The Development History of GameFi: From Blockchain Games to the Prototype of the Metaverse

DeFi and NFT Cultivate the Soil for GameFi Development

Since the launch of the Ethereum mainnet in 2015, the Web3 era has officially arrived. The deployment capabilities of smart contracts have supported the development and operation of decentralized applications. On this basis, a large number of popular DeFi projects have emerged, such as a certain DEX that achieves decentralized exchanges through automated market makers and a certain platform that realizes contract lending. These DeFi projects attract a large amount of capital due to their high investment returns, openness and 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 continuously explore the possibility of joint development between decentralized finance and other fields. During this period, the NFT market experienced a massive explosion. In 2017, an Ethereum-based NFT project allowed players to buy, breed, and trade digital cats, attracting widespread attention, and this project is often regarded as the starting point for the NFT boom. The total market value of the NFT market surged from a few million dollars in 2018 to 8 billion dollars in 2023.

If DeFi has brought a continuous flow of funds to the crypto market, then NFTs have directed the attention of Blockchain towards entertainment and gaming. Together, they provide fertile ground for the development of blockchain games, under which the concept of GameFi, combining DeFi and blockchain gaming, has begun to emerge.

In the second half of 2019, the Chief Strategy Officer of a company 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 this viewpoint, future games are not only entertainment tools but can also become financial instruments. Through Blockchain technology, virtual items in games can turn into valuable digital assets, allowing players to acquire, trade, and appreciate these assets through games. In this model, game companies and players can jointly participate in economic activities in a decentralized environment, achieving mutual benefits.

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

In September 2020, the founder of a well-known DeFi project detailed his understanding and outlook on GameFi in a speech and public statement. With his authority in the DeFi industry, the concept of GameFi began to truly enter the public eye. His many viewpoints on GameFi also clarified the future development direction of GameFi.

In the founder's view, the DeFi industry is at the "trade finance" stage, where users' funds are primarily used for operations such as trading, staking, and lending, failing to reflect the differences between cryptocurrency and traditional finance. GameFi will serve as the future direction of DeFi development, where users' funds can not only be used for financial transactions but will 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 sector has begun to迎来 the first wave of growth.

GameFi Reshapes the Gaming Track

GameFi is a blockchain technology that combines DeFi, NFT, and blockchain games, where the game assets and some logic run on the smart contracts of the blockchain, and a decentralized autonomous organization is responsible for managing the development of the gaming ecosystem to ensure users' ownership of assets within 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 the game and share the benefits of game development.

In traditional games, items such as props and skins have certain value, which has long been a consensus. The average annual sales of props for a well-known shooting game from 2018 to 2023 exceeded 420 million USD and have been growing year by year; the annual sales of skin props for a popular MOBA game increased from 1.4 billion USD in 2018 to 2.5 billion USD in 2023; the annual sales of skin props for a famous mobile game even reached an exaggerated 2.74 billion USD in 2023. Whether domestically or overseas, game props have a vast market space.

However, as the trading of in-game items often harms the profits of game publishers and touches upon the legal red lines in certain countries and regions due to its financial attributes, game companies have historically adopted two strategies regarding in-game item trading. One is for a certain well-known shooting game to collaborate with a certain well-known gaming platform to monopolize the in-game item trading market, charging high transaction fees. The other is for certain popular MOBA games to adopt unlimited supply of items, unify the channels for purchasing items, and strictly prohibit the trading of game accounts.

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

GameFi built on blockchain technology inherently possesses DeFi attributes, which can perfectly solve the current situation of monopoly by game manufacturers and rampant black markets. GameFi is both a game and a market, where game skins and items exist in the form of NFTs, and all transactions will follow the necessary market rules while maintaining transparency as much as possible.

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

Throughout the history of game development, factors such as advancements in computer technology, hardware upgrades, and innovations in game concepts have often been important.

• Early Computer Game Era ( 1970s-1980s ): The early stage of video game development, primarily focused in laboratory and university environments. Notable early games include "Spacewar!" and "Pong", with the release of "Pong" marking the beginning of commercial video games.

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

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

• The 3D gaming era ( late 1990s - early 2000s ): Valve released "Half-Life," which received widespread acclaim from players for its deep storyline and immersive experience.

• The era of online games and MMORPGs ( 2000s ): A well-known gaming company 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 launched "Pokémon GO," integrating augmented reality ( AR ) technology with mobile gaming, sparking a global craze.

The development of games in the past mainly relied on three key elements: advancements in computer technology, hardware upgrades, and innovations in game concepts. Now, GameFi represents a powerful collaboration between DeFi and NFTs, embodying 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" gaming concept. Additionally, 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, reflecting the historical progression of gaming.

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

• Early exploration (2018): A certain Metaverse project 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. A certain NFT card game launched a blockchain-based collectible card game, where players can buy, sell, and trade cards, showcasing the potential application of NFTs in gaming.

• Concept Proposal (2019): The Chief Strategy Officer of a certain company proposed the concepts of "gamified finance" and "new gamified business", marking the birth of the GameFi concept. In the same year, a well-known GameFi project began to come into public view.

• Initial rise ( 2020: A well-known DeFi project founder reiterated the concept of GameFi in September 2020, predicting that DeFi would evolve into gamified finance in the future, with user funds being used as equipment in games. At the same time, the DeFi and NFT markets also entered a golden age, laying the groundwork for the explosive growth of GameFi.

• Explosive growth )2021(: A well-known GameFi project has achieved great success, attracting millions of players, reaching a daily trading volume of 1 million dollars in August, allowing players to earn income through the "play-to-earn" model, becoming a primary source of income for hundreds of thousands of residents in Southeast Asian countries during the pandemic; the same year, a well-known Metaverse project exploded in popularity, allowing users to create, own, and trade virtual assets and land, attracting significant interest from venture capital firms.

• Traffic plummeted sharply )2022 to date (: Affected by the overall decline of the crypto market, the popularity of GameFi has severely decreased. The daily active users of a well-known GameFi project dropped 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 quantity of a certain GameFi project rising from 60 million at the beginning of 2022 to 100 million in the middle of the year.

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The explosive popularity of GameFi has also driven the concept of the Metaverse. The essence of the Metaverse is to build a virtual shared space realized by augmented reality, virtual reality, and decentralized technologies like Blockchain, encompassing not only games but also various aspects of life. The free ecological construction method of GameFi has made it synonymous with the Metaverse in many scenarios. During the years 2021 to 2022, many traditional technology companies began to get involved in the concepts of GameFi and the Metaverse.

• A well-known social media platform has rebranded, reflecting its long-term vision for the Metaverse.

• A well-known game company has established a new studio, focusing on the development of Metaverse-related games. It is also investing in certain well-known Metaverse projects.

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

• A well-known investment institution is increasing its investment in GameFi, endorsing certain well-known GameFi projects.

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

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

A Narrative That Incorporates the Strengths of Many

GameFi itself is a combination of DeFi + NFT + blockchain games, which not only makes the originally dull DeFi vibrant but also provides opportunities for NFT technology, which had no application scenarios, to take root. Meanwhile, the governance model of GameFi offers a chance for the implementation of decentralized autonomous organizations. Combined with the currently popular concepts such as the Metaverse, AR and VR are also expected to become part of GameFi's AAA masterpieces. Therefore, GameFi is a major application area that deeply applies blockchain technology and connects with virtual technology.

The financial characteristics are GameFi.