What will future GameFi models look like?

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The terms Game­Fi 1.0, 2.0, and 3.0 refer to the iter­a­tion of Game­Fi titles as they move from ear­li­est and least sus­tain­able to more sophis­ti­cat­ed as the indus­try evolves.

While toke­nomics of dif­fer­ent projects are a sig­nif­i­cant fac­tor (e.g., the num­ber of coins with­in the game), oth­ers, like fund­ing and game qual­i­ty, are also critical.

This report will high­light the pos­i­tive devel­op­ments and short­com­ings of Game­Fi 1.0 to pro­pose what a future Game­Fi 3.0 might look like.

It’s been more than a year since Game­Fi took off, and from a rapid upward climb in user num­bers in the last quar­ter of 2021, it began to taper in ear­ly 2022, with a notice­able drop in February.

With the glob­al base of 3 bil­lion gamers fail­ing to flock to Web3 and the short lifes­pan of most Game­Fi projects, it is crit­i­cal to ask how this indus­try can become more sus­tain­able going forward.

Three Findings in GameFi Development

Projects that develop fast usually sacrifice quality

Game­Fi is a mixed bag, and there is no short­age of fork projects hop­ing to make an easy buck. Between 70% and 80% of Game­Fi projects in the mar­ket are not active, with an aver­age of 200 users per day for 5 con­sec­u­tive days. Even though 80% or more of the projects launched in 2022 were active with­in 30 days of launch, the data indi­cates they are fail­ing to last long.

Footprint Analytics - Days from Project Launch to Active
Foot­print Ana­lyt­ics – Days from Project Launch to Active

Most projects fail to remain active

Data shows that 60% of projects die with­in 30 days of being active, and few projects have been active for more than three months since last November.

Footprint Analytics - Days from Project  Active Launch to Inactive
Foot­print Ana­lyt­ics – Days from Project  Active Launch to Inactive

Most games go from launch to active quick­ly but don’t stay active for long.

Chains differ in their development paths

The chart below shows how quick­ly projects reach active sta­tus after launch. The X axis is the num­ber of days a project takes from launch to active sta­tus, the Y axis is the num­ber of days spent in active sta­tus, and the bub­ble size is the total num­ber of users.

With Splin­ter­lands, HIVE stands out from the rest, as it has been active since its launch and is still going strong, mak­ing it the larg­er yel­low bub­ble in the top left corner.

Footprint Analytics - Project Lifecycle Layout
Foot­print Ana­lyt­ics – Project Life­cy­cle Layout

Ethereum is not Game­Fi-friend­ly in terms of gas fees and trans­ac­tion effi­cien­cy, which makes it less than ide­al for the Game­Fi space. Many projects have long ini­tial climb­ing peri­ods, short active time, and low total users. But it has a strong foun­da­tion, and maybe after solv­ing these prob­lems, more qual­i­ty games will come online to give it a broad­er mar­ket share in GameFi.

On the oth­er hand, BNB’s projects are more like­ly to break out quick­ly, have a medi­um dura­tion, and per­form rel­a­tive­ly well in terms of user num­bers. Poly­gon is mod­er­ate, and Thun­der­Core shows a sur­pris­ing­ly long dura­tion of activity.

Footprint Analytics - Project Lifecycle Layout (Zoom in)
Foot­print Ana­lyt­ics – Project Life­cy­cle Lay­out (Zoom in)

In addi­tion to the bear mar­ket, GameFi’s struc­tur­al prob­lems have con­tributed to the cur­rent sit­u­a­tion. This report will attempt to uncov­er the caus­es of these prob­lems and explore the pos­si­ble future of GameFi.

Structural issues with the GameFi 1.0

The Death Spiral in GameFi 1.0

Game­Fi 1.0, a cat­e­go­ry in which Axie Infin­i­ty was dom­i­nant for a long time, revolves around Play-to-Earn.

Despite dif­fer­ences in game­play (e.g. stak­ing, tow­er pass­ing PVE, card bat­tling PVP) or toke­nomics (sin­gle token, dual token, token + NFT, token-stan­dard, etc.), these ear­ly titles are all Ponzi-like. They rely exces­sive­ly on a steady stream of incom­ing funds in an “exter­nal cir­cu­la­tion” model.

In this mod­el, old play­ers rein­vest with the funds invest­ed by new play­ers, and new play­ers keep pay­ing inter­est and short-term returns to old play­ers to cre­ate the illu­sion that old play­ers are mak­ing money.

All the tokens mint­ed by old play­ers need to be con­sumed by new play­ers, or oth­er­wise, play­ers will keep sell­ing, caus­ing the token flow pool to have only sell­ers and no buy­ers. In this case, the token price will enter a death spiral.

 External circulation model
Exter­nal cir­cu­la­tion model

As seen from Foot­print Ana­lyt­ics data, after steady growth from July to Sep­tem­ber 2021 and an explo­sive peri­od from Octo­ber to Novem­ber, incom­ing funds across the sec­tor began to slow down due to the gen­er­al envi­ron­ment and the impact of indi­vid­ual projects.

Under such cir­cum­stances, the exter­nal cir­cu­la­tion mod­el of Game­Fi 1.0 quick­ly became prob­lem­at­ic, as out-of-game funds can­not meet the con­stant demand for in-game funds to gen­er­ate inter­est, thus grad­u­al­ly trans­form­ing the pos­i­tive spi­ral into a death spiral.

Footprint Analytics - GameFi Token MarketCap
Foot­print Ana­lyt­ics – Game­Fi Token MarketCap

Thus, most Game­Fi 1.0 projects had, or will have, only one cycle, and once the death spi­ral begins, they can­not be revived. Dif­fer­ent mod­els, teams, back­grounds, oper­a­tions, and envi­ron­ments influ­ence the over­all project through­out the process and can pro­duce a vari­ety of cycle patterns.

The cold Game­Fi win­ter was as much caused by the industry’s Ponzi-like char­ac­ter as the macro­eco­nom­ic envi­ron­ment. The growth rate of the over­all cap­i­tal expan­sion of tokens has not kept up with the demand for cap­i­tal rev­enue with­in the games, cre­at­ing an inevitable bub­ble burst.

New Innovations

Some projects began to inno­vate with eco­nom­ic mod­els and saw a burst of pos­i­tive activ­i­ty from Feb­ru­ary to March despite the poor environment.

Craba­da on Avalanche and Star­Sharks on BSC are the most promi­nent among them. Star­Sharks used its sup­port from Binance in the ear­ly stage to keep its pop­u­lar­i­ty high, with “Gen­e­sis Mys­tery Boxes”—an in-game NFT—having a high price even before the game was launched.

Unluck­i­ly, the game’s launch coin­cid­ed with the Game­Fi win­ter. There­fore, Star­Sharks had few play­ers in the ear­ly stages.

How­ev­er, Star­Sharks’ back­ing, eco­nom­ic mod­el, and game quality—as well as its active community—allowed it to grow steadi­ly through­out Q1. It began to decline grad­u­al­ly after peak­ing in April.

Footprint Analytics - StarSharks Monthly New Users & Active Users
Foot­print Ana­lyt­ics – Star­Sharks Month­ly New Users & Active Users

III. Tokenomics of GameFi 1.0 projects

Toke­nomics can deter­mine the life cycle of a project, as can be seen by look­ing at sev­er­al dif­fer­ent games.

Axie Infinity

Axie Infin­i­ty, as the orig­i­na­tor of P2E, had unmatched resources and a play­er com­mu­ni­ty at the begin­ning of the bull mar­ket. There­fore, it was able to main­tain a few months of upswing with only the basic dual token mod­el and breed­ing sys­tem. How­ev­er, it faced a slow decline after­wards yet still retains some loy­al users.

Footprint Analytics - Axie Users & AXS Token Price
Foot­print Ana­lyt­ics – Axie Users & AXS Token Price

BinaryX

Bina­ryX attract­ed many users in the ear­ly stages because it paid out a lot of APY and returned to ear­ly play­ers very quickly.Now it has an infla­tion prob­lem with its tokens. Once there is not enough rev­enue, it will imme­di­ate­ly enter the neg­a­tive feed­back phase and the num­ber of users will drop rapidly.

