Is There a Future for GameFi?

In December 2022, industry research firm Business Research Insights (BRI) published its analysis of the GameFi market with a five-year forecast. Enthusiasm for GameFi rose during the bull run of 2021, but by 2022 GameFi had died – some would argue it never really started – as gamers rejected blockchain. So, given its monumental collapse, is there a future for GameFi?

GameFi market factors

1. COVID-19

   The COVID-19 pandemic and its economic fallout in 2020 drove much of the 2021 bull run as people were locked indoors, many of them playing video games. Incorporating cryptocurrencies and NFTs into video games was a natural progression as digital assets were slowly adapted by parts of the market. 

   According to BRI’s report, GameFi’s market share reached $9 billion in 2021 and despite the challenges of 2022, is expected to reach $38 billion by 2028 – a 633% increase. GameFi’s  CAGR (compound annual growth rate) is expected to gain 27.13% during the same time.
   The growth is attributed to the rising popularity of the PC/Mac game streaming services Steam, Origin, and Battle.net. As people lost their jobs and were stuck indoors, earning money playing video games was a logical use of time for many, stimulating traditional gaming companies like Nintendo and Electronic Arts to develop GameFi products.

2. Market segmentation

   The GameFi market can be broken up into three segments:

   1. Gamers: those who drive the tokenomic activity of a game through gameplay, generating a virtual economy within the game.

   2. Investors: those who are seeking alternative investment opportunities see GameFi as a market that can boost NFT and crypto prices through scarcity and game utility.

   3. Blockchain enthusiasts: a broader segment of people who are interested in the real-world application of blockchain technology. They are often involved in DeFi and passive income investments, which GameFi easily offers.

   Though GameFi has a lot to overcome, there is no doubt that these market segments desire GameFi as an economic opportunity. If and when GameFi rebuilds its business model and brand the people in these market segments will be its first adopters.

   Increased security 

   Wherever money is found, security is not far away. The blockchain provides GameFi immutability as a huge advantage over traditional gaming because it greatly increases the difficulty of hacking and cheating. While the difficulty is increased, hacking incidents can still happen; Axie Infinity was hacked multiple times in 2022.

   The value of this increased security is amplified by the fact that money in the form of crypto is directly involved in gameplay. Knowing that it is nearly impossible to steal crypto from a blockchain can give gamers peace of mind. Transparency of digital asset ownership on the blockchain is something traditional gaming can never offer gamers; developers must act on this advantage to provide a future for GameFi.

   Mistakes made

   At the beginning of 2022, the outlook for GameFi was bright as many assumed that people could earn money by doing what they loved, but that assumption was not long-lasting, and continuing with this model was where mistakes were made. The mistake GameFi developers made was continuing this business model after lockdowns were lifted. 

   Putting financial incentives at the center of gameplay made sense during the COVID pandemic when people were out of a job and stuck at home playing video games. However, after the lockdowns ended, GameFi was rejected by the broader market mainly because its play-to-earn business model was not centered on entertainment.

   Future for GameFi

   So, is there a future for GameFi? In short, yes; the BRI report is clear that GameFi has great potential to grow, especially in Asia, where the metaverse is growing at a tremendous rate. But as for now, its gameplay and business models must be completely overhauled from the way they were in 2022. 

   Blockchain games need to start over – if they ever got started at all. They need to prove how decentralization enhances gameplay and builds community in ways traditional gaming can’t. Until then, GameFi is dead.