GameFi is dead? A detailed explanation of the entire ecosystem of crypto games

Author: Fiona, IOSG Ventures

We are currently undergoing a shift from focusing on infrastructure to focusing on users, and the reasons are as follows:

1) Just like the past boom of DeFi and GameFi, infrastructure is relatively mature for building vertical applications;

2) Many developers have been acquiring users by building vertical DeFi/GameFi/SocialFi applications, but the user base is very small. Therefore, we need to think about how to acquire users and maintain high retention rates in the future.

GameFi is a rather large ecosystem that includes not just games and studios. In the following text, we will describe GameFi users and their value flow more clearly from the user's perspective.

From a macro perspective, the entire GameFi consists of 8 parts------user-side aggregators, games, multi-platforms/publishers, liquidity providers/financial tools, blockchain solution providers, game engines, developers/studios, and chains. Based on Steam's classification of games and the revenue rankings of mobile game categories, we have summarized 5 categories and 11 subcategories for specific games to cover the current types of crypto games.

Let's take a closer look at these major categories following the industry overview in the image below:

Source: IOSG Ventures

Chain

The migration or replication of GameFi projects to new chains is an interesting new trend, similar to the previous DeFi situation. Currently, BSC/ETH/Polygon/Wax are leading in the GameFi space, with over 80% of on-chain games deployed on them. Meanwhile, Arbitrum and zkSync are ambitious new challengers. For example, Beacon on Arbitrum is an action rogue-like game that reached 21,000 DAU within less than a month of its launch, garnering a lot of attention. Tevaera, active on zkSync, is an arcade action game and one of the first games launched on its mainnet.

Game Engine

Before the advent of game engines, game developers had to write code from scratch repeatedly and had to check the game code line by line. However, they could not run and test it at any time. Soon, developers realized that much of the code could be reused, including graphical assets. This helped optimize the development process and saved development time. Thus, game developers gradually began to integrate the code and assets required for games into a set of development tools, leading to the emergence of game engines.

Today, most games, whether Web 2 or Web 3, are built on Unity and Unreal Engine. Just like the Unreal Engine developed by Epic Games, some Web 3 game studios, such as Planetarium Labs and Lattice, are also developing their own Web 3 game engines, enabling developers to write complex game logic and interactive content.

Blockchain Solution Providers

Once the gameplay is designed, developers or publishers need to integrate blockchain technology into the game, which includes selecting on-chain partners, embeddable wallets, NFT minting and marketplaces, compliance solutions, as well as SDK/API or other services for token economics and management. As players grow, their needs become increasingly diversified. With the entry of traditional gaming companies, this demand will be even higher. Most traditional game builders have limited knowledge of blockchain, which can lead to confusion in blockchain integration and economic model design.

Based on the different services provided by solution providers to game developers or publishers, we categorize them into 8 industry types.

- One-stop service providers: They typically have the most comprehensive blockchain integration tech stack and provide related services to developers and publishers. For example, Forte includes almost all of the above functionalities and helps offload blockchain technical work from AAA game studios, assisting them in transitioning to blockchain gaming.

- Web 3 integration SDK: Essentially includes most Web 3 development frameworks and tools. They provide a game suite specifically for games built on the blockchain. For example, Thirdweb offers a Unity SDK with ready-made contracts for marketplaces, NFT staking, and airdrops.

- Studio SDK: Services provided by game studios, including Bigtime's Open Loot and Horizon (Skyweaver)'s Sequence. They leverage their experience to help Web 2 developers and games enter the market. Open Loot also provides marketing support, payment support, and comprehensive game analytics.

- System simulation: Popular in game design, especially in Web 3 games, because economic cycles are crucial for Web 3 games. Maintaining a healthy game economy through simulating, testing, and monitoring GameFi systems is essential. Currently, over 20 Web 3 games are collaborating with Machinations, as announced on their official website.

- Certification providers: They use their Unity and Unreal Engine SDKs to onboard players, reducing friction and lowering the learning curve for players, thereby accelerating blockchain adoption among mainstream audiences.

- Data API providers: They build Web 2 and/or Web 3 databases and allow developers to read and write user data in real-time, such as outputting analytics data to websites and applications, creating in-game leaderboards, and providing wallet addresses for whitelisting, etc.

- On/Off Ramps: Allow developers to integrate their SDKs for buying and selling cryptocurrencies within games without worrying about KYC.

