Preview - Digital Assets Report 2023

Find out about what happens to crypto next year!

GameFi , Gamified Finance, or Gaming + Finance, however one tries to define it – is a growing space within the web3 ecosystem. Speaking of GameFi, one certainly cannot leave out the likes of Axie Infinity. It caught the world’s imagination with the idea that one can play (games) to earn (P2E) - wherever they were. While the model proved successful (albeit temporarily), it is now clear that this particular P2E model may not be very sustainable, as it had to continue to attract new money for its in-game reward token SLP to hold its value - which in turn determines the take rate of gamers on its platform.

Regardless if early investors and users made out like a bandit - the GameFi ecosystem was changed forever; one might argue for the better. In fact, we argue that as the result of Axie’s success, hundreds of millions of dollars poured into the GameFi ecosystem. Just as the Uber for X business model took off after Uber became widely popular, the X-to-Earn (X2E) model became largely synonymous with the GameFi space.

So, how do we see GameFi evolving in 2023?

X2E model will see a decline

For one, we think the X-to-Earn (X2E) model will continue to see a decline, except a select few which are backed by major VC funds. For reasons as simple as sustainable tokenomics, X2E needs to evolve or die.

In-Game Digital Items are the new NFTs

We are particularly bullish on games that utilize NFTs to vastly improve its gaming experience. Traditionally, gamers have no qualms when it comes to spending real cash buying in-game skins, and items – to improve their gaming experience. However, these in-game “assets” hold no value outside of the game. One might argue that this is by design, but let’s not forget it actually introduces more friction to move onto another game offering (even if the game was launched by the same publisher).

Therefore, we continue to see a huge untapped market potential for games that utilize NFTs to either attract funding, user growth or retention and even as a potential source of revenue (via the trading of these NFTs). A few projects that have caught our eye include Dragon Crypto Gaming and Kompete.

Freemium model will take off

Traditionally, popular GameFi projects require users to own its NFTs as a “rite of passage”. As these NFTs are also freely traded in the marketplace, one can expect to be spending thousands of dollars once these games’ popularity begin to take off. This is simply unsustainable for user growth. While many GameFi projects tried to remedy this issue by introducing scholarships or loans (which led to Guild projects taking off), one cannot help but wonder - why is such friction introduced in the first place?

We are particularly bullish on games that attempt to onboard users for a fixed cost (say $100), or make it free to play (freemium). It is generally understood that once your game reaches millions of people, the wheels of monetization move much more freely.
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