Explaining GameFi in detail: DeFi is fully compatible with the Metaverse

Since Facebook changed its name to “Meta”, many investors have been driven down the rabbit hole of the Metaverse. But it’s not just Meta, Microsoft and Nvidia are also contributing to the Metaverse, as is Disney.

Gemini invested $400 million to compete with Zuckerberg’s Meta, and other players like Epic Games spent more than $4 billion in total to build outside the Meta’s walled garden.

Gemini has invested in several metaverse builders such as Alethea, Somnium Space, Recur, and The Sandbox (SAND).

There is money to be made in virtual worlds, and investors acknowledge the seriousness of the metaverse phenomenon after the worldwide social shift brought about by the past two years.

As in, a business recently purchased virtual land in Decentraland for $2.5 million, the largest transaction on record (discussed later). The company plans to showcase digital goods in the metaverse in response to the growing demand for digital fashion and luxury.

I’m not exaggerating the fact that someone recently sold a Gucci bag on the online gaming platform Roblox for more than a physical bag. Morgan Stanley estimates that the Metaverse luxury market will be worth $50 billion by 2030 (10% of the luxury market).

Virtual land sales and luxury NFTs are only part of a larger upward trend that also includes Play-to-Earn (P2E) and increasingly sophisticated decentralized finance (DeFi). ), these strategies all take place in the metaverse, an industry known as “GameFi”.

Before diving into GameFi, let’s try to define the “Metaverse”.

What is the Metaverse?

The metaverse means so much to people. It’s a virtual world where you can interact with friends, family, and colleagues, a place where you can get a sense of immersion that you can never experience in the physical world. Many would strongly associate the metaverse with VRChat and Second Life in the VR (virtual reality) world, while others assert that cryptocurrencies, DeFi, NFTs, and Web2 are all part of the metaverse. Putting aside augmented reality and the Internet of Things, we can also say that it is the whole of the metaverse.

The following definition from @pierskicks poetically covers all the bases:

“The Metaverse: An eternal, vibrant digital universe that provides individuals with a sense of agency, social presence and awareness of shared spaces, and the ability to participate in a broad virtual economy with profound social implications.”

If this definition is too literal, @MarioNawfal offers a more generalized version:

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Anyone who’s played Runescape, The Sims Online, or Minecraft long enough to feel like it’s their second life can imagine what the world envisioned in that tweet means.

In Anthony Bardaro’s article on Disney’s final game building the metaverse, he quotes prolific metaverse authority Matt Ball:

Matt believes that the metaverse contains a “fully functioning economy” that never shuts down. It will span the physical world and multiple digital worlds, with “unprecedented interoperability of data, digital items/assets and content”. The Metaverse Economy will be developed and managed by many contributors, from independent builders to DAOs to commercial enterprises.

Badaro summed up the true scale of the metaverse:

“Calling it pure video games, virtual reality (VR) or augmented reality (AR) understates the grandeur of the metaverse concept. It’s not just a substitute for idle screen time, although it already covers all the bases— — From livestreaming to entertainment to escapism, education, information and networking.”

We’re probably still years away from the virtual worlds depicted in movies like Player One or books like Snow Crash (without even touching the Matrix rabbit hole). Still, innovations in VR, high-speed internet, hyper-realistic game engines, and blockchain technology have advanced to a level that will surprise most of us.

I mean, what is this video?

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Who is building the metaverse?

In addition to the Big Tech data giants, dozens of companies and teams are building various moving parts of the metaverse:

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While tech giants are creating the tools for us to interact and conduct business in virtual worlds (and research the best ways to provide value to our data and wallets), companies like Decentraland ($MANA) have developed a community with Metaverse of Priority Intent:

“Decentraland is a blockchain-based virtual world that allows users to build their own tools, games, content, marketplaces, etc. Decentraland land is owned by the community, giving them control over their creations.” – Decentraland white paper

Quoting Metaverse Network bellwether @pierskicks again: “Cryptocurrencies are laying the groundwork for an autonomous financial system, an open creator economy, and a universal digital representation and ownership layer via NFTs.”

Let me explain why this is so important.

Games like World of Warcraft and Runescape have impressive in-game economies, but these are constrained by game-specific parameters and tightly controlled by a central authority.

For example, acquiring resources in Runescape in exchange for the fiat currency of a friend next door is against the rules of the game, while the lack of checks and balances provided by blockchain and NFTs makes it very easy to run bots to game the system. It is also easy to buy enhanced accounts on the black market to cheat other gamers of their resources.

