As GameFi Market Crashes, Blockchain Gamers Remain True Believers

If there is one thing that can be said for anything remotely connected to the internet and a computer screen it’s that if it is salacious or is a video game it will probably survive market turmoil.

So for cryptocurrency investors – if there are any left after this week’s news about Coinbase keeping your crypto if it goes bankrupt (they say they’re not at risk of going bankrupt), and Bitcoin
BTC
heading to $25,000 (it is around $29,000 as of this writing) – the sector that looks the most promising is anything related to blockchain gaming or GameFi.

GameFi is kind of like this: imagine you’re playing 2K Sports PGA Golf and you create a golf course and instead of giving it away for free, you can charge people for it. They pay in the 2KSports token, and 2K gets a cut, and you get a cut. If you’re famous, like Tiger Woods, you make millions off the Tiger Woods-designed golf course inside the game. That’s the play-to-earn model if it was part of the traditional console game world.

Other games, like award-winnng Star Atlas (ATLAS), you can create worlds or avatars, and will big money.

In emerging markets like Indonesia, people make a living by playing these games. Some gamers make a couple of hundred bucks a day. Other savvy types pay gamers for entry fees to get set up in play-to-earn gamer worlds like Axie Infinity
AXS2
(AXS) – it’s like giving $1,000 to a guy who’s good at poker.

“Yes, you can buy players and people are doing exactly that,” says John Sarson, founder of Sarson Funds, a cryptocurrency investing company with offices in Indiana and Massachusetts. “These platforms are morphing into metaverse solutions. They have the potential to become a microeconomy and a micro life,” he says.

Crabada (CRA) – a new game on the Avalanche
AVAX
blockchain – is one of Sarson’s GameFi holdings. They are growing at a pace of roughly 15,000 wallets a day as of April, though the Crabada investors might be scarce these days.

“There have been scholarship programs set up around the world where you pay for some gamer to make money off your crabs in the game and you share the revenue,” Sarson says.

STEPN (GMT) is another GameFi play. It’s a Web3 app people download to their phone to record their physical activity and can earn tokens for walking. Yes, it sounds ridiculous and maybe that is why it fell 26% on Wednesday alone. (Don’t feel bad GMT “hodlers”, CRA fell 38% that same day.)

But, “you got people making like $900 a day on that game,” Sarson says. “Am I serious? Yes, I am very serious.”

The more people that come into these play-to-earn communities, the more value for those coins. It is no different from traditional equity in that regard. The more people that buy Apple phones over others, the more value investors give to Apple. There is always the risk that Apple becomes the next BlackBerry.

All of these blockchain games are communities and many of them are set up so players can earn cryptocurrency there that they can exchange for fiat – sometimes known as real money.

Some games are more about making money for the players like Crabada, and others are more about community involvement like STEPN where you can earn money but it is more about the game and less about the earnings.

In emerging markets where gamers can earn $100 a day on these apps, that’s a desk job. Imagine that in India and parts of southeast Asia and interior China. There have been multiple articles about gamers in the Philippines that managed to find work during Covid lockdowns by playing Axie Infinity.

The blockchain market is still in its early years. NFT games alone generated $2.32 billion in revenue in the third quarter of 2022, according to the Blockchain Game Alliance. The overall gaming industry is set to reach $203 billion this year.

Blockchain-based games are becoming a bigger piece of the gamer universe so if that grows and crypto is the only way into that market, then it might be a place for investors to invest once the dust settles a bit on this disastrous Luna-Apocalyptic market.

Konstantin Dinev, Chief Executive Officer at new GameFi startup Time Shuffle in Switzerland, is doing baptism by fire. They will launch this year on Avalanche. Dinev, says TimeShuffle will use a play-and-earn model, their spin-off the play-to-earn model everyone already knows.

“Our core team is all gamers,” Dinev tells me. “We are coming from the traditional gaming development industry with more than 30 years of experience. We have over 20 game titles under our belts and titles of over 40 million registered users. We wanted to create a game which will be fun and not focus on the earn element, as much,” he says. “This is not an earn-first game, this is a fun-first game.”

In it, there are some guys that look like Salvador Dali, and some guys that look like Albert Einstein, and the two sides live in a time when humanity has discovered alien technology that gives us the ability to time travel. Controlling the timeline and course of history is the difference between anarchy and peace. That’s the fight in TimeShuffle. It looks pretty cool.

