Web3 has brought countless fundamental changes in economics, communication and so much more. Online gaming is right in the mix of it all and is so tied to blockchain technology now that it has become a cornerstone of the tower that is Web3. 

What Is GameFi?

GameFi refers to games played on the blockchain which offer financial incentives to players. Though online games, such as World of Warcraft, have had their own in-game economy for decades, Web3 has enlarged online gaming to include cryptocurrencies, NFTs that can be earned and taken out of the game to be traded or invested elsewhere.

The rise of GameFi has undoubtedly been led by Axie Infinity, a blockchain-based game where players purchase NFTs of cartoon monsters––called ‘axies’––and then battle against each other. Axie Infinity’s format has made the game a bellwether for the ‘Play-To-Earn’ (P2E) model of online gaming, where players buy-in to play and can earn assets in gameplay.

How Does GameFi Work?

The use of digital images and video in the form of NFTs (non-fungible tokens) being used in a game is not new, but they gained massive popularity starting in early 2021. Players can earn avatars, virtual land, weapons, costumes and more. 

Earned tokens and coins are stored in a player’s crypto wallet and can be transferred to other games, thanks to interoperability in the blockchain. Players can earn tokens and crypto coins for various accomplishments which can then be traded within the game itself or taken out of the game and traded on major exchanges. 

GameFi is built upon an infrastructure known as ‘tokenomics’––an economic system and valuation model within a game. There are three major tokenomic models:

• Single-token: a dollar-for-token model that uses a fixed entry price to acquire a token with particular value; during gameplay, the token’s price can fluctuate dramatically.

• Stable-token: using the economic model of the stablecoin, this model pegs the tokens’ value with the USD price (i.e. $1 = 100 tokens), thus reducing extreme price fluctuation.

• Stable-token-by-value: ties token value to the number of players in the game; players that join early get in at a low price whereas players who join later pay more to join.

What Is the Future of GameFi?

As of April 2022, the Web3 aggregator Dappradar lists over 1,500 blockchain games in existence. Several different blockchains such as Ethereum, BNB Smart Chain and Polygon host GameFi games and will better support interoperability so in-game digital assets can more easily transfer between games. By far the biggest GameFi provider is Ethereum, with its particular ability to host immersive games at scale. 

Companies such as Cudos list emerging trends in GameFi and the underlying technologies that those games will emanate from. Another trend appearing in GameFi is called Play-And-Earn, an enhanced version of Play-To-Earn. Stemming from what game developers see as the downsides to the aforementioned P2E tokenomics models, Play-And-Earn games put a premium on earning digital assets in gameplay, making GameFi almost like its own investment vehicle.

Web1 and Web2 saw the advent of internet-centric games with browser-based and massively-multiplayer online game models. As cryptocurrencies, NFTs and the Metaverse mature, video games will continue to innovate in tandem. As other parts of Web3, such as the Metaverse, continue to evolve, GameFi will only increase in value, immersion and innovation.