The dynamic gaming landscape has recently witnessed a significant shift towards innovative concepts and technologies that aim to revolutionize how players interact with virtual worlds. One such groundbreaking development is the integration of Non-Fungible Tokens (NFTs) in Play-to-Earn (P2E) games. This article delves deep into the impact of NFT integration in these games and explores the transformative potential it holds for players and developers.
Why NFT Lending?
The Web3 gaming ecosystem is currently in its "toddler" phase. The surge of investments in the gaming industry during 2020–2021 has helped it grow beyond its infancy, but this short period hasn't allowed it to mature fully. The incomplete infrastructure of the Web3 gaming industry has contributed to the negative perception of blockchain-based games. Since developing high-quality games takes time, we will likely start seeing enjoyable blockchain-based games within the next 12 months.
Given that the primary incentive for gamers is fun, gaming studios should focus on developing PaE (play-and-earn) tournaments rather than overhyping the P2E (play-to-earn) ecosystem. The key difference between "PaE" and "P2E" lies in the incentive provided for gamers to transition to new infrastructure. This infrastructure must first reach high fidelity levels for the organic growth of blockchain-based games that enable asset ownership. Only then can additional incentives (like earning) be introduced to revolutionize the gaming industry as we know it today.
Therefore, let's now address a critical issue in today's infrastructure that requires resolution.
Most games feature a limited supply of unique playing characters (non-fungibles), creating a specific market demand for these tokens. Due to the ERC721 standard's inability to facilitate partial ownership of an NFT, the cost of acquiring an NFT can sometimes skyrocket. This presents a significant barrier for new users entering the ecosystem. Offering new users the option to purchase $2000 sneakers just to access a game on their smartphones doesn't contribute much to growth. However, this barrier is not easily overcome since game developers cannot manipulate market supply and demand on the blockchain. This is where NFT lending and leasing come into play.
While playing a few good blockchain games, you might have wondered: How can I borrow an NFT? Or how can I profit from my NFTs by lending them to others? By locking your NFTs in smart contracts designed for NFT lending, you can secure a loan against your NFT and earn interest on the borrowed capital. Upon repayment of the loan, you regain ownership of the NFT. Below, we'll discuss some projects exploring these concepts.
However, it's important to note that currently, no projects allow you to earn interest solely based on your NFT holdings, nor are there any that enable you to take loans against your NFTs without adequate collateral. Finally, we'll explore a newly proposed approach in NFT lending that has the potential to revolutionize the blockchain gaming ecosystem as we currently understand it.
Current Implementations
Let's explore the existing solutions to address this problem, but to cut a long story short, we didn't find a complete solution. Nonetheless, here are some projects making strides in implementing NFT lending effectively:
NFTfi
NFTfi is a platform where NFT owners can lock their assets in a smart contract to secure a loan against them. It's currently a leader in the collateralized NFT lending market. Conversely, the platform allows individuals holding idle WETH (Wrapped Ethereum) to earn a yield by lending it out. Depositors send their WETH to the smart contract, which then forwards it to the NFT owner. If the borrower fails to repay the loan within the agreed timeframe, the WETH lender can reclaim the locked NFT and sell it on the market to recover their losses.
Therefore, upon closer examination, NFTfi provides two main services for its users:
1. Enables users to obtain a loan using their NFT as collateral, allowing them to utilize the loaned funds to generate yield.
2. Allows users to earn a secure yield on their WETH (or other ERC20 tokens) by lending it to others, with their NFT as collateral. The NFT can be sold to recover the capital if there's a default.
NFTfi effectively addresses its specific problem statement. However, gamers involved in blockchain-based games face limitations with the platform. The NFT used as collateral cannot be actively utilized by the borrower (in this case, the user providing WETH in exchange for collateral) for gameplay, proving ownership rights, or other interactive uses.
