During the past 12 months, the GameFi market has seen significant changes. Amid a bear-ish crypto market, most, if not all, of the sub-markets have suffered. These markets include decentralized finance (DeFi), non-fungible tokens (NFTs), and GameFi. This begs the question, what is the impact of the bearish market on GameFi?
Sure, some of the more well-known cryptos and NFTs have maintained their tenuous grasp on the market during the downturn, but smaller and less popular projects have suffered setbacks. Sure, DeFi is far from dead, but the fallout associated with LUNA will have a devastating effect on the DeFi market as a whole.
Additionally, sub-sectors like GameFi have seen a dropoff in the market cap of blockchain games, along with a decline in active players and users. As a result, there are legitimate concerns about the market and whether it has the chops to withstand a sustained bear market.
We’ll take a closer look at the state of GameFi and the impact of the bear-ish market, but first, let’s pull back a little bit and define GameFi.
What is GameFi?
If you’re not familiar with GameFi, but want to learn more, there are plenty of resources available that provide detailed information. For now, let’s take a high-level look at what people mean when they talk about GameFi.
For starters, it typically refers to blockchain games that offer a play-to-earn economic system. This is used as a way to incentivize players to continue playing a game. Most often, users earn rewards in the form of cryptocurrency or NFTs. There are received upon completing certain tasks, reaching specific levels, or defeating other players.
However, NFTs games will allow players to move the items earned in-game to the real world, unlike their traditional counterparts. This gives players a way to sell or trade their hard-earned items for cryptocurrency. Typically this is done through an NFT marketplace.
Should We Be Concerned About It?
As we make our way toward the third quarter of 2022, some speculate that the first half of the year accurately represents the blockchain-based games market, while the exploding GameFi sector at the end of 2022 was the anomaly.
This is largely due to the massive exodus occurring in popular Ethereum-based blockchain games. These include games like Decentraland, The Sandbox, and Axie Infinity, which have suffered a 96% decline since the highs these platforms experienced in November 2021.
It might be tough to pinpoint the exact reason the GameFi market has seen such a decline, but many in the industry point to Axie Infinity as a prime example of what’s going on. As its native token, Smooth Love Potion, continues to decrease in value, so too does the market for GameFi.
That’s not to say that popular blockchain games like Axie should be written off. The game is still among the leaders in the market, but that doesn’t mean everything is well and good. But, overall, experts within the industry believe the dropoff in active users can be attributed to a slowdown in other crypto-related areas, such as NFTs and the Metaverse.
However, the GameFi industry isn’t entirely without blame. Many point to a reduction in in-game rewards as a key contributor to the decline in blockchain-based game participation. Because of this, the GameFi market needs to find a way to offer better, more sustainable products that will draw in new users.
Of course, there’s more to it than just providing better rewards. There are three major items that the GameFi market needs to focus on. These are incentives, barriers to entry, and inflation. While it might be easy to address one of these areas, balancing all three is a tall task.
Is There Really a Market for GameFi?
While there is plenty of opportunity within the GameFi industry, the market’s perception will cause problems in the short term. The most significant problems users see within the GameFi sector are shilling, rug pulls, malicious users, and other nefarious behaviors. These are some of the primary drivers behind the exodus of NFTs and blockchain-based games.
The good news is that the NFT industry still puts Ethereum at the forefront, despite the fact that its fees are much more than other, more affordable options. Still, there isn’t a simple and easy-to-understand onboarding process available for those who wish to enter the GameFi market.
On the other hand, those that do get involved believe that blockchain games can wind up having a positive effect on traditional gaming. The market for this type of gaming is available, but until mainstream developers hop on board, it’s going to be tough sledding. Once the market dictates a play-to-earn model, we’ll see more traditional developers join the fray.
We know that not all play-to-earn models will make the cut, but that doesn’t mean there aren’t reasons to be optimistic about how the current market looks. For example, it’s clear that games that offer in-game rewards are successful, so blockchain-based games have become a player in the market.
The problem in the short term is finding the right buttons to push for those who want to enter the market. Plus, when the sector sees a massive wave of users, it can be tough to manage in-game economies and tokenomics. This just goes to show that with any nascent technology, there are advantages and disadvantages.
Will GameFi Survive?
Can GameFi survive the current downturn in the crypto market and come out on the other side. Signs point to yes, but the GameFi market may suffer severe setbacks in the process. While popular games hang on, it’s clear that the impact of the bearish market on GameFi will make survival a challenge.