The concept of GameFi and how it works

What is GameFi?

GameFi is a combination of the words Game (game) and Finance (finance), which means blockchain games that provide players with economic incentives and can earn while playing. The GameFi ecosystem uses cryptocurrencies, non-fungible tokens (NFTs) and blockchain technology to create virtual gaming environments.

Players can usually earn in-game rewards by completing missions, playing against other players, and leveling up through levels, as well as transferring game assets out to trade on cryptocurrency exchanges and NFT marketplaces.

How does GameFi work?

Rewards in GameFi are diverse, including cryptocurrencies and in-game assets such as virtual lands, avatars, weapons, and costume items. Each GameFi project has a different model and game economy. Most in-game assets are NFTs on the blockchain and can be traded directly on the NFT marketplace. In some other projects, in-game assets need to be converted into NFTs before they can be sold or traded.

In-game assets often create perks for players, allowing them to earn more rewards. However, avatars and skins in some games are only visual and have no effect on gameplay or rewards.

Different games are played differently. Players can often earn rewards by completing quests, playing against other players, or building monetized structures on owned plots. In some games, players can stake or loan game assets to other players to earn passive income without playing the game. Let's take a look at the commonalities of GameFi.

Earn while playing (P2E)

Play and Earn (P2E), an innovative game model, is at the heart of the GameFi project. This model is very different from the pay-to-play model of traditional video games. In pay-to-play games, players need to invest money before they can start playing. For example, video games like Call of Duty require players to purchase licenses or recurring subscriptions.

Traditional video games generally don't bring any financial rewards to players, and game companies control all in-game assets. In contrast, players can fully control their in-game assets in P2E games and have a better chance of earning money.

It must be noted that the ability to control assets is entirely dependent on the GameFi project's model and game design. Blockchain technology can (and should) give players full control over in-game assets, but it doesn’t. Before participating in a P2E game, players must understand the operation mechanism of the game and the team behind the project.

It’s also important to note that some P2E games are free to play while generating financial rewards, while others require the purchase of NFTs or crypto assets to start playing. Therefore, be sure to do your own research (DYOR) and conduct a risk assessment. If a P2E game requires a large capital injection to participate, and the rewards are very small, your initial investment is likely to be lost.

Axie Infinity is one of the most popular earn while playing games. Since 2018, the popularity of this Ethereum-based NFT game has continued to rise. Players can use NFT pets (Axies) to complete daily tasks and compete with other players to earn SLP tokens.

Earn AXS rewards for winning certain player-versus-player (PvP) rankings. Additionally, AXS and SLP can be used to breed new Axies, and new pets can be traded as in-game assets or on the official NFT marketplace.

In addition to buying and selling transactions, players with pets can also lend Axies to others and earn rewards even when they don't play the game themselves. This lending model is called a "sponsored program." Earned sponsors can use borrowed Axies to play and earn rewards.

In other words, owners of Axie can earn passive income, and sponsors can participate in the game without investing. The rewards earned are divided between the two parties.

Digital asset ownership

As mentioned earlier, blockchain technology allows players to take ownership of digital assets, monetizing in-game assets in various ways.

As in video games, players have assets such as avatars, pets, houses, weapons, tools, etc. in the game. The difference is that assets in GameFi can be issued or created as NFTs on the blockchain (a process also known as "NFT minting"), giving players full control over their assets. These assets are genuine and verifiable ownership.

Some popular metaverse games, such as Decentraland and The Sandbox, feature the concept of land ownership, in which players can monetize virtual land. In "The Sandbox", players can buy virtual real estate and generate income by developing the real estate. For example, they can charge visitors to the land, earn token rewards for posting content themes and hosting events, or lease the revamped land to other players.

DeFi applications

Some GameFi projects also have decentralized finance (DeFi) products and functions, such as staking and liquidity mining and liquidity mining. Players can often stake in-game tokens to earn rewards, unlock exclusive items, or participate in new game levels.

Introducing DeFi elements can also deepen the decentralization of the cryptocurrency game. Traditional game studios centrally control game updates, while in some GameFi projects, players in the game community can participate in update decisions. Players can submit proposals and vote on future updates to the game through the Decentralized Autonomous Organization (DAO).

