What is Game-Fi and How Does it Work?

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What is GameFi?

The term "GameFi" is a combination of the words "game" and "finance." It refers to blockchain games in which players can earn money by playing. The GameFi ecosystem creates a virtual gaming environment using cryptocurrencies, non-fungible tokens (NFTs), and blockchain technology.

In most cases, in-game awards are earned through fulfilling chores, fighting other players, and progressing through the various game levels. They can also trade their assets on crypto exchanges and NFT marketplaces outside of the game.

Decentralized finance, or DeFi, is an area where token-based transactions such as lending and borrowing take place on blockchains, decentralized digital ledgers similar to those first used with Bitcoin. GameFi is a term that refers to decentralized applications (dapps) that have economic incentives. Tokens are typically awarded as prizes for completing game-related tasks such as winning battles, mining valuable materials, or raising virtual crops. It's also known as the "play-to-earn" strategy. Users can earn money passively in several GameFi apps, such as Alien Worlds, by allowing others to mine their virtual territories. They can also earn income by lending assets like digital characters or depositing them in a staking process invented by DeFi platforms.

How Does GameFi Work?

Details vary, but here's the most basic — and so far most successful — model: it was first used in the game Axie Infinity, which had $564 million in on-blockchain transaction volume in the last 30 days, according to DappRadar. The economy of Axie is built around two tokens, AXS and Smooth Love Potion (SLP), as well as non-fungible tokens (NFT), which are digital certificates of authenticity that represent game characters and digital real estate. Players often invest roughly $700 to purchase Axies, which are little blob-like monsters. They are rewarded with SLP when they win battles and complete quests. Axies can also breed and sell their offspring. AXS is a governance token that grants the right to participate in conversations about the project's future direction. AXS tokens can be staked as well.

The reward in GameFi can take several forms, including cryptocurrencies and in-game assets such as virtual land, avatars, weapons, and outfits. Each GameFi project will have its own game economy and model. The in-game assets are almost always NFTs that run on the blockchain and may be exchanged on NFT marketplaces. In other circumstances, though, in-game assets must be transformed into NFTs before they may be traded or sold.

In most cases, in-game assets will provide players with particular advantages, allowing them to earn additional rewards. However, some games have avatars and cosmetics that are merely decorative and have no bearing on gameplay or earnings.

Players can earn rewards by completing activities, fighting other players, or building commercialized constructions on their piece of land, depending on the game. Some games allow users to earn money without having to play the game by staking or lending their gaming assets to other players. Let's take a look at some of GameFi's most prevalent features.

Play to Earn Model (P2E)

Play-to-earn (P2E) is an innovative gaming mode at the heart of GameFi projects. It's considerably different from the usual video game pay-to-play concept. Pay-to-play games need players to make an initial investment before they can begin playing. Video games such as Call of Duty, for example, require users to acquire licenses or recurring subscriptions.

Traditional video games, in most cases, do not generate any financial returns for players, and the gaming company controls and holds their in-game assets. P2E games, on the other hand, can give players complete control over their in-game assets while simultaneously allowing them to earn money.

Keep in mind, however, that everything depends on the model and game design used by the GameFi initiatives. Players can (and should) have complete ownership over their in-game assets thanks to blockchain technology, but this isn't always the case. Before you jump into a P2E game, be sure you understand how it works and who is behind it.

Another thing to keep in mind is that while P2E games can be played for free and still produce revenue, some GameFi projects demand you to acquire NFTs or crypto assets before you can participate. As a result, it's critical to always DYOR and assess the risks. You are more likely to lose your initial investment in a P2E game if it needs a large initial expenditure and the rewards are limited.

DeFi Applications 

Staking, liquidity mining, and yield farming are all DeFi products and features offered by several GameFi ventures. Players can usually use their in-game tokens to earn awards, unlock unique products, or get access to new gaming levels by staking them.

Adding DeFi components to crypto games can also help them become more decentralized. Unlike typical game studios, which have centralized control over game updates, some GameFi projects involve the community in the decision-making process. Through decentralized independent organizations, they can propose and vote on future upgrades (DAOs).

Decentraland players, for example, can use their governance tokens (MANA) to vote on in-game and organizational policies. The higher their voting power, the more tokens they lock. This allows gamers to directly connect with game developers and have an impact on the development of the game.

Written By - Kritika Sharma