How­ev­er, with the exchange and the project’s con­trol over BNX, the price of the token has rebound­ed, but there are still very few users.

Footprint Analytics - Binary Users & BNX Token Price
Foot­print Ana­lyt­ics – Bina­ry Users & BNX Token Price

CryptoMines

The sin­gle token mod­el of Cryp­toMines is pure Ponzi, and its life­cy­cle shape is rep­re­sen­ta­tive of most degen projects.

In the ear­ly stage of the project, with a very short pay­back cycle to attract a large num­ber of funds, users and mar­ket cap will have a huge pull up. When the bub­ble blows to the crit­i­cal point of mar­ket cap­i­tal and emo­tions quick­ly burst, the high­er it ris­es the faster it falls.

Footprint Analytics - CryptoMines Users & ETERNAL Token Price
Foot­print Ana­lyt­ics – Cryp­toMines Users & ETERNAL Token Price

While the eco­nom­ic mod­els, oper­at­ing mod­els, and life forms of the projects vary, both the blue-chip Axie Infin­i­ty, the degen Cryp­toMines, and the meta-uni­verse con­cept The Sand­box all faced trou­ble in Decem­ber 2021.

Footprint Analytics - MC of Axie & The Sandbox
Foot­print Ana­lyt­ics – MC of Axie & The Sandbox

StarSharks

Based on the expe­ri­ence of the for­mer above, Star­Sharks’ also uses the clas­sic dual token mod­el, with SEA as the main out­put and SSS as the gov­ern­ing token. This has allowed it to cre­ate a small boom in the win­ter, and its mod­el deserves to be explored even more.

In order to pre­vent the death spi­ral caused by infi­nite infla­tion of the in-game token SEA like oth­er dual token mod­els, Star­Sharks turns the require­ment to enter the game into con­sum­ing SEA to buy a blind box, thus shift­ing the pres­sure from token dump­ing to the NFT pool. So SEA takes the mas­ter con­trol effect, and 90% of the con­sumed tokens are direct­ly burnt, so the cir­cu­la­tion of tokens is even less.

The gov­ern­ing token SSS is main­ly the empow­er­ment of stak­ing div­i­dends, and its out­put is not much in the case of its gen­er­al empow­er­ment role.

StarSharks Economic Models
Star­Sharks Eco­nom­ic Models

From Foot­print Ana­lyt­ics, the num­ber of active users has been grow­ing even­ly from Jan­u­ary to March, indi­cat­ing that the num­ber of SEAs con­sumed at the time also increased equally.

How­ev­er, from the begin­ning of March, the price of SEA start­ed to trend down­ward, reflect­ing the accu­mu­la­tion of sev­er­al months. The num­ber of SEA mint­ed in the game shows an accel­er­at­ing trend, and the out­put is greater than the con­sump­tion, high­light­ed by the price decline.

As it turned out, Star­Sharks lit the fuse at the begin­ning of April when the num­ber of users began to fall off a cliff after the can­cel­la­tion of dai­ly tasks and the rental mar­ket. So for the Game­Fi project, mod­el analy­sis and data track­ing can give some indi­ca­tion of the cycle the project is in.

Footprint Analytics - StarSharks Token Price vs Active Users
Foot­print Ana­lyt­ics – Star­Sharks Token Price vs Active Users

Star­Sharks couldn’t escape the death spi­ral, and the game’s strengths and weak­ness­es can teach the Game­Fi space sev­er­al lessons.

Strengths

    • Game­Fi vol­ume is still small, a few hun­dred active users can revi­tal­ize the project in the ear­ly stages.
    • The project com­bined with the back­ground nar­ra­tive, which added to play­ers’ expec­ta­tions for the Game­Fi project in March to April, and gained the inter­est and trust of a large num­ber of users.
    • The team suc­cess­ful­ly seized the turn­ing point of the two peri­ods and adjust­ed the return cycle of short-term play-to-earn to the sta­ble rev­enue, with the main­te­nance of the com­mu­ni­ty and large users, to sta­bi­lize the spread of the wealth cre­ation effect.

