What Is GameFi and How Does It Work?

GameFi presents an opportunity to earn crypto tokens while playing online games. Read on to learn about GameFi, why it is so popular, and you will discover a list of popular play-to-earn (P2E) games.

This is partner content sourced from Laura Shin’s Unchained and published by CoinDesk.

GameFi, or game finance, combines online gaming and decentralized finance to achieve an in-game economy and convenience. It introduces the concept of play-to-earn (P2E), where in-game activity earns the player digital assets, rare items, and more.

Considering the already multi-billion-dollar industry is still growing, market forecasts predict it to rise to over $38B by 2028.

There is still a major chance that the industry will reach over $100B, contributing to the success of DeFi, NFTs, the metaverse, and more.

In most previously published video games, players could earn rewards. But still, they can only trade the most valuable skins everyone wishes to have. Additionally, they have little value outside the game’s virtual space. At the end of the day, centralized game publishers control who owns what, as these items are under their servers’ control.

However, blockchain technology and non-fungible tokens (NFTs) have given sole ownership to players in GameFi. Furthermore, players can get remunerated for their time playing the games through in-game earning mechanisms that pay out in crypto tokens.

While GameFi varies depending on specific projects, there are overall components that make it what it is.

The first is blockchain technology, which powers the games and the in-game tokens. Smart contracts also play a role, helping to decentralize much of the online gaming experience.

Additionally, decentralized finance, non-fungible tokens, and play-to-earn mechanisms help to make GameFi possible. Let’s look at these three aspects in a bit more details.

DeFi contributes to the GameFi economy by creating opportunities like staking and liquidity provision. Considering GameFi initial DEX offerings, DeFi also plays a significant role in raising project funds. DeFi is also responsible for in-game rewards and incentives.

To enable easier in-game item exchanges, NFTs come into play. They also facilitate digital asset ownership rights within the games. NFTs vary from avatars, costumes, weapons, land, and collectibles. The rarer the items, the more expensive you can expect them to be.

Marketplaces within the games help streamline this exchange and build an economic system in the game.

Earlier produced virtual games, especially massively multiplayer online role-playing games (MMORPGs) like World of Warcraft, required players to pay to play. However, the concept of GameFi is for players to engage with the game and earn rewards. These rewards could vary from tokens to rare collectibles. This can happen through completing levels, breeding in-game characters, developing virtual land, competing with other players, and more.

Other features that make GameFi work are gaming DAOs and community decision-making to help create a fairer environment for players.

There are advantages and disadvantages to GameFi’s emergence.

Below are some popular GameFi platforms you can participate in.

Axie Infinity is among the most famous blockchain games in the industry today. It features creatures called Axies that you can collect, upgrade, and use for your Axie Infinity battles. Axie Infinity’s marketplace allows players to trade their Axies, with the most expensive ever sold at 300ETH. Axie Infinity mainly uses the AXS token to power the game, allocate rewards, and facilitate staking.

Illuvium, a long-awaited game before its launch, entered the industry in 2022. The autobattler describes itself as an Interoperable Blockchain Game (IBG) with P2E properties that encourage open-world adventures. To play, you are required to collect Illuvials and train them for better chances at battles. You can use its token, ILV, for in-game purchases and staking.

Gods Unchained is a card game on the Ethereum blockchain, promising complete ownership of the cards you acquire in the game. The tactical game requires you to beat your opponents through extensive calculation, not luck. The game depends on the GODS token for its in-game economy and voting rights. You can play to stack your deck, collect cards, sell/ buy them to/from other players, or achieve a higher status by accumulating the perfect deck.

It’s still early days for GameFi, with a handful of promising games that could potentially help bring the play-to-earn model to the mainstream. However, the distrust towards anything that looks like in-game purchases in the online gaming community will be a big hurdle to overcome for the GameFI movement before it can take off.