There are three things that drive crypto adoption. The first and most powerful force is price speculation. The second is necessity, in the absence of traditional financial services. And the third is just for fun. This third factor of fun is why there’s been so much investment in NFTs Metaverse and Blockchain games. A recent report by CoinTelegraph revealed how large these crypto niches could grow.
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Today I’m going to give you a bit of background about Coin Telegraph and its game fire report. To summarize, what it says about this crypto niche and what it could mean for the game, five related Cryptocurrencies.
What Is CoinTelegraph?
If you’re unfamiliar with Coin Telegraph, you must be very new to crypto. That’s because Coin Telegraph is one of the most popular crypto news sites out there.
Besides news, Coin Telegraph also publishes crypto reports, and since 2020 it has published over 20 in-depth reports about different crypto topics. However, it seems like most of them flew under the Radar. Now this might have something to do with the fact that Cointelegraph announced the launch of its dedicated crypto research terminal about two weeks ago. What’s awesome is that most of Cointelegraph’s crypto reports are free. There are, of course, paid crypto reports too, and even paid databases about crypto regulations and crypto VC companies.
The about section of Cointelegraph’s new research terminal reveals that it’s in-depth crypto reports are written by a team of about a dozen crypto researchers, many of whom have earned a doctor degree.
CoinTelegraph’s research team is headed by Dr. Demelza Hays, a Forbes 30 under 30 recipient with over a decade of experience working as an advisor for crypto projects like Dash. Serving as an acrypto fund manager, and even two stints with the United States Department of State.
The crypto report I’ll be talking about today was released just two days after Cointelegraph announced the launch of its crypto research terminal. And, as you’ve probably gathered by now, it’s about Blockchain gaming. Most of the findings in the report come from the coin telegraph research team’s analysis of five of the most popular games to earn crypto. Specifically, Axie Infinity, Splinterlands, Bomb Crypto, Alien Worlds, and DeFi Kingdoms.
The researchers cite the massive amounts of money that are still being poured into Blockchain gaming as evidence that some GameFi oriented crypto projects could continue to see significant growth during the crypto bear market. That is why they wrote the report.
What Is GameFi?
The first part of the report gives a definition of GameFi, which the authors describe as the combination of games with financial incentives made possible by cryptocurrency. Specifically, tokens on smart contract cryptocurrency Blockchains like Ethereum.
The authors predict that current and future metaverse worlds will have their own in-game economies and credit DeFi developer André Cronier for popularizing the term “GameFi” after tweeting about it in September 2020.
The authors also emphasize that GameFi does not mean gambling. This is because the financial incentives in GameFi are related primarily to skill and effort rather than to luck. Though luck does play a role, depending on the GameFi project in question.The authors then identify the two essential features of GameFi, which are play to earn mechanics and robust tokenomics, that can cause the coins or tokens involved to appreciate in value as the Blockchain.
The authors also emphasize that GameFi does not mean gambling. This is because the financial incentives in GameFi are related primarily to skill and effort rather than to luck. Though luck does play a role, depending on the GameFi project in question, the game becomes more popular.
History of GameFi
The second part of the report provides a brief history of GameFi. The authors begin by saying that GameFi has technically been around for thousands of years, since playing a game for money is nothing new and is commonplace in many cultures to this day. However, the ability to actually earn money while you play a game is something that seems to have begun with an online game called Second Life, which was released in 2003.
The authors note that a British real estate agent managed to make over £1,000,000 buying and selling plots of land in Second Life in 2006.
In the case of crypto game fight has its roots in the CryptoKitties NFT game released on ethereum in late 2017.As some of you will know, the CryptoKitties were so popular that all the NFT transactions brought Ethereum’s Blockchain to a screeching halt shortly after the game launched. This is why the company behind CryptoKitties ultimately decided to create its own smart contract cryptocurrency Blockchain called Flow.
Economics of GameFi
The third part of the report covers the economics of GameFi, and the authors start by saying, quote, Blockchain gaming is turning the traditional gaming model on its head.
This is simply because GameFi users actually own their in-game assets and are able to do anything they want with them. Often, these in-game assets also allow users to vote on the future of the game. The authors point out that there are quite a few parallels between GameFi and DeFi. Notably, things like staking, NFT fractionalization, and liquidity mining.
The authors also drop a crazy statistic from Bloomberg, and that’s that in November last year.Then, nearly 50% of crypto users were playing Blockchain games, and only 45% of them were using DeFi protocols.In other words, the popularity of Blockchain games exceeded the popularity of all other decentralized applications for the first time in crypto’s history, which is a big deal to say the least. The authors then pivot to explaining how players make money and put the spotlight on Axie Infinity.