Fractionalized NFTs
Another approach that might come to mind for addressing the problem is fractionalized NFTs. This concept allows an NFT owner (Alice) to lock her NFT into a smart contract in exchange for a certain number of ERC20 tokens (X tokens). The smart contract then holds ownership of the NFT, while Alice can sell the ERC20 tokens on an Automated Market Maker (AMM) to access more liquidity. When another user (let's call him Bob) accumulates the same X tokens, he can exchange them for the underlying NFT and become the new owner.
On the surface, this system appears beneficial. However, a significant drawback is that the NFT received by Bob is not the exact one initially locked by Alice. This means that in scenarios like profile picture NFTs, users lose emotional attachment to their original NFT upon reclaiming, and the rarity of the NFT is not preserved. In the context of gaming NFTs, this becomes particularly problematic. For instance, Alice may have a rare gold skin for a sniper rifle in an RPG blockchain game, but Bob might receive a less valuable silver skin in exchange for the same amount of tokens that Alice initially received for her gold skin.
Despite efforts from various projects focusing on fractionalized NFTs (such as Fractional and Liquid Marketplace), these solutions do not effectively address the liquidity and NFT leasing challenges for Web3 games for the reasons outlined above.
Potential Future Implementation
As discussed earlier, the key challenge is establishing a standardized interface for NFT leasing contracts that enables games to recognize leased NFTs and adjust gameplay accordingly. Additionally, the NFT lender should be able to reclaim their NFT after the leasing period ends, ensuring it remains the same NFT originally lent. Secure transfer of ERC20 tokens between users must also be facilitated to cover lending fees for borrowing ERC721 tokens. Achieving such a solution would be remarkably beneficial, though it may seem too good. Let's explore some additional features this solution could incorporate. With the intelligent contract managing NFT transfers, renters may not need to transfer large sums as collateral to rent and use NFTs. It is truly remarkable!
The infrastructure described above is what we propose with EIP-1972. Developers can participate in ongoing discussions on the Ethereum Magicians forum; click here for more details. Check it out if you're interested in this development.
Many popular Web3 games today reward players with a utility token (an ERC20) based on their performance. Examples include SLP in Axie Infinity, THG in Thetan Arena, and native utility tokens in Zed Run. Games incorporating NFT lending from inception face the challenge of distributing utility token rewards between the NFT owner and the renter based on a peer-to-peer agreed ratio. A comprehensive gaming NFT lending marketplace should effectively manage this distribution and facilitate the native transfer of reward tokens to both lender and renter. The lending oracle will inform games when an NFT is rented, ensuring rewards earned by the renter are appropriately shared between the owner and the lessee.
A team capable of effectively solving these challenges may fundamentally enhance Web3 infrastructure. While implementing such a comprehensive logic presents significant challenges, the satisfaction of building it would undoubtedly be immense.
NFTs have taken the digital world by storm, offering a unique way to represent ownership and authenticity of in-game assets. In P2E games, NFTs have opened up a new realm of possibilities, allowing players to own their in-game items and characters truly. This shift from mere virtual possessions to valuable, tradable assets has created a buzz within the gaming community, attracting both seasoned gamers and crypto enthusiasts alike.
One of the key implications of NFT integration in P2E games is the empowerment of players through true ownership. Unlike traditional games, where items are merely rented or restricted within the game environment, NFT-enabled assets can be bought, sold, and traded outside the game ecosystem. This gives players a sense of autonomy and provides an avenue for real-world value creation through the gaming experience.
While integrating NFTs in P2E games brings many benefits, it also poses certain challenges and considerations. Issues related to scalability, market volatility, and security concerns must be carefully addressed to ensure a seamless gaming experience for all stakeholders. Moreover, the environmental impact of NFTs and blockchain technology warrants a thoughtful approach toward sustainability and eco-friendly practices.
Bottom Line
Integrating NFTs in P2E games marks a groundbreaking shift towards player empowerment, economic incentives, and innovative gameplay experiences. By embracing this technological evolution, players and developers alike are poised to unlock new realms of creativity and engagement in gaming.
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