GameFi, coined from “game” and “finance,” has enabled blockchain-based gaming activities that offer players economic or financial rewards by completing game-related tasks. Under the play-to-earn (P2E) model, gamers can collect in-game assets that can then be traded on secondary markets. The in-game assets include reward and governance tokens, Non-Fungible Tokens (NFTs), virtual land, and avatars, to name but a few.
GameFi is a fast-growing sector in the crypto space. The NFT boom of 2021 also fueled the growth of the GameFi market. According to TripleA data, the crypto gaming industry in 2020 was reported to have an estimated 320 million crypto owners and generated revenue of US$321 million. Almost 42 million people were reported to own crypto, of whom 38% were millennials aged between 21 and 36.
55% of the millennial gamers owned crypto compared to 5% of all Millenials. Of the gamers who owned crypto, 80% were interested in making game purchases using crypto, while 67% hoped for more opportunities for using crypto in gaming. The gaming market is projected to grow from US$222 billion in 2022 to US$349 billion by 2027.
One of the most popular NFT blockchain-based games, Axie Infinity, recorded a peak of 2.7 million daily active users in November 2021. However, the growth of the GameFi market has come with challenges. In March 2022, a security breach on the Ronin Network resulted in hackers stealing around US$600 million, including funds of Axie Infinity players. Other challenges include the high entry costs incurred by gamers and the exposure to risks from high price volatility. Lack of market regulation remains a concern for the GameFi market.
Models like Free-To-Play (F2P) are being incorporated into GameFi to reduce the high entry costs for gamers. GameFi developers are interested in scalable and cheaper blockchains, thereby increasing crypto adoption. The F2P model also enables gamers to gain experience before migrating to the P2E models. According to the 2021 Blockchain Game Alliance (BGA)’s Blockchain Game Report, Venture Capitalists invested over US$4 billion in blockchain-based games and infrastructure in the year, 5000% higher than in 2020.
As the GameFi market continues to grow and attract more investments, it is already catching the eye of governments worldwide on both regulation and taxation. GameFi is poised to drive mass crypto adoption and remain an integral part of the crypto ecosystem.