The authors go on to highlight the more than $4,000,000,000 in NFT sales that have taken place on Axie Infinity’s market place so far. A figure that’s nearly double that of the second most traded NFT collection. That’s CryptoPunks for anyone wondering.
The authors seem pretty bullish on Axie Infinity’s AXStoken, its SLP token, and the RON coin used on Axie Infinity’s Ronin side chain because, quote, Axie Infinity is becoming a digital nation with a real economy, while use cases for Axie Infinity Shards (AXS), Smooth Love Potion (SLP), and ron grow.
The specified that the reader should be on the lookout for Axie Infiniti’s up and coming land releases, as they could offer an opportunity to get in at a good price.
The authors then turn to another Blockchain game called DeFi Kingdoms, which I’m admittedly not all that familiar with, but I can’t deny that it sounds pretty. That’s because DeFi Kingdoms apparently involve representing liquidity in DeFi protocols as NFT gardens with quote-blooming plants that grow in accordance with their yields.
The DeFi Kingdoms were built on the harmony Blockchain, and the authors note that it briefly became the top ranked dap by users according to DappRadar, which makes sense given that DeFi Kingdoms still sees tens of thousands of users per month to this day.
Top GameFi Games Compared
After going over Alien Worlds, Splinterlands, and Bomb Crypto, the authors compare all five games on a series of metrics. The first metric is the number of daily active users, and as you can see, Alien Worlds and Bomb Crypto are in first and second places, with Axie Infinity in third.
There seems to be something wrong with this statistic because, at its peak, Axie Infinity had over 700 000 users per day, well above what both Alien Worlds and Bomb Crypto were seeing at their peaks.
I suspect this has something to do with the fact that most of the activity on Axie Infinity is occurring on the RON inside chain, which apparently isn’t being tracked as accurately as other Blockchains.
In any case, the second metric the authors assess is total value locked, rather than the total amount of money that’s been invested in each game by its players. As you can see, players of Axie Infinity and DeFi Kingdoms each spent over $2,000,000,000, with the other three Blockchain games requiring their own separate chart to be visible.
I again suspect that something is wrong with this statistic because the MarketCap of harmony itself maxed out at around $4,000,000,000 and the total value locked in harmony’s DeFi protocols maxed out at $1,500,000,000.
The third metric the authors assess is volume, or rather the amount of money coming into each Blockchain game on any particular day. Not surprisingly, Axie Infinity and DeFi Kingdoms take the medals, and the sheer difference in volume between these two suggests that Axie Infinity is in fact leading by a wide margin on all these metrics.
The fourth metric the authors assess is transactions, or rather the number of daily transactions associated with each Blockchain game.
This is where things get interesting. Because Alien Worlds and Splinterlands saw the most daily transactions by a wide margin, despite placing well below the Axie Infinity on other metrics. This anomaly can be explained by the fact that Alien Worlds exists on the WAX’s Blockchain and Splinterlands exist on the hive Blockchain, both of which can handle thousands of transactions per second. It seems the authors missed this important detail. But they did manage to remark that more than a third of all transactions on Polygon and the Binance smart chain are related to Blockchain games.
What’s also odd is that the authors don’t really provide any details about the last two metrics they assessed, which were gameplay and tokenomics. Then again, it sounds like these sections are intended to explain why the authors talked about these five Blockchain games.
Problems with GameFi
Anyhow, the fourth part of the report examines the problems with GameFi, and the first problem the authors identify is the massive advantage that early adopters of Blockchain games have and the barriers to entry this can create for any new players.
The authors focus on the fact that becoming an Axie Infinity player has become prohibitively expensive, particularly for those in developing countries looking to sustain themselves through in-game gains. This is why Axie Infinity’s aforementioned scholarship program was created. This makes it possible for Axie holders to lend out their AXS to players who can’t afford them as a means of generating passive income.
The second problem with GameFi that the authors identify is regulations. They cite a series of regulatory reports, including one by the president’s working group on financial markets.
The bigger concern the authors have in the context of regulation relates to the fact that cryptocurrency is accessible to anyone with an internet connection, which means children can participate in play to earn economies.
Now this opens a whole series of questions around child labor and taxation. The authors also believe regulators could take issue with any elements of play-to-earn games that involve too much luck, as they could be classified as gambling. Especially here in the UK, where regulators absolutely love to rant and rave about the evils of cryptocurrency, and then they wonder why all the cryptocompanies leave, only to change their tune with pro-crypto statements to try and convince them to stay.
The third potential problem with GameFi is that the authors identify environmental concerns, which they rightfully point out as being unfounded given that proof of work mining uses a fraction of a percentage of the world’s energy and accounts for an even smaller fraction of carbon emissions.
