Play-to-earn games enabled by blockchain technology have grown exponentially in recent years.
Players have embraced the ability to collect crypto-currencies or non-fungible tokens (NFTs) that have been produced in blockchain-based games.
With the advent of this new technology, players were able to generate revenue by selling NFTs in-game or earning crypto-currency rewards, both of which can be redeemed for fiat money.
For this reason, according to data from Absolute Reports, the estimated value of the GameFi industry will reach $2.8 billion by 2028, with a compound annual growth rate of 20.4% over the same period. But these predictions may turn out to be unfounded.
Given the exponential growth rate of recent years, one would think that there is absolutely no reason to believe that the trend will not continue well beyond 2023. Right? Wrong.
As we saw with the ignominious case of former crypto king Sam Bankman-Fried and the FTX implosion, a castle built on a shaky foundation of sand can be easily washed away when the tide rises and falls.
Or, as the legendary investor Warren Buffett liked to say, “It’s only when the tide goes out that you find out who has been swimming naked.”
We may be about to learn who these people are. The fact is that the gambling industry is not built on a solid foundation. The foundations are fragile and flimsy, and that could well be a problem in 2023. The whole edifice seems poised to fall apart.
The structure of the current GameFi market is token-centric, which can create a number of problems. Project owners first issue their tokens, which are listed on the stock market, before announcing that they will create games. The games are a utility of the tokens they issue. So the tokens come first, and the content comes second. That’s why the quality and design of games in the blockchain space is so underrated.
An environment has been created in which gamers are not so interested in the games themselves, which is a strange state of affairs for a gaming industry. More and more gamers are, in fact, investors who want a return on their investment.
The current structure creates the wrong kind of incentives and that’s one of the reasons why the system doesn’t work the way it should. I would say that DeFi Kingdoms, which is one of the most well-known blockchain games, has been lashing out at its tokenomics by creating perverse incentives.
Right now, generally speaking, the token market is down and the speculative trading market is dead. An industry can survive for a while on promises, expectations and unwarranted hype. But it can only do so for so long. After a while, people start to notice that they didn’t get what they were promised. Their patience begins to wear thin. They get angry, they get frustrated, and they start to withdraw. It starts with a trickle from the wiser players, but it can quickly become a flood.
Those who planned to obtain funds by quoting their tokens will have to re-evaluate the situation. Many will be forced to close their projects due to insufficient funds. The situation is becoming so acute that even previously optimistic crypto venture capital (VC) firms are also pausing new investments.
So who will survive this investment drought? It seems unlikely that GameFi will. However, other blockchain games might.
Such is the case with Sorare, an Ethereum-powered, NFT-based fantasy league operator that has become a Web3 unicorn. While many of its competitors are struggling, Sorare continues to grow its user base and revenue during the darkest of times. Its daily auction volume is impressive, in the 300-400 Ether range, and the number of users continues to grow.
Although its back-end is blockchain-based, users don’t see it as a GameFi project. They don’t provide their native tokens, but they do provide their content first on Ethereum, which sounds very much like the way forward for the industry in general.
GameFi may well die in 2023, but that does not mean that all is lost. Death is a necessary part of evolution. New life can already begin to emerge.