To curb bad behavior, the company behind Runescape (The Carlyle Group) can make major changes to in-game mechanics and economies overnight without any input from users.

All the time you put into the game has little sad value other than bragging rights because you don’t really own anything in that world.

Violate the terms of service and lose everything!

Despite top-down pressure to stay in our lanes and pay-to-play, many economically disadvantaged people in countries like Venezuela rely on the Runescape gold black market to stay above the poverty line.

This brings me to GameFi, one of the most interesting examples of how blockchain technology and NFTs can revolutionize the mechanics of in-game economies, while also connecting them to the real world economy.

What is GameFi?

GameFi is the intersection of DeFi and P2E blockchain games in the metaverse.

This is an ecosystem that includes economies made possible by transferring ownership of assets to players and incentivizing higher loyalty, engagement, and active governance of these gaming communities.

To understand how GameFi can significantly enhance player incentive alignment, we must understand the role of NFTs, P2E, gaming guilds, and some key players in the industry.

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The role of NFTs in GameFi

One of the core components of P2E and the Metaverse is the ubiquitous use of NFTs.

A World Economic Forum article states: “NFTs can take many shapes in virtual worlds: characters, objects, lands, decorative personalization features such as digital clothing.”

In P2E, players earn the most valuable NFTs for their in-game feats, which they can then sell for real money. This innovation breaks the exclusive, custodial ownership of game assets while preserving security and proof of ownership.

It also draws a logical conclusion: DeFi is fully compatible with the Metaverse.

The WEF continued: “The greatest potential of play to earn games lies in their potential to decentralize the creation, ownership and exchange of digital assets, and when these markets are The potential created when money is connected – allowing players to convert their digital time, energy and income into real-world disposable income.”

Naturally, P2E still relies on some form of centralization to limit what is ultimately released as an NFT, but there will always be fringe communities that allow anything.

One day, we may reach a point where the technology is so completely decentralized and the metaverse so vast that it will be nearly impossible to police how players present themselves or what business they do there. However, we are still far from that reality today.

The creation of NFTs has also quickly become a commodity, and it is the communities that emerge around impressive creations that will command the highest valuations and survive a bear market.

Luxury art and collectibles have traditionally performed strongly as unrelated stores of value during times of economic stress. Metaverse projects will benefit from producing luxury assets and experiences to compete or collaborate with high art cult communities in the NFT industry, such as BAYC and individual creators and collectors who have built a following around marketplaces like Art Blocks.

NFT-based blockchain game experiment

NFT-based projects like Loot and Rarity have revolutionized game development by putting the entire project in the hands of the user. These “games” have quickly built a cult following, and game development is emerging from their game economy.

Loot-like communities will thrive in a highly composable blockchain world so that owners can use them across different virtual worlds.

This means that a flaming sword in one world may be a wet noodle in another, but the real value is breaking down the barriers between those worlds and bringing their economies together.

Games built to integrate Loot may attract gaming guild investment and scholarship (I’ll discuss guilds later, as they are the heart of GameFi).

Rare communities with few restrictions on NFT creation may benefit from NFT aggregators like Genie, which allow bulk listings on various marketplaces and simplify the sweeping process.

A Brief History of GameFi

GameFi represents a decades-long power shift from game studios to players. Starting with Pay-to-Play (P2P), users will pay to play games created by game studios.

Later, Free-to-Play (F2P) came along, where users could start playing for free and then decide if they liked the game to pay for a premium experience. The main source of revenue for F2P is advertising and add-ons (such as player and item “skins”). F2P games are more accessible and help transfer power from game studios to players.

Then there is Play-to-Earn (P2E), which implements blockchain and NFTs to fully democratize user ownership of assets. P2E was pioneered by today’s popular names such as Axie Infinity and Gods Unchained.

The first P2E games were inspired by the in-game economies of F2P games such as Runescape and World of Warcraft (WoW). However, most successful P2E games today are more like card games or evolutions of games like Farm Town than WoW-style MMORPGs (massively multiplayer online role-playing games).

The future of P2E is an interactive metaverse centered on GameFi, pulling market participants from the fringes and rewarding gamers and developers through the creation and financialization of in-game assets.

However, not all areas of the metaverse are open to building bridges. Meta is unlikely to offer the level of ownership, decentralized governance, and data privacy that Decentraland will offer.

