DeFi to GameFi: How crypto is changing the world as we know it

DeFi to GameFi: How crypto is changing the world as we know it
Vikrant Mehra
Vikrant Mehra
Content Marketing Manager, Accel
April 18, 2022
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The crypto narrative keeps changing every few months. That’s how fast new trends come in and the market evolves within this space. Since its inception, the industry has passed through several phases. However, despite coming a long way, the crypto mass adoption still lags behind. One of the main reasons behind that, even though concepts like DeFi, GameFi, NFTs are exciting, they are rather complex for a layman to understand.  

Let’s get you up to speed on how crypto is changing the video game space and also the world in general.

There’s good news for budding entrepreneurs - this change comes with ample opportunity for startups. Starting with DeFi, we’ll walk you through the shift in trend within the crypto space & also inform you about the extent of GameFi’s overall impact, to date.  

The DeFi Wave 

Since 2020, DeFi has been a huge driver in the world of cryptocurrency. However, its intricacies are still unclear to the outside world. 

DeFi is short for decentralized finance that covers varied financial services carried out on decentralized blockchains via smart contracts. Smart contracts are programs that are coded into a blockchain & run when pre-set conditions are met. They are replacements for middlemen in traditional financial systems. 

The concept came into being with the single and powerful goal, i.e., to wean control away from banks and other intermediary centralized financial institutions by widening people’s access to financial services. This sounded very promising as it meant financial inclusion for developing markets and low-income nations. To cut the long story short, DeFi imagines a world in which a Wall Street banker and an Indian farmer have equal access to financial services. 

In its very essence, DeFi was born with the launch of the Ethereum blockchain in 2015. Its scalability, as well as capacity to support smart contracts enormously encouraged worldwide developers. As a result, they leveraged this blockchain technology with dapps (decentralized apps) and digital assets like NFTs (non-fungible tokens). The use case of decentralized finance in GameFi is extensive. 

However, for the uninitiated, earning or handling financial transactions on a DeFi platform can be rather tricky. So, it isn’t Defi, but GameFi that is remaking the world by getting more people on the crypto radar & creating a new digital economy. More on that later!

The Magic of NFTs

In practice, NFTs are associated with digital media of any kind. However, they are technically data units stored on a blockchain. They act like digital tokens via which one can claim or assign ownership of unique digital data. The ownership status of NFTs can be tracked on public ledgers like the open-source Ethereum blockchain. 

NFTs are making waves and leaving crypto enthusiasts stunned with the news of multi-million dollar NFTs being purchased daily. These data units are neither interchangeable nor can they be replicated. This allows people to have exclusive rights to one or many NFTs and also increases their valuation as digital assets. 

However, anything digital can be copied - there is no stopping that. How then does owning an NFT hold any value in itself? It does because the blockchain will reflect just that NFT, thus proving ownership of the original piece. That’s where the magic lies. Even though many still struggle to come to terms with the value of NFTs, its application in GameFi makes its value more apparent. 

The GameFi Revolution

GameFi is an amalgamation of two words – Gaming and Finance. For the longest time now, the virtual coins in video games that were sold to users only benefitted games studios or developers. To gamers, these coins or any kind of upgrades just had in-game vanity value. Decentralized gaming finance is transforming this picture entirely.

The GameFi market is speculated to grow leaps and bounds by becoming a new income opportunity, both for players and investors. By the end of 2021, approximately 70 new crypto games went live and almost 50% of all active crypto wallets were connected to games. This is highly indicative of how big GameFi is and can become in the years to come.

GameFi is blending two of its predecessor technologies, i.e., NFT and DeFi, to build a manifold ecosystem of blockchain games. Each of these games based on decentralized applications will have several economic incentives for its players. It will give rise to a whole industry of jobs where people will be working in a game, just by playing in it. 

NFT implementation in dapps is not new, games like CryptoKitties have already shown us that. However, GameFi takes the play-to-earn principle to a different level altogether. This new breed of games will give users more than just the scope of collecting, purchasing, and trading NFTs. With the concept of gaming finance, players will get a chance to:

  • Interact with existing DeFi features like staking, liquidity minting and yield farming. All three of them are basically strategies to earn substantial returns on crypto assets; passive streams of income for gamers. For example, staking in-game coins in secondary markets.
  • Use NFTs to play and even earn more, during gameplay as a source of income through accomplishments within the game. In GameFi, the value of NFTs goes beyond being unique digital assets. They are, in fact, a vital element in the gameplay. 

Speaking of tokenomics, it is different in GameFi compared to traditional video games. In-game currencies have existed in games like V-Bucks and Robus, but in terms of usage and ownership, these tokens were limited. Tokens in GameFi work as actual cryptocurrencies. Turns out, gamers can trade them on secondary markets both seamlessly and legally. Yes, GameFi allows cross-game asset transfers across the digital ledger. The ability to use the same in other games preserves and increases their value and utility at the same time. 

GameFi – The Pandemic Lifeline

There has been a huge boost in this segment of crypto games during the pandemic. It is especially true for low-income nations like the Philippines and Venezuela among others. 

A blockchain game called Axie Infinity came to the forefront in 2021 to the masses. It is a great example as to how GameFi is making financial inclusion today’s reality . Built on a play-to-earn model, as players progress and gather Axies (digital collectibles), it is owned by them, rather than the game developer. This game also liberated players to use these digital assets across multiple games. 

Thus, dedicated Axie players started earning a per month income that was more tempting than what the job market was offering them at that time. However, the common saying that the more the demand, the higher the purchase cost will become, fits this case. Axie Infinity requires players to own a minimum of three Axies to start the game. With increasing popularity, the cost of these collectibles jumped from $3-4 to $70.

That’s when gaming guilds entered the scene. They are nothing but game scholarships, for people who can afford to make the initial investment (generally on the higher side) to start playing. Guild members rent in-game assets to get the new players started & in return the player pays a percentage of their earnings to the lending member.

What’s next for GameFi?

Early blockchain games captured GameFi in its essence. However, the use of DeFi and NFTs has revolutionized the space by allowing players to generate substantial income. In the future, developers will further blend these concepts to come up with better income streams for gamers. Considering the kind of attention that GameFi is generating and retaining, it is only natural that more engaging games will be produced, which in turn will attract more backers into the DeFi space.