GameFi 2023 Q1 report shows crypto gaming continues to level up

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Launched in the first quarter of 2021, GameFi, also known as Play-to-Earn (P2E), quickly created a sprawling blockchain-based gaming universe that, despite some ups and downs, captivated casual gamers, developers and users with its innovative and decentralized approach to giving virtual gaming assets real value.

GameFi, an amalgamation of the terms gaming and finance, brings a financial incentive to explore a dungeon with your friends or earn money by collecting digital trading cards. So far, something is still missing, and it will be glaring for anyone looking beyond the dollar signs: real real gamers who don’t know crypto.

It’s no secret that traditional video gaming has taken over the entertainment industry. After raking in an estimated US$235 billion in 2022, it’s small fry compared to traditional video games, which generate more than seven times the movie industry’s revenue.

Has the success of Web2 gaming had a significant impact on the blockchain gaming industry? Have traditional gamers been interested in the P&E (pay-and-earn) or P2O (play-to-own) models on which blockchain games center their gameplay? Let’s take a look at the current state of the crypto gambling industry in 2023.

Growth of crypto gambling in 2023

Despite a huge increase in the value of Bitcoin and Ethereum, the blockchain gaming industry saw slight growth in early 2023. According to DappRadar, blockchain gaming dominance fell from 43% in Q4 2022 to 46% in the first quarter of 2023, and unique active portfolios are participating. in GameFi remained strong at around 44%.

The industry is set to see even stronger growth in 2023 as traditional gaming models such as gambling fall out of favor and the industry focuses more on improving user experience and integration of new and traditional players versus crypto natives. In the same way it quietly took over the entertainment industry, blockchain gaming is quietly becoming the biggest use case for blockchain technology and NFTs.

Since November 2022, the blockchain industry has shrunk by over $2 trillion, yet crypto gamers continue to engage with their favorite blockchain games at levels similar to the peak of the last bull market.

New GameFi Trends

DeFi projects are adapting to the current market by adopting innovative strategies to attract a wider audience. Through gamification and user-centric experiences, DeFi gaming projects strive to lower barriers to entry and make blockchain more accessible to new players unfamiliar with the crypto industry.

Unfortunately, even now, many crypto games resemble Ponzi schemes that incentivize early adopters to purchase tokens to unload on would-be players if they become interested in gambling later on. Tokens and NFTs are often created before game design or utility cases are created to raise funds. Despite the unimaginable $5.4 billion invested in blockchain games in 2022, many games will fail as long-term winners emerge to steer future games in the right direction.

Let’s take a look at the latest developments from GameFi and how they are going to make 2023 an interesting year in the crypto gaming industry.

Tokenomics is evolving

Two token models emerged as the big winners: single token and dual token. The single-token model uses cryptocurrency for in-game transactions and external exchanges. It’s simpler but can face issues like inflation and scalability. In contrast, the dual-token model separates in-game transactions and external commerce, using two different tokens: a utility token for in-game use and a governance token for decision-making.

The dual-token model offers more versatility and incentives for participation. However, it can be more complex and the value of the governance token is highly dependent on the utility token. This can lead to a downward spiral if market conditions change.

The single token model is simpler but raises questions about governance, user retention, and inflation. Traditionally, a fixed supply token is used, but it may not scale with the number of users or the expansion of the game. However, if in-game assets can only be purchased with the token, they can serve as both a utility and a store of value.

Ultimately, the success of either model depends on the quality of play and user interest. As blockchain gaming evolves, the utility of tokens is expected to become more important than speculative earnings, ensuring that tokens retain their value based on the services they provide in-game.

Incentive models

Play-to-Earn had been the go-to model for GameFi developers to quickly raise capital by selling in-game tokens and NFTs. When blockchain gaming was a hot story in 2022, it was a no-brainer for investors and developers, but in a down market, developers had a tough choice to make: short-term profits or long-term players?