However, Meta is more likely to change the underlying technology used by everyone in the metaverse than the latter. To be honest, Decentraland still looks a lot like Lego Island (circa 1997).

Even if Big Tech’s goal is to get as much of the pie as possible, with nearly 3 billion people actively playing games today, even if 1% of them switch to P2E, that’s huge for GameFi.

By the way, those who find their way to blockchain games and the metaverse may end up indirectly contributing to GameFi without even realizing it, as fees collected in these games may end up in the DAO treasury and was redirected to DeFi Strategies.

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Fast forward to the present, and Facebook’s move to Meta appears to be a major milestone in legitimizing the Metaverse, despite its origins in online communities that flourished even in the late 1990s, such as Second Life.

If Meta manages to activate its idle user base of over 2 billion globally, interact in the area of ​​the Metaverse where it is located, and then make Libra a core token, the company could become unstoppable. Meta may consume or affect all competition, including other concentrated areas of the metaverse, such as Roblox, Minecraft, and Fortnite.

These centralized virtual worlds can be built with blockchain technology and remain highly centralized in terms of what users can do on the platform, from self-expression to participating in the virtual economy.

It’s not what everyone wants, but Meta could be the future of Web 3.0.

How big can GameFi be?

It’s hard to calculate the current and future size of GameFi given the speed at which these emerging industries and projects are growing, but here are some numbers to ponder:

– Grayscale sees $400B in revenue for virtual gaming worlds by 2025, and $1T for the entire metaverse.

– BITKRAFT Ventures values ​​the entire gaming industry at $336B, while Grayscale values ​​it at $2T.

– Goldman Sachs values ​​esports at $3B in 2022, even though esports viewership has already surpassed the NBA.

– Morgan Stanley believes NFTs will be worth $300B by 2030.

– According to DeFi Llama, the ATH of DeFi TVL is over $273B.

– The venture capital and big tech companies involved are all worth trillions of dollars, which means there’s no shortage of funding and resources from a top-down perspective.

While gaming is only a subset of the metaverse, I imagine an uptrend like GameFi will put the final category in the $100B+ range (blockchain gaming is at least $50B). I think the industry will significantly exceed all of the above estimates within a few years.

Where can I find alphas in GameFi?

This section covers infrastructure leaders, gaming guilds, metaverse land sales, and NFT financialization.

A leader in advancing GameFi infrastructure

Axie Infinity

Axie Infinity remains the leader in P2E and GameFi.

The company recently deployed the Ronin sidechain to reduce transaction costs. Axie’s Katana DEX broke $1.18B in liquidity within a week of launch, and has already had over 175,000 users interacting with the DEX.

Axie is second only to Ethereum in revenue generation, and it supports an active user base of millions.

Polygon

Polygon leverages the security and network effects of Ethereum and the significant efficiency gains of zkRollups to support multiple blockchain games. They have allocated $100 million for games and NFT projects.

Flow

Flow by Dapper Labs (founders of NBA Top Shots and CryptoKitties) aims to provide the parent company with the scalability it needs to remain a leading blockchain game studio.

Immutable

Immutable X ($IMX) is a well-funded infrastructure leader in NFT and blockchain gaming. Their extensive R&D into Layer 2 technology should yield considerable windfalls for the Metaverse region under their umbrella.

Additionally, Immutable is powering TikTok’s first NFT (probably nothing).

GalaGames

GalaGames aims to build a blockchain game arcade and decentralized Steam competitor through a unique ERC1155 architecture.

RedFOX Labs

Southeastern Aria-based metaverse company RedFOX Labs ($RFOX) is developing RFOX VALT, “a virtual world focused on shopping, retail and entertainment experiences.”

A portion of VALT transactions go to $VFOX holders (which can be staked in RFOX.Finance DEX), and RFOX can be used on multiple chains.

Through RFOX Games, the company aims to become a leader in P2E and blockchain gaming. Their partners include CoinGecko.

In an interview with Ben Fairbank, CEO and founder of RedFOX Labs, Ben affirmed a huge industry that most people don’t realize: influencer e-commerce streaming, Southeast Asia is already a huge industry.

Ben believes that a powerful model for the metaverse is to use an existing audience to dominate that niche. The quickest way to gain traction there is to acquire a media company, which is what the company did.

In this way, RedFOX Labs differentiates itself from most metaverse companies that operate alone in the wild west of freelance influencers.

