How GameFi contributes to the growth of crypto and NFTs

The crypto industry has grown tremendously in the past couple of years, and one of its biggest drivers is the GameFi industry.

GameFi – a collection of games and finance – enables players to earn rewards while playing.

The market has grown steadily and currently has a token market capitalization of approximately $9.2 billion. In particular, GameFi networks have continued to thrive despite the crypto winter. In fact, the industry is predicted to reach a value of $74.2 billion by 2031.

How GameFi networks work

GameFi ecosystems are based on blockchain technology and use different in-game financial setups to reward players. The rewards are usually in the form of non-fungible tokens (NFTs) that can be traded on major marketplaces. The objects are usually in the form of virtual lands, costumes and weapons and are instrumental in diversifying user experiences.

The difference in game strategies and financial setups is what makes each game unique.

One of the most popular GameFi economic setups is the play-to-earn (P2E) model. The model is designed to keep users engaged while enabling them to earn rewards.

It allows players to indulge in the games without spending money. However, progress may be limited by the lack of assets needed to compete successfully. As such, players are sometimes forced to purchase in-game items in order to advance to top levels where they can obtain greater rewards.

Popular blockchain gaming networks using the P2E GameFi model include Decentraland, The Sandbox, Axie Infinity, and Gala.

Why GameFi is popular

The GameFi world has attracted millions of users over the past couple of years. This is impressive considering that the industry was virtually non-existent before 2015.

Today, the industry attracts over 800,000 daily players. Many of them are attracted to GameFi because of the amount of benefits it provides.

One of them is the ease of trading digital assets. A recent market report published by CoinMarketCap found that approximately 75% of players are willing to trade their in-game assets for some form of currency. This advantage is one of the main reasons why GameFi is so attractive to gamers.

Some virtual assets, such as land, can also be rented out to other players. Users who want to generate passive income without playing games can also indulge in liquidity mining by staking assets. This is a big incentive for retail investors and people who want to make money in the game time.

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Another benefit that many GameFi players appreciate is the low transaction costs. GameFi communities usually use cryptocurrencies, and this makes money transfers relatively easy to complete and cheap.

This is a big bonus compared to conventional money transfer modes, which are expensive, especially when it comes to making cross-border payments. This aspect was highlighted in the 2021 Blockchain Game Alliance (BGA) survey report, where 17% of participants cited lower transaction costs as a major GameFi benefit.

Another innovative element that captivates GameFi players is the support for user-generated content. This capability not only allows GameFi platforms to engage users with diverse tastes, but also encourages creativity among players while propagating an autonomous environment where assets can be created, listed and publicly traded. In the 2021 BGA survey, 47% of respondents ranked creativity and gameplay as the top reasons they enjoyed GameFi.

These distinctive advantages, as well as other supporting factors, contribute to the consistent growth of GameFi.

How GameFi is driving growth

GameFi projects rely on cryptocurrencies to settle transactions, and this has greatly contributed to the increased use of digital currencies in recent years.

According to a recent report published by DappRadar – a platform that tracks activities on decentralized applications (DApps) – the number of unique active wallets (UAW) wallets related to the blockchain gaming sector increased sharply in the third quarter of 2021, accounting for approximately 49% of the 1 .54 million daily UAWs that were recorded during this period. The data confirms the disruptive potential of GameFi and the increased use of cryptocurrencies in the sector, subsequently promoting their use and adoption.

Another related survey report released by Chainplay – an NFT game aggregation platform – recently revealed that 75% of GameFi investors entered the crypto market through their involvement in GameFi, showing GameFi’s growing impact on crypto adoption.

Besides promoting the use of cryptocurrencies, GameFi has also contributed immensely to the rise of the NFT industry. GameFi relies heavily on NFTs for in-game assets, and this increases their use on the blockchain. Not surprisingly, the rise of the GameFi market in 2021 coincided strongly with the NFT boom.

GameFi NFT sales rose to $5.17 billion in 2021, up from $82 million recorded in 2020. The sales figures helped bolster growth in the NFT market.

GameFi is attracting more investors and game companies

Lots of investors are injecting money into promising GameFi projects. The development is bound to help the blockchain industry gain more credibility in the mainstream markets as a viable investment area.

According to data obtained from Footprint Analytics – a blockchain data analytics firm – over $13 billion has been raised so far by blockchain gaming companies. Over $3.5 billion of this was raised during the first half of 2022.

