EA’s FIFA football video game series always hurt me when I was younger. I would love to play the game, gather players and build a great team. However, every year Electronic Arts (EA) released a new edition and all my progress became almost worthless. All other players would migrate to the newer version, and the market and match rosters from older versions would be released, rendering the game unplayable. EA, the company behind the game, had full control over the game’s assets and could prioritize selling new titles over allowing users to continue progressing. This problem is one addressed by a new movement called GameFi.
The GameFi movement
GameFi, or financialized gaming, integrates blockchain-based assets, like NFTs and cryptocurrencies, into video games. At the heart of GameFi is complete ownership of the assets you earn in-game, whether it’s virtual real estate, skins, weapons, or in-game currency, all powered by the blockchain, which is what the game company can’t dictate.
Ownership of an external database such as blockchain also means transferability: users can earn in-game assets and sell or trade them off-platform. This means that GameFi games do not maintain a closed-loop economy and players can earn real money based on their activities. This is the play-to-earn, or P2E, model that is common in many GameFi apps.
The development of GameFi applications
Axie Infinity is GameFi’s first notable example. Created in 2018, the game is based on the Ethereum network where the game’s pets, called Axies, were represented by NFTs. Players can complete daily quests and battle Axies to earn a crypto token called AXS, which can be exchanged for real money on external platforms, like Coinbase. Users can also trade Axies or even loan them out to earn passive income.
Since the release of Axie Infinity, many other GameFi applications have emerged, most of which are based on Binance or Solana blockchains, which have cheaper gas prices and higher transactions per second (TPS) than Ethereum. According to Binance, as of March 2022 there were over 1,400 blockchain games listed in DappRadar across a variety of channels.
Problems with GameFi
However, GameFi also faced major setbacks. Axie Infinity has seen its user base shrink to just 750,000 active players, a steep drop from a peak of 2.7 million in 2021 after facing a massive $600 million hack. Many users have also questioned the power dynamics and economy of the game that Sky Mavis, the studio behind Axie, has implemented. This highlights some issues with GameFi.
First, there is the need to balance players and profiteers, buyers and sellers, in an economic design process far removed from traditional game creation. A report by ChainPlay mentioned that “58% of investors globally said ‘poor design of the game economy’ is the main reason for GameFi’s declining earnings over the past six months.”
Second, many users have complained about the studio’s prioritization of profit over fun, which is the outcome the games are meant to have.
Finally, in-game assets can only be turned into real money if they have value elsewhere. It’s a reminder that inclusion on external markets and channels equals volatility. Even if the game is well designed, other externalities could extinguish your returns, making GameFi a poor candidate for generating a stable income to earn a living from.
One solution to these issues is to consider alternative models, such as play-to-own or P2O. Instead of directly profiting from the game, users can prove sovereign ownership of assets via the blockchain, trade with others, and be confident that their progress is transferable to other ecosystems. This model includes many of the benefits of P2E but without the hyper-financialization that ruins many GameFi projects today.
Balancing pleasure and finances
As NFTs and crypto continue to proliferate, more game companies with better reputations and more funding will consider adding an element of GameFi to their offerings. In general, this is a good thing – users would benefit from a more open digital economy with more permeable borders. However, studios need to maintain the right balance between fun and finances, carefully designing their in-game economy.
Some studios have taken sides in the debate between fun and finance, fearing to taint their games with the negative connotations of these new technologies. For example, Mojang banned NFTs from Minecraft after P2E servers like Critterz gained popularity. After the ban, many users, including young people and those in developing countries with fewer job opportunities, lost thousands of dollars in assets and saw their only source of income disappear.
It’s a painful reminder that applications surrounding digital assets, no matter how decentralized, are still controlled by corporations. Without the proper legal framework, NFTs and cryptocurrencies are just fancy versions of tightly controlled gambling assets.
There will always be games without financial aspects. The principles of what makes a good game don’t change. But GameFi isn’t going away either. Axie Infinity, Critterz, Decentraland and others are extremely early examples. Over time, studios will produce better experiences that manage to balance pleasure and profit more effectively.
As consumer adoption of augmented reality and virtual reality grows, we’re likely to see GameFi-esque apps popping up in the metaverse. Digital assets will become the new foundation of a virtual world and new sources of income will emerge from unexpected places. What may seem like a game today may become a job tomorrow!
Want to compete in the Metaverse? Subscribe to the My Metaverse Minute channel: