Long-term trends in GameFi

Understanding a market isn’t about watching a trend evolve but about understanding what is behind the trend and where it will go next. In this article, I’ll share our vision of the processes that are now impacting GameFi — and how to use them to create a successful strategy. 

You have to analyze GameFi in combination with classic GameDev, together with the general consumer leisure trends. Such emerging and rapidly growing niches of the entertainment industry as GameFi can’t exist in isolation from the social trends or from the economy. Therefore, in the first part of the article I will focus on the financial aspect (the Fi in GameFi) and then turn to the reasons and prospects of the trend. 

Intangible assets are becoming an ever more important part of the current economic model — especially now that you can buy, sell, and trade them. The rights to these assets are separated from the assets themselves and traded as NFTs, tokens, stocks, coins, and other derivatives. This is a trend. 

The most important part is that we’re seeing a new proto-market emerge — that of time spent on entertainment and leisure. This turns hobbies and leisure time into yet another way to buy and sell people’s labor. For companies producing products, rewards in the form of NFTs, tokens, and other liquid assets become another way to redistribute profit. 

Offering the most attractive terms for players will soon become a crucial part of a sales strategy and of a product life cycle. It will allow businesses to create a strong economic link between the consumer and the product — and make the player depend on the product not only emotionally but also financially. 

We can see this trend in the evolution of Play-to-Earn projects in developing countries. If you look at the NFT adoption and P2E audience metrics globally, you’ll see that regional leaders and semi-peripheral countries dominate. Their population is wealthy enough to afford a smartphone with an internet connection. But it’s also poor enough to view playing P2E games for many hours daily to earn $1000-1500 a month as a great alternative to a traditional career. 

We are talking about an urbanized, tech-savvy population, the share of which in developing countries is constantly growing. These countries don’t have advanced state support systems. As a result, dozens of millions of people who have the same access to information, innovation, and the internet as in the West, but don’t have the same economic guarantees, have to find their place in the modern digital economy — and fast. For example, India has an urbanization ratio of just 35%, whereas the average global value is 56%. 

In this context, as the adoption of digital technology and crypto in developing countries increases together with their population, there is fertile ground for new monetization tools to evolve. This trend is shaped by the audience’s interest and the profit share that product providers are ready to allocate to attract new users. 

The next step is selling new derivatives based on the time spent playing and one’s achievements in the game; users basically exchange precious minutes of their lives for tokens. Subscriptions, expensive weapon skins, or a high level achieved by one’s characters don’t motivate this target audience as much as an opportunity to earn a stable income. 

The example of India, which recently introduced a flat 30% tax on profits from virtual digital assets, shows how fast countries can monetize this trend. They transfer the costs, social responsibility, and risks onto the people working in this new industry of monetized entertainment, leaving them to fend for themselves. 

The high adoption speed and the much more flexible approach to DeFi that we see in developing countries logically follows from them having to play catch-up with the core capitalist states. India, Brazilia, Vietnam — these countries haven’t benefited all that much from the modern economic model. However, crypto gives them a chance to financialize their citizens’ time and become more independent from the traditional fiat reserve currencies (USD, euro, franc etc.) by prioritizing the new attention economy. 

Key forecasts

1. We are likely to see a vast range of projects centered around users who earn a comfortable living by playing games on a daily basis. Such users will act as working advertisements for GameFi projects; they will also become a valuable resource that projects will fight over.
2. Financial derivatives based on user actions, attention, and gaming time. Hobbies and leisure will be financialized, and users will choose leisure pastimes based on their financial efficiency. I am sure that eventually we’ll see portfolios consisting of NFT holders, traded by both gaming projects and financial institutions. This new asset type will be just as profitable and liquid as subprime mortgages.
3. Income increase and fast smartphone and internet penetration in developing countries.

It takes time for the benefits of the post industrial revolution to reach developing countries, but the weak stream of digitization has already turned into fully-flowing rivers in the shape of the OnePlus or Samsung production sites in India and Brazil. The number of smartphones isn’t an isolated fact or just a sign that mobile games are about to become fully dominant, but also a sign of people’s increasing ability to pay for material goods. 

Those who could only dream of a smartphone a short while ago will buy one soon — and then purchase an NFT skin in a game. The consumer society works the same way in any country. It’s this consumer society that we’ll discuss in the next part of the article.   

In this new reality, AAA PC games selling for $80 without a DLC and requiring an expensive gaming computer to run will look like an unnecessary luxury. This doesn’t mean that large and expensive AAA projects will die out — but they will have to evolve. For example, Take-Two Interactive has had to split the sequel to its popular GTA franchise to focus on DLC (downloadable content). This helps increase the period throughout which the product continues to earn money — an urgent issue considering inflation and the  long and expensive production process. You could say that games are split in smaller segments for studios to keep making money and for players to remain entertained. 

In the next part of the article, we’ll talk about the society that shapes these trends — and how they, in turn, impact the society. 

Conclusions

1. Developing countries will drive GameFi adoption thanks to their low starting incomes, fast urbanization, and even faster digitization. The most engaged GameFi audience will consist of people for whom Web3 is the first iteration of the Web that they come in contact with.
2. More and more gaming studios will turn to mobile games — thanks both to the lower development costs and the fast spread of smartphones.
3. The governments of developing countries benefit from the spread of crypto. For them, it’s a new way to earn extra income without taking any additional action.
4. AAA-tier gaming projects will introduce DLC mechanics and in-game purchases. Such games take longer and are more expensive to create, but built-in monetization will compensate for this by extending the cycle of profitability.
5. GameFi tokenomics and economics will take center stage as yet another tool to attract and retain players.
6. The time spent playing and enjoying various forms of entertainment will be increasingly financialized.