The Investor’s Guide to Gaming NFTs

Gaming NFTs bridge digital worlds by introducing a new era of game asset collecting


key takeaways

  • GameFi is considered a sector of Web3 because ownership is decentralized between builders, investors and players
  • Gaming NFTs are simply a record of game asset ownership on a public blockchain

GameFi explained 

GameFi, as the name suggests, is the intersection of gaming and finance. It’s considered a sector of Web3 because ownership is decentralized between builders, investors and players. These two industries found each other on the blockchain through an exciting ecosystem of in-game tokenomics and gaming NFTs (non-fungible tokens). 

In this context, gaming NFTs are simply a record of game asset ownership on a public blockchain such as Ethereum, Cardano or Solana.  

The decentralization of GameFi allows game assets (or NFTs) to be transferred out of and between games. This transferability gives the assets value outside of the gaming ecosystem. And because the ownership status of an NFT is tracked on the blockchain, they can be bought and sold as collectibles on third-party exchanges.

This evolution in gaming isn’t about game mechanics. Rather, it’s about moving game monetization closer to the ultimate vision of Web3. Many big GameFi builders hope these games will become blockchain marketplaces where the free market gives value to in-game assets within a player-owned ecosystem.

Learn more: Can GameFi Still Unlock the Metaverse?

So what are the real world benefits of gaming NFTs?

It’s not just about digital collectibles. Gaming NFTs bridge digital worlds by introducing a new era of game asset collecting. It is the technology that will facilitate a unified metaverse, and Web3 gaming will bring several benefits that traditional gaming lacks.

Ownership: In traditional gaming, in-game purchases are non-transferable investments locked within a single gaming world. Gaming NFTs bestow ownership of in-game assets to players. That ownership is more meaningful as it’s not restricted within the game publisher’s walled garden.

Provable scarcity: The scarcity of gaming NFTs can be proven via the immutable records of the blockchain. This is important when you consider that rarity and authenticity are valuable traits in the minds of collectors. Furthermore, gaming NFTs cannot be tampered with or duplicated due to the immutable record generated on the blockchain upon digital asset issuance.

Interoperability: The traditional online gaming model relies on centralized servers. Such games operate on disparate systems. When it comes to gaming NFTs, they can be designed to be transferable, interconnected and interoperable with other games built on the identical underlying blockchain. The player then has the freedom to use them in other games (if other games support those assets) or to sell them to other players.

Obstacles to GameFi

One wrinkle that needs to be ironed out is scaling. Currently, most gaming NFTs are issued on the Ethereum blockchain. Ethereum gas fees are making transaction costs impractical. This bottleneck has meant that chains that achieve much higher throughput, such as Polygon and Solana, are becoming increasingly popular for blockchain-based gaming. This is likely to remain the case until the eth2 upgrade.

There’s resistance to blockchain-based gaming from many gaming communities. Previously, attempts to use micro-transactions to monetize games have seen backlashes. Due to bad experiences in the past, many gamers assume that a move to gaming NFTs is purely profit-driven and a mechanism that the most prominent game publishers will utilize to nickel and dime them.

Another fear is that a ‘pay-to-win’ model will be pursued, resulting in more significant repercussions. If a player manages to buy their way through the game, they gain unfair advantages over other players.

The most prominent game publishers are interested in gaming NFTs but need to innovate ways to integrate monetization without sacrificing play. Top ten gaming company Ubisoft recently experienced a community backlash when it tried to introduce NFTs through one of its games. As a result of the community response, the company rolled back on its intention to use NFTs. 

The future of gaming NFTs

While Axie Infinity has been a breakthrough for the play-to-earn model of blockchain gaming, further innovation is needed to bring the advantages of blockchain-based gaming to the mass market. An evolution toward a play-and-earn model is already underway. This approach focuses on gameplay as much as it does on tokenomics.

This doesn’t mean that play-to-earn is going to go away anytime soon. It will remain an appealing segment of Web3 gaming to participants that are already crypto native. These games will continue to attract participation through their tokenomics more than anything else.

This contentious yet exciting merge of DeFi and gaming has vast untapped potential. As gamers, developers and investors find solutions that satisfy all parties, they will expose the remaining users of a $155 billion gaming industry revenue. to DeFi.

How to invest in Web3 gaming

Investors can take several approaches to invest in this space.

Play-and-earn: The play-to-earn and play-and-earn blockchain gaming models are one approach. Axie Infinity developer Sky Mavis was the first major innovator in this space. With this model, gamers can invest their time and effort in return for game NFTs and tokens that have value outside the Axie ecosystem.

This is particularly relevant in developing countries with significant potential earnings relative to the local economy and per capita income. The Philippines accounts for 40% of Axie Infinity players. In October 2021, the total number of in-game Axie tokens that had been minted accounted for 1.7% of the GDP of the South East Asian country.

Whether play-to-earn or the more recent advent of play-and-earn, playing games based on these models represents one of the most straightforward entries into investing in NFT gaming.

Rent-to-earn: As development in this space has progressed, many of the most popular NFT games now require a substantial investment to commence playing and earning. At its height, the average price for an Axie Infinity NFT is around $355 — and a minimum of three are needed before a new player can play the game.

Gaming guilds such as UniX Gaming have emerged to help players invest in gaming NFTs through offering newcomers the option to rent under a scholarship program. Profits are then shared between the guild and the player. This is yet another approach that removes entry barriers for a player to participate and earn.

In-game currency:  A blockchain-based game will have an in-game token to function as the game’s currency. It’s possible to invest directly in these tokens. However, the degree to which the token supply is limited is one factor that needs consideration when deciding whether to take this approach. Games with a capped token supply are more likely to appreciate, given the game’s sustainability and demand.

Governance tokens: Blockchain-based games are also likely to have governance tokens. A governance token allows the holder to vote on smart contract code changes and treasury management items. Taking Axie Infinity as an example uses Axie Infinity Shards (AXS) as its governance tokens.

Stakeholders have a strong incentive to obtain governance tokens: they hold influence over game tokenonmics. Some of these tokens provide voting rights over the strategic direction of the protocol. Additionally, these tokens will often include rights to cash flow akin to dividends with equities.

Gaming guilds: Many consider investing in individual games risky due to the presumption that most fail. Gaming guilds offer investors a risk-averse strategy. 

Take UniX gaming guild as an example. UniX carries out due diligence on games it believes will be successful and buys NFT assets in those games. Therefore, holders of the UniX token benefit from professional curation of NFTs much like an ETF or index fund. Additionally, the holder shares in the revenue from NFT scholar rentals and asset price appreciation. All of these assets are managed decentrally through a DAO. And the diversification spreads risk across all investments.

Initial game offering (IGO): Investing in an IGO through launchpads such as UniX Gaming’s Final Round offers the opportunity to get NFTs or tokens in upcoming games at a discount price. If the game achieves popularity with listings on major exchanges, investors can expect a significant return on investment.

Further Reading

The sponsor of this Investing Guide — UniX Gaming — has partnered with DAO Maker and SL2 on Final Round, its multi-chain launchpad, which is due to launch imminently. Further details can be found here.

Relevant Podcasts

The Future of Play-To-Earn Gaming | Felix Sim and Gaby Dizon — Empire podcast by Blockworks

Why Gaming NFTs Will Be Bigger Than Twitch | Justin Kan — Empire Podcast by Blockworks

FTX’s Gaming Strategy | Amy Wu – Empire Podcast by Blockworks

How Web3 Will Change The Gaming Industry | Carra Wu – The Unstoppable Podcast

This content was sponsored by UniX Gaming.

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