- Market/Consulting services: Includes tokenomics design support, branding services, etc.

Multi-platforms/Publishers

They are to-C game publishers that provide players with different types of games (some of which are also developers). Gala, Sandbox, and TreasureDAO are leaders in this field. TreasureDAO is building a decentralized gaming platform and publishing platform with a community of over 100,000 players and is the top-ranked game and NFT ecosystem on Arbitrum. Such platforms can establish a set of infrastructure and ecosystem to meet the needs of independent developers and form an economy by accumulating player activity content. It is not affected by the short lifecycle of individual games, thus possessing stronger ecosystem resilience.

Liquidity/Financial Tools

Financial tools include lending, leasing, investment derivatives, guild services, marketplaces, etc. However, most services are still in the early stages because each game has its own independent financial model, and the demand for services is not clear. For example, compared to lending protocols, leasing protocols are not difficult to establish, so there are many projects in this area. However, the demand for this service is often questioned for several reasons:

1. Large game studios will build their own leasing systems (which are easy to create), while smaller games have shorter lifespans and fewer meaningful user bases to support leasing demand;

2. Many games are trying to lower the entry barrier for mainstream users, so in-game NFTs are becoming increasingly cheaper;

3. Most leasing protocols require the use of custodial accounts to lease NFTs, but this must be approved and recognized by the game. Otherwise, NFTs will not be allowed to enter the game, increasing the difficulty of this business.

Games

Based on Steam's classification and the highest revenue mobile game types, we have summarized 5 categories and 11 subcategories to cover the current crypto games. (Please refer to the terminology explanation at the bottom of the article for definitions of each type)

- RPG: MMORPG, Team Battle, for example, Bigtime is one of the fastest-launched MMORPGs, where players form teams of 6 to complete quests in dungeons to earn NFTs and tokens. It has the largest Web 3 player community, with over 400,000 members on Discord.

- Strategy: Card, Board & Autobattler, real-time strategy, and tower defense, Grand & 4X, DeFi & Gambling. For example, Illuvium is laying out and launching a series of closely connected and interoperable games, one of the core gameplay elements being open-world exploration with an automatic battle mechanism.

- Simulation: Farming, Space & Sci-fi, Life & Casual & Casino. For example, Castaways is a fishing game where players drift at sea to find islands, collect resources, and fish for survival. It gained massive traffic two months ago, with daily active accounts exceeding 70,000.

- Action: Shooting, fighting, and other action games. For example, ev.io is a very popular FPS game (first-person shooter), with 1.3 million visitors in April 2022 (averaging 550,000 in the most recent quarter).

- Sports: For example, MixMob: Racer 1 is a very unique card battle racing game developed by seasoned game developers who have worked on games like FIFA, Halo, and Battlefield.

According to analysis from data.ai and SensorTower, the most popular Web 2 game types (mobile) over the past two years are: RPG games, strategy games, action games, simulation games, and sports games.

A specific example is "Rise of Kingdoms," which had the highest player spending in 2021. Its gameplay is similar to "Rise of Kingdoms" and belongs to the strategy RTS sub-type. The second is "Lineage M," a multiplayer online role-playing game. The rest are: Fate / Grand Order (team battle RPG, Japanese fantasy style), Slotomania (casino, simulation), Homescapes & Candy Crush (match, casual), PUBG (battle royale shooter, action), Monster Strike (team battle RPG), Professional Baseball Spirits A (sports), Roblox (sandbox, simulation).

Our logic is that if a type of game does not attract players in the traditional gaming world, it will be even more challenging to succeed in the context of Web 3. Based on this fact, Web 3 games can capture the Web 2 gaming market by improving player experiences, creating an effective secondary market for items, introducing a more attractive and healthy economic system, and allowing new content creators to join the ecosystem.

User-side Aggregators

Apart from the audience, there are mainly 3 types of users in GameFi, ranging from reward-driven to fun-driven.

• Web 3 users (cryptocurrency native users)
• Web 3 players (cryptocurrency native gamers)
• Web 2 users (traditional gamers)

Currently, there are 400,000 active addresses in Web 3 games (data source: Capital and Talent Flow Behind Web3 Games), which is still small compared to the 3 billion users in traditional games. To attract traditional gamers, user-side aggregators are crucial for providing a seamless experience, which includes 8 types:

P2E Guilds/Scholarships: Led by YGG and its sub-DAOs, this type has become very popular due to the rise of Axie Infinity.