Ilman Shazhaev, founder and CEO of the GameFi project Farcana, told Cointelegraph that the industry is developing rapidly, hence the growing interest among investors:

“Investors are particularly interested in GameFi because it represents a sector of the wider blockchain ecosystem that has gained genuine interest worldwide. They are betting on the future, as only a few industries have a chance to attract more users in the long term run than GameFi.”

He added that the sector was still at a very nascent stage with significant room for improvement, especially in terms of innovation.

As things stand now, big businesses, including mainstream gaming companies, are jumping on the GameFi bandwagon as the industry continues to evolve.

Eminent gaming powerhouses such as Ubisoft are already making moves to conquer the GameFi frontier. Earlier this year, the gaming company announced a partnership with Hedera and the HBAR Foundation to come up with Web3 GameFi games for the brand. The gaming behemoth is behind the popular Far Cry and Rainbow Six franchises.

Zynga, another well-known game developer, also announced plans at the beginning of the year to unveil its own NFT-based games. The mobile gaming giant said it was working towards building a blockchain team and forming alliances with skilled blockchain partners to bring its own collection of NFT games to life.

Mainstream tech conglomerates such as Tencent, the Chinese multinational technology company, have also started investing in the GameFi sector. The company was recently named among the top contributors to Immutable’s $200 million fundraising event. Immutable is the developer behind NFT games such as Gods Unchained and Guild of Guardians.

The entry of such players indicates increased competitiveness for a share of the space. This is likely to increase GameFi investment and drive innovation in the long term.

Cointelegraph had the chance to catch up with Anton Link, co-founder and CEO of NFT rental protocol UNITBOX, to discuss this phenomenon.

Link said the industry’s very positive growth indicators were among the main reasons investors are flocking to the sector.

“Unlike other uses, it is [GameFi] allows for the implementation of technology here and now, and the sector’s growth forecasts and indicators speak for themselves.”

He also noted that some game developers were looking to try their hand at GameFi to get a more engaged demographic.

Some challenges that the GameFi industry is experiencing

While the GameFi sector is attracting hordes of gamers, investors and gaming companies, there are still some significant issues to overcome before it captures a significant pie of the overall gaming industry.

Security issues

The GameFi market has faced some serious hacks in recent times that are likely to negatively impact user sentiment in the sector.

One of them is the Ronin bridge hack attack that happened earlier this year. That led to Axie Infinity players losing over $600 million in crypto. Most recently, a newly launched Web3 game called Dragoma suffered a carpet sweep that caused users to lose $3.5 million.

These are just some of the reported losses from GameFi hacking and fraud. Such cases continue to erode confidence in the industry.

Bad gaming experience

Also, blockchain-based games suffer from playability issues. Although they allow players to control and transfer their in-game assets, graphics, immersion and gameplay often lag far behind their mainstream competitors.

Many blockchain games lack game mechanics beyond “grinding”, i.e. completing repetitive tasks to be rewarded with assets.

Complaints from gamers show that the appeal of blockchain-based tokens is not all, and that gamers still value the vivid experiences offered by popular mainstream games over the benefits offered by GameFi.

Uncertain regulations

Additionally, many GameFi platforms operate in a regulatory gray area and are likely to face major headwinds over the next couple of years. Right now, the United States Securities and Exchange Commission (SEC) is considering whether to classify blockchain game tokens as securities due to the “expectation of profit.”

Classifying them as such would bring them under the remit of the regulatory authority. This will force many GameFi platforms to provide extensive disclosures about their customers and revenue models. Networks that do not meet SEC requirements are usually forced to prevent US investors and players from joining their platforms to avoid fines and sanctions. This is likely to undermine growth in the sector.

Technical complexity

New blockchain concepts usually experience countless teething problems. The decentralized financial sector, for example, experienced many of these problems because many users found the platforms difficult to understand and use.

GameFi also experiences some of these issues. Buying and selling NFTs, for example, is a complex affair and remains a major hurdle for newcomers.

The sector remains tied to the broader crypto market

GameFi is a subset of the crypto industry and is therefore affected by the ups and downs of the digital currency market. Consequently, the GameFi sector experiences an increase in activity during uptrends, but the opposite happens when there is a downtrend.

To maintain interest in GameFi platforms, developers face the uphill task of developing exciting games to help ecosystems weather the market.

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Currently, GameFi investors are focused on improving gaming experiences to build sustainability, but the task is easier said than done.

Developers face countless challenges, but if they succeed in attracting players with top-level games, the future of blockchain-based gaming looks bright.