The rise of GameFi in the post-pandemic era: How far are we from a trillion-dollar market?

Produced by: Baihua Blockchain

Author: Leno

Since the beginning of 2020, the global pandemic has caused widespread economic problems, with almost all major economies around the world experiencing negative growth throughout 2020, except for China.

Entering 2021, the impact of COVID-19 on the economy has not only not weakened but has shown an increasingly strong trend, leading to the emergence of a new term: the post-pandemic era.

Against the backdrop of this era, the concept of the metaverse and the blockchain metaverse concept: GameFi have emerged.

01 The Gaming Industry in the Post-Pandemic Era

In the post-pandemic era, measures such as "maintaining social distance," "reducing gatherings and activities in public places," "reducing international flights," and "regional or individual isolation" have caused consumption and business activities to nearly come to a standstill, with the global real economy recovering slowly.

At the same time, the demand for the gaming industry, which can provide online social interaction and entertainment, has surged. In various global pandemic prevention policies, gaming has provided people with a way of socializing and entertaining that differs from traditional methods.

As times change, the negative connotations previously associated with gaming as a form of entertainment have gradually faded, and this pandemic has undoubtedly accelerated this process.

Now, as the global economy and social life gradually recover from the pandemic, we are beginning to truly feel the role that the gaming industry plays. When people were confined indoors due to the pandemic, the significance of gaming far exceeded the role of a mere entertainment form.

Relevant data shows that since the COVID-19 pandemic began in 2020, player participation and spending in games have surged, skyrocketing from $144.4 billion in 2019 to $177.8 billion, an increase of 23.13%.

However, under the pandemic, remote work and supply chain disruptions will continue to pose challenges to the gaming industry, with the release of multiple games being delayed, especially affecting the console and PC gaming markets. The negative impacts of secondary effects have become increasingly prominent in 2021, affecting overall market revenue.

After March 2021, the concept of the metaverse began to gain popularity. Based on the broad framework of the metaverse concept, the phenomenal emergence of blockchain technology's GameFi games, as well as the explosion and application of DeFi and NFTs, have brought GameFi into the spotlight, continuously breaking through traditional gaming industry gameplay and becoming a market focus.

The application of the P2E model allows GameFi not only to realize social and entertainment aspects of gaming but also to provide users with scenarios where they can earn rewards through blockchain games.

However, the GameFi market projects are generally mixed, with some blockchain games hastily launched without proper development, leading to a negative perception of the entire industry among participants.

Therefore, the current state of the blockchain metaverse GameFi market and the future development prospects of GameFi have become topics of common concern in the industry.

02 GameFi Under the Framework of the Metaverse Economy

It is undeniable that the metaverse is the key point for GameFi to become popular and maintain sustained interest, where the integration of the metaverse economy and the digital economy forms the basis for GameFi to achieve the P2E economic model.

The digital economy refers to economic activities primarily based on data, including the production, circulation, and consumption of physical products, as well as the creation, exchange, and consumption of digital products. The metaverse economy strictly limits the creation, exchange, and consumption of digital products to be completed within the digital world.

As a special form of the digital economy, the uniqueness of the metaverse economy is mainly reflected in characteristics such as the collapse of the "economic man" assumption, value determined by recognition rather than labor, reduced marginal costs, increased marginal benefits, and transaction costs approaching zero.

Generally, it reflects the basic principles of economics: the larger the market scale, the more prosperous the economy will be.

The main characteristics of the metaverse economy include digital creation, digital assets, digital markets, digital currencies, and digital consumption. Its features are distinctly different from traditional economies, manifested in the unity of planning and market, production and consumption, regulation and freedom, and behavior and credit.

Therefore, the metaverse economy will become the only choice for many industries in the future.

Under the metaverse economy, GameFi naturally possesses all the characteristics of digital creation, digital assets, digital markets, digital currencies, and digital consumption.

Blockchain games have transcended the basic category of games, with gameplay becoming the rules of visualized finance. In this framework, people seem to be "playing games," but in reality, they are participating in a certain financial system.

The games themselves adopt a distributed structure of blockchain, confirming the rights to all game assets and items, allowing players to freely trade assets in blockchain games.

03 The Development History and Current Status of GameFi

Based on the traditional Free-To-Play model, which can no longer meet players' higher-level pursuits, the Play-To-Earn game model of blockchain GameFi has opened a new mode for the gaming industry. Players have transitioned from spending money to buy gaming experiences to participating in game development and profiting from it, becoming an important realization of the metaverse economy.

The "play-to-earn" model of GameFi has extreme user virality and is widely regarded as the blockchain field with the lowest entry barrier and the easiest implementation.

The integration of DeFi, NFTs, and gaming in GameFi has allowed blockchain to extend beyond mainstream digital assets. According to DappRadar, the trading volume in the blockchain gaming sector reached $480.7 billion in the first half of 2021. By mid-November 2021, the number of global blockchain game players exceeded 3 million.

The decentralized operation of GameFi, trustworthy data, consensus algorithms, anonymity, cross-platform capabilities, virtual asset confirmation, and breakthroughs against the island economy effect have made it one of the most promising fields in the blockchain world.

