Development History and Future Prospects of GameFi

DeFi and NFT Cultivate the Soil for GameFi Development

DeFi and NFTs lay the foundation for GameFi

Since the launch of the Ethereum mainnet in 2015, the arrival of the Web3 era has been officially announced. The smart contract functionality of the Ethereum mainnet supports the development and operation of decentralized applications. On this basis, a large number of popular DeFi projects have emerged, such as Uniswap achieving decentralized exchanges through automated market making, and MakerDAO enabling contract lending. These DeFi projects attract large amounts of funds with characteristics such as high investment returns, public transparency, strong anonymity, and complete openness. The total market value of the DeFi sector has also grown from $50 million in 2015 to $100 billion in 2023.

As DeFi flourished, capital began to explore the possibility of joint development between decentralized finance and other fields. During this period, the NFT market experienced a massive explosion. In 2017, CryptoKitties(, an NFT project based on Ethereum, allowed players to purchase, breed, and trade digital cats, garnering widespread attention, and this project is often regarded as the starting point of the NFT explosion. The total market value of the NFT market rose from a few million dollars in 2018 to 8 billion dollars in 2023.

If DeFi brings a continuous influx of funds to the crypto market, then NFTs direct the blockchain's attention to entertainment and gaming. Together, they provide fertile ground for the development of blockchain gaming. Under this context, the concept of GameFi, which combines DeFi and blockchain gaming, is beginning to emerge.

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) The starting point of the GameFi dream

In the second half of 2019, Mary Ma, Chief Strategy Officer of MixMarvel, first proposed the concept of GameFi - "gamified finance" and "new gamified business." This concept combines elements of gaming and finance, aiming to introduce new business models and economic systems to the gaming industry through blockchain technology. In Mary Ma's view, future games will not only be tools for entertainment but can also serve as financial tools. Through blockchain technology, virtual items in games can be transformed into valuable digital assets, allowing players to acquire, trade, and appreciate these assets through gameplay. In this model, gaming companies and players can participate in economic activities together in a decentralized environment, achieving mutual benefits.

However, due to the immaturity of blockchain technology and its application paradigms at the time, the concept of GameFi did not immediately attract widespread attention and application.

The beginning of GameFi explosion

In September 2020, Andre Cronje, the founder of Yearn.finance, elaborated on his understanding and vision of GameFi in a speech and public statement. With Andre Cronje's authority in the DeFi industry, the concept of GameFi began to truly enter the public eye. Many of Andre Cronje's views on GameFi also clarified the future development direction of GameFi.

In Andre Cronje's view, the DeFi industry is at the "TradeFi" ### trade finance ( stage, where users' funds are mainly used for trading, staking, and lending operations, failing to reflect the differences of cryptocurrencies compared to traditional finance. GameFi will serve as the future development direction of DeFi, where users' funds can not only be used for financial transactions but also have actual application value in the virtual gaming world. Users can earn substantial token rewards through activities in the virtual gaming world, which will be similar to working in real life.

Since then, the GameFi field has begun to welcome its first wave of growth!

GameFi Reshapes the Gaming Track

GameFi is a technology that combines DeFi, NFT, and blockchain gaming, integrating game assets and some logic within smart contracts on the blockchain, managed by a decentralized autonomous organization to ensure users' ownership of assets in the game and their governance rights over the game; GameFi focuses on building a complete financial system, supporting activities such as item trading using the game's native tokens. Users can earn token rewards through gameplay and share in the benefits of the game's development.

) completely solves the drawbacks of traditional games

In traditional games, items such as props and skins have a certain value, which has long been a consensus. The average annual sales of CSGO props from 2018 to 2023 exceeded $420 million and grew year by year; the annual sales of League of Legends skin props increased from $1.4 billion in 2018 to $2.5 billion in 2023; the annual sales of Honor of Kings skin props even reached an exaggerated $2.74 billion in 2023. Whether domestically or overseas, there is a vast market space for game items.

However, due to the fact that the trading of items often harms the profits of game publishers and that its financial attributes touch upon the legal red lines in certain countries and regions, game developers have traditionally adopted two strategies regarding the trading of game items. The first is to monopolize the item trading market, like CSGO does with Steam, charging high transaction fees. The second is represented by games like League of Legends and Honor of Kings, which adopt unlimited item supply, unify the item purchasing channels, and strictly prohibit the trading of game accounts.

It is precisely because of the prohibitions by game developers and local regulations that the black market sale of in-game items has become a highly profitable business. To a certain extent, as game developers and local regulations strengthen their crackdown on black market transactions, the supply line of black market items shifts left, increasing the selling profits.

GameFi built on blockchain technology inherently possesses DeFi attributes, which can perfectly address the current situation of monopoly by game developers and rampant black markets. GameFi is both a game and a marketplace, where game skins and items exist in the form of NFTs, and all transactions will follow the necessary market rules and strive to remain as transparent as possible.

In addition, governing game development through decentralized autonomous organizations, allowing all players to share governance power, is also a major feature of GameFi. Currently, game manufacturers often manipulate lottery probabilities and lower the prices of certain previously high-priced game items to increase sales, harming the interests of players who have already purchased them. Players' protests against these measures are also difficult to centralize and are often obscured by these tech giants through traffic control methods. The governance measures of decentralized autonomous organizations can shatter the current situation of absolute discourse power held by game manufacturers, allowing users to no longer worry about games developing in ways that are unfavorable to them, and enjoy the overall economic benefits brought about by the development of games.

