The Meteoric Rise of DeFi Gaming
Overview
- The gaming sector is one of the most lucrative entertainment sectors in the world with a current value of over $180 billion and projected to double in the next five years.
- DeFi gaming projects have a total combined market cap of only $14 billion with plenty of room to grow as the model shifts from renting to owning
- Play-to-Earn: Millions of people in the Philippines, Venezuela, Vietnam, and Brazil are making a living wage ($1500+/mo) by playing this emerging play-to-earn model which is quickly driving adoption of the sector.
- Actual quality of gameplay in DeFi games is currently falling far short of traditional pc/console games.
- Future drivers of value in DeFi games include: in-game decentralized exchange, bridging of assets and characters to multiple games across multiple chains (metaverse), improved gaming quality.
- The Metaverse Index (MVI) tracks growth of blue chip metaverse plays. It set an all time high in August while most other indexes for other crypto sectors were struggling to recover (chart below).
Future of DeFi Gaming
From renting to owning
As talented game developers continue to pour into this space and build the next wave of DeFi gaming platforms, we eagerly await for a game that rivals those of legendary franchises like Halo and Call of Duty. In this generation, the model switches from renting to ownership. Players will be able to sell their rare in-game items for profit, burn multiple less rare items for ones with more desirable properties, even rent out specific characters that they own for given periods of time.
Metaverse
Driving arguably even more value will be games that live in the Metaverse. In these virtual 3D worlds, players will be able to own digital property which can be built out and profited on in any way they see fit. Characters from various blockchain games and applications will be used interchangeably across networks in a fashion never seen before.
In-game Decentralized exchange (DEX)
During the bull cycle subsequent to our current one in roughly 2025, games will have built in decentralized exchanges that transfer in-game assets via NFTs. The integration of NFTs into large scale video games that represent ownership over digital plots of land, assets, and even the games themselves will be something to look forward to in the coming years. Creators of these applications will be enriched beyond what is currently capable in current times as every aftermarket sale returns a royalty percentage back to them.
Case Study: Axie Infinity
The market leader in the gaming sector and pioneer in the play-to-earn space is Axie Infinity and their AXS token. It currently sits at a market cap of $7.5 billion priced at $122.23. At its recent peak, it was evaluated at higher than video game giants Ubisoft, Capcom, and Zynga. This incredible run (up 150x since launch) was foreseen by a select few that envisioned the traditional gaming model turned on its head which is exactly what is taking place.
The majority of the parabolic run from AXS began in late July where the token price rallied over 750% in the course of a few months as it became widespread news the kind of money that could be made by playing this game and the market potential behind this sector as a whole. At the end of September, Axie launched their staking capabilities to allow their users to make passive income from the tokens they were rewarded from playing. The Axie team also rewarded early adopters by airdropping over 800,000 AXS tokens to players of their game.
Axie is attractive not necessarily because it is the most engaging game ever created, but it offers a play-to-earn model that actually pays users for time spent playing the game. It generates revenue whenever someone purchases an Axie, which is an NFT that is roughly a digital pet that is needed to play the games, but can also be bred, rented, and even traded amongst players. This revenue has been considerable in recent months where it topped out at $364 million in August and is now reporting $520 million in daily transaction volume.
Surge of Gaming Projects
Axie Infinity is just the first of many poised to take the lead against traditional video game companies like Blizzard and Roblox. We are seeing many other DeFi gaming projects coming out that are working to improve Axie’s model. With projects like Metalands, Derby Stars, and AnRkey on the horizon, we look forward to watch the future of DeFi gaming as it expands and iterates to reach the global audience.
The Bottom Line:
It is undeniable that DeFi gaming has a lucrative future for those looking to fuse so many technological verticals into one package. While we are in the early stages of this with the emergence of Axie Infinity and others like it, the wider audience of individuals that not only enjoy playing video games for entertainment value but also monetary reward is still years from fruition. There will be a day when people are extracting value from but also completely engaged in the superior immersive level of their gameplay. Just like when Ethereum launched in 2015 and had capabilities that were not even close to being imagined, this sector is just warming up as well.
About RF Capital
RF Capital is an alternative investment firm with a special focus in the underlying infrastructure of the blockchain space. Other areas of specialization include real estate, debt/equity markets, and OTC trading.