Of course, the development of GameFi has not been achieved overnight. The current GameFi field has at least gone through the following three development stages: the 1.0 era represented by DAPP games and gambling games, the 2.0 era centered on the Play-To-Earn new economic model, and the GameFi era of blockchain + DeFi + NFT + metaverse.

1. GameFi 1.0 Era: DAPP Blockchain Games

Around 2017, blockchain + gaming + art-based blockchain games emerged and were considered to have long-term development potential. At that time, blockchain games already possessed some characteristics of NFTs, with each game character and item having its data on the blockchain, thus possessing uniqueness and scarcity.

GameFi 1.0 allowed people to see the possibility of combining blockchain and gaming for the first time. At the same time, the characteristics of blockchain, such as "transaction attributes" and "unique private ownership of assets," combined with gameplay, gave rise to blockchain games 1.0, which also sparked the market's first attention and exploration of DeFi.

However, GameFi 1.0 faced significant issues due to its presentation in the form of DAPPs, with problems in game graphics and running speed.

Firstly, the game graphics mostly presented characters with low precision, and although they possessed uniqueness, they did not evoke the desire for collection among most people's aesthetics.

Secondly, since DAPPs were directly built on public chains, the sharding technology and off-chain and on-chain separation operations, as well as parallel chain technology, were still not well-developed at that time, leading to frequent complaints about congestion in most blockchain games during the GameFi 1.0 period.

2. GameFi 2.0 Era: Play-To-Earn

In the second half of 2020, the Play-To-Earn business model was applied in the blockchain gaming field. In fact, the so-called P2E model was not first used by blockchain games; earlier games like "Legend," "World of Warcraft," and "Fantasy Westward Journey" allowed players to profit by selling equipment and game currency offline.

GameFi 2.0 merely extended this model because, although some players could earn money through gold farming and selling game items in traditional games, they could not trade directly within the game and had to move to offline transactions.

GameFi 2.0 moved this economic model into the game itself, eliminating costs for players during gameplay. Players transitioned from obtaining gaming experiences from game developers to "working" for the game. The more players there are, the faster the game develops, and players can also benefit from the development dividends of the game.

The biggest feature of GameFi 2.0 is earning real money through NFT games based on encrypted digital assets.

Therefore, GameFi 2.0 has clear advantages over NFTs and DeFi. Firstly, GameFi 2.0 solves the traffic problem in the early stages of blockchain projects.

In other areas of the blockchain industry, ordinary people must master certain blockchain knowledge, and even have some understanding of wallets, on-chain processes, and computers to navigate this field, with potential earnings being unstable.

GameFi 2.0 lowers the entry barrier, and its intuitive earnings attract a large number of players who are not interested in blockchain. Some players may not understand blockchain technology, but that does not prevent them from making money in GameFi.

Secondly, GameFi 2.0 is not purely a game; the integration of the NFT concept prevents liquidity overflow within the game, avoiding the devaluation of game assets due to an increase in quantity, while the reflection of the financial system is at the core of GameFi.

Finally, GameFi 2.0 has a very high player retention rate. Players can lead the development direction of the game through DAO governance, controlling their own fate, which also gives players a greater sense of belonging to GameFi 2.0 blockchain games.

3. The Current Status of GameFi: The Metaverse Era

GameFi has rapidly transitioned from the 2.0 era and is currently entering the era of blockchain games that integrates with the concept of the metaverse, combining NFTs, DeFi, and real financial systems.

The metaverse blockchain gaming era offers an open finance model that aligns with the characteristics of free sharing in gaming, providing financial services including trading, borrowing, and insurance to help reduce the creation costs and monetization costs for game players.

However, the current metaverse era is still not mature enough. Some GameFi blockchain games are older established titles, and the dividends of GameFi 2.0 have allowed these long-developed and stable-earning blockchain games to occupy a significant market share.

Another portion of blockchain games is focused on rapid launches and riding the "metaverse" hype. Therefore, the current metaverse era needs to mature and requires higher-quality blockchain games to set an example for other blockchain projects.

04 The Trillion-Dollar GameFi Market Future

In 2020, under the COVID-19 pandemic, player participation and spending in games surged, skyrocketing from $144.4 billion in 2019 to $177.8 billion, an increase of 23.13%.

The top 100 publicly listed gaming companies globally generated a total revenue of $166.3 billion, with a year-on-year growth of an astonishing 23%, accounting for 94% of the total gaming market revenue in 2020. It is estimated that by around 2024, the total global gaming market will exceed $300 billion (approximately 1.8 trillion yuan).

With the increasingly apparent impact of GameFi on traditional gaming, reaching a trillion-dollar scale globally is not far off. From an industry perspective, the true growth opportunities for GameFi should last for about five years.

The future GameFi market will be more segmented, with earning small amounts through blockchain games and advertising through blockchain games being the true future of gaming.

05 Conclusion

The blockchain metaverse certainly extends beyond GameFi, but for now, GameFi is the best manifestation of the blockchain metaverse. In GameFi, all blockchain social, entertainment, financial, and even economic systems can be integrated with blockchain games.

Just as we look forward to the internet metaverse, the dividend effect of the blockchain metaverse is even more worth anticipating.