Ben also suggested working with Polygon to reduce fees, DeFi staking programs and DAOs are all on the roadmap.

Enjin

Enjin ($ENJ) is an Ethereum-based PaaS (Platform as a Service) and blockchain gaming giant. Enjin supports over 300,000 gaming communities and 19 million registered gamers.

Partners include Unity, PC Gamer, NRG eSports, Efinity (a Polkadot parachain that supports cross-chain compatible NFTs and reduces network congestion) and Microsoft (yes, GameFi already exists in Minecraft).

Solana

Solana ($SOL) is building an NFT infrastructure called Metaplex where users can launch storefronts and issue NFT collections with custom royalties. They recently partnered with Lightspeed Ventures and FTX to fund a Web 3.0 game studio ($100M financing deal).

The Sandbox

The Sandbox ($SAND and $LAND) is “a virtual #gaming world where players can build, own and monetize their gaming experience.”

Sandbox features game assets as NFTs on Ethereum, and plots that users can monetize by renting them out or through P2P experiences, built using Sandbox Gamemaker.

Land and assets in The Sandbox are NFTs that can be bought and sold on its marketplace, priced in SAND.

SAND is an ERC-20 on Ethereum and an in-game currency that users can earn additional rewards for staking. The Sandbox has two tokens (SAND and LAND), both of which give the holder governance rights.

Sandbox went from a 2D mobile game to a virtual world built on Ethereum, with over 40 million users and over 14,500 virtual landowners. Snoop Dogg even built a mansion there and threw a party.

Adidas recently partnered with The Sandbox and Coinbase, suggesting we may see greater retail interest in the metaverse in the coming months.

Names like SoftBank backed the sandbox, and they raised a lot of money by selling land. Some of the plots in the sandbox are owned by companies like Binance, Gemini, CoinMarketCap, and Atari.

However, the leaders of the metaverse have created centralization issues due to their reliance on AWS servers. In contrast, Decentraland lacks centralization. After four years of hype, the virtual world has just been launched.

game guild

The DAO and other groups are forming “guilds” to pool resources to get the most out of GameFi, whether it’s P2E, Staking and DeFi strategies, flipping NFTs, managing launchpads for new games, or investing in other guilds.

These guilds work together to unlock alpha in the metaverse, while also contributing to the communities that resonate with them the most, adding to the pie for everyone.

The main value creator of guilds is to engage players who would otherwise be excluded from the market. Guilds do this by purchasing games to earn game assets for games and lending them to players in exchange for their share of game rewards.

For example, in the popular metaverse game Axie Infinity, users must acquire at least three “Axies” to participate in the P2E element of the game. Because Axies are so expensive, many people have little chance of participating. Gaming guilds can lend Axies to other players, who in turn can earn enough money to buy their own Axies.

By lending the assets needed to participate in P2E to “scholars” in exchange for a percentage of their income, guilds have the potential to generate substantial income while also funding thousands of people around the world to participate and make money in multiple virtual economies.

The Society has already contributed to improving the living standards of thousands of economically disadvantaged people in the Philippines.

As guilds grow in size, they also generate income by acquiring various in-game assets (such as NFTs and game tokens), investing in other guilds and in-game seed investments.

It’s not hard to imagine that these guilds will also advance DeFi strategies beyond the blockchain game, such as staking or liquid staking assets for other blockchain protocols, NFT fractionation, and issuing their own tokens. Naturally, tokenization opens the door to staking and various DeFi strategies.

For example, the Yield Guild is creating options for participants to stake in a granular way, which means you can invest in a specific sector or region of blockchain gaming or an entire index of guilds to your liking.

From start-up capital to expanding the moat of active players, it’s clear that guilds are an invaluable resource for the blockchain gaming industry. They may play an important role in the future governance of the metaverse and the various projects within it.

Some examples of game unions include:

– @YieldGuild ($YGG) – Pioneered the concept of a P2E DAO, investment round led by a16z and Delphi. By creating child DAOs, Yield Guild can rapidly expand across different regions and games. Guild tokens have reached a fully diluted valuation of $7.5B+.

– @MeritCircle_IO (backed by Yield Guild).

– Avocado, the blockchain gaming guild, valued at over $200 million, backed by heavyweights like Animoca Brands, Solana Ventures, and Three Arrows Capital.

– BlackPool – a more quantitative-focused DAO whose main source of revenue is Sorare, which recently partnered with Ubisoft.