Esports/Tournaments: Some guilds have found that the scholarship model may not be profitable in the future and have turned to establish esports and gaming tournaments. This is still early in Web 3 but is mature and common in the traditional gaming world.

Incubators: For example, Everyrealm is incubating game-related businesses, including The Row, Fantasy Islands, Narcos: Metaverse, and Hometopia. It also operates an esports guild and tournament platform called Bedlam and manages a portfolio that includes holdings in over 30 platforms and 4,000 game assets.

Launchpad: Helps players or investors participate in game IGOs and INOs, serving as a hub for player interactions in games and the metaverse, as players typically need to purchase NFTs to gain access to games.

Player Credentials: A unified Web 3 gamer identity to maintain their reputation across different games and experiences, driving cross-game interactions and high player retention.

Content/Community: Groups gamers together and provides them with services, such as content distributors, streaming services, KOLs or communities, education, etc.

Thanks to TJ Kawamura (Co-founder at Everyrealm), Alex Qin (Founder at Ubiloan), Alex Liu (Game Studio Advisor), and Yele Bademosi (Founder at Metaverse Magna) for their strong support and valuable feedback on this article.

Terminology Explanation:

RPG: A role-playing game where each participant plays a character, typically set in a fantasy or sci-fi backdrop, allowing players to interact in the imagined world of the game.

MMORPG: Massively Multiplayer Online Role-Playing Game, a role-playing game that can be played by a large number of players simultaneously online.

Team Battle: In this type of game, players can play multiple characters or act as the commander of a team.

Strategy: In strategy games, players are unrestricted, and their autonomous decision-making significantly impacts the game's outcome.

Card & Board & Autobattler: Card games are any games that use playing cards as a core element, whether traditional or specific games.

Board Game: (like checkers, chess, or backgammon) is played by placing or moving pieces on a board.

Autobattler Game: An auto-battler game typically has chess-like elements, where players place characters on a grid battlefield during the preparation phase, and then they battle against the opponent's characters without needing to input any information directly.

RTS and Tower Defense: Real-time strategy games allow all players to engage in "real-time" gameplay simultaneously, participating in competitive economic activities to gain advantages by managing limited resources to expand multiple game elements. In tower defense games, players must use strategy to build towers to defeat enemies.

Grand & 4X: Grand strategy games are the most complex strategy games, considering factors like politics, economics, war, and diplomacy. 4X games (Explore, Expand, Exploit, Exterminate) refer to games where players have extensive control over their empires, including war, research, agriculture, and governance.

DeFi & Gambling: This is a category specifically listed by the author, centered around simple gameplay gambling strategies.

Simulation: Simulation games mimic activities that players see in the real world.

Farming: Farming simulation games allow players to enjoy the growth and experience gained during the farming process.

Space & Sci-fi: A game genre that pushes self-invention, imagination, and narrative to the extreme. Science fiction takes our current reality across the ocean to explore the logical endpoint of human endeavors.

Life & Hypercasual & Casino: Lifestyle games refer to any games that take hobbies as their form and delve deeply into them. Hyper-casual games are lightweight, instantly playable games that players often replay due to short round lengths and engaging content.

Casino Game: Casino games are types of games where players gamble using chips on various possible random outcomes or combinations.

Action: A fast-paced game genre that typically focuses on movement, combat, hand-eye coordination, and reaction time.

Shooter: Shooter games emphasize players using their weapons to defeat enemies.

Fighting & Other Action: Fighting & other action games require players to control characters on the screen and engage in close combat with opponents.

Sports: Sports games simulate the practice and competition of traditional sports.

Reference:

[1]https://store.steampowered.com/

[2]https://go.sensortower.com/rs/351-RWH-315/images/state-of-mobile-gaming-in-2021-full-final.pdf

[3]https://www.youxituoluo.com/529267.html

[4]https://www.data.ai/cn/go/state-of-mobile-gaming-2022

[5]https://www.gcores.com/articles/148053

[6]https://www.footprint.network/@Footprint/GameFi

[7]https://dune.com/larsbmo/reNFT-Analytics

[8]https://www.similarweb.com/website/ev.io/#traffic

[9]http://www.gamelook.com.cn/2022/04/479021