What is GameFi in crypto?

GameFi is a crypto term for games whose in-game economy runs on tokens and NFTs, combining gaming with decentralized finance. Players can earn, trade and sometimes stake game assets, and those assets can have a market price outside the game. The technical side of putting games on a blockchain is covered in what is web3 gaming. This guide focuses on the money side.

What is GameFi in crypto?

Coinbase describes GameFi as a category of decentralized apps that blends online gaming with DeFi. Items such as characters, land, weapons and costumes are usually NFTs that players can sell on marketplaces. Currencies are usually fungible tokens. Each project designs its own rules for how these assets are created, earned and spent, and ethereum.org notes that economic models vary widely, from games that keep player gas fees as revenue to games that pay gas for players.

What is play to earn?

Play to earn, or P2E, is the GameFi model in which playing produces rewards that can be traded or sold. It is presented as an alternative to pay to play, where players only spend. Coinbase calls it an early-stage idea and warns that rewards can lose value if a game fails to attract players, and that rules for these games are still developing.

Some P2E games required players to buy NFTs before they could start. In Axie Infinity, the cheapest playable creature cost about $307 in August 2020. Players who could not afford that rented creatures from owners or guilds under so-called scholarship deals, often handing over a large share of their earnings.

What are GameFi tokens?

Many GameFi projects use two tokens. Axie Infinity is the standard example:

• AXS is its governance token. Holders can stake it to vote on how a community treasury is used and receive staking rewards. Its maximum supply is 270 million.
• SLP (Smooth Love Potion) is the reward token. Players earned it by winning battles, and it was spent, together with AXS, to breed new creatures.

The split separates a scarce governance asset from a reward token that the game keeps issuing. The tokenomics then depend on players spending rewards as fast as they earn them.

Why do play to earn crypto games struggle?

When more players sell rewards than buy them, the reward token falls, earnings shrink and players leave, which pushes prices down further. SLP fell 94% between its July 2021 high and April 2022, and was down more than 99% from its peak by April 2023. Average daily Axie players fell from a peak of 2.7 million to about 250,000, according to Reuters figures cited by Wikipedia. In March 2022, about $620 million was also stolen from the Ronin bridge that served the game.

Coinbase lists keeping in-game economies balanced, and market volatility, as the main challenges for GameFi. A game's earnings depend on new money entering it, so rewards are never guaranteed.