GameFi: How Play-to-Earn Cryptocurrency Games Work

GameFi ecosystems allow players to earn digital assets by playing games.

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GameFi is a blend of the words “gaming” and “finance,” referring to video games that are developed using blockchain technology.

Aside from being a catch-all term for blockchain gaming, GameFi is a movement that is rapidly growing in popularity. The crypto research firm DappRadar reported over 800,000 daily unique active wallets across the GameFi market in August 2022.

The industry is estimated to have a market cap of about $8 billion, a relatively small figure when compared with those of publicly traded video game companies. One of the most popular video game companies, Activision Blizzard, has a market cap of over $56 billion.

But GameFi has grown rapidly in recent years, and its market cap could be as high as $74.2 billion by 2031, according to a 2022 analysis from market research firm ReportLinker.

What is GameFi?

Traditionally, the video game industry has been made up of play-to-win games — or, perhaps more accurately, pay to play. From sticking quarters into a machine at an arcade to buying a console game at a store, gamers have historically been the players and the payers.

In recent years, some video game developers have added pay walls inside games, so gamers have had to spend additional money to unlock certain features of a game they've already bought.

GameFi games, in contrast, are play to earn, where players can earn cryptocurrency through playing the game.

“For traditional games, you put money and time into the game, and you get fun out on the other end,” says Jason Brink, president of blockchain for Gala Games, a company that is developing an ecosystem of 14 games. “What makes GameFi different is that you can change the ratio of time to money to get a different amount of fun and maybe a little money on the other side as well.”

How much money can you make?

Many of the games on blockchain networks are free to play. So, can anyone with a talent for gaming rake in a huge amount of cash? Probably not — at least not without a substantial time commitment.

Though the cryptocurrency tokens created by GameFi developers for the in-game economy hold real value, they’re generally worth a few cents if not fractions of a penny. But they can carry greater value within a video game ecosystem.

“Let’s say you play one game and you accumulate a war chest with some ungodly amount of crypto tokens,” says Jean-Paul Faraj, head of community and partnerships for Unstoppable Games, a company that is developing its first game. “Even if those tokens have almost no dollar value, they might have value compared to another game because we’re on a decentralized market where you can trade and exchange tokens.” For example, he notes, you might be able to use tokens earned in one game in a separate game.

The amount of money you make also depends on the choices you make in the game.

“In traditional games, each player-controlled character is going to have roughly the same experience. But what if you had a player that could own a city?” Brink says. “Or a player that owns a ship and can shuttle 20 players back and forth to different locations? … Could you make a lot of money? Sure. But depending on what you choose to do in the world, your outcome might be drastically different.”

How do GameFi companies make money?

Because many of the games are free to play, most GameFi companies make money through NFTs, or non-fungible tokens, which are digital identifiers generally linked to an image or video. NFTs in the GameFi space are often avatars that you can use for your gaming character, but they can also be tools or items you can use in the game universe.

Companies like Gala Games will release these NFTs to the public, and then they can be traded on exchanges like OpenSea or LooksRare. When an NFT is bought or sold, Gala makes a 2.5% royalty fee. Considering some NFTs are listed on these sites for hundreds of thousands of dollars, the revenue from royalty fees can add up fast.

Some companies do not collect royalty fees on NFTs but will take a small percentage of each transaction happening inside the game.

Possible scams

If you’re thinking about using GameFi games to earn crypto, tread carefully. Though some games are legitimate, there have been several allegations against different GameFi development companies over scamming players.

In late 2021, a game called Squid — inspired by the Netflix show "Squid Game" but not affiliated with it — ended in an apparent rug pull. Squid promoted itself as a play-to-earn game but didn't allow players to sell the tokens. This pumped up the price of each token from 1 cent to over $2,800. The developers made off with over $3 million.

Avoid games that don't allow you to sell tokens or lack a following.

“If you hear about something that’s GameFi and you can’t even play the game, or at least see other people playing who aren’t on the development team, it’s probably not legit,” Brink says.

How to get started

Most games in the GameFi space are free to sign up for and play, so all you need to do is set up a user account and password. In some cases, you might also be asked to set up a digital wallet for cryptocurrency you might earn during the game. Keep your log-in information in a safe place because it is the only way to verify that you own whatever is in your wallet.

You don’t have to be an expert gamer or a cryptocurrency expert to get started, but it’s helpful to read reviews of games beforehand. If you're new to the GameFi space, you'll generally want to look for games that have an established following with a large user base.

Neither the author nor editor held positions in the aforementioned investments at the time of publication.

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