The authors also underscore the fact that, quote, industries need energy, period. And that quote demanding that this new industry just use no energy at all is nothing but a death wish that is legit.
Property Rights In GameFi
The fifth part of the report relates to property rights in Blockchain games, which is again one of the primary selling points of GameFi projects. The authors commence by calling out one of the criticisms of Cryptocurrencies: that’s that the value of most Cryptocurrencies is based on nothing but speculation. The authors commence by calling out one of the criticisms of Cryptocurrencies, which is that the value of most Cryptocurrencies is based on nothing but speculation. They then counter with the point that the derivatives market, which is estimated to be worth more than $1,000,000,000,000,000, essentially consists of nothing more than speculative bets on whether the prices of assets will go up or down.This means criticism can’t be levied against cryptocurrency.
The authors then present this image from another research paper by the Huobi cryptocurrency exchange, which identifies two so-called degrees of freedom that GameFi provides: Free trading of in-game materials and free trading of in-game currency.
The authors elaborate that the financial restrictions built into regular videogames meant the only way users could freely trade among themselves in real life was to set up elaborate black market economies, which was not only difficult to do but also not ideal. Unfortunately, there were no alternatives.
The Blockchain technology that underlies cryptocurrency offers an alternative, and the authors even throw in the famous quote from Vitalik Buterin, who reportedly created Ethereum after World of WarCraft moderators modified one of the characteristics of his character. What a way to respond.
Regarding virtual worlds, the authors clearly state that quote virtual items lead to sustainable economies when coupled with strong property rights and the basic economic freedoms of price setting and unhindered exchange. The authors conclude the section with a quote. GameFi is a textbook case study of how free markets outperform their more regulated counterparts and create more wealth for all involved.
Future of GameFi
The sixth and final part of the report gives some predictions about the future of games. The size of the traditional video game industry sits at around 150 billion dollars.
The 10 billion dollars of revenue brought in by game fighting projects suggests that the GameFi industry could grow by up to 15x in the coming years, or at least this is what the authors seem to imply. They seem to be uncertain about this since quote Blockchain games will not replace traditional gaming but, quote, the size of the gaming industry is not the total addressable market for GameFi. Naturally, they believe it could be much larger.
The other comment that caught my eye was that the gaming industry as a whole shrank for the first time ever in 2021, which could be very bad news for GameFi if this trend continues.
As for what the authors forecast for the fight. They predict that over the next five years, the sector will improve on three fronts.
The first is the quality of the content, which includes things like immersive quests, better graphics, and a frictionless user experience. The second is business models, which presumably includes things like decentralized autonomous organizations and robust tokenomics.
The third is regulatory compliance. The authors anticipate that Blockchain gaming companies will work proactively with regulators. The authors emphasized that nothing in their report is financial advice. The last page of the report is a long disclaimer that basically says: “None of the crypto projects discussed in the report are recommended by CoinTelegraph or its researchers.” Better safe than sorry.
Which Cryptos Will Benefit?
And now for the big question: what does this all mean for GameFi related Cryptocurrencies? Well, one thing’s for certain. That’s because it’s ultimately the smart contract Cryptocurrencies that underlie current and future GameFi projects that will stand to gain the most in the long term. The thing is that there are dozens of smart contract cryptos and even more layer 2 scaling solutions for said smartcontract cryptos, some of which are trying to cater to GameFi.
You’d think that GameFi projects would naturally gravitate towards the fastest Blockchains with the largest communities, and though this is logical, it’s not entirely correct. That’s because the most important thing for developers and users alike is security, and as we’ve seen, the fastest Cryptocurrencies haven’t exactly been the most secure.
This is why Ethereum is still the go-to smart contract cryptocurrency for so many GameFi projects. As expensive and slow as it is, it is still the most secure smart contract cryptocurrency by a wide margin. Being on Ethereum means developers and users alike can be certain that their Cryptocurrencies and the crypto projects will still be around 5-10 years from now.
This certainty makes it possible to build for the long term, and that long-term vision is what gives value to almost every crypto project out there, be it GameFi or otherwise.
This is also why there’s a bullish case to be made for all the GameFi projects that have built Ethereum scaling solutions. Ones that are custom built for the developers and users of their game. The elephant in the Ronin Wallet here is Axie Infinity, but there are many other GameFi projects that are planning to do the same, such as ApeCoin. That said, it’s quite likely that every successful GameFi project will eventually be forced to create its own Blockchain to support its growing user base. This internet of Blockchain’s ideas is the core this is of the Cosmos, and that could be a sign that Cosmos based games. That could be a sign that Cosmos based GameFi projects could be some of the most successful in the long term as they exist on their own chains out of the gates.
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/8KZUTGQ_FAg]
