, and so is GameFi. Axie Infinity has in-game currency SLP (Smooth Love Potion), which is earn from the gameplay by completing a task. Some Axie Infinity players in the Philippines earned up to $400 a month in 2020. In the case of ev(dot)io, the most played game on the Solana blockchain, casual players earn anywhere from $2-$5 a day, whereas some top 20 players on the leaderboard earn up to $107 per day. These earn tokens, SLP in Axie Infinity or e in EV(dot)io are convertible and transferable to fiat currency. Gamers can also buy them from external marketplaces like Coinbase and Binance.
Before Crypto, Gaming is meant only(mostly) for fun and enjoyment. After Crypto, it's for fun & enjoyment, spending time for social connection, earning a living, or even building a fortune.
But how sustainable is this GameFi economy?
Here is how game economics at Axie Infinity works. Players buy three Axie NFTs to start playing the game. They get Smooth Love Potion(SLP) for their gameplay. SLP is minted through gameplay as a reward to Axie Infinity players. The price of SLP depends on the growth of Axie Infinity, with the demand for breeding and supply of SLP being key factors.
Then there is Axie Infinity Shards, or AXS, which is an ERC-20 governance token that allows (or will allow) holders to earn staking rewards, use for in-game payments, and participate in governance.
The game revenue comes from breeding fees, paid in AXS, for breeding Axies (SLP required for breeding is burned), and Axie Marketplace fee for successful sales of Axie assets such as Axies, land, and land items.
As you can see, this is a purely growth-dependent economy. The game needs to bring more players to keep generating more revenues, which is unsustainable.
AXS token reached an All-Time High last November at over $160 but is down more to $13 at the time of writing this.
To make the game sustainable, Axie Infinity is making some changes. They released Axie Infinity: Origin early access last April. The game will be free to play with Origin.
“We are constantly looking for ways to bring the fun of Axie Infinity to even more people. Through Origin, we are not only making the game easier to play by offering three free non-NFT starter Axies, but we are polishing the design, making gameplay more efficient, and introducing new mechanics to drive sustainability,” Trung Nguyen, Sky Mavis CEO, Axie Infinity game developer.
Axie Infinity is in the process of transitioning from Play-to-earn to Play-and-earn. This would allow new gamers to play the game without getting exposure to NFTs and Crypto. Free non-NFTs Axies will be given to the players to start playing the game. Players can later upgrade their Axies if they wish to earn from their gameplay.
This approach will attract more players as the game focuses on the gameplay first and earning later, just as traditional F2P games work.
As web3 games evolve, we are witnessing the change in the game narratives. Axie Infinity popularized GameFi, and lured players across the globe, particularly from small-income countries, with their incentives mechanism. This creates the rise of play-to-earn games, promising and prioritizing “earning” before the “fun” of the gameplay. As the industry evolves, we are now looking at the second development phase as GameFi 2.0, focusing on making great games with “fun” elements like those traditional F2P games more than the “earning.”
Source: Web3 Gaming: Evolution
So how could we make our game more sustainable and more “fun”?
Firstly, designing a sustainable game economy may not be easy, and adding to it, we are still at the very early stage of this evolution. In the coming months and years, we will see more games publishers, studios, and developers entering the space with better innovations and economic models. As for now, let’s look into a few ways we think will make the GameFi games more sustainable.
Virtual land- Utilizing virtual land better by increasing total revenue, creating more engaging player bases, and introducing new forms of gameplay on lands. Games can also introduce billboards to generate revenue through ads. Ev.io is already implementing this.
Virtual lands can also be use to organize social events, build experience centers, and much more.
Not relying on new players to sustain the ecosystem- If the game growth depends on more players joining, it will more or less be a Ponzi scheme. Players who enter the game early will benefit more than those who join later.
It’s okay if every player doesn’t earn- While earning makes GameFi games different, allowing all players to earn no matter what will attract bots/ fake accounts, making the game unsustainable.
Have more consumption economy than an investment- Just as the game economy is akin to a real-world economy, a thriving economy has an abundance of consumers and market participants to spend their income. GameFi games need to make more ways for gamers to spend their resources in the games and prevent them to cash-out their entire earnings. This will helps the resources circulate within the games resulting in economic gain.
Making it free to play or lowering the barriers to entry- The most important of all. To create a successful game that is played by millions is to make a great game. A great game comes with “fun” first and earning later. No gamers will play the game for long just for money without “fun.” Games can start with free NFTs without an upfront investment or low barriers to entry to allow players experience the game first. More players create a more competitive and exciting game.
Gaming will through a tectonic shift in the industry over the next few years. The space will see more incoming from publishers to players, studios to artists, and even tech to media companies. This space will be the most significant contributor to onboard billions into Crypto. There's never been a more exciting time to work in gaming.
What’s happening in the space?
Sandbox games won “Launchpad Project of the Year” 2022 from Binance. The Sandbox is a community-driven platform where creators can monetize voxel ASSETS and gaming experiences on the blockchain.
It’s raining $GODS tokens- Over 1 MILLION $GODS tokens in total will be redistributed to players who have held and will continue or start holding $GODS tokens in their Immutable X wallets and who meet the eligibility criteria in each period. InFinitySquid, Product Manager of Monetization at Gods Unchained, explains how the tokens will be distributed in a blog here.
The intention with Offering of the $GODS appears to be to add more utility to the game’s token; this is a common flaw of blockchain gaming tokens which causes the price to gradually sink.
Exit the Matrix. Enter the Mandala- Immutable X is to power a carbon-neutral metaverse in Mandala, an upcoming AAA Unreal Engine MMORPG.
The money is coming in even during “Crypto winter”-
Magic Eden launches Magic Ventures fund for Web3 games- San Francisco-based Magic Eden, a community-focused marketplace for non-fungible tokens (NFTs), will now fund its own games.
Magic Eden received $130 million in Series B funding last month at a valuation of 1.6 billion from Avichal Garg, the managing partner at Electric Capital. According to data from DappRadar, Magic Eden is the second largest NFT marketplace after OpenSea, with $81.32 million in trading volume in the last 30 days.
NFT Game Publisher Animoca Raises $75M-
Animoca, a company that drives digital property rights via NFTs and gaming to build the open metaverse, raised $75 million at a valuation of $5.9 billion.
The company has invested in various leading Web3 companies including Dapper Labs, NBA Top Shots, OpenSea, and Axie Infinity Developer Sky Mavis.
The company develops and publishes a broad portfolio of products, including the REVV token and SAND token; original games including The Sandbox, Crazy Kings, and Crazy Defense Heroes; and products utilizing popular intellectual properties including Disney, WWE, Snoop Dogg, The Walking Dead, Power Rangers, MotoGP™, and Formula E.
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