Guild scholarships are one of the more interesting revenue-generating strategies. It incorporates new forms of DeFi and governance that have emerged with the success and proliferation of DAOs emerging in the digital asset space.

In other words, Game Guilds are a shining example of how GameFi can pull people from the fringes of the current gaming economy into the real economy, while getting more people into those games and improving people’s lives.

It’s a win-win situation and a key component that separates the Web 2.0 closed enterprise metaverse from the Web 3.0 open crypto metaverse.

Metaverse Land Sales

According to the Decentraland Land Price working paper, people buy virtual land with high potential for commercial application. Packages close to popular landmarks and easy-to-remember addresses raise prices significantly.

In addition to the aforementioned record land sale in Decentraland, the Axie Infinity parcel recently sold for $2.48 million.

Many other players in the digital asset space are following this trend. Digital asset startup platform @Polkastarter ($POLS) recently announced a metaverse land sale for some of the best projects in the industry.

Parcel and WeMeta are competing with OpenSea to be the top choice for virtual real estate, the “Zillow of the Metaverse.”

It’s not far-fetched to imagine a future workforce of digital real estate managers, event organizers, casino employees and embassy staff in downtown Metaverse.

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Financialization of NFTs – Liquidity Protocols and Aggregators

NFT transaction volume on Ethereum recently surpassed $13B, but total NFT sales have plummeted.

Market saturation is to be expected, with only coveted items gaining value – a similar phenomenon occurs in the realm of physical collectibles, such as trading cards.

The NFT Liquidity Protocol solves the NFT liquidity problem by providing the following solutions:

– Create NFT-like liquidity pools. See NFT20 and NFTX.

– Fragmentation of NFTs (i.e. turning one NFT into 10,000 fungible tokens). See Unicly and Fractional. By contrast, Robinhood follows a similar path by segmenting stocks.

Liquidity Protocol holds over $80 million in combined TVL. I imagine that number will go up as the hype wears off and people want their non-fungible products to be more fungible.

NFT aggregators can solve the problem of insufficient liquidity between markets due to asset fragmentation. The only aggregator I know of worth mentioning is Genie, which allows users to buy and sell multiple NFTs across multiple markets in a single transaction. Users can buy NFT through a combination of ETH and NFT.

I think some DAOs and gaming guilds plan to use Genie to effectively sweep the floor of some desirable NFT projects, which may include virtual land.

Social network

While listing all the various treasure troves of data, news, and intelligence related to GameFi is beyond the scope of this article, I would say some of the best alphas that can be discovered by the web.

The connections you make in the industry go a long way to help understand what drives value.

Discord and Telegram groups, made up of well-known NFT, Play-To-Earn, and Metaverse projects, are great places to find topics. Find out if they have any DeFi-focused partners or their own DeFi initiatives.

Centralization vs. Decentralization and the Fate of Pioneering Virtual Worlds – Discussion

Inhabitants of the metaverse lack the potential threat of a central authority, and they can more easily know that their assets (and likely their livelihoods) are safe on-chain and in private wallets.

Furthermore, a decentralized metaverse may be resistant to malicious attacks due to its decentralized nature (assuming its servers are also decentralized), and so is its economy in theory.

The DAO behind this metaverse can also use funds generated by the world’s GameFi economy to fund the vault.

However, the viability of the decentralized metaverse depends heavily on whether the DAO properly manages its funds.

As a side note, I think the insurance for the Metaverse and GameFi will be huge once industry players find the best product-market fit.

The centralized metaverse may have a better chance of weathering a market downturn due to its large capital reserves and resources. It also means that residents of this metaverse can enjoy a higher level of security in terms of insurance if something goes wrong.

Decentralized or otherwise, if game creators fail to tightly integrate the in-game economy with their company’s revenue structure, the viability of a game ultimately depends on two extremes of the player base: new players and addicts.

@adamscochran makes interesting comparisons to games like Decentraland and Axie Infinity and nation-states in this thread:

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I think this is the case with games like Runescape, and blockchain games like Gods Unchained seem to follow a similar path.

As Adam pointed out, the middle of the curve stabilizes the gaming experience and increases its popularity to attract users from both ends.

Blockchain games must address population, interest and economic collapse, as well as inflation. The metaverse as a whole should survive, but the games within it may rise and fall rapidly as the fun or economic incentives fade.

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Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/explaining-gamefi-in-detail-defi-is-fully-compatible-with-the-metaverse/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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