Can GameFi become sustainable? | Industry Analysis| OKX Academy

This is an OKX – Okcoin research partnership. Devika Mittal is the Listing Lead for Okcoin, a gaming enthusiast, and a proponent of women in crypto.  

While GameFi remains dominant in crypto, its business models often remain unsustainable. Here’s how they could improve. 👇

TL;DR

• GameFi remains dominant in the decentralized application market, way ahead of DeFi
• Most GameFi business models remain unsustainable for macroeconomic, tokenomic, and market volatility reasons
• There’s a number of ways GameFi could become sustainable in the long run, some of which borrow from traditional Web2 playbooks 

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GameFi remains crucial in crypto

GameFi is the usual term to speak of blockchain-based games that use NFTs or tokenized in-game assets. In the past 5 years since CryptoKitties was launched, GameFi has become one of the more popular use cases for blockchain technology. Believers argue that GameFi is the most relevant use of blockchain tech – and the most likely to become mainstream.

The numbers are clear: In 2021-2022, games have dominated the decentralized application (dApp) market, hitting a total of $807M by July, with a 6% increase month-over-month (MoM) from June, and a 41% increase year-over-year (YoY). In comparison, DeFi (the second largest sector by volume) accounted for a total of just $51M (-33% MoM and -61% YoY).

There are more than 1500 GameFi games available in the market, and venture capitalists (VCs) have poured in $2.4B into promising new games. Despite the bear market, GameFi still accounts for a majority of the Daily Active Users (DAUs) engaging with crypto across the board.

GameFi’s business model problem

Despite their market share, lots of GameFi business models remain unsustainable. To this day, most of them are still based on the idea that players can earn an income in an ecosystem where the tokenomics are set up to ultimately benefit project teams and investors, rather than players.

Look at the NFTs that players often need to buy in order to access the games or services. Currently, if a player wants to access a game, they must shore up the cash upfront individually or in so-called “guilds.” The guilds and individuals are ready to pay because they believe that what they will earn within the game through the sale of in-app assets will help them generate profit. 

The problem is that the fiat price of GameFi tokens and their associated NFTs can depend on a variety of factors, mainly:

• Macroeconomics. The greater the inflation, the less cash liquidity there is in the market, the less likely investors and players are to invest in and play GameFi games.
• Tokenomics. If a game does not offer long-term value to holders, if it continuously relies on recruiting new players to maintain the value of the token, and if it encourages players to sell tokens in the open market… the token is likely to lose value over time.
• Market sentiment. Token holders may panic sell, or speculative buyers may attempt to manipulate the price of the token by pumping and dumping it.

Users who play the games and buy the upfront NFTs face the possibility that their assets may, over time, lose 50% or even all of their value. Those who looked to GameFi as an alternate way to earn a sustainable income can then face high, even crippling, losses.

Sustainable GameFi business models

I believe there’s space in the market for more sustainable GameFi business models. So what would they look like? While I cannot offer a definitive answer, I can offer some suggestions:

• Long term mindset. Sustainable GameFi projects must imitate traditional Web2 private companies in focusing on long term value creation instead of short-term investor profit/token price appreciation.
• User retention. Web3 games could also borrow from the Web2 world to offer value to existing users without relying on a constant influx of new users to generate demand for the tokens. One example: Using in-game advertising for revenues, which are distributed to existing users regularly.
• Game experience focus. GameFi should aim to attract new users due to their graphics and their features instead of the token’s price. The priority should be to keep innovating in terms of graphics, plots, and characters – and offer best-in-class games that attract users over time.
• Limit speculation. Although this can be difficult to achieve, GameFi projects could limit speculative price movements by limiting the number of tokens that can be sold in the open market, or offering deflationary tokenomics.
• Asset interoperability. The lack of interoperability of GameFi assets is a hindrance to their growth: The price of a token can fall when its game stops being popular; players might want to sell their GameFi tokens to purchase tokens in other games. Building interoperability across blockchain games can help build a price floor for GameFi tokens.
• Improve accessibility. Even though it can slow the pace of early adoption, limiting access price (or regularly updating the number of NFTs needed to access a game based on market prices) can allow more users to join the games without the support of guilds.

The GameFi industry is young and, much like the rest of crypto, it’s still in a state of growth and exploration. As we continue to dive further into the bear market and face a potential recession, project teams have the opportunity to put their heads down and build without the pressure of offering a quick listing or ensuring short-term price appreciation. Projects might emerge from this period offering sustainable business models – which would benefit token projects, players, and token holders alike.

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