Play-to-earn games based on blockchain technology have grown exponentially in recent years.
Gamers have embraced the opportunity to earn cryptocurrency or non-fungible tokens (NFTs) that have been produced in blockchain-based games.
With the advent of this new technology, players have been able to generate income by selling NFTs in-game or earning cryptocurrency rewards, both of which are redeemable for current money.
Therefore, according to data from Absolute Reports, the estimated value of the GameFi sector will grow to USD 2.8 billion in 2028, with a compound annual growth rate of 20.4% during the same period. But these predictions may turn out to be unfounded.
Given the exponential growth rate of recent years, one might think that there is absolutely no reason to believe that the trend will not continue well into 2023 and beyond. TRUE? Well no.
As we have seen with the ignominious case of former cryptocurrency king Sam Bankman-Fried and the FTX implosion, a castle built on a flimsy foundation of sand can easily be washed away when the tide rises and falls again.
Or, as legendary investor Warren Buffett liked to say, “It’s only when the tide goes out that you find out who’s been swimming naked.”
We may be about to find out who these people are. The fact is that the play-to-earn gaming industry is not built on a firm foundation. The foundations are fragile and flimsy, and this could cause problems in 2023. The whole building seems about to collapse.
GameFi’s current market structure is centered around tokens, which can create a number of problems. Project owners issue their tokens, which arrive on exchanges, before announcing that they are going to create games. Games are a utility of the tokens they issue. So the tokens come first, and the content comes second. This is why the quality and design of games in the blockchain space are so underrated.
An environment has been created where players are not as interested in the games themselves, which is strange for a gaming industry. More and more players are actually investors who want to make their investment profitable.
The current structure creates the wrong kind of incentives and this is one of the reasons why the system is not working as it should. I would venture to say that DeFi Kingdoms, one of the most well-known blockchain games, has relentlessly played with its tokenomics by creating perverse incentives.
By now, generally speaking, the token market is in a downtrend and the speculative trading market is dead. An industry can survive for a while on promises, expectations, and unwarranted hype. But you can only do it for so long. Over time, people begin to realize that they have not received what was promised. Patience begins to wear thin. They get angry, frustrated and start dating. This starts out as a dribble from the older players, but can soon turn into an avalanche.
Those who have planned to raise funds by listing their tokens will have to rethink. Many will be forced to close their projects due to lack of funds. The situation is worsening to the point that even hitherto optimistic cryptocurrency VCs are putting new investments on hold.
Who will survive this investment drought? It seems unlikely that GameFi will. However, other blockchain games could.
One example is Ethereum-native, NFT-based fantasy football league operator Sorare, which has become a Web 3.0 unicorn. While many of its competitors are struggling, Sorare continues to grow its users and revenue in the darkest of times. Its daily auction volume is impressive at around 300-400 Ether (ETH), and the number of users continues to increase.
Although its back-end is based on the blockchain, users do not perceive it as a GameFi project. They don’t provide their native tokens, but they do provide their content first on Ethereum, which seems to be the way to go for the industry as a whole.
GameFi may die in 2023, but that doesn’t mean all is lost. Death is a necessary part of evolution. A new life may already be beginning to emerge from it.
Shinnosuke “Shin” Murata is the founder of blockchain game developer Murasaki. He joined the Japanese conglomerate Mitsui & Co. in 2014, focusing on auto financing and trading in Malaysia, Venezuela and Bolivia. He left Mitsui to join a 2-year-old startup called Jiraffe as the company’s first sales representative and later joined STVV, a Belgian soccer club, as its director of operations and helped the club create a community token. He founded Murasaki in the Netherlands in 2019.
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