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How Does GameFi Work and What Is It?

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GameFi/courtesy GameFi/courtesy

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GameFi is a term used to describe play-to-earn blockchain games that provide financial incentives to players. Players can typically earn cryptocurrency and NFT rewards by completing tasks, fighting other players, and progressing through the various game levels.

Unlike traditional video games, most blockchain games allow players to transfer game items outside of the virtual world. Players can trade their items on NFT marketplaces and their crypto earnings on crypto exchanges as a result of this.

Since the rise of Axie Infinity, GameFi has been rapidly engulfing the traditional gaming industry. It entices gamers by providing them with the opportunity to earn money while having a good time. What exactly is GameFi, and how does it differ from the video games we’re used to?

What exactly 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 rewards are earned by completing tasks, 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.

What is GameFi and how does it work?

The reward in GameFi can take many forms, including cryptocurrencies and in-game assets such as virtual land, avatars, weapons, and costumes. 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 can be traded on NFT marketplaces. In some cases, however, in-game assets must be converted into NFTs before they can be traded or sold.

In most cases, in-game assets will provide players with certain advantages, allowing them to earn more rewards. However, some games include avatars and cosmetics that are purely cosmetic and have no bearing on gameplay or earnings.

Players can earn rewards by completing tasks, fighting other players, or building monetized structures on their plot of land, depending on the game. Some games allow players 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 common features.

Model of play-to-earn (P2E)

Play-to-earn (P2E) is a revolutionary gaming mode at the heart of GameFi projects. It’s quite different from the traditional video game pay-to-play model. Pay-to-play games require players to make an initial investment before they can begin playing. Video games such as Call of Duty, for example, require players to purchase 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 also allowing them to earn money.

Keep in mind, however, that everything depends on the model and game design used by the GameFi projects. Players can (and should) have complete control over their in-game assets thanks to blockchain technology, but this isn’t always the case. Before you jump into a P2E game, make 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 generate revenue, some GameFi projects require you to purchase NFTs or cryptoassets before you can participate. As a result, it’s critical to always DYOR and assess the risks. If you start a P2E game with a large investment and the rewards are small, you’re more likely to lose your money.

Axie Infinity is one of the most popular play-to-earn games. It’s an Ethereum-based NFT game that’s been gaining traction since its launch in 2018. Gamers can earn SLP tokens by completing daily quests and battling other players with their NFT pets (Axies).

If they achieve a certain PvP rank, they can also receive AXS rewards. AXS and SLP can also be used to breed new Axies, which can then be used in-game or traded on the NFT marketplace.

Aside from buying and selling Axies, players can also lend their Axies to other players, allowing owners to earn money without having to play the game. Scholarship is the term for this type of lending. It allows scholars to play games and earn rewards using borrowed Axies.

To put it another way, Axie owners can make a passive income while scholars can play the game for free. The money earned is divided between scholars and Axies owners.

Ownership of digital assets

As previously stated, blockchain technology enables digital asset ownership, allowing players to monetize their in-game assets in a variety of ways.

Players can have avatars, pets, houses, weapons, tools, and much more, just like in video games. However, in GameFi, these assets can be issued or created as non-fungible tokens (NFTs) on the blockchain (also known as NFT minting). This gives players complete control over their assets, as well as the assurance of authenticity and verifiable ownership.

Land ownership is a central theme in some popular metaverse games, such as Decentraland and The Sandbox. They enable players to profit from their virtual properties. In The Sandbox, players can buy digital real estate and develop it in order to make money. They can, for example, charge visitors to their land, earn token rewards by hosting content and events, or rent out their customized land to other players.

Applications for DeFi

Staking, liquidity mining, and yield farming are all DeFi products and features offered by some GameFi projects. Players can usually use their in-game tokens to earn rewards, unlock exclusive items, or gain access to new gaming levels by staking them.

