What is holding GameFi back from reaching its full potential?
What a catastrophic fall from grace GameFi has experienced over the past few months!
Once valued at $27 billion only in January 2022, GameFi markets were the talk of the town amongst investors and crypto influencers. You wouldn’t believe the market cap in 2023, though. Only worth just over $4 billion now, has the sentiment died out?
Tokens like SAND (The Sandbox) and MANA (Decentraland) saw substantial price surges, amassing market capitalizations reaching billions.
Presently, SAND’s market capitalization rests at a mere $673,444,273. This is a stark contrast to its peak of $6.87 billion in November 2021. Likewise, Decentraland, once worth $9.49 billion in November 2021, now only sits at $574,917,531 at the time of writing.
Users engaged in various experiences in the millions. One of the most notable was Axie Infinity, which once boasted 2.3 million monthly users.
During 2021 and 2022, the GameFi sector underwent growth, emerging as a dominant force in the cryptocurrency realm.
However, the subsequent crypto winter significantly eroded the value of gaming-related crypto tokens and assets, along with their user communities.
Within these downturn conditions, game developers escalated their production efforts. Games now employ the Unreal Engine 5 development platform, enabling a cutting-edge experience with vivid graphics and innovative gameplay.
What initially promised to redefine gaming now appears to harbor an uncertain future. This prompts the question: “What holds GameFi back from realizing its full potential?”
We delve deeper into GameFi and the factors hindering its broad adoption in this transformative gaming landscape.
What exactly is GameFi?
GameFi abbreviates “Game Finance,” merging gaming with decentralized finance (DeFi) to create a unique experience for players.
Participating in these games enables ownership and earnings, hence why the term Play to Earn (P2E) is frequently used. Playing often yields assets such as NFTs and crypto, holding value both within and beyond the game’s ecosystem.
Notable games include:
- The Sandbox
- Decentraland
- Axie Infinity
- Illuvium
- Gala
Furthermore, GameFi often integrates DeFi concepts like staking and yield farming. Gamers might lock up their in-game tokens to receive interest or liquidity rewards, enhancing both gameplay and financial literacy.
The Financial Metrics
In 2021, the crypto gaming market surged to a value of $2.9 billion. Predictions estimate its value to reach approximately $38 billion by 2028.
For further context, let’s consider the market capitalization shifts in some leading crypto gaming titles:
1.Axie Infinity
July 2021: $9.78 billion
Now: $691,758,736
2.The Sandbox
November 2021: $6.87 billion
Now: $673,444,273
3. Decentraland
November 2021: $9.49 billion
Now: $574,917,531
4. Gala
November 2021: $4.96 billion
Now: $453,761,185
Evidently, overall market capitalizations have plummeted, disrupting earlier forecasts for huge sector growth. Of course, this is to be expected during a bear market, but the numbers show just how far GameFi has fallen from grace.
GameFi’s token market capitalization peaked at $27 billion in January 2022, however it currently stands at $4.02 billion, marking an 85.2% decrease at the time of writing. This trend unfavorably affects those who invested amid the hype, with many who bought the top now finding themselves severely out of pocket.
Traditional gamers’ perspectives
In recent years, microtransactions and loot boxes have stirred mixed reactions in the gaming industry. Titles like Fortnite, Overwatch, Rocket League, and Call of Duty embraced these features, altering game dynamics.
Microtransactions span in-game cosmetics, weapons, maps, and collectibles.
Within the realm of web3 gaming, microtransactions somewhat resemble Non-Fungible Tokens (NFTs). Yet, studies suggest most conventional gamers lack interest in NFTs, deterring them from GameFi exploration.
Research by YouGov and Globant in 2022, post the US gaming bull run, revealed:
- 1,000 gamers over 18 were surveyed
- At least three hours of PC/console gaming per day(?)
- 81% never purchased an NFT
- 41% interested in ‘playing’ and ‘earning’ in the metaverse
When combined with the current crypto market scenario, GameFi faces challenges in perceived value.
It’s unsurprising that skepticism surrounds GameFi. Digital asset regulation remains minimal, baffling outsiders. And high-profile incidents like the Coinbase and Binance SEC cases and the FTX meltdown further compound distrust.
Recently, NFT sales plummeted 90% from their peak trading volume. Leading collections also dropped in price, causing massive market liquidations.
So far, traditional gamers show hesitance, prompting a closer look at other industry stakeholders’ stances on GameFi.
Mixed sentiments among mainstream gaming corporations
Mainstream gaming entities remain undecided on GameFi. A lack of clarity on wider crypto regulation, and therefore the sub-markets within it, mean major brands in traditional gaming aren’t yet confident enough in the industry to get fully invested.
Some companies like Namco, Ubisoft, Microsoft, and SEGA introduced GameFi-related products, and esports organizations like Cloud9 integrated Axie Infinity, demonstrating an interest in the technology and its potential
However, significant market gaps hinder GameFi’s expansion:
- Rockstar Games banned NFTs from Grand Theft Auto servers
- Steam prohibited crypto-based games
- Mojang critiqued GameFi’s creation of haves and have-nots
So although some mainstream companies have adopted blockchain technology in some small test cases, notable holdouts hamper broader acceptance.
For example, Steam, which hosts over 100 million monthly users, is blocking a huge audience from onboarding. Games are reliant on user growth and engaging mechanics, therefore facing challenges if user numbers stagnate or decrease. And Axie Infinity’s slow decline exemplifies this issue.
What steps need to be taken for GameFi to reach its full potential?
In 2022 and 2023, the crypto markets will face many challenges. Nevertheless, games like The Sandbox and Axie Infinity introduced some exciting updates. Development teams transitioned to powerful tools like Unreal Engine 5, departing from early mobile-like graphics, which is a big step in the right direction.
To realize its potential, GameFi also needs captivating gameplay and narratives. Titles such as Phantom Galaxies, Star Atlas, and Farcana lead this push, with more expected to follow.
Further, influential corporations reevaluating web3 and blockchain adoption is crucial. Regulatory clarity can certainly help the bigger, traditional brands feel more comfortable investing time and money into GameFi and metaverses.
Shifting the status quo could lead to companies like Nintendo and Rockstar embracing GameFi, yielding a more sustainable and accepted experience for players and developers.
Lastly, despite controversy, NFTs significantly shape blockchain gaming. Altering market dynamics is vital for GameFi’s full realization.
In summary, the path ahead for GameFi is clear. Amid a bearish market and persisting skepticism, the broader crypto industry’s next few months will reveal its trajectory.
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