Understanding DeFi Kingdoms in One Article: The Pearl on the Harmony Chain, a Combination of GameFI + NFT + DEX

Written by: Hans HODL

Compiled by: AZer

At the beginning of 2022, looking back at the GameFi projects of 2021, I personally believe that Defi Kingdoms will have significant achievements in 2022. Why do I say this? Over the past few years, it has been at the center of three major trends in cryptocurrency: DeFi + NFTs + multi-chain collaboration.

DFK is positioned to become the first engaging play-to-earn game that captures user mindshare across multiple blockchains, already competing with Axie Infinity for market share, while Axie's user base is only a small fraction and operates solely on the Harmony blockchain.

Two main features of DFK are its decentralized exchange, where you can trade various cryptocurrency assets, and their hero NFTs, which you can use to summon other heroes, complete quests, and ultimately compete with other players in PvP. Compared to other ecosystems we currently see, their in-game economy and hero NFTs are the most beneficial to users. Regarding their DEX, users who stake the governance token Jewel in the treasury can earn 30% of all transaction fees.

For those providing liquidity, they receive most of the rewards from the initial token distribution by locking in their assets, rather than early trades to VCs and others during the seed round like most projects. Even with the in-game hero ecosystem, most of the costs associated with summoning new heroes are reinvested back into the system.

30% of all summoning fees will later be provided as quest rewards to players, while 10% of all summoning fees will be paid to xJewel stakers in the treasury. As the project expands multi-chain to Avalanche and elsewhere in the future, it will provide airdrops to those currently actively playing on Harmony.

Even considering future roadmap milestones, certain land purchases and other upgrades in the game will only be available to those actively completing quests and leveling up heroes. Currently, there are many issues with existing DeFi projects, where holding tokens does not truly benefit users. By integrating these tokens into a well-designed in-game economy, players can receive incentives and rewards, becoming active participants.

GameFi refers to the intersection of three independent technologies that merge together

In short, GameFi is the intersection of the Metaverse, DeFi, and NFTs. It is an emerging ecosystem where players own the ecosystem itself. It’s about NFTs actually doing something, rather than being JPEGs of monkeys worth millions with no real purpose other than to be traded for other cryptocurrencies.

It’s about decentralized finance as part of a world you enjoy spending time in. It’s about a metaverse beyond Facebook, where geographical boundaries gradually disappear, and even economically disadvantaged individuals can benefit through scholarship programs.

A set of data:

For comparable industries, we need to discuss the market capitalization share of the entire cryptocurrency, DeFi, Metaverse/GameFi, NFT, as well as traditional gaming and game studios.

1) Today's total cryptocurrency market cap exceeds $2.3 trillion.

2) DeFi, as a sub-industry, has a market cap of $249 billion.

3) NFTs represent a market cap of $50 billion.

4) The leading blockchain game, Axie Infinity, may be valued at $10 billion.

5) The two very small dots you see in the lower right corner of this chart represent the current market value of DFK all-in, calculated based on Jewel (DFK's native token - $432) and the TVL in the protocol ($280).

The two small dots in the lower right corner represent DFK's current market cap and TVL (growth potential).

Overall Overview

You might be wondering, "But why should we expect this project to take off and grab a larger piece of the pie?"

That's a good question. Here’s why.

1. DFK is at the forefront of an emerging mega trend: the metaverse.

2. So far, no blockchain game has been both very successful and widely adopted while operating across multiple blockchains. There is a multi-billion dollar market gap here.

3. The market is already oversaturated with DeFi projects that have no apparent functionality beyond liquidity mining, with rewards continuously decreasing.

4. Too many GameFi projects are in development, sitting on billions of dollars, yet have produced nothing (most of them aside from play-to-earn).

5. The third and fourth points lead us to an irresistible conclusion: there is currently too much liquidity being sought, with not enough good places to store that liquidity.

6. DFK introduces NFT functionalities that are unprecedented in this field and broadens the definition of what NFTs even are.

7. The team is delivering and has communicated well with the community.

8. The roadmap is ambitious, planning for kingdom wars and PvP guilds across blockchains.

9. With the help of former Goldman Sachs VP DreamerDFK, the tokenomics has been excellently planned and executed.

10. Many GameFi games are transitioning from traditional industries, and DFK has the perfect solution.

Let’s discuss these points in detail. I believe if you stick with this article until the end, you might end up falling into FOMO like I did, not as financial advice, but as an analytical reference.

The Big Trend of the Metaverse

The real GameFi blockbuster is still empty

There is currently a frenzy of capital pouring into the metaverse. Such enthusiasm has rarely been seen in financial history.

For example, Facebook announced they would be rebranding to "Meta" to focus on the metaverse. In the past two months, over $8 billion has flooded into this space from VC funding and new capital (crypto and the metaverse, especially the metaverse).

The real GameFi blockbuster is still empty. If you quickly search for metaverse games, you might think primarily of Axie Infinity. Axie is not a new project, but recently they launched their own sidechain to allow their game to operate very successfully in the Ethereum ecosystem, which has high fees (ranging from $20 to $400 per transaction).

But the important news is that their scholarship program suddenly began providing a living wage for people living below the poverty line in the Philippines. This is new and interesting. However, with the price of SLP dropping over 90% in the past few months, this program is currently difficult to sustain.

Additionally, the entire Axie ecosystem operates entirely on the Ronin sidechain. If the price of SLP continues to decline, the utility of the entire ecosystem may come into question.

DeFi Degeneration and Endless Diminishing Returns

In a world where most global debt now has a negative real yield, DeFi has shocked the traditional financial sector with incredibly high yields. Could this lead to a subprime crisis in the crypto space? It’s hard to say.

Nevertheless, DeFi still exists and is evolving, even after experiencing a massive pullback due to Chinese policy reasons in May 2021, with many protocols still sitting on billions of dollars in funds.

Wouldn’t it be great if there was more to it than just chasing LP rewards for those worthless governance tokens?

The Liquidity Aftermath of the Metaverse

The global economy is actually experiencing an excess of funds, thanks to the Federal Reserve and the global economic system creating trillions of dollars without a plan to address this bubble. Look at this:

Source: https://fred.stlouisfed.org/series/WALCL

If some industries or large projects absorb this liquidity, it would be outstanding. Of course, this is a big trend analysis, but remember, no amount of capital can force people to play a GameFi; it must have something truly hardcore.

Where Will the Hot Money Flow?

Ultimately, it’s clear the market needs something new. What does the market want? What we all want is something organic, fun, unique, and completely different. DFK offers a place for some of that hot money to flow in.

Another way DFK stands out among its peers (if it indeed does) is its unique retro pixel art style.

Official website: https://game.defikingdoms.com/

Innovation of DeFi Kingdoms

At this point, I want to delve into how DFK innovates. Rather than buying NFTs for "NGU technology" (Number Go Up), NFTs in DeFi Kingdoms have real utility. Let’s take a look at the first type of NFT, the heroes!

Source: https://game.defikingdoms.com/#/tavern

In this snapshot, you can buy, sell, or even rent heroes. Each hero is unique. Heroes have the following attributes:

1. Level and tier

2. Experience from the first generation and current level

3. Number of summons (ability to create more heroes)

4. HP/MP/Stamina and rarity from common to mythic

5. Eight stats (one or two with bonuses) and four classes (one specialization)

Of course, other games also have heroes. What sets DFK heroes apart is the vast amount of utility they currently possess and will have according to the roadmap.

For example, if you own a hero, you can:

1. Continue career quests and earn skill points (fishing or foraging)

2. Collect items in another form of currency

3. Use heroes to summon other heroes

4. Rent your heroes to other players

5. Sell or trade your heroes

6. Upgrade your experience to increase your stats and stamina

Soon, you will be able to:

1) Mine with your heroes, unlocking gem rewards

2) Place your heroes in a garden to increase your farming rewards

3) Equip your heroes with other NFTs

4) Hatch pets to enhance your heroes

5) Participate in PvP battles

6) Join guilds

7) And ultimately take on more challenging quests for greater rewards and items

If we were to delve deeper into this, I believe that the discussions among the community regarding in-game currencies and NFT economic models would be extensive, but for the sake of brevity, we will leave the economic model discussion here.

