Most crypto-focused users have heard of DeFi Summer, which happened in 2020, and at the time, it looked like DeFi would be a mainstream use case for crypto and blockchain. However, a year later, some Pokemon-like games took off. I’m sure you all know what I’m talking about, I’m talking about Axie Infinity. AXS’ native token went from a market cap of $200 million to a market cap of nearly $10 billion in less than six months. At the time, the market cap was about one-fifth of Activision Blizzard’s market cap, which is crazy considering Axie Infinity is just a game and Activision owns games like Call of Duty, Candy Crush, World of Warcraft, and more. This, combined with all the Metaverse hype following Facebook’s rebranding, has crypto folks questioning whether GameFi can overtake DeFi. However, depending on which metric you use, in this post, I’ll cover some basics about GameFi and DeFi and see which one emerges as the real winner.
What is DeFi and GameFi?
Decentralized finance is about replacing intermediaries in the financial sector. The theory is that you can have a smart contract in place of a bank that guarantees both parties play by the rules. With these smart contracts, you eliminate the cost of using a centralized party. The best examples are borrowing and lending. Currently, if you deposit money with the bank, you get almost nothing in return, while the bank makes money by lending your assets. With DeFi, you can lend your assets peer-to-peer and receive full interest directly. Interest rates are determined directly by demand, not by the central bank. Another heavily adopted use case for DeFi is decentralized exchanges like Uniswap, where you can trade assets from one person to another without relying on a centralized party like a broker. Currently, these exchanges are mainly used to exchange one cryptocurrency for another, and the entire foreign exchange market can be replaced with DeFi, making it both cheap and efficient.
GameFi is similar to DeFi in many ways, but the most important difference is that all of this happens in-game. Basically all games that have some economic ecosystem are included in GameFi. Typically, GameFi is associated with blockchain and cryptocurrencies, but some could argue that it is much earlier than that. Markets built around selling in-game items are also highly illiquid and in many cases untrustworthy. With cryptocurrencies and NFTs, that all changes. As an example, look at what Axie Infinity has done, and the popularity it’s garnered suggests it’s here to stay. But in essence, in one sentence, GameFi is a combination of games and finance.
GameFi and DeFi: Follow the money
When comparing two things and their popularity, two aspects tend to dominate – money and users. Let’s start with money, how much to invest, and how much you can end up with. The quick and simple answer is that DeFi will dominate because, as its definition implies, it is here to replace banks and all other financial intermediaries. However, no matter how bullish you are on cryptocurrencies, you need to understand that this is not possible, at least for a while.
First, where is the line between GameFi and DeFi?
Let me elaborate. Think about Sandbox and think that Sandbox is completely decentralized. Now on Sandbox, you can buy land, lease land, showcase your NFT, and more. Now, if I buy land through a decentralized platform and start leasing it to companies or private individuals who want to host events on my land (again through a decentralized service that utilizes smart contracts), then this is DeFi or GameFi? I’m doing everything DeFi stands for, but since I’m doing it in a game, it’s GameFi? I don’t think that’s a problem in itself, because as long as I can make money, it doesn’t matter why it’s classified.It’s not easy to compare the two without clear boundaries.
Our other problem is the measurement method we use. In DeFi, it is typical to measure popularity in terms of total value locked (TVL), while GameFi tends to look at transaction volume. However, we will do our best, starting with TVL. According to this Bloomberg article, the TVL of the top five dapps in DeFi is $130 billion, while the top five games are only $14 billion.Clearly, DeFi has the upper hand here, but it’s not a completely fair comparison, as the two services are not the same in structure and meaning. It is reasonable for someone to put millions in stablecoins and lend them to generate interest payments, but putting millions in Axies is not something people do, or at least not that common, and probably not very appear soon.
Comparing transactions, which is also a win for DeFi, GameFi has about $100 million in transactions per day. By comparison, Raydium (an automated market maker on Solana), at the time of writing, had more than $800 million in trades in the past 24 hours, according to Dappradar. Plus, it doesn’t look like GameFi will overtake DeFi anytime soon. This is because the game transaction volume has not grown at all since August 2021. There have been peaks with daily trading volumes of up to $350 million, but sustainable levels like these have yet to emerge.
Dappradar game transaction volume
However, one thing that doesn’t count in GameFi transactions, and should be included, at least to some extent, is NFT sales. There has been a massive growth in NFTs, many of which are gaming-related. Just look at Gala Games, which has been selling tons of in-game NFTs. Some of these transactions take place through the native NFT marketplace in the game, while others are traded on secondary marketplaces such as OpenSea. It’s hard to guess how many of all NFT sales are gaming-related, but I can imagine that if OpenSea has billions of transactions per month, at least a few hundred million are gaming-related.
