How GameFi contributes to the growth of crypto and NFTs
The crypto industry has grown tremendously over the past couple of years, and one of its biggest drivers is the GameFi industry.
GameFi — a portmanteau of gaming and finance —enables gamers to earn rewards while playing.
The market has been growing steadily and presently has a token market cap of approximately $9.2 billion. Notably, GameFi networks have continued to thrive despite the crypto winter. Indeed, the industry is forecasted to reach a $74.2 billion valuation by 2031.
How GameFi networks work
GameFi ecosystems are based on blockchain technology and use different in-game economic setups to reward players. The rewards are usually in the form of nonfungible tokens (NFTs) that are tradable on major marketplaces. The items are typically in the form of virtual lands, costumes and weapons and are instrumental in diversifying user experiences.
The difference in gaming strategies and economic 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 any money. However, progress can be curtailed due to the lack of assets needed to compete successfully. As such, gamers are sometimes compelled to purchase in-game items in order to advance to top levels where they can obtain bigger rewards.
Popular blockchain gaming networks utilizing 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 practically non-existent before 2015.
Today, the industry attracts over 800,000 daily players. Many of them are drawn to GameFi due to the medley of benefits it provides.
One of them is the ease of trading digital assets. A recent market report published by CoinMarketCap found that about 75% of gamers are willing to trade in their in-game assets for some form of currency. This advantage is one of the main reasons why GameFi is so attractive to players.
Some virtual assets, such as land, can also be rented out to other gamers. Users who wish to generate passive income without playing games can also indulge in liquidity mining by staking assets. This is a huge incentive for retail investors and people who wish to monetize their gaming time.
Recent: ETH Merge will change the way enterprises view Ethereum for business
Another merit that many GameFi players appreciate is the low transaction costs. GameFi environments usually utilize cryptocurrencies, and this makes fund transfers relatively easy to execute and cheap.
This is a major bonus when 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, in which 17% of participants named 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 different tastes but also encourages creativity among players while propagating an autonomous environment in which assets can be created, listed and traded publicly. In the 2021 BGA survey, 47% of respondents ranked creativity and gameplay among the top reasons why they liked GameFi.
These distinctive advantages, as well as other auxiliary factors, contribute to the consistent growth of GameFi.
How GameFi boosts growth
GameFi projects rely on cryptocurrencies to settle transactions, and this has contributed greatly to the increased adoption 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 tied to the blockchain gaming sector rose sharply in the third quarter of 2021, accounting for approximately 49% of the 1.54 million daily UAWs registered during that 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 got into the crypto market through their involvement in GameFi, showcasing GameFi’s growing impact on crypto adoption.
Besides advancing 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 the $82 million recorded in 2020. The sales numbers helped to solidify the growth of the NFT market.
GameFi attracts more investors and gaming companies
Droves of investors are injecting money into promising GameFi projects. The development is bound to help the blockchain industry gain greater credence in mainstream markets as a viable investment space.
According to data derived 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.
Speaking to Cointelegraph, Ilman Shazhaev, the founder and CEO of GameFi project Farcana, said that the industry is rapidly evolving, hence the rising interest among investors:
“Investors are particularly interested in GameFi because it represents a sector of the broader blockchain ecosystem that has earned a genuine interest worldwide. They are betting on the future, as only a few industries have a chance of attracting more users in the long run than GameFi.”
He added that the sector was still at a very nascent stage with significant room for improvement, especially when it comes to innovation.
As things stand, major enterprises, including mainstream gaming companies, are jumping on the GameFi bandwagon as the industry continues to advance.
Eminent gaming powerhouses such as Ubisoft are already making moves to conquer the GameFi frontier. Earlier this year, the gaming firm 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, anotherrenowned game developer, also announced plans at the beginning of the year to unveil its own NFT-based games. The mobile gaming giant said that it was working toward building a blockchain team and making alliances with accomplished blockchain partners in order to bring to life its own collection of NFT games.
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 in Immutable’s $200 million fundraising event. Immutable is the developer behind NFT games such as the 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 investments and drive innovation over the long term.
Cointelegraph had the chance to catch up with Anton Link, the co-founder and CEO of NFT rental protocol UNITBOX, to discuss this phenomenon.
Link said that the industry’s highly positive growth indicators were among the main reasons why investors are flocking to the sector.
“Unlike other application areas, it [GameFi] allows for implementing of tech here and now, and the sector’s growth forecasts and indicators speak for themselves.”
He also noted that some game developers were looking to dabble in GameFi in order to obtain a more engaged demographic.
Some challenges that the GameFi industry is experiencing
While the GameFi sector attracts hordes of players, investors and gaming companies, there are still some significant issues to overcome before it captures a sizable pie of the overall gaming industry.
Security issues
The GameFi market has faced some serious hacks in the recent past that are likely to negatively impact user sentiment in the sector.
One of them isthe Ronin bridge hack attack that happened earlier this year. It caused Axie Infinity players to lose over $600 million in crypto. Most recently, a newly launched Web3 game dubbed Dragoma suffered a rug pull that caused users to lose $3.5 million.
These are just a few of the reported losses from GameFi intrusions and scams. Such incidences continue to erode trust in the industry.
Poor gaming experience
Furthermore, blockchain-based games suffer from playability issues. While 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 isn’t everything and that players still value the vivid experiences offered by popular mainstream games over the benefits provided by GameFi.
Uncertain regulations
Additionally, many GameFi platforms are operating in a regulatory gray area and arelikely to face major headwinds in the next couple of years. Right now, the United States Securities and Exchange Commission (SEC) is considering whether to classify blockchain gaming tokens as securities due to the “expectation of profit.”
Classifying them as such would bring them under the purview of the regulatory authority. This would oblige many GameFi platforms to make extensive disclosures about their clients and revenue models. Networks that fail to meet SEC requirements are usually forced to bar U.S. investors and players from joining their platforms to avoid fines and sanctions. This is likely to undercut the growth of the sector.
Technical complexities
Novel blockchain concepts usually experience myriad teething problems. The decentralized finance sector, for example, experienced many of these problems because many users found the platforms hard to understand and use.
GameFi is experiencing some of these issues as well. Buying and selling of NFTs, for example, is a complex affair and remains a major hurdle for newcomers.
The sector is still bound to the wider crypto market
GameFi is a subset of the crypto industry and is therefore affected by the booms and busts of the digital currency market. Consequently, the GameFi sector experiences a rise 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 enthralling games to help ecosystems weather market slides.
Recent: What the Ethereum Merge means for the blockchain’s layer-2 solutions
Currently,GameFi investors are focused on improving gaming experiences to build on sustainability, but the task is easier said than done.
Developers face myriad challenges, but if they are successful in attracting players with top-tier gameplay, the future of blockchain-based gaming looks bright.
This post has been syndicated from a third-party source. View the original article here.