Weaknesses

      • Although the life cycle has been length­ened, it did not change the over­all structure.
      • The rhythm of the sub­se­quent new updates did not keep up in time, result­ing in the exo­dus of some prof­itable users and destroy­ing the balance.

IV. What are the possibilities for GameFi’s future?

While every­one was expect­ing it, Game­Fi 1.0, which offi­cial­ly entered the sec­ond half of the year, didn’t seem to have too bright a per­for­mance in Q2. No mat­ter from the num­ber of games or the over­all game cap­i­tal, they all show a slow decline.

Footprint Analytics - Monthly Number of New Projects
Foot­print Ana­lyt­ics – Month­ly Num­ber of New Projects

So, what kind of mod­el can allow Game­Fi to devel­op in the future?

High-quality AAA games

3A games refer to games with high devel­op­ment costs and qual­i­ty. There is no objec­tive cri­te­ria for 3A, so in the Game­Fi space, games are gen­er­al­ly rat­ed based on the strength, back­ground, the vision of the project and the game demo. Cur­rent­ly, rec­og­nized 3A games include Big­Time, Illu­vi­um, StarTer­ra, Sidus, Shrap­nel, and Phan­tom Galaxies.

These 3A games have the obvi­ous advan­tage of often gain­ing huge atten­tion ear­ly in the project, but there are still var­i­ous issues that play­ers criticize.

  • The devel­op­ment process is too slow.
  • Con­tent and pic­ture qual­i­ty are only slight­ly bet­ter than Web3, far from the lev­el of tra­di­tion­al games.
  • IDO and INO are not enough to empow­er game assets.
  • Roadmap is ambigu­ous or not ful­ly implemented.

Some of the projects that have issued tokens have fol­lowed the over­all Game­Fi mar­ket down­hill in the first half of the year.

Footprint Analytics - Monthly Number of New Projects
Foot­print Ana­lyt­ics – Month­ly Num­ber of New Projects
BigTime often hosts parties or competitions within the game
Big­Time often hosts par­ties or com­pe­ti­tions with­in the game
Illuvium was still able to sell all of its 2W lands in a very short time at the beginning of June
Illu­vi­um was still able to sell all of its 2W lands in a very short time at the begin­ning of June

In the future, there will be a time when 3A games will blos­som, with MOBA, RPG, SLG cre­at­ing dif­fer­ent scenes and dif­fer­ent con­tent accord­ing to their own posi­tion­ing. Instead of think­ing too much about P2E, the game will use inter­est­ing game­play and con­tent to attract users to expe­ri­ence the game and enjoy the unique fea­tures enabled by blockchain. Maybe users have to wait for a while, maybe next year Q2, Q3, or even longer, but this is the direc­tion of the market.

Narrative-based X2E products

StepN launched the Move-to-Earn trend. It has also cre­at­ed the “X2E” sub­cat­e­go­ry, which encom­pass­es var­i­ous activ­i­ties that might be com­pen­sat­ed via games’ toke­nom­ic mod­els. E.g., Learn-to-Earn, Sleep-to-Earn, Watch-to-Earn, and Sing-to-Earn.

As seen by Foot­print Ana­lyt­ics, while oth­er mod­els of X2E are still in the ear­ly con­cep­tu­al stages, M2E’s StepN led the wave in May, and oth­er imi­ta­tors are pop­ping up all over the place.

Footprint Analytics - X-to-earn Token Price
Foot­print Ana­lyt­ics – X‑to-earn Token Price

How­ev­er, except for Genopets, which is a game in the mode of Poké­mon, oth­er X2E projects such as StepN, SNKRZ, Melody, FitR are more like Web3 prod­ucts with prof­it-mak­ing attrib­ut­es, so this piece needs to focus more on the social attrib­ut­es brought to users.

As a big meta-uni­verse scene, Social­Fi is also always what play­ers are look­ing for. A vast world chat, leader­board com­par­i­son, game activ­i­ty com­pe­ti­tion, and guild bat­tle con­tent can all give play­ers mean­ing­ful expe­ri­ences out­side of earning.