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) perfectly matches the development history of the game.

Throughout the development of games, important factors often include advancements in computer technology, hardware upgrades, and innovations in gaming concepts.

• Early stage of computer games ### 1970s-1980s (: The early stage of video game development, mainly focused on laboratory and university environments. Notable early games include "Spacewar!" and "Pong", with the release of "Pong" marking the beginning of commercial video games.

• Home gaming console era ) 1980s-1990s (: Nintendo released the home gaming console NES, bringing classic games like Super Mario Bros.

• 16-bit game console era ) 1990s (: Sony released the PlayStation, marking the beginning of the CD game era, and the game "Final Fantasy VII" sparked a gaming craze.

• The era of 3D games ) Late 1990s - Early 2000s (: Valve released "Half-Life," which won widespread acclaim from players for its deep storyline and immersive experience.

• The era of online games and MMORPGs ) 2000s (: Blizzard Entertainment released "World of Warcraft," becoming one of the most successful MMORPGs and promoting the development of online multiplayer games.

• The era of mobile games and social games ) From 2010 to present (: Supercell released Clash of Clans, becoming one of the most successful mobile strategy games, and Niantic released Pokémon GO, combining augmented reality ) AR ( technology with mobile gaming, triggering a global craze.

In the past, the development of games mainly relied on three key elements: advancements in computer technology, hardware upgrades, and innovation in game concepts. Today, GameFi represents a powerful collaboration between DeFi and NFT, standing as one of the most cutting-edge and interesting technologies in blockchain; it is also an intersection of computer science and finance, featuring the novel "play-to-earn" game concept. Moreover, it provides a model for financial market research. It can be said that GameFi perfectly aligns with two of the three key elements in the history of game development, adhering to the historical progression of games.

GameFi has developed rapidly in recent years, introducing novel concepts and designs, giving birth to many top-tier projects.

• Early exploration ) 2018 (: Decentraland was launched as one of the early GameFi projects, allowing players to buy, develop, and trade virtual land, utilizing blockchain technology to achieve true ownership. Gods Unchained introduced a blockchain-based collectible card game, where players can buy, sell, and trade cards, showcasing the potential of NFTs in gaming.

• Concept Proposal )2019(: Mary Ma proposed the concepts of "gamified finance" and "new gamified business", marking the birth of the GameFi idea. The same year, Axie Infinity launched by Sky Mavis began to enter the public eye.

• Initial rise ) In 2020 (: Yearn.finance founder Andre Cronje reiterated the concept of GameFi in September 2020, predicting that the future of DeFi would develop into a gamified financial stage, where user funds would be used as equipment in games. At this time, the DeFi and NFT markets also entered a golden period, laying the groundwork for the explosive growth of GameFi.

• Explosive growth )2021(: Axie Infinity achieved immense success, attracting millions of players, reaching a daily trading volume of $1 million in August, and allowing players to earn income through the "play-to-earn" model, becoming a major source of income for hundreds of thousands of residents in Southeast Asian countries during the pandemic; that same year, The Sandbox surged in popularity, allowing users to create, own, and trade virtual assets and land, and was favored by numerous venture capital institutions.

• Traffic has plummeted sharply ) from 2022 to now (: Affected by the overall downturn in the crypto market, the popularity of GameFi has severely declined, with daily active users of Axie Infinity crashing from 740,000 in August 2021 to 35,000 in August 2022. At the same time, many GameFi projects are facing serious inflation issues, with the token supply of DeFi Kingdoms rising from 60 million at the beginning of 2022 to 100 million by mid-year.

The explosive popularity of GameFi has also driven the concept of the metaverse. The essence of the metaverse is to construct a virtual shared space realized by AR) augmented reality( and VR) virtual reality(, combined with decentralized technologies such as blockchain, which encompasses not only games but also all aspects of life. The free ecological construction method of GameFi allows it to become synonymous with the metaverse in many scenarios. Between 2021 and 2022, many traditional technology companies began to get involved in the concepts of GameFi and the metaverse.

• Facebook renamed itself Meta, reflecting its long-term vision for the Metaverse ).

• Tencent has established a new TiMi Studios, focusing on the development of metaverse-related games. It has also invested in The Sandbox and Decentraland.

• A certain technology company acquired a gaming company for $68.7 billion, planning to combine traditional popular games with blockchain technology to create a new generation of GameFi.

• A certain investment company is increasing its investment in GameFi, supporting well-known GameFi projects such as Axie Infinity and The Sandbox.

The overall market value of GameFi has increased from 200 million USD in 2018 to 24.52 billion USD in 2023, with a growth rate of 733.3% from 2020 to 2021.

Although GameFi may currently face some issues, there are still infinite possibilities for the future due to the strong involvement of traditional tech companies and the gradual maturation of technology.

A Narrative that Combines the Strengths of Many

GameFi itself is a combination of DeFi + NFT + blockchain games, making the originally dull DeFi lively.