Introduction
GameFi Tokenomics has had an impressive development in the last decade with significant growth in the number of users and turnover of companies.
This is also due to the increasing quality of the products that have appeared on the market.
From a technological point of view, gaming has also become one of the main fields of application of blockchain and NFTs.
Blockchain-based games have also become a source of business opportunities, not only for companies but also for players.
The gaming industry
In the last years, Gaming, once an activity for children, suddenly became mainstream. According to a Gartner report, during 2020, time spent gaming increased by 59%, for adults between the ages of 45 and 54, while their money spend rose by 76%. For the 55 to 64 age group, time and money spent jumped by 48% and 73%, respectively.
The gaming industry is larger than the movie and music industries combined. In fact, there are over 3 Billion players active worldwide.
The global gaming industry is now worth more than $200 Billion and is growing at around 10% per year.
The gaming culture has spread across generations, with popular gamers becoming celebrities. Gaming videos have become so popular that they now dominate the YouTube space with varied videos reaching millions of views. Moreover, careers and lifestyles have been made out of gaming.
Blockchain impact on gaming
Web3 has revolutionized various industries, including gaming. With a major shift from traditional gaming platforms, Web3-based games allow the players to engage with the games in innovative ways.
Before blockchain-based games, video games were housed on centralized servers owned by a gaming company who had the implicit power to shut the platform off whenever they saw fit.
Players had no actual ownership of the items they accumulated while playing, for example, the clothes, the weapons, the prizes. It all existed only within the game, and had no value in the outside world.
That’s not the case with in blockchain-based games, thanks to its decentralized nature and reliance on blockchain technology.
What is GameFi
GameFi refers to blockchain-based games that offer economic incentives to players.
This kind of games are based on three key elements: the play to earn model, the concept of ownership and tokenomics.
- Play to Earn
Play to earn (P2E) games, are video games where players can earn revenue while they play. Unlike normal console or PC titles, P2E games give gamers the opportunity to earn revenue just by playing a video game.
Typically players earn in-game rewards like crypto tokens, virtual land, avatars, skins and other NFTs by completing tasks, battling other players or progressing through various game levels.
- Ownership
What sets these games apart from the past is what players can then do with their in-game assets. In fact, GameFi developers have brought property rights into game worlds, namely they have brought the concept of ownership.
Unlike traditional video games, blockchain-based games let the player trade his in-game assets or transfer them to outside of the game’s virtual world. Players can sell rare items earned in the game to other players on marketplaces in and outside the game, thanks to open standards.
These assets actually belong to the player and are not bound to the game or platform.
- Tokenomics
Each game has its own model and game economy. But, for the most part, the digital assets provide some sort of monetary benefit to its players. Whether because they won a fight and earned crypto, sold an NFT they bought in-game or charged fellow players who have rent an asset from them.
The GameFi sector is one of the fastest growing segments in the video game industry. With around $10 billion in earnings, this new industry has already a significant impact on the global gaming market.
Blockchain games were responsible for more than 35% of all Polygon transactions during peaks in 2021 and early 2022.
All major games companies are evaluating the commercial potential of using blockchain technology, in-game cryptocurrency, tokens, NFTs and new business models such as play-to-earn. There will be a lot of new games using blockchain in 2022 and increasing amounts from traditional games companies, which will expose more consumers to cryptocurrency and NFTs.
The mechanics of P2E games
To understand P2E gaming it is necessary to understand the mechanics behind these games.
While at a first glance they might seem normal games, there are certain mechanics in the back that distinguish them from traditional games and allow players to gain value from playing.
Earning revenue through these types of games is usually related to non-fungible tokens a unique piece of purchasable digital art stored on a blockchain. These NFT collectibles are perfectly suited for the digital world as they can represent characters, items, or even land.
It’s not always necessary to own an NFT to earn in P2E games, but in most cases, this is the way to maximize your income. It’s possible to earn money also without buying NFTs for a game.
A player owning NFTs in a game, owns an actual stake in the virtual world itself. The NFT represents a part of the game that you actually own. Since every NFT is unique, this digital item is yours until you sell it.
As players get rewards they will get the game’s native cryptocurrency. These crypto tokens are built into the game’s tokenomics and virtual economy where they’re automatically awarded through the game’s smart contracts.
Winning battles, completing quests, solving puzzles, and selling items, are a few ways players can earn. A player that has earned revenues can then decide to cash out or reinvest.
Cashing out can be done through a crypto exchange where the funds are converted to fiat money or converted to another cryptocurrency. The earnings could also be reinvested into the game by buying extra items, characters, etc.
A new economy
Developing a new P2E game today means also creating a well-functioning marketplace complete with an in-game currency and open standards for game material.
Blockchains offer economic building blocks to game developers. The technology allows developers to launch a token in less than an hour or to define game materials as nonfungible tokens (NFTs). This gives users strong property rights and the ability to take their characters and items outside of the games onto third-party marketplaces or even other games.
Some play-to-earn games even let players generate passive income without playing the game at all through liquidity mining or lending their gaming assets to other players.
Players can also influence the development of the actual game via DAOs.
Hence, in games with the integration of decentralized finance (DeFi) technology, players have financial opportunities they never had before, which led to the fast adoption of these games.
P2E games are also an investment because players are able to own parts of the game through NFTs. By owning an NFT its value will be affected by how well the title performs. If it ends up being a big success with many active players, then the NFT will see an increase in value.
Another way to invest in this kind of games is through its native token. For example, in the Axie Infinity game, players will come across a “governance token” ($AXS) and the in-game token ($SLP). With the AXS token, players are provided with the ability to vote and influence the direction of the game and, thus, have a say as an investor.
Tokenomics sustainability
There is some concern related to the sustainability of this type of games in terms of tokenomics. That is because many games are betting on explosive growth in the user base to support the rewards that keep the players on board.
A core issue is that a good design of the game tokenomics is critical for the future of the game and to reduce the risks for investors. It should keep the game from running into an economic collapse.
A crucial aspect to be considered for the sustainability of the in-game economy is the balance between inflationary and deflationary activities.
Additionally, it is advisable to maintain control over any in-game tokens. This way, you can change the balance of economic activity by updating the pricing of different activities as needed.
Another measure is to create a separate governance token with a fixed supply cap. This will make the project more favorable to passive investors, but it will also make in-game economy more resilient by concentrating the crypto market exposure to the governance token.
It is essential to continuously refine the game tokenomics.
Incubators and launchpads
Game developers often lack the same access to marketing and development support that big tech companies have at their disposal. For these reasons, incubators have a central role in the world of gaming.
For example, Seedify has continued to position itself as the blockchain industry’s leading gaming incubation and launchpad platform by providing curated initial game offerings (IGOs) and support for crowdfunding and marketing.
By utilizing this type of platforms, projects gain access to an extensive support system, complete with consulting services, marketing support, tokenomics design, network and other partnership opportunities.
Conclusions
As time goes by, games become more and more sophisticated in terms of narrative and graphics, but also in terms of the opportunities they offer. Not only entertainment and fun, but more and more we see the integration of economic parts that make the game also an area in which to make investments and get tangible returns. Not only for companies and professional organizations and investors but also for the player.
Read more on Tokenomics Consulting
Contact Us for GameFi Tokenomics Consulting
Author:
Discover how BrightNode can boost your project.
Complete our contact form now!
