What is the role of cryptocurrency and tokenomics in a GameFi platform?
As you may already be aware, GameFi represents the intersection between gaming and finance. More specifically, players are able to earn and trade cryptocurrency and NFTs through their actions in-game. This new paradigm is opening vast new opportunities for traditional game creators and players.
For a number of years, gamers have demanded more interaction with the games they play. Tired of the ‘player-as-consumer’ model, as gaming has increased in popularity so have player expectations. GameFi provides players with the chance to be rewarded for their time and effort and therefore the shift towards ‘player-as-owner’ is upon us.
In the GameFi scenario, as players progress through the game they are rewarded with platform native cryptocurrency which is used to purchase in game items. Along with any cryptocurrency earnt, in-game items can then be sold on the open market. This broad scope of enterprise is what differs GameFi from traditional closed environment gaming.
It is therefore easy to understand the important role cryptocurrency plays in the GameFi narrative and with record cryptocurrency prices on the near horizon, the stakes have never been higher.
Tokenomics
A term which has garnered favour in the last 2 to 3 years, tokenomics refers to the dynamics of cryptocurrency supply and demand and how it is managed by projects and platforms, including GameFi.
At the birth of almost every crypto venture, a decision is made to determine the distribution of tokens. Early coin receivers often include the development team, venture capital investors, paid shills and so on. A significant proportion (avg. 70%) is often left for distribution on the open market. Transparency is considered good practice and it would hard to find a project that is not clear about their own distribution structure.
Token allocation strategies can be complicated with many projects preferring to ‘drip feed’ their coin onto the market in order to avoid large capitalisation status over night. Whatever decision is taken, the distribution of crypto plays a significant role in determining the value and utility of the native token.
By controlling token allocation, developers are able to ensure that no one party dominates. This is important when you consider many gaming platforms adopt a Proof of Stake governance model which involve community members in protocol decision making.
Contributing factors
Outside of governance, cryptocurrency is an essential part of GameFi design. Tokens are used to incentivize play by rewarding players for completing tasks or achieving certain in-game milestones. As I mentioned above, crypto can then be used to purchase in-game items or traded on an external exchange. In some games such as Project Lambo, items earnt or purchased in-game become NFTs (non-fungible tokens) due to their limited availability and unique design. Again, NFTs may be collected or traded for more crypto via an online exchange.
The scarcity of NFTs along with continued market growth ensures that demand for in-game tokens remains high. Whilst it is sometimes difficult to see the wood for the trees, anyone with long term vision can see how a continuing demand for tokenised assets in the medium to long term will be a significant driver in the continuing expansion of the cryptocurrency space.
Therefore, it goes without saying that the ongoing evolution of gaming toward a ‘player-as-owner’ reward structure is likely to be a powerful and key contributing factor in the further growth of the overall crypto economy.
