Can GameFi Still Unlock the Metaverse?

GameFi is the integration of gaming and finance and is often framed as an essential stepping stone to the metaverse. We sat down with Blockworks reporter Ornella Hernandez to ask if current market conditions have changed this thesis.




key takeaways

  • The industry is currently trying to push for a shift from the play-to-earn model to a play-and-earn one
  • In a play-and-earn model, game architects prioritize gameplay over the in-game economy to attract engagement independent of financial reward

Has collapsing in-game economies and gaming NFT push back ended GameFi’s mission to create a unified metaverse? According to Blockwork’s own Ornella Hernandez, the answer is no. Blockchain gaming is still a driving force behind virtual world interoperability. And the demand for gaming will persist regardless of economic conditions. In my conversation with Ornella, we help catch everyone up to speed on market conditions, competing factions and future implications for the metaverse. 

Ornella is not alone in her positive sentiment. Absolute published a report forecasting over 2.8 billion in GameFi income over the next six years.  

But the GameFi industry needs to resolve an identity crisis before producing a new paradigm. The industry is trying to push a shift from the play-to-earn model to a play-and-earn one. Ornella believes the industry needs to take that a step further and change the terminology from “blockchain gaming to just fun games built on-chain.” It needs to direct its innovative energy toward advancements in gaming instead of in-game economies. 

She also says the face of gaming is changing. More women are showing interest as hyper-casual games increase in popularity. If GameFi wants to produce a gaming-first culture, it should include these types of games and overall diversity of representation. 

What are play-to-earn games, and is play-and-earn a real solution?

Play-to-earn games are the first generation of GameFi. Games like Axie Infinity, which reward players with digital assets for in-game achievements, fall into this category. These digital assets can then be bought and sold on a secondary market. In this model, the architect’s primary focus is to design an in-game economy that provides long-term value to its digital assets. 

This model exploded in popularity in 2021 because it pioneered a new revenue source for gamers. And it was particularly popular among people in developing countries because it offered new social mobility amid a pandemic-induced economic slowdown. 

This new economic incentive, though, became a source of significant criticism. Many claimed that the popularity of games like Axie Infinity was only propped up by its financialization. And if it lost its profitability, gameplay would cease.   

Its critics were somewhat vindicated when Axie Infinity’s native token SLP dropped from its all-time high of $.39 to $.0044. At the same time, the weekly user base fell from 2.7 million users to 368,000. The game also suffered a cross-bridge fishing hack that resulted in losses amounting to more than $625 million at the time.

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Despite the confluence of negative news, including new insider trading claims, the game is still alive and well. In July, developers released a new version of the game called Origin, and as a result, NFT Axies sales are back on the rise.

This upgrade is part of a move to address critics of play-to-earn through an attempted improvement called play-and-earn. In this model, game architects prioritize gameplay over the in-game economy to attract engagement independent of financial reward. The tokenomics is then designed to provide secondary value to the entire experience.  

For example, new users can start playing the game using a free starter pack in Origin. Before the upgrade, users needed to purchase three avatars called Axies to play. Since this update, the number of new monthly accounts increased from 4,030 in June to 5,387 in July. 

While this increase in new users is a trend reversal, it is still unclear if the new play-and-earn philosophy can succeed in attracting engagement independent from the ‘earn’ nature of the gameplay. Because developers initially designed Axie Infinity with the financialization component at its core, it is hard to argue that the upgrade is truly play-and-earn.

The industry needs games that integrate a gaming-first philosophy from the onset to test this new model. Ornella is keeping a close eye on Star Atlas and Shrapnel as potential examples in her weekly Web3 Watch report. Star Atlas is an immersive strategy game of space exploration, territorial conquest and political domination. Their virtual world is vast and contains a growing Discord community of 220,000 people. And Shrapnel, a first-person shooter attempting to rival the likes of Call of Duty and Halo, recently hosted two panels at Comic-Con. They are built on the Avalanche blockchain and integrate the play-and-earn philosophy through their use of narrative-driven game design.  

What role will play-and-earn have in the metaverse?

Institutional investors are waiting to see if games built on-chain succeed in attracting gameplay outside of the crypto native ecosystem. If there is a sign of crossover appeal, it opens the industry to a $178 billion gaming industry. But more importantly, a surge in users will provide a basis for a unified metaverse.  

Learn more: Is GameFi the Next Silicon Valley for Investors?

Ornella defines the metaverse as an infinitely scaling virtual space with its own digital economy, but is fundamentally about the gamification of social interaction. The industry, though, can’t agree on what that virtual space is and its future. So there are different virtual spaces/economies all competing to be the metaverse. 

In a follow up conversation, Ornella explained that interoperability is one solution to this problem. Instead of waiting for the ultimate succession of one virtual world like The Sandbox or Decentraland, these worlds will find a way to transact meaning and value across virtual borders. 

Blockchain technology theoretically provides the infrastructure for interoperability but does not provide the incentive. Ornella explains that the gamification of digital social interaction will ultimately drive these essential advancements. And the user base acquired from the gaming-first play-and-earn model could offer the social foundation for that interconnected reality. 

The metaverse as the gamification of social interaction

One could argue that the web has always been and will always be about social connection. In Web1, individuals owned much of the connection infrastructure but didn’t own the actual content. In Web2, social interaction became more centralized with platforms such as Facebook. And in Web3, also dubbed the ownership economy, users have the opportunity to stake direct ownership in their online identity and expression. But what does this ownership really offer?

Ownership gives boundaries. Like house deeds, it offers a sort of score card that can be used to measure value in relation to others. It’s why private property has always been a form of gamification. 

Digital records of ownership are the extension of the same game. They are simply a new way to leverage ownership for social capital — and vice versa. We see this in NFT culture. Influencers use their social capital to pump the floor price of NFTs, and people with financial resources purchase these NFTs to acquire social capital. NFTs can even be used for loan collateral. 

This gamification of social interaction is a clear and present marker of Web3. But there lacks a neutral and decentralized space for digital expression. There needs to be a space where ownership in one virtual world can be expressed and leveraged alongside ownership in other virtual worlds. NFT marketplaces and social media platforms are examples of neutral online spaces that offer a semblance of this, but the user experience is limited. And the platforms are centrally controlled and operated. At the fundamental level, the metaverse offers a solution by expanding the neutral and mutual space between virtual worlds into an immersive experience. 

And as virtual worlds and the games they contain grow, so will the demand for a unified metaverse. This demand looks like users asking for new ways to leverage their ownership of digital assets. These could be ways to unlock new experiences, gain access to exclusive networks, or monetize digital creations. This innate inclination toward social gamification is why a unified metaverse feels inevitable. And it’s why GameFi is essential to unlocking that future.

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