We can see that DeFi dominates GameFi in terms of funding, but what about the future? Now, let’s look at traditional banks. Retail banking has an estimated annual revenue of $2.3 trillion, if DeFi is to overtake traditional banks, however, as I mentioned before, within the next few years, the underlying companies that run the world’s money markets are completely overtaken by smart contracts, which looks to be impossible. GameFi, on the other hand, has unimaginable potential, and all trends look positive. For example, take a look at this Metaverse report from Grayscale, which predicts that the revenue of the Metaverse field will reach $1 trillion in the future.
GameFi vs DeFi: Users and Popularity
DeFi may have won the competition in terms of money, but users and popularity are entirely different games. Just by reading the news, you may have noticed that the trend is clearly on GameFi’s side. There are constantly new articles on how GameFi and NFTs are growing, and the article on DeFi is about all the tokens that haven’t made any progress over the past year. GameFi is the new hot spot, which can be seen in the number of users. According to this article from Bloomberg on December 7, 2021, GameFi has surpassed DeFi in user popularity. Bloomberg used Dappradar as their source, check out their January 13 report. According to the report, gaming now accounts for 52.4% of all app user activity, compared to only 34.7% for DeFi. Another interesting statistic in the report is that DeFi follows global macro trends with reduced activity. Gaming activity, on the other hand, doesn’t seem to be bothered by the plunge in cryptocurrencies and stock prices; they’re just growing. That’s one of GameFi’s strengths, too; it’s not about making more money for the elite. It just provides a way for ordinary people who like to play games to enhance their gameplay through ownership and the potential to earn money from the game.
According to Dune Analytics, DeFi has just over 4 million users in total. But let’s take a look at Axie Infinity in isolation, on November 14, 2021, Axie Infinity tweeted that more than 1 million unique wallet addresses interacted with the Ethereum sidechain Ronin created for Axie Infinity, it almost shows GameFi’s popularity and potential.
The last thing I want to talk about about users and popularity is that the potential is huge if compared to their traditional counterparts. DeFi is currently used to leverage your capital for additional income, which limits the number of users it can attract. True, many people use banks and have investments, even though they don’t have much capital. However, I think the barriers to entry into DeFi are pretty high right now. It doesn’t make much sense to lend out $1000 USDC and go through all the hassle and risk for a return of up to $100 per year. On the other hand, the great thing about GameFi is that anyone can use it. Many games do require an initial investment in the form of NFTs, but this is also being addressed through scholarships and other options. With over 3.2 billion gamers worldwide, according to Statista, this is a huge market and shows the potential of how many users this could reach.
GameFi vs DeFi: Development
Suppose we compare GameFi and DeFi’s traditional counterparts in terms of development and the number of existing products. In this case, I can make an educated guess that there are more games in the world than financial products.That’s because it’s easy to create a game, and there are no rules or restrictions that stifle creativity. If you look at games from a few years ago, you’ll see that we’ve come a long way. Not only the picture quality is getting better, but other aspects are also improving. It also has a relationship with users. If you have a market of more than 3.2 billion people, developers and creators will rush to create the next hit. While it is true that there is a huge market for financial products, serving these people is much more difficult due to the many regulations and laws.
Creativity in the gaming industry was mentioned in an interview by a spokesperson for Gala Games. He said he joined the gaming company because he saw the industry leading the way in creativity and with unprecedented growth potential. The most interesting thing is that he actually has the idea of charity. Philanthropy and games may not be things people think of often, but just look at Axie Infinity. In the Philippines, people who have lost their jobs due to the ongoing pandemic have the opportunity to play games to earn their income, and not just some minimum wage, many earn significantly more than the average Philippine wage.
While I have mentioned this many times in the article, I would like to emphasize again: it is difficult to draw a line between the two terms discussed, both of which are different Terrific use cases for blockchain technology, and by mixing them, we have the opportunity to gather the best of both worlds. I want to stake my in-game currency for more rewards and then use it to buy some NFTs. Then maybe I want to borrow with that NFT to get some other currency. Or maybe I want to lend out my rare NFT because I know I won’t be playing for a while. This combination could be a huge deal for cryptocurrencies. First of all, gaming is something that many people know about, and it may be something that attracts the masses to cryptocurrency and blockchain. Then, if there are built-in DeFi capabilities in these games, that’s an opportunity for DeFi to attract people from the masses. And after that, we let people use and familiarize themselves with cryptocurrencies, which is what we ultimately want.
GameFi has huge potential, and it will start to explode in the future. Another thing I didn’t mention is the amount of money flowing into companies investing in GameFi, popular exchanges like Binance and Crypto.com have announced funds that will be used in whole or in part to fund GameFi projects. In addition to this, we have Solana Ventures, Galaxy Interactive, Gala Games and many others have announced their own funds. Most of these funds are in the $100 million range, and even if you only count the ones I mentioned, $500 million is quite a lot. And on top of that, we have the Animoca brand, and they raised a total of $360 million at a $5 billion valuation.
With all these facts and stats I’ve provided, what do you think about GameFi’s future?
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/which-of-defi-and-gamefi-has-greater-potential-when-the-next-cycle-comes/
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