Play-to-Earn (P2E) focuses on obtaining in-game cryptocurrencies and NFTs, which can be sold for real money. However, this model often lacks engaging gameplay and long-term durability. Prioritizing monetary rewards over a fun gameplay experience often results in a lack of depth, quality, or variety.

Play-and-Earn (P&E) enhances gameplay and builds a strong community, providing financial and non-financial incentives for long-term engagement. An example is Alien Worlds, which revolves around planetary DAOs and voting systems.

Play-to-Own (P20) shifts the focus from in-game tokens to NFTs as rewards. Upland is an example where the native token, UPX, has a fixed price and cannot be traded on the open market. Players invest in the game to earn NFTs of valuable goods that can be sold.

Free-to-Own (F2O) aims to drive mass adoption by removing financial barriers. Upcoming games like Limit Break are offering free NFTs, making a profit through commercial royalties instead of hefty mint fees. Free-to-play crypto games that rely on royalties to generate a profit have the best chance of onboarding Web2 gamers. Not needing to purchase an NFT or tokens beforehand will certainly appeal to newbie players who don’t want to or don’t know how to make a purchase via crypto.

How games reward players will be one of the biggest issues for GameFi adoption. Token use cases won’t matter unless defi games finds the right way to distribute tokens to players who want to use them for fun rather than just an investment.

Web2 talents land in Web3 games

AAA game studios of all sizes are still determined to add NFTs to their flagship franchises in 2023. Square Enix has reiterated its intention to add NFTs to its Final Fantasy series, presumably the JRPG (Japanese role-playing game) series. most famous of all time. They have yet to announce which blockchain they will partner with, but MetaKing Studios, a web3-focused game development studio backed by several companies including Square Enix, recently partnered with Polygon Labs to release Blocklords, its own game.

Polygon also partnered with Immutable X this year to create Immutable zkEVM, a blockchain specifically designed for Web3 games. The compatibility of Polygons zk-rollup and EVM with the Immutable X product suite will make it easier for AAA studios to build and launch their own games without worrying about scaling, transaction costs, or security.

Illuvium, the most anticipated release of 2023, will launch on Immutable X later this year. The open-world fantasy game will feature AAA graphics powered by Unreal Engine 5. Players will explore a new planet and capture the deadly alien beasts that reign there to earn ILV, the in-game currency also used for governance.

Some games to try in 2023

Here are some new and existing games you should keep an eye out for in 2023:

Illuvium: As mentioned earlier, Illuvium is a fantastic open-world game with AAA graphics and an immersive storyline. Players can capture alien creatures, called Illuvials, and use them to fight other players or trade them as NFTs. Star Atlas: A space-themed MMO game that combines real-time strategy, exploration, and virtual economy management. Players can own starships, land, and other assets as NFTs, and participate in governance decisions through the game’s native tokens. Ember Sword: A free-to-play MMORPG that allows players to own cosmetic items, land and resources based on NFT. With a focus on player-driven economies and a dynamic open world, Ember Sword aims to create an engaging gaming experience with an emphasis on social interactions. Hunters On-Chain: Train, upgrade, and battle NFT-based characters in this exciting play-to-win game on the Polygon Network. Explore a unique world, where your hunters evolve and compete with others to earn valuable rewards. Axie Infinity: Raise, raise, and battle Axies in this captivating online world. Engage in strategic gameplay, complete quests and compete in tournaments to earn rewards and tokens in this play-to-win thrill. Is 2023 looking bright for GameFi?

Despite the challenges and growing pains that GameFi has faced and will continue to face in 2023, there are still good reasons for optimism. As developers strike the right balance between fun, funding, and functionality, the industry is bound to mature and learn from the mistakes of the past. The focus on user experience, attracting Web2 gamers, and improving tokenomics will drive the evolution of blockchain gaming. Moreover, with the influx of talent from traditional game studios and the continuous development of innovative projects, the future of GameFi looks brighter than ever. As long as the GameFi industry prioritizes entertaining and engaging gameplay over making a quick buck, gamers will look beyond the early mistakes of blockchain games to come in and have some old-fashioned fun.

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