27. What is GameFi and how does it work?
GameFi is a very popular technology in the gaming industry, cryptocurrencies and on blockchain. It offers not only online games, but the opportunity to combine pleasure with utility. Users who decide to play games in this technology are rewarded for their effort and time. So it’s no wonder that the sector attracts people by offering them the opportunity to earn money while having fun. It is also a great solution for people who are just starting their adventure with the crypto world. What exactly is the industry GameFi and how it works – we’ll explain below.
The GameFi model – definition
GameFi combines video games (gaming) and decentralized finance (DeFi). Games are based on blockchain technology, which allows you to easily verify users as owners of virtual game elements. For participating in the games, we win prizes: tokens, NFT, virtual lands, avatars, or other valuable items that we can cash in.
GameFi introduces a new game model, called “play-to-earn”. We wrote about play-to-earn and blockchain-based games here.
Unlike the traditional play-to-win model where players pay to upgrade, play-to-earn allows us to earn in the virtual world that we can transfer outward.
It seems simple, right? It is worth emphasizing, however, that in games of this type you need more than just luck. To gain rewards, as a player, we have to go through various levels, fight with other users or perform very complex tasks. All the actions differ from each other, depending on the game we are playing. Nevertheless, these are games that require strategy and a lot of skill.
Why is GameFi technology such a revolution? Let’s think. Until now, most video games have been associated with centralized servers, which the owner could turn off whenever he felt like it. Players practically did not earn from them, on the contrary – to improve a character, they had to invest in it or often add highly paid equipment. Everything worked inside the game and had no effect on the outside world.
In the case of GameFi, it’s wholly different. The sector is completely decentralized thanks to the application of blockchain technology. We get real benefits for having digital assets in the game. Tokens, unique skins, or even character equipment – all this can be exchanged for real money. A great solution, not only for gamers.
How does GameFi work and what does it have to do with play-to-earn?
It all depends on the model and economy of the game we are playing. In most of the cases we know of, players get digital assets that provide them with monetary benefits. Of course, before that, they must, for example, win a fight to earn cryptocurrency, sell their NFTs or collect rent for other players staying on their virtual land (Decentraland and The Sandbox). These are just some options available. Individual type games play-to-earn allow players to generate passive income without having to play. How? We can lend our assets to other players and make a profit from commissions or interest.
From the introduction above, you’ve already noticed that most projects GameFi has two common features:
- NFT, i.e. digital assets created thanks to blockchain technology. Avatars, skins, pets, and even tools are represented as NFTs in play-to-earn games. This allows users to exchange them for cryptocurrencies and generate profit.
- DeFi, i.e. decentralized finance. Their presence in the GameFi sector is very well-thought-out. As we mentioned earlier, in addition to NFT, you can earn money by leasing your property. Interestingly, some GameFi projects allow gambling. As a player, you can block some of your tokens and earn interest. This would not be possible without the presence of DeFi.
Fun fact: Most of the projects are built on Ethereum, Solanie i Polygon. One thing is worth pointing out here. Depending on the game, tokenomics of a given cryptocurrency is different. Keep this in mind when you want to cash in your rewards.
Talking about GameFi, we can’t help but mention this new gameplay model. It does not require us to invest before starting the game. This is something wholly different from the play-to-play model. Games play-to-earn give players full control over the assets they have in their account. At the same time, they have the opportunity to earn money. Of course, it all depends on the game, so make sure you understand how it works before you play.
What’s more – some P2E games are free, and we can still generate cash prizes in them. It is true that some projects require the prior purchase of NFT or cryptocurrencies; however, there are also those that are completely free of the initial fees.
Where to start?
We will not be surprised if after reading our article you want to start your adventure with this sector. We are all for it! Here’s what you need to start playing:
- Wallet – it is essential. Games use blockchain technology, so you need to identify yourself with it and transfer your assets to it. Choose the right type of wallet for the game you are interested in.
- Funds – to start playing, you must have a minimum of funds in your wallet. Of course – depending on the game, you will need a different cryptocurrency.
- Shopping – what we like the most. Before starting the game, you will need to own digital assets, to generate profit. e.g. Axie Infinity, you must have three Axies in your wallet to start the game.
I voilà – go on your adventure.
The most popular GameFi projects
We will now introduce you to four of the most popular projects in this sector.
- Axie Infinity – cute creatures. You collect, breed, fight and trade Axie creatures. They are none other than NFTs. The game uses the Ethereum-based AXS and SLP cryptocurrency.
- The Sandbox – if you are interested in real estate, this is something for you. In the game you build, buy and sell your virtual real estate. The game’s native token is SAND.
- Decentralized– also something for real estate lovers. In the form of NFT, we will find pieces of land here that we can buy or sell. The game’s native token is MANA.
- CryptoBlades – if you like strategy games, this should be your choice. You engage in battles, after which you receive SKILL tokens. Then you can cash them or exchange them for avatars, for example.
The future of GameFi
It looks very promising. In the near future, we will undoubtedly expect a massive development of this sector. According to data from DappRadar and Blockchain Game Alliance, in 2022 in blockchain games, approximately USD 1 billion was invested. Well-known traditional game studios have also started to take a closer look at this sector. We’re talking here, even about Blizzard or Atari. This does not surprise us at all. Since Decentralized, The Sandbox, and Axie Infinity have a market cap in the millions of dollars, why shouldn’t other studios follow suit…? Then there are the players. The choice is simple – they will take advantage of the opportunity that gives them fun and the opportunity to earn on what they like the most. This has been repeated many times by GameFi supporters. There are about three billion (BE) gamers in the world today. Most of them would like to use their virtual items. This only underscores the power this cryptocurrency sector can become.
Sector GameFi attracts players easily. We prefer to combine entertainment with the possibility of improving our funds. With the growing popularity of games and development of Metaverse, most likely in a short time we will see more and more projects using this technology.