An evolving finance model

Most blockchain games still revolve around P2E, and the dual token mod­el is the most sta­ble, proven sys­tem avail­able. There­fore, the future Game­Fi mod­el can still use this mod­el, but it also requires a DAO vault and an NFT marketplace.

It is impor­tant to note that the NFT mar­ket­place must be the project’s own, so that at least tax rev­enue is the main source of income for the project at this stage, rather than rely­ing entire­ly on the mon­ey of late-entry players.

Since NFTs will be an inte­gral part of GameFi, project own­ers can try to make NFT props the main out­put of the game, whether it is ERC-721, ERC-1155 or a new evolv­able pro­to­col like EIP-3664.

The sec­ond most impor­tant thing is the frame­work design of the game mod­el, which is relat­ed to the sus­tain­abil­i­ty of the project. A sim­ple cycle of token and NFT between improv­ing char­ac­ter attrib­ut­es like Game­Fi 1.0 would be too thin. This mod­el is more like a Ponzi frame­work, where the late-entry mon­ey keeps con­tribut­ing to the front-entry mon­ey, and the project devel­op­er throws the token pres­sure to the NFT, which will fall into a death spi­ral when the NFT pool overflows.

W-labs GameFi economic model design ideas
W‑labs Game­Fi eco­nom­ic mod­el design ideas

Enrich­ing the game’s ecosys­tem and extend­ing its life­cy­cle requires more exten­sions to the orig­i­nal mod­el both hor­i­zon­tal­ly and ver­ti­cal­ly. When the pow­er of the game’s own inter­nal cir­cu­la­tion is large enough, it will gen­er­ate the cen­trifu­gal force that can get rid of the iner­tia of being caught in the death spiral.

Horizontal extensions

Hor­i­zon­tal exten­sions include adding token and NFT out­put and con­sump­tion sce­nar­ios. For exam­ple, set­ting the equip­ment life mech­a­nism and repair cri­te­ria; or strat­i­fy­ing the free and P2E play­ers to set dif­fer­ent game play styles.

Vertical Extensions

Ver­ti­cal exten­sion can be split into 2 struc­tures: upward and down­ward. The upward exten­sion is used to solve the prob­lem that play­ers have too few roles to choose from. 99% of play­ers rely on the sin­gle mode of mint­ing and play­ing to make prof­its, so more sce­nar­ios can be added. For exam­ple, add advanced dun­geons, PVE, PVP, and these sce­nar­ios should be dif­fer­en­ti­at­ed to give more empow­er­ment through ben­e­fits and consensus.

The down­ward exten­sion is dif­fer­ent from the upward exten­sion, which length­ens the life cycle by sig­nif­i­cant­ly increas­ing the num­ber of props and game­play. Such as increas­ing the pieces of props, gems and thus increas­ing the enchant­i­ng, melt­ing func­tion, down­ward frame­work can draw a lot from the tra­di­tion­al game play.

Summary

Game­Fi 1.0 has gone through a cycle that con­firms that Web2 and Web3 play­ers still have very dif­fer­ent attrib­ut­es. Ponzi­nomics can attract traf­fic at the begin­ning of a project, but it is not fea­si­ble to rely only on the exter­nal cir­cu­la­tion mod­el, and if the project can’t find its own inter­nal cir­cu­la­tion to absorb the pre­vi­ous bub­ble it will be hard to escape from the death spiral.

Most cur­rent Game­Fi projects are still not playable and do not reflect the advan­tages of blockchain in terms of tech­nol­o­gy. There­fore, a tran­si­tion­al Game­Fi mod­el can only be built from the per­spec­tive of Web3 users and eco­nom­ic mod­els. The life­cy­cle of the projects is not long, and the devel­op­ment of chains is not ide­al. Some chains have many games but poor vol­ume, while oth­ers have a hot game but an unbal­anced on-chain ecosystem.

The future of Game­Fi needs to find a way to improve con­tent, game­play and tokenomics.

August 2022, Foot­print Ana­lyt­ics × W Labs, Data Source: Foot­print × W Labs Game­Fi Report Dashboard

Post­ed In: Analy­sis, Game­Fi

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