The cryptocurrency crash has spooked many investors, but the blockchain brethren have high hopes for a fledgling app: GameFi.
A portmanteau of “gaming” and “decentralized finance,” the model offers the opportunity to earn money by playing games. Players who complete in-game tasks are rewarded with cryptocurrencies and NFTs, which can then be exchanged for real money.
It’s a tempting argument on paper. But playing to win shows signs of stalling before it breaks into the mainstream.
In April, active users dropped 24.9% to 9.22 million, while transaction volumes fell 73.4%, according to Footprint Analytics,
A big barrier to mass adoption is simple economics: a sustainable market needs more money coming in than going out.
This primarily requires a steady stream of new users to subsidize established ones, a model that has been called a pyramid scheme.
The accusation has been leveled at Axie Infinity, a Pokémon-style battle game that exploded in popularity last year.
Thousands of people have played Axie as full-time jobs, with mixed results.
play on the go
Axie users typically spend hundreds of dollars on a starter pack of NFT creatures. The company makes money by taking a cut of each market transaction.
Some users lower the entry by forming groups called “guilds”. This involves the owners of the NFTs lending them to players in exchange for a portion of the winnings.
It is risky for the owners, who may invest large sums in volatile assets, and the potential gains for the player are smaller, but there are also benefits.
Earnings can still be substantial, particularly in emerging economies that are the game’s biggest markets, and guilds reduce players’ financial risks.
However, this does not solve the fundamental problem: new players must replace those who are paid.
This was not a problem when Axie was adding more users each month than it already had. But when growth slowed and the token price fell, player earnings plummeted.
After months of incredible growth, the daily earnings of the typical Axie Infinity player (a “scholar” in the Philippines) have fallen below the Philippine minimum wage for all but high-ranking players, and even they have seen their earnings decline. since then. August pic.twitter.com/ejidWkWc1G
— Lars “Totally Texas” Doucet (@larsiusprime) November 12, 2021
Axie suffered another setback when hackers stole $625 million worth of Ronin cryptocurrency, the blockchain behind the game. The attack is the largest crypto heist to date. according REKT Database.
Axie’s creator promised to reimburse affected users, but the value of the game’s currency and the number of players have continued to drop.
In May, Axie’s daily active users fell below 1 million for the first time in eight months. The figure had peaked at more than 2.7 million in November.
Axie’s decline has reverberated throughout the GameFi community. Companies in the sector are reevaluating their business models.
In a panel discussion during the BlockDown conference last week, GameFi executives focused their strategies on prioritizing pleasure over profit.
“It’s going to go back to web2 fundamentals of needing a good game to survive,” said Corey Wilton, co-founder of Pexabay, a play-to-win horse racing simulator.
AAA games, however, have development costs that the GameFi companies can’t afford.
Fancy Studios, which makes 8-bit games, is trying to overcome this hurdle by tapping into the nostalgic appeal of retro classics.
Eric McIntire, CCO of the company, hopes this will change the user’s focus from playing to win to playing-Y-gain.
“We want you to make money while doing something you love to do anyway,” he said.
“While you’re queuing for coffee, we want you to pay for coffee by playing a game that you’ll have fun playing anyway.”
Ultimately, McIntire points to a “play to buy” transition, encouraging users to keep their digital assets in-game.
They still earn rewards, but instead of exchanging them for real money, they can use them to shape the game experience.
This could incentivize user retention, but the games will need mass appeal.
“We had a 2D horse racing game that’s basically in an MVP, not even an alpha, and it required $200 million,” Wilton said.
“I think that’s probably an indicator that they’re not here for the damn game.”
GameFi also needs support from regular gamers, who have proven hostile to crypto projects.
Ubisoft’s NFT plans, for example, sparked a furious backlash from fans. The YouTube ad was not liked by more than 95% of viewers.
The GameFi companies aim to eventually seamlessly integrate any element of the blockchain.
Similar to paying with a credit card, players would use the mechanisms without considering how they work.
“I think eventually things are going to morph and it’s going to feel like a game,” Wilton said. “But I’d say we’re probably five to 10 years away from something like that.”
In the embryonic world of GameFi, companies are still looking for a sustainable formula.