What does GameFi mean?
GameFi refers to taking the enjoyment associated with gaming and monetizing it with DeFi, NFTs, and blockchain. The ability to financialize in-game identities, achievements, and even use crypto components to increase competition amongst players all represent GameFi opportunities.
At Token Metrics Ventures, we believe GameFi is a paradigm shift. Through GameFi, players can monetize their time and maintain cryptographic ownership over digital assets. Before blockchain, this was not possible.
Earn. Earn. Earn.
Recently, we have seen a new type of gaming category emerge called ‘P2E’ gaming. Its main allure is the ability to earn money by playing a game to acquire digital assets. The most famous example of this category is Axie Infinity (AXS), which has a fully diluted valuation of $27 billion. In 2021, the popularity of this game exploded, especially in the Philippines and Vietnam, where low-income players could earn a living by playing these types of games. Even with poor gameplay mechanics, these games are very appealing to players who want to earn real-world money.
Investment thesis on P2E gaming
Crypto games focused on earning rather than superior gameplay are quick to market. With these games, developers don’t need to spend multiple years building or focus on maintaining AAA graphics. As long as the token economics of the game are strong, then these games can (maybe) be profitable.
Rapidly developed games often use an inflationary token emission to bootstrap gaming networks and capture player interest. For crypto-native users, these games can also be thrilling to invest in, regardless of whether they are fun or not. Users find in-game airdrops, staking, farming, NFTs, and the ownership of in-game assets (such as land, skins, and avatars) akin to DeFi yield farming. However, just as a poor DeFi protocol cannot solely rely on high yields forever, so too is the case with P2E games.
At Token Metrics, we think pure-play P2E games will dominate in the short to medium term. However, we do not see long-term sustainability unless the gameplay and graphics induce an element of fun. We believe that enjoying the game remains the most critical element for mass adoption.
In the short run, we do see P2E doing well for a few reasons. First, there has been an explosion of gaming guilds that focus on earn-first games. Gaming guilds are syndicate pools that finance gamer expenses and provide them resources (NFTS, training) and scholarships in exchange for a revenue-sharing agreement. The revenue-sharing deal, in this case, basically means splitting tokens earned and NFTs acquired (gaming achievements, items, avatars, lands, and so on).
Two guilds leading the market right now are Yield Guild Games (YGG) and Merit Circle. We think that with the help of scholarship and guilds, the network effect of P2E will initially remain strong, however, gradually, the earnings of these guilds will eventually decline as the positive feedback loop from inflationary token emission reduces token value.
An over-reliance on inflationary tokenomics creates too much capital and liquidity in the market. As an example of this, we can already see early signs of revenue decline in Axie Infinity AXS:
P2J (Play to Joy)
Crypto and P2E game mechanics will allow games to easily incorporate e-sports, and allow gamers to bet against each other with bets settled in crypto. Gamers can furthermore truly own in-game achievements and items and earn from their assets. In fact, gamers have recently started asking “why wasn’t it always this way?”.
For this reason, developers are increasingly incorporating crypto and blockchain technology in gaming. Currently, around 58% of the 197 video game developers surveyed in the US and the UK declared plans to use blockchain in future games, and 47% of the same group have already begun incorporating NFTs.
The irony of this situation is that crypto and P2E mechanics won’t become the game-changing feature — they will become the pre-requisite. The way we view the gaming sector is that “enjoyment” derived will remain the most crucial variable in the long run. This is the competitive advantage game developers should focus on, and any crypto investors looking to succeed in the long run should focus on this variable. At their current stage, P2E game mechanics are merely toolkits for developers to experiment with, while gaming enjoyment should remain their #1 priority.
P2E + P2J
Games that we currently like that capture both P2E & P2J mechanics include:
Big Time Online (85% Fundamental)
- A new MMORPG built by the founder of Decentraland, Big Time Online recently launched its initial token/land sale on December 6th, 2021. Team up with your friends and adventure across time and space as you battle your way through history. All items in Big Time are NFTs and collectible. Big Time had its initial NFT sale and soft IDO launch on 12/21 at 5 PM EST.
Embersword Online (84% Fundamental)
- Another F2P MMORPG, Embersword online is by a 40+ person team whose backgrounds come from strong traditional entertainment companies like Activision, Consensys, Epix, and Showtime. This new play-to-earn venture allows individuals to explore an immersive universe by exploring with their guild, accepting quests, and raiding dungeons. In addition, Embersword plans on adding mounts, personal homes, and land in this metaverse MMORPG.
Faraway GG ( 83% Fundamental)
- A first-person shooter that is similar to Fortnite and Apex Legends, Miniroyale.io is an immersive and challenging browser-based shooter. Instead of requiring a costly console to run your favorite game, Faraway is giving players the opportunity to earn while playing their favorite shooting game.
Decimated Online (80% Fundamental): P2J Shooter
- Decimated is a third-person survival role-playing game where players can choose to play a human citizen or a cyborg cop. Explore a new world where you can choose to play PvP or PvE, ambush other teams, collect bounties, and earn digital currency. Decimated is using Unreal Engine by Epic Games to create their hostile post-apocalyptic environment
Rise Online (78% Fundamental)
- An alpha-stage MMORPG, very successful thus far and far ahead of the game when it comes to their competition. Built by a Turkish gaming studio, Rise Online has already amassed quite an audience behind their play-to-earn MMORPG. Currently, Rise online is a unicorn when it comes to its current gameplay, leaving its competitors far behind.