Users will be able to play, progress and unlock better characters without needing cryptocurrency wallets tied to the game. But on the money side, gamers can partake in the Web3 economy of the game by engaging with their NFTs.

“We have historic or mythological figures that have been transformed from variations in the time continuum,” Dinev says. “Each of these characters and their varying professions will offer different battle tactics. The goal is for each user to build the best skill deck for each character and try out different strategies when going into battle.”

They raised around $2.1 million in seed financing, with Shima Capital in Silicon Valley being the leading investor, followed by Blizzard Fund.

The cooler the game, the more investors these things will attract, says Sarson. This goes for retail investors buying tokens on exchanges, to venture capital firms and investment funds like Sarson Funds.

“Everyone loved the gamer trailer for Star Atlas so people bought the coin,” Sarson says. ATLAS is in a deep bear market. “Honestly, what did we learn from their increase in value? All that mattered what we found out, was how good it looked. Within the GameFi space, Axie is the real blue chip. That’s because you’re looking at thousands of people earning a living playing that game. So with Axie, it’s not about the entertainment and graphics, it’s about building a team of players to make a maximum amount of money.”

Their Small Coin Strategy fund has a 25% bucket for gaming and metaverse companies. Some of the holdings not yet mentioned here include Illuvium (ILV) – still in beta-mode – and Blocktopia (BLOK).

Maggie Rokkum-Testi, Senior Advisor to Sortium Blockchain Studios in Switzerland said she got into GameFi after playing Axie. Sortium’s game CryptoGene looks pretty cool. You slice and dice DNA and make battle monsters.

“I played Axie in its beginning stages, just to understand how it worked,” she says. “I completely understand how it can become addictive. NFT technology is changing the gaming sector rapidly by giving participants true ownership of their assets while also giving content creators a fair share of the ecosystem.”

Some investors see the blockchain game world merging with the metaverse world and becoming its own economy. You live in the game (though don’t worry, you can escape into the real world, too, though you might not make as much money in it).

“There’s a real opportunity for metaverse economies to empower their player bases across the globe in a way we haven’t seen before in gaming,” she says. “It’s one of the things we’re focusing on for CryptoGene: making viable digital economies that are for players by players.”

GameFi is expanding and maturing. Games are moving into a wider range of genres, such as role-playing games and first-person shooter games that have mass-market appeal and are designed from the outset to deliver PlayStation-style gamer experiences.

Crabada has overtaken Axie Infinity in NFT trading volume. Since its launch just six months ago, it has seen $225 million in NFT sales, according to CryptoSlam.

On Avalanche, developers are launching games on their own Subnets, which are app-specific blockchains that enable projects to support high-volume applications without spiking fees across a single network or being affected by other on-chain traffic.

Subnets make for the best Web3 playing experience where games can keep initial costs of playing low and enable them to earn without the burden of high transaction fees, which have become a tax on gamer activity.

This includes games like Shrapnel, Ascenders, Domi Online Gunzilla, Castle Crush, and Ragnarok in production on Subnets, just to name a few, notes Ava Labs president John Wu.

“Don’t take this as financial advice, but the two projects I see transforming the GameFi experience right now other than Avalanche are DeFi Kingdoms (JEWEL) and Crabada,” Wu says. “They have passionate fanbases.”

DeFi Kingdoms’ Subnet is executing more daily transactions than some layer one blockchains, averaging about 200,000 transactions per day in its first five weeks of being in business. Crabada’s Subnet, Swimmer Network, is coming soon, which might give investors a reason to consider CRA.

Over the past year, GameFi grew roughly 2,000%, according to DappRadar. In the first quarter of this year, before the Ukraine war and inflation caused sell-offs in the markets, blockchain games raised about $2.5 billion in venture funding.

Will that go kaput?

It might, in this market.

But if gamer start-ups do manage to raise capital at the same rate they did in this last quarter, venture numbers will beat last year’s. That will depend on a serious sentiment shift. Investors might like the blockchain game universe, but when their investments are falling 40% in a week, it is not hard to imagine all players hitting the pause button.

Disclaimer: The author invests in Bitcoin.