GameFi Sector Report

What is GameFi?

GameFi is a combination of games with financial incentives made possible by blockchain technology and cryptocurrencies. This concept gives modern-day gamers the ability to own their own digital assets and take part in the various virtual economies being built within the Web 3 world.

GameFi offers gamers extreme ownership which encourages users to participate in the numerous blockchain ecosystems and explore the games being developed on these chains.

At the core of it all, when we evaluate the success that has come from Web 2 gaming, we focus mainly on how entertaining the games are and how much fun people get out of playing these games. Thus the Web3 gaming world has to create applications that at the core are fun but also offer interoperability and earning components that are extra benefits.

Current blockchain gaming trends within Web 3?

Free-to-Play

No financial barrier to entry etc (however this model is still working on establishing long-term sustainability).

eSports

Traditional esports revenue exceeding $1 Billion - Web 3 new opportunities to compete and host decentralised tournaments.

Move-to-Earn

Applications like StepN - where the gaming model incentives users to exercise/be active.

Generated Content

User-Players can build and customise their characters/items etc and mint as an NFT.

NFTFi

NFT financial model - lending and staking NFT = new revenue stream for gamers and NFT collect.

Free-to-Own

Free NFT collections for a project's early community and allowing the market to determine the asset's fair value over time.

Gaming Accessibility

Accessibility is a primary criteria to target when launching a game as the more accessible a game is the more users the game can attract. Mobile applications such as sweat coin are great examples of easy-access applications that already have large audiences who are familiar with downloading and using smartphone applications, thus why they experienced such a large influx of new users.

Web 2 to Web 3

In September 2022, Sweat Economy transitioned from its initial Web 2 model to a Web 3 gaming model built on NEAR Protocol. The move-to-earn application had been operating on Web2 since 2016, attracting 120m users worldwide. Users of the Sweatcoin app were airdropped tokens for their activity on their platform. Sweat Economy is one of the largest smartphone applications to have integrated Web 3 - 72 hrs prior to their Token Generation Event (TGE) they saw 2 million downloads and become the most downloaded financial application in 51 countries.

Stats at a Glance

Funding for Gaming

According to Footprint Analytics, the Web 3 gaming industry experienced a significant milestone in 2022, with investors injecting over $2.5 billion into the sector by September. This represents a substantial increase compared to the $874 million invested in 2021. Metaverse and Gaming projects received more funding than blockchain tooling, trading, and lending projects, with their share growing from 8.46% to 11.47% in 2022.

During the seed phase, approximately 48% of funding in GameFi projects was secured, indicating strong early-stage interest and support for this sector. These investments in GameFi games by VCs are progressing towards their launch in the current market, suggesting the potential for significant establishment for the GameFi sector in 2023/2024.

Number of Investments: Market Share in 2021 and 2022 by Category

Moving forward to the second quarter of 2023, investments in blockchain gaming and metaverse projects experienced a 31% increase from Q1 2023, reaching a total of $973 million. This surge in investment reflects a renewed and sustained interest in the GameFi sector, underscoring its growing significance within the industry.

Source: Dapp Radar - State of Blockchain Gaming in Q2 2023

Does Ecosystem Matter?

The success of games like Alien Worlds on the Wax network and Splinterlands on Hive showcases that building a game on a large blockchain may not be the sole determinant of success in the gaming industry. These games have managed to attract a substantial user base and maintain active player engagement, despite not having the most extensive library of games on their respective chains.

Market Share of Gamers

Source: Footprint Analytics- Market Share of Games on Chain

• Gaming-focused blockchains Wax and Hive together share 51% of the total market of gamers.
• Hives share has dropped 15% since November 2022, and Wax has increased its market share by 15% since November 2022.

Instead, the key factors contributing to their success lie in their user-friendly processes and accessibility. Both Alien Worlds and Splinterlands have focused on providing straightforward onboarding experiences, making it easy for players to connect their wallets and start playing. Moreover, they have prioritised mobile compatibility, recognising the large user base of mobile device gamers.

Source: Dapp Radar - State of Blockchain Gaming in Q2 2023

Stats Overview

These games demonstrate that a dedicated user base can be built on a blockchain platform, irrespective of its size. By emphasising user experience, practicality, and accessibility, these games have managed to create a game where players don't feel like they have to transition from Web 2 to Web 3.

Therefore, while building a game on large ecosystems may offer certain advantages, such as exposure to a broader user base, more liquidity, and more developers, it is not the sole determining factor for the success of a game. The key lies in developing a compelling game concept, ensuring user-friendly experiences, and addressing the needs and preferences of the target audience. Ultimately, it's the game's quality, engagement, and user satisfaction that matter most in driving success.

Source: Dapp Radar - State of Blockchain Gaming Top 5 Gaming blockchains

TOP FIVE CRITERIA

When analysing a new Gamefi project we believe that these criteria should be considered before investing.

Gameplay and Audience

Unique and high-quality gameplay is crucial, targeting a broad range of players and attracting audiences from similar games in Web 2.

The Team

The team needs experience and a good track record in game development, as well as a strong vision and a solid Web 3 foundation for their token.

Tokenomics

The game needs a sustainable economic design that supports token accrual and brings value to players, with a purpose for the token.

Design and Accessibility

Games should be easily accessible, with a low entry point (such as free-to-play) and enjoyable gameplay. Pay to Play games are also important models that have worked extremely well in the Web 2 gaming sector. The success of Pay-to-Play games comes from the enjoyability of the game which is the number one priority when building a game. Game design must have a social element so that players can collaborate and feel more connected.

Social Engagement and Enjoyability

The game must prioritise fun and enjoyment, as it supports long-term survival for the game and its virtual economy.

In Summary

Overall, while building on large ecosystems offers certain advantages, a game's quality, engagement, and user satisfaction are ultimately what determine its success in the GameFi sector. By prioritizing user-friendly experiences and meeting the preferences of the target audience, GameFi projects can achieve significant growth and establish themselves as prominent players in the evolving world of blockchain gaming.