GameFi: Will it Be Bigger Than DeFi in 2022?

GameFi is probably the most trending topic right now in the world of crypto. The thrill of playing video games and Decentralized Finance (DeFi) is one of the industry’s leading innovations.

However, GameFi has a controversial reputation, in hopes of getting rich quickly, several blockchain game developers around the globe have released a series of low-quality GameFi titles that focus on monetization rather than gameplay.

As a result, the entire GameFi space has been met with backlash from both traditional and professional gamers. There are several other blockchain games that have proven that GameFi can be done well.

Let’s understand GameFi in detail.

What is GameFi?

Gamefi-Defi-P2E-Games
Play Games and Earn Rewards: GameFi

GameFi or P2E gaming is a combination of decentralized finance and gaming that allows players to earn money by simply playing video games. Supported by the Web3 industry, GameFi comes without any restrictions on single or multiplayer modes.

GameFi allows players to win, trade, lend or even rent out their winnings while playing the games. Players are also allowed to borrow against their winnings. That’s a whole new concept and far away from what traditional gaming has offered players over the decades.

First mentioned in a tweet in September 2020, GameFi has been part of crypto ever since. They are P2E (play-to-earn) elements powered by the blockchain. Non-Fungible Tokens i.e. NFTs power these blockchain games and provide a robust use case for what was once just a normal graphic or JPEG.

The way P2E games work completely depends on in-game economy, games may include some or all of the following factors:

  • Fractionalization
  • In-game currency rewards
  • NFT-based asset ownership of characters, in-game items, buildings, and land
  • On-chain leasing solutions
  • Staking
  • Yield farming

Today, most GameFi projects follow a pattern that is similar to that of the popular blockchain game Axie Infinity. The game’s economy revolves around two NFT tokens, AXS and Smooth Love Potion i.e. SLP. To play, gamers must first cash in with $700 to purchase blob-like monsters or characters called Axie. So, whenever these blobs win battles or complete quests, players get paid in SLP tokens.

Axies can also breed, players can sell, and gain profit from offspring. The AXS governance token deliberates a right to participate in discussions on how the project evolves in future. One can also stake AXS tokens to earn interest.

Although the upfront costs are high, it’s not discouraging for players, because the rewards are hard to ignore. In fact, with the growth in the game’s popularity, the value of those tokens will also rise.

The crypto currency’s upswing was not good enough to lure the attention of players in low-income countries like the Philippines. If players can’t afford the upfront cost, they rent existing Axies and share their earnings with the owner.

Games like Alien Worlds allow players to earn a passive income by letting other gamers mine their virtual lands. They can also earn interest by staking or lending their digital NFT characters.

You may find this interesting, NFT based football fantasy league

GameFi vs. DeFi: Who wins?

GameFi and DeFi share many similar traits. But, there are some noticeable differences.

For instance, DeFi has a robust structure that has been around in the world of crypto for a while now. On the other hand, Gamefi is a brand new concept and still lacks many rules and regulation.

Like in DeFi, crypto whales can’t easily manipulate and change GameFi. This is because the sizable P2E ecosystem comes with crypto assets, and many will receive these for the first time itself.

What’s important to understand is, that in GameFi the focus is on investing in financial infrastructure like in DeFi. The idea here is to develop GameFi as a whole, because the lifetime of any specific game can be short.

Top 4 GameFi challenges

Research suggests that the metaverse will become a trillion-dollar industry within the next three years. Social media, gaming, and virtual reality technologies will help develop the metaverse.

However at present, comprehensive gaming industry figures show earnings in the range of $336 billion, and blockchain gaming represents just 1%. Hence, in order to increase the market share, the P2E gaming industry needs to overcome major challenges for exponential growth.

1. Bottlenecks and barriers to entry

GameFi must address bottlenecks within the ecosystem, which means, preventing new players from quickly joining and playing P2E games. This can be anything from making it easier to track players’ performance and withdrawals or the ability to seamlessly convert in-game tokens to fiat to spend them in real life.

2. High gas fees (gwei)

The biggest challenge in front of GameFi is still reducing high gas fees. In fact, playing P2E games on the Ethereum blockchain can be extremely expensive. However, things are slowly getting better. Ethereum sidechains like Polygon’s EVM compatibility and low fees offer considerable advantages to enhance a GameFi ecosystem.

Some of the leading GameFi protocols on Polygon include:

 Arc8- a mobile esports gaming platform where players play against different opponents earning GMEE tokens

 ReVV is -a racing game with its own REVV token and players can buy NFT cars or win them in races

Pegaxy- a sci-fi-themed horse racing game, players can purchase or rent PEGA horses to race

While gaming in the Polygon ecosystem grows, NFTs continue to be dominated by Ethereum and are still powered by a Proof-of-Work (PoW) consensus mechanism. It’s a highly energy-intensive approach and is not exactly sustainable.

With the second phase of Eth2, called “the Merge,” on the verge of transforming itself into a Proof-of-Stake (PoS) network, it will use the tiniest energy i.e. fraction of a fraction of its current energy to power the network. This ultimately lowers the gas fees and provides a lower barrier to entry.

3. Blockchain/cross-chain security

For making P2E gaming mainstream, the gaming industry must first address security concerns. Because even with solid financial returns, both fungible and non-fungible tokens have the risk of getting a hack.

Such cyberattack can lead to significant losses not just for the platform but also for gamers.

Even though decentralization was initially the best response to cybercrime, with the involvement of the gaming ecosystem, it became clear that responding to cybercrime with decentralization wasn’t exactly a walk in the park.

When you add cross-platform and cross-chain complexities, ensuring security will become more challenging. The same is true while fusing web2 and web3 protocols.

For example, in the recent Axie Infinity hack, threat actors used hacked private security keys to compromise the nodes that were used to validate transfers on the Ronin blockchain. even in the presence of thousands of ETH validators, Ronin only had nine, thus increasing the risk of what’s called a 51% attack.

This allowed the hacker to steal large amounts of ETH and USDC, which sums up around $625 million, without drawing attention. This incident makes one understand the importance of building security into the foundation of blockchain gaming ecosystems and also fortifying it by conducting regular smart contract security audits.

4. Regulatory pushback

Regulatory authorities haven’t figured out how to deal with GameFi. Any gaming element that regulates the conversion or transfers to fiat currency is banned in countries like China.

GameFi is considered illegal gambling in Japan. The industry needs to make an effort to help authorities of such countries to better understand P2E gaming and improve efforts to ensure the legitimacy of GamFi.

Even with all the challenges listed above, it’s safe to say that GameFi is here to stay. For example, P2E gaming models like gaming guilds, which have grown exponentially in recent months, will accelerate GameFi adoption.

The ability to earn within the gaming community boosts the power of guilds. Coupled with cheap gas fees, this might be the tipping point that ushers in an era of mass adoption. As GameFi attracts more investment, you can also expect crypto games to be more secure and bug-free.

In short, GameFi wins! it will surpass DeFi simply because it allows users to split the ownership and utility of various gaming assets. Further, it also has the potential to create new revenue streams and transform the lives of gamers by raising their living standards and much more. Moving forward, the Investment opportunities can potentially make GameFi bigger than DeFi not only in 2022 but also in the future.


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NFTHI does not recommend any kind of Investment in NFTs or NFT trading. All the strategies are merely educational references.

Conduct thorough research before you start with NFT trading.

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