In 2018, the two main ways gamers could make a living were eSports and live streaming, or maybe a successful YouTube channel. But, thanks to the rise of Blockchain technology, the financial aspect has never been so intertwined with the industry. Although most users are aware of one or two facets of the financialization of games, such as earning and collecting rewards for completing missions, as in the case of Axie Infinity, there are other methods that have not yet been explored by most. of users in the burgeoning cryptocurrency market called: GameFi.
CryptoKitties in 2017 is the first known game to use blockchain technology, introduce non-fungible tokens (NFTs) and allow players to have a verifiable claim on their virtual assets. Then, in 2019, the introduction of an in-game currency called Smooth Love Potion (SLP) boosted the popularity of Axie Infinity and paved the way for other decentralized finance (DeFi) components to penetrate blockchain gaming. These parallels that GameFi has with DeFi include NFT staking, liquidity mining, trading, and fractionation.
Last year, the video game subsector of the crypto market exploded, which came hand in hand with the rise of the NFT market. It even outperformed Bitcoin (BTC) and the DeFi sector in December. Although the uptrend has subsided in recent months, popular games like Axie Infinity, DeFi Kingdoms, Pegaxy, MOBOX, and Bomb Crypto are still racking up millions a day in trading volume.
Much of the hype around these video games in 2021 is also due to a surge in venture capital interest. For example, Solana Ventures and Lightspeed Venture Partners launched a $100 million fund for the GameFi ecosystem in November 2021. A month later, BNB Chain, formerly known as Binance Smart Chain (BSC), and Animoca Brands also created a $200 million fund dedicated to BSC-based GameFi projects.
There are elements of DeFi in gaming that have attracted investors and players alike and are discussed below.
The component of NFTs
As mentioned above, NFTs were pioneered by CryptoKitties, which has provided a way for players to attribute value and ownership to certain assets in a game. For example, Axie Infinity. The NFTs in this Ethereum-based video game serve as the entry cost to the game. To start playing, users must have three “Axies”, which are the in-game characters acquired from other players through the Axie Infinity market.
Axies are NFTs and their prices vary based on their rarity and utility. Players can earn from Axies by finding buyers to sell them to at a profit. In other games, such as Splinterlands, NFTs take the form of trading cards whose market value is also determined by their rarity.
Division
The concept of NFTs and fracturing are intertwined, but fractional NFTs make gaming more accessible to everyone. Fractionalization is essentially an entire NFT divided into smaller fractions, thus providing property rights to multiple people, as in the case of the box “The kissby Gustav Klimt, the digital version of which was sold as 10,000 fractional NFTs. Owners of fractional NFTs can then trade their assets on secondary markets and earn money.
It is similar to real estate crowdfunding which, by the way, is another growing use case for NFTs. On the other hand, in the case of games, rare and expensive game assets might be better sold under a fractionalized NFT as it democratizes the ownership process.
For example, Waves Ducks, another play-to-earn game, has integrated fractionation through its “collective farms,” which aim to lower entry costs. Hatching a “duck” would cost 3.3 Waves Duck (EGG), and at the EGG price at press time, it would be nearly $700. However, by joining a farm, a player can play with as little as 0.01 EGG and receive tokens that represent their holdings in the farms.
staking
Staking is a common theme in DeFi and has also entered the realm of blockchain games. Staking support for Axie went live in September 2021, where users can lock their AXS tokens to secure the network and earn rewards. Mobox also offers users the ability to earn MBox tokens through staking.
Aside from this, staking rewards can also be used to purchase in-game items or upgrades or even generate keys to unlock new NFTs. Staking with Mobox requires users to join a liquidity pool and earn tokens based on the pool’s APY. Several smaller GameFi projects have also introduced staking to their games.
Ostensibly, staking benefits users by earning more tokens, but some tokens earned through staking are also used for governance, allowing holders to vote on specific addresses for the game and the community. But most importantly, it incentivizes users to hold on to their tokens, which in turn promotes a real, active economy.
Liquidity mining
The liquidity mining component can also play an important role in GameFi, as is the example of the game DeFi Kingdom. Built on the Harmony blockchain, DeFi Kingdom has offered a set of DeFi aspects in its game since its inception, attracting DeFi fans and putting the game aspect as a secondary feature.
Liquidity mining pools in DeFi Kingdom come in the form of “gardens” within the game. Liquidity provider shares are represented as a plot full of sprouting plants, which grow based on their performance. Users earn JEWEL tokens, the main in-game token used to purchase in-game NFTs or for out-of-game liquidity mining.
These are just some of the inclusions of DeFi technology in video games, but the innovations in this sector do not stop. Some even believe that GameFi is also driving the materialization of Web3, as it is migrating a once centralized form of entertainment to a more decentralized realm, with communities more connected or controlling the gaming ecosystem. Actually, this is already happening, as the DeFi features of games are already a prelude to what Web3 is.
The next Cointelegraph Research report is about GameFi. Stay tuned.
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