One more important point is the team

You can learn more about the DFK team from DFKDAO's GodofCoins, Anesem, and Satsdart. Without a good team, you cannot build a good community. Without a good community and a good team, it will be difficult for the game to sustain itself in the long run.

So what constitutes a good team? For DFK, they have meticulously crafted a detailed roadmap and executed it.

Source: DFK Discord

DFK was initially launched on the Harmony blockchain. Their core game token is called Jewel. Jewel can be staked in the Bank, and a portion of each Jewel transaction is used to increase the value of xJewel, which is the value held by stakers. xJewel is a governance token and will also periodically provide in-game drops such as land, equipment, or other rewards.

The first expansion will take place in Q1 2022, which will extend DFK to the Avalanche (AVAX) blockchain. AVAX is an order of magnitude larger than Harmony (ONE). Therefore, when this happens, we can expect a significant influx of new users. However, if you are concerned that this new release will dilute the value of Jewel, you might be mistaken.

When the game launches on AVAX, there will be a new token (Crystal), and its rewards may resemble the Jewel reward system. But the difference is that Crystal will reward current Jewel holders. So all Jewels on AVAX must be bridged over from the Harmony chain.

In other words, the supply will be fixed at 500 million tokens. Therefore, if there are ten times the new users and the supply of Jewel remains unchanged, we will see a massive surge in demand with a complete lack of elastic supply; from an economic perspective, this is bullish over 10x.

Speaking of the Jewel reward system, the developers have established a clever mechanism to ensure that long-term holders, early adopters, and enthusiasts receive the most generous rewards and incentives. Take a look at the next chart, which shows the unlocking schedule for LP rewards in DFK.

Source: https://docs.defikingdoms.com/how-defi-kingdoms-works/the-gardens

You will notice that early adopters receive the most rewards, but these rewards are mostly locked at the beginning. Over time, the total rewards will decrease, but the pool will shift towards most being unlocked. The timeline for locking and unlocking Jewel is illustrated below by Epoch (some blocks mined on the Harmony chain typically take about a week, although some epochs are longer).

Source: https://docs.defikingdoms.com/how-defi-kingdoms-works/the-gardens

Looking at this timeline might make you wish you could go back in time to capture 256x tokens, right? If you want to know, we are currently in epoch 14. I believe with the launch of Crystalvale (the Avalanche expansion), we will have a second chance to participate in this process.

Another thing we should touch on is the mechanism of the gardens and the bank, which well illustrates many thoughts on token economics.

In the image below, you will see the DFK gardens, where you plant seeds to earn rewards, functioning similarly to how Uniswap V2 works (in fact, this code has been forked).

Source: https://game.defikingdoms.com/#/gardens

Currently, the rewards for adding liquidity to these pools are very high, such as over 800% annual interest. However, to incentivize long-term thinking, reduce the likelihood of flash loan attacks, and encourage active participation, the following mechanisms are in place.

First, deposits and withdrawals in the same block are heavily penalized (with a 25% reduction fee). Second, withdrawal fees decrease from 8% in the first hour to about 0.01% after a month. Third, the locked Jewel rewards, which currently account for 31% of all rewards, may not be available until July 2022 (depending on the average block speed of Harmony), at which point all locked rewards will begin to unlock linearly.

The linear unlocking will also take a full year to complete, while the demand for Jewel may significantly increase. Why? On one hand, as the main issuance phase of Jewel rewards is nearing its end, the issuance of Crystal will be in full swing. Remember, you need Jewel to obtain Crystal, and DFK on AVAX could ultimately be ten times that on Harmony.

Additionally, the "Kingdom and Land" phase is approaching, and if you hold Jewel, you may have already been airdropped a kingdom. If not, you will have another opportunity to purchase one, but I will discuss that later.

