GameFi is a term referring to blockchain-based video games offering some kind of crypto reward to players. Also known as play-to-earn games, GameFi is unique for multiple reasons including the ability to transfer in-game assets out of the game and into the NFT marketplace. That’s not something you can do with a legacy nostalgia game like Ms. Pac-Man.
One source estimates as many as 1,400 blockchain games as of March 2022. GameFi is an important part of that number and these games are likely to continue growing in popularity.
The term GameFi is shorthand for “gaming finance”. Some sources disagree, stating that it is a derivative of the term, “gamification”. No matter which definition applies, there are some who think GameFi is nothing more than another way to entice users to play an unknown title.
But GameFi can be far more sophisticated than that, especially when it comes to the motivations to pay players to play an online game. Why would a company offer financial incentives for in-game achievements?
A good example of GameFi can be found with Axie Infinity. This GameFi option is part of a trend of games that require you to pay a setup fee or startup fee in order to earn money from in-game play. You can cash out your Axie Infinity tokens every two weeks (14 days to be precise).
This particular game was created by Sky Mavis, which has also partnered with big names including Samsung and HTC (a virtual reality-focused company). Sky Mavis estimated in 2022 that a typical startup cost to play was around $400 USD, including the cost of purchasing an “Axie” NFT to play the game with.
But a 2021 Financial Times article points out that the setup seems to be closer to gambling and that the ecosystem seems to rely on a constant flow of new players. At the time that article was written Axie Infinity startup costs were at approximately $1,000.
Game Finance, at least in this case, seems to refer to how much money Axie Infinity could ask the users to pay in order to earn crypto. How much can a user earn? A Reddit thread on this topic had some users reporting $7 per day of gameplay as earnings, others reported as much as $2k per month. How much you earn may depend on how much you play and how you play the game.
Axie Infinity is only one example of a GameFi setup. When you participate in a GameFi project you may need to collect in-game assets which may or may not be transferable out of the game and into the world of NFT exchanges. To do this you will need to have a virtual wallet and you may be required to buy the game’s cryptocurrency to buy necessary in-game items, avatars, etc.
When you buy virtual real estate, a game avatar, clothing, and other accessories, you may be purchasing pre-existing NFTs that can be traded in an external NFT marketplace.
You may be able to buy, sell, or trade real estate, weapons and other items without having to jump through the hoops of converting them to NFTs. In other cases that conversion is necessary to put those game assets up for sale in an exchange or market.
These assets are typically necessary for game play and if you want to advance in the game it may be useful to hang on to them for a time–at least until you know how and why you might need to keep the items rather than selling. Some games might feature NFTs or other items specifically meant to sell or trade rather than to facilitate game play.
Earlier we mentioned the Axie Infinity pay-to-play model. This is not an unusual approach, though some platforms do it with varying degrees of transparency and efficiency. For some, the sticking point for GameFi games is that requirement to pay an up front fee before you are allowed to earn money in-game.
Shouldn’t these online games be free to try? In some cases that is true, but in others you will need to part with some money first. But when you purchase a Call Of Duty license or software, you are paying up front to enjoy those games, too.
Once you have paid your money for a GTA Sequel or Call Of Duty title, your in-game experiences are limited by the game’s design. You can’t take your in-game assets out of the gaming environment, you won’t earn money from playing the game, etc.
The design of the virtual world and how it allows you to use its features are also factors in GameFi titles, but with GameFi your understanding of the terms of service are more crucial because of your ability to spend, earn, and possibly lose money.
Do you know whether you are required to buy game assets using a “novel” cryptocurrency or an established one? What happens if there is a technical glitch that causes you to lose funds, game progress, or items?
Just as importantly, what kind of restrictions on your in-game assets apply? If you buy virtual real estate, can you resell it or rent it to others in the virtual world? Or are you stuck with the asset unless you can sell it on an exchange somewhere?
What To Know About GameFi
The major issue with GameFi titles (all potential hacks or cryptocurrency theft issues aside) seems to be the same issue that plagues other crypto operations. Namely, the fluctuating value of the cryptocurrency used to facilitate gameplay, transactions, sales, and exchanges of game assets.
If you buy into Axie Infinity at $200, and you earn $400 worth of crypto through in-game play, what happens if the value of that crypto plunges between your gameplay and your cash-out period?
Losing value is the biggest risk for the average GameFi player, and the ability to cash out every two weeks in the specific case of Axie Infinity makes protecting yourself against loss of value to be more difficult than if you are permitted to cash out whenever you please.
In the same way that crypto exchanges use Know Your Customer technology and procedures to keep their systems secure, you’ll want to research a GameFi platform or provider before investing any money. What kind of reputation does the game have, who was involved in its creation, and who are the other interested parties working with or buying into the project?
Some platforms aren’t shady at all, others may be shadier than you might think. Online reputation is crucial in this very young industry, researching a game like an investment opportunity is not an overreaction to the unknown in the crypto space. After all, it’s your money and if you pay the wrong people, you may be very disappointed in the outcome.
Joe Wallace has covered real estate and financial topics, including crypto and NFTs since 1995. His work has appeared on Veteran.com, The Pentagon Channel, ABC and many print and online publications. Joe is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.