Adding DeFi elements to crypto gaming can also help it become more decentralized. Unlike traditional game studios, which have centralized control over game updates, some GameFi projects involve the community in the decision-making process. Through decentralized autonomous organizations, they can propose and vote on future updates (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 communicate directly with game developers and have an impact on the game’s development.

Do video games qualify as GameFi?

You are probably asking yourself this question. Traditional video game players can also collect digital assets and earn in-game currency to upgrade their characters. These tokens and items, however, cannot (or should not) be traded outside of the game. Most of the time, they don’t even have any value outside of the game. Even when they do, players are frequently barred from monetizing or trading their virtual assets in real life.

The in-game tokens and assets in blockchain games are typically cryptocurrencies and NFTs. Although some blockchain games use virtual tokens rather than crypto or NFTs, players should be able to convert their in-game assets into NFTs if they so desire. This means that gamers can deposit their winnings into cryptocurrency wallets and trade their assets on cryptocurrency exchanges or NFT markets. They can then convert their cryptocurrency profits to fiat currency as well.

How do I begin playing GameFi games?

There are thousands of blockchain games on the market, each with its own set of rules. Scam projects and fake websites should be avoided at all costs. It’s risky to connect your wallet or download games from random websites. You should, ideally, create a new crypto wallet just for this purpose and only use funds you can afford to lose. Follow these steps to get started if you’re confident the game you found is safe.

1. Make a cryptocurrency wallet

A compatible cryptocurrency wallet, such as Trust Wallet or MetaMask, is required to access the GameFi world. You may need to use different wallets or connect to different blockchain networks depending on the game you’re playing.

To play blockchain games on the BNB Smart Chain (formerly Binance Smart Chain), for example, you must first connect your MetaMask to the BSC network. You can also use Trust Wallet or any other crypto wallet that is supported. To find out which charities the game supports, go to the game’s official website.

You can also connect your cryptocurrency wallet to the Ethereum blockchain and play most of the Ethereum network’s games. Some games, such as Axie Infinity and Gods Unchained, will still create their own wallet in order to save money and improve performance.

Axie Infinity is based on Ethereum, but the Ronin network was created as a sidechain by their team. As a result, to interact with the Axie Infinity ecosystem, you must use the official Ronin Wallet. The Ronin network, as a sidechain, makes it much cheaper to trade and breed Axies, lowering the cost of playing.

2. Make a link between your wallet and the game

You’ll need to connect your wallet to play a blockchain game. Make certain you’re connecting to their official website rather than a spoof. Go to the game’s website and look for the option to link your cryptocurrency wallet.

Unlike traditional online games, which require you to create a username and password, most blockchain games use your crypto wallet as a gaming account, so you’ll probably be asked to sign a message on your wallet before you can play.

3. Review the game’s requirements

To get started, most GameFi projects will require you to buy their cryptocurrency token or in-game NFTs. The requirements vary by game, but you should always consider the earning potential as well as the overall risks. Make sure to calculate how long it will take to recoup your initial investment and begin profiting.

You’ll need three Axies in your game wallet to play Axie Infinity. The Axie Marketplace is where you can get them. You’ll need wrapped ETH (WETH) in your Ronin Wallet to buy Axies. You can buy ETH on crypto exchanges like Binance and transfer it to your Ronin Wallet using the Ronin bridge. Please see How to Use the Ronin Wallet for more information.

Consider applying for a scholarship program if you don’t have any money or don’t want to take any risks. You can borrow NFTs to play with, but you must share your profits with the NFT owners.

GameFi’s Prospects

In 2021, the number of GameFi projects increased dramatically, and this trend is expected to continue in the coming years. DappRadar currently lists over 1,400 blockchain games as of March 2022. Popular games are now available on multiple blockchains, including Ethereum, BNB Smart Chain (BSC), Polygon, Harmony, Solana, and others.

The GameFi growth trend is expected to continue at a rapid pace as blockchain technology develops. GameFi is very appealing, especially in developing countries, because it allows you to own in-game assets and make money from them.


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