If that’s not enough, as the AVAX Crystal rewards grow longer, plans have been made (though not fully detailed) to expand to two more blockchains and repeat this process twice. What are these other chains? I’m not sure, but if I had to guess, keep an eye on Polygon (MATIC) and Fantom (FTM). Will the power tokens on these chains be called Amethyst and Sapphire? That’s just a guess.

So ultimately, there may be four (or more?) opportunities to participate in power token distributions, land sales, zero-generation heroes, and more!!

Bank

Another cool system you can find in DFK is the bank. If you don’t like the risk of impermanent loss (IL), you can safely deposit Jewel in the bank for moderate rewards and some xJewel.

Source: https://game.defikingdoms.com/#/bank

Each time Jewel is traded, a portion of the revenue is deposited into the bank. This gradually increases the xJewel exchange rate. Here’s an example. Suppose the xJewel exchange rate is 1.5. If you deposit 150 Jewel into the bank, you will receive 100 xJewel. Later, if the xJewel exchange rate rises to 1.7.

If you now withdraw your 100 xJewel, you will receive 170 Jewel instead of the 150 Jewel you originally deposited. The clever part of this mechanism is that you always get more Jewel than you put in, even if the growth rate is less than that of the liquidity pool (gardens).

But the utility of the bank doesn’t stop there, as the developers want to incentivize people to stake their Jewel and increase its value for everyone. So what they’ve done is organize a series of airdrops and lotteries for xJewel holders, giving participants a chance to win mythic, legendary, or rare charms.

Charms will be the first equipment in the game, but certainly not the last. Charms will provide some rewards for your heroes, though it has not yet been announced how this will work.

Continuation of Game Mechanics

The best games won’t let you make simple decisions. --- GodofCoins

Think about the mechanism flaws in Axie Infinity, where the only thing to do is increase SLP before the price crashes.

So what about DFK? I’m not sure anyone knows the best strategy for DFK because, frankly, the game has many nuances and interesting game incentive mechanisms. It really depends on what you are interested in.

For example, you can put everything into liquidity pools. You can buy zero-generation heroes and summon more heroes. You can buy a bunch of heroes and run career quests to accumulate rewards.

You can deposit a large amount of funds into the bank and try to win very valuable items. You can upgrade heroes and try to flip them for more jewels. You can try to obtain the most powerful heroes and create a top-ranked PvP guild. You can try to acquire a piece of land and decorate it.

Many top players choose to try everything!

Now all popular GameFi homogenization suffers from problems

For instance, many friends playing Pokémon GO might find that one item in the game is never enough, while another item is too abundant. Meanwhile, your friends need some items you have, but you have too many of another item that you can’t use?

This is the same problem that arises in every game, and it’s very simple. There isn’t enough liquidity. Items are not liquid, so you end up being limited by a bunch of things you don’t want and others you can’t get unless you pay to win. Once you pay, you don’t even own what you bought!

Think about it. How much can you sell that Pokémon you caught for? What about that legendary sword you fought for in World of Warcraft, which took months to obtain? What’s the selling price? None, because it belongs to the platform, and your best hope is to exchange it for some change in the company store, which feels like being a forced worker.

But in DFK, your heroes and everything they produce are your own property. You can complete a quest and sell quest items for stablecoins, Bitcoin, jewels, etc. It’s your property. Do anything you want with it.

Conclusion

When we broaden our perspective to look at a project within the industry, the impact of GameFi projects far exceeds what people currently see. DFK is positioned to become the first engaging play-to-earn game that captures user mindshare across multiple blockchains, already competing with Axie Infinity for market share, while Axie's user base is only a small fraction and operates solely on the Harmony blockchain.

Two main features of DFK are its decentralized exchange, where you can trade various cryptocurrency assets, and their hero NFTs, which you can use to summon other heroes, complete quests, and ultimately compete with other players in PvP. Compared to other ecosystems we currently see, their in-game economy and hero NFTs are the most beneficial to users.