For example, Decentraland players can lock up governance tokens (MANA) in the DAO to vote on in-game and organizational policies. The more tokens locked, the greater the voting power. Players can use this mechanism to communicate directly with game developers and provide suggestions for game development.

Do video games belong to GameFi?

In traditional video games, players can also upgrade their characters by earning in-game currency and collecting digital assets. However, these tokens and items cannot (or cannot) be traded outside of the game. In most cases, they are worthless outside the game. Even if they have value, players often cannot buy, sell, or monetize these assets in the real world.

In blockchain games, in-game tokens and assets are often cryptocurrencies and NFTs. Some blockchain games use virtual tokens instead of cryptocurrencies or NFTs, but players can still convert in-game assets into NFTs. That is to say, players can transfer earnings into cryptocurrency wallets and trade assets on cryptocurrency exchange platforms or NFT markets, or convert cryptocurrency earnings into fiat currency.

GameFi Game Beginner's Guide

There are thousands of blockchain games in the market today, and the mechanics of these games are also different. Players must be carefully screened to avoid falling into the trap of scam projects and fake websites. Freely downloading games from websites or linking wallets is a security risk. The ideal operation is to create a dedicated cryptocurrency wallet and invest within the personal affordability. If you are sure that the game is safe and secure, you can join the game in the following ways.

1.Create a cryptocurrency wallet

To participate in GameFi games, you need a compatible cryptocurrency wallet (such as Trust Wallet or Metamask). In different games, you may need to use different wallets or connect to different blockchain networks.

For example, MetaMask needs to be connected to the Binance Smart Chain network first to participate in blockchain games on the chain. You can also use Trust Wallet or any other supported cryptocurrency wallet. You can check the official game website for supported wallets.

It is also possible to link cryptocurrency wallets to the Ethereum blockchain to participate in most games running on the Ethereum network. However, the developers of games like Axie Infinity and Gods Unchained create their own wallets for their games to cut costs and improve performance.

Although Axie Infinity is built on Ethereum, its team developed a sidechain, the Ronin Network. Therefore, you need to use the official Ronin wallet in order to interact with the Axie Infinity ecosystem. The Ronin Network sidechain significantly reduces the cost of trading and breeding Axie and the cost of gaming for Axie Infinity players.

2.Associate the wallet with the game

Before participating in blockchain games, you need to associate your wallet with the game. When linking, it is necessary to carefully identify the official game website and fake and counterfeit websites. Visit the game's website and find the option to link a cryptocurrency wallet.

Traditional online games require setting up a username and password, but most blockchain games use cryptocurrency wallets as game accounts, so players need to sign a message in the wallet to associate it with the game.

3.Check the game requirements

Most GameFi projects require the purchase of crypto tokens or in-game NFTs to participate. Each game has different requirements, but it's important to understand the revenue potential and overall risk before joining, and estimate how long it will take to earn back your initial investment and start making money.

To join Axie Infinity, you need to pre-deposit 3 Axies in your game wallet. Visit the Axie Marketplace to purchase Axie with wrapped Ether (WETH) in your Ronin wallet. You can first buy ether from a cryptocurrency exchange such as Binance and then transfer it to your Ronin wallet using the Ronin bridge. For more details, please read How to Use Ronin Wallet? 》 If you don’t have enough funds or are unwilling to take risks, you can consider looking for a sponsorship program to participate in the game by borrowing NFTs, but the earnings earned must be shared with the NFT owners.

The future of GameFi

In 2021, the number of GameFi projects has skyrocketed, and it will likely continue to increase in the future. As of March 2022, DappRadar has gathered more than 1400 blockchain games. Popular games are spread across multiple blockchains, including Ethereum, Binance Smart Chain (BCS), Polygon, Harmony, Solana, and more.

With the continuous upgrading of blockchain technology, GameFi is expected to continue the momentum of rapid development. Owning in-game assets and earning while playing makes GameFi attractive to many players, especially in developing countries.

Summarize

In the early days of Bitcoin, people began to try simple browser games, hoping to earn Bitcoin. While Bitcoin games have not disappeared, the rise of Ethereum and smart contracts has clearly refreshed blockchain games, bringing players a more refined and fun gaming experience. It is obvious that GameFi is the perfect fusion of entertainment and economic incentives, and continues to attract players. As blockchain gaming heats up, it will become common for big companies to build their own metaverses.