Blockchain games are experiencing exciting growth and development despite the bear market that has dampened the spirits of crypto enthusiasts. Investors continue to see potential in play-to-earn games. According to DappRadar, investment in GameFi in the first half of 2023 broke another record, reaching $4.5 billion and surpassing the total annual volume of the previous year.
Investor enthusiasm is understandable, as more players are joining these games. Even during a challenging May for the crypto sphere, 1.23 million active user wallets were registered, representing a 4,123% increase from the previous year. This growth is due to the release of new projects with engaging gameplay, the rising popularity of SocialFi concepts, and the expansion of earning tools.
This article will explore the DeFi services developers use to create profitable games with sustainable economies for users.
Essential DeFi Tools for Blockchain Games
GameFi has revolutionized the gaming economy by shifting from a pay-and-play model to a play-to-earn model, a significant achievement for the industry. The ability to play and buy in-game assets, own them, and earn money has been groundbreaking, especially during the pandemic. This shift was particularly evident in Asian countries, where players of the immensely popular Axie Infinity could earn their usual monthly salary just by playing the game.
However, this new model has also exposed some challenges that hinder the long-term development of certain projects. Besides gameplay issues, one major economic problem is the high cost of entry and the projects' reliance on new players.
Deeper integration of DeFi services into the blockchain gaming economy can address these issues. According to a recent Cointelegraph report on the gaming sector, the following elements should be present in games: NFTs, fractionalization, staking, and liquidity mining. Let's explore these in more detail.
Deeper Utilization of NFTs
The role of non-fungible tokens (NFTs) in blockchain games is well-documented and widely understood. NFTs are the cornerstone of blockchain games, transforming game attributes into valuable assets. These assets can be sold, rented, multiplied, or held for future gains.
Each game has its own mechanics, and it’s impossible to cover all earning opportunities with NFTs in a single article. Players can enjoy the game while strategizing to earn additional income from their NFTs. They can sell tokens as their value increases, stake them for rewards, mint new NFTs for sale in the game’s marketplace, and more. These possibilities are made feasible through the integration of games with DeFi.
In metaverses like Decentraland or The Sandbox, land ownership is a popular strategy for profitability. Players can become landlords, earning money through rent, visitors, or brand advertising. Some DeFi protocols, such as MetaLend, allow users to obtain loans secured by land and other NFT assets.
Staking of In-Game Tokens and NFTs
In the crypto world, staking involves holding coins to receive rewards, akin to mining but without expensive equipment and in a more eco-friendly manner. In GameFi, staking has become a crucial element in supporting the game's economy and fostering player retention and loyalty. Despite the popularity of play-to-earn(P2E) projects, they face challenges, with user retention being a primary issue.
Many players approach blockchain games primarily for financial gain rather than gameplay enjoyment. As a result, some games and applications have short life cycles: the influx of players boosts the in-game token value, but as the influx slows, the token value drops, leading most players to cash out and leave.
This issue affects even the most promising projects. For instance, Axie Infinity experienced challenges after its initial success. The game initially provided significant profits, attracting new players. However, the token value decreased as more players joined and exchanged in-game currency for other crypto-assets. This decline in profits reduced player activity and new player influx, negatively impacting the game's economy.
Staking in-game tokens offers a solution to this problem. It ensures that in-game assets circulate and maintain liquidity, providing additional benefits to loyal players and remaining valuable for newcomers. While staking alone cannot solve all user retention issues, it significantly supports the game's economy. Examples of projects where staking in-game tokens can yield profitability or rewards include Aavegotchi, The Sandbox, and Alien Worlds.
Fractionalization of Tokens Will Make Games More Accessible for Players
Sharing ownership of game assets is common with other NFTs, such as digital art objects like CryptoPunks or BAYC. Some collections have become so expensive that few investors can afford to buy a million-dollar token. As a result, services that share ownership of tokens among multiple users have become popular.
With the growing popularity of blockchain games, there is a similar need for such services in the GameFi segment. Not all games are free to play, and some require the purchase of an NFT to start playing. Sometimes, the entry price is prohibitively high for most users, leading to the emergence of applications that share the cost of NFTs, making games more accessible.
One of the popular NFT fractionalization services in play-to-earn projects is the Yield Guild service. Yield Guild is a decentralized organization (DAO) that funds the purchase of gaming assets and allows its users to join established games, metaverses, and other Web 3.0 applications. Players can rent NFTs and access all the game's functionalities to earn money.
Fractionalization is a valuable opportunity for the GameFi industry to attract a new audience with lower income levels. Some game developers are beginning to include fractionalization tools in their projects in various ways. For example, the move-to-earn project Stepn, popular in Asia and Australia, will soon allow users to rent NFT sneakers, enabling everyone to join the game for free.
Mining Liquidity in Trading Pools on the DEX
Liquidity mining is similar to staking for users: they lock up a certain amount of coins and receive rewards. In liquidity mining, users lock their assets in a liquidity pool on a decentralized exchange (DEX), including both the in-game token and another crypto asset. This process helps the game team provide liquidity on the exchange, enabling other players to trade their tokens. In return, users receive rewards in the form of additional coins or NFTs.
This strategy carries risks. If many players start selling their game tokens, liquidity providers may suffer as the value of their assets could decrease. To mitigate these risks, game founders offer high profitability percentages or rare and expensive NFTs as incentives. For instance, in The Sandbox, users could receive special characters or limited-edition cars to supply liquidity in the SAND-ETH pool on Uniswap.
In Perspective: Blockchain Games Will Attract New Users to DeFi
Integrating DeFi with GameFi holds great promise and mutually benefits both areas. Games gain access to ready-made tools for developing their economy and engaging with users. At the same time, play-to-earn projects act as advertising platforms for DeFi services, teaching newcomers how to use them through gaming examples.
A prime example of this is Stepn, which attracted a record number of users unfamiliar with DeFi and cryptocurrencies. The move-to-earn project naturally introduced players to crypto wallets, DEX, and Web 3.0.
Final Thoughts
GameFi also teaches users to be cautious. It's important to remember that play-to-earn doesn't guarantee earnings and can sometimes lead to losses. Some projects launch unfinished and fade quickly, so users shouldn't invest their last money. Games are meant to be enjoyed, with the opportunity to earn as a bonus. When most users understand this, it will mark a true dawn for the entire industry.
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