The Investor’s Guide to Gaming NFTs

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

GameFi explained

GameFi, as the name suggests, is the intersection of gaming and finance. It is considered a Web3 industry because ownership is decentralized between builders, investors, and players. Both of these industries found themselves on the blockchain through an exciting ecosystem of in-game tokenomics and NFT (non-fungible token) games.

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

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

This evolution of gaming isn’t about game mechanics. Rather, it’s about bringing 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 game assets within a player-owned ecosystem.

So what are the real benefits of gaming NFTs?

It’s not just about digital collectibles. Gaming NFTs connect digital worlds by ushering in a new era of gaming asset collection. It’s the technology that will facilitate a unified metaverse, and Web3 gaming will bring several benefits that traditional gaming lacks.

The possession: In traditional games, in-game purchases are non-transferable investments locked into a single game world. Game NFTs grant ownership of game assets to players. This property is more significant because it is not limited to the walled garden of the game publisher.

Proven rarity: The scarcity of gaming NFTs can be proven via the immutable records of the blockchain. This is important considering that rarity and authenticity are prized traits in the minds of collectors. Additionally, gaming NFTs cannot be tampered with or duplicated due to the immutable record generated on the blockchain when issuing digital assets.

Interoperability: The traditional online gambling model relies on centralized servers. These games run on disparate systems. As for NFT games, they can be designed to be transferable, interconnected and interoperable with other games built on the same underlying blockchain. The player then has the freedom to use them in other games (if other games support these assets) or sell them to other players.

Obstacles to GameFi

One wrinkle that needs ironing out is scaling. Currently, most gaming NFTs are issued on the Ethereum blockchain. Ethereum gas fees make transaction costs impractical. This bottleneck means chains that achieve much higher throughput, such as Polygon and Solana, are becoming increasingly popular for blockchain-based games. This will probably remain the case until the eth2 upgrade.

Many gaming communities are resisting blockchain-based games. Previously, attempts to use micro-transactions to monetize games have faced backlash. Due to bad experiences in the past, many gamers assume that the switch to gaming NFTs is purely profit-driven and a mechanism that major game publishers will use to nickel and dime them.

Another fear is that a pay-to-win model will be pursued, leading to wider repercussions. If a player manages to make their way through the game, they get unfair advantages over other players.

Major game publishers are interested in NFT games, but need to innovate to incorporate monetization without sacrificing gameplay. Ubisoft, one of the top ten video game companies, recently experienced a backlash from the community when it attempted to introduce NFTs into one of its games. Following the community’s response, the company backtracked on its intention to use NFTs.

The future of gaming NFTs

While Axie Infinity was a breakthrough for the play-to-earn model of blockchain gaming, further innovations are needed to bring the benefits of blockchain-based gaming to the mass market. A move towards a play-and-earn model is already underway. This approach focuses as much on gameplay as on tokenomics.

That doesn’t mean gambling to win is going away anytime soon. It will remain an attractive segment of the Web3 game for participants who are already crypto natives. These games will continue to attract participation thanks to their tokenomics more than anything else.

This controversial yet exciting merger 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 to $155 billion in revenue from the gaming industry to DeFi.

How to Invest in Web3 Games

Investors can take several approaches to investing in this space.

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

This is particularly relevant in developing countries with significant potential gains relative to the local economy and per capita income. The Philippines represent 40% of Axie Infinity players. As of October 2021, the total number of in-game Axie tokens minted accounted for 1.7% of the Southeast Asian country’s GDP.

Whether it’s play to win or the more recent advent of play and win, playing games based on these patterns represents one of the easiest entry points to investing in NFT games.

Rent to Earn: As development in this space has progressed, many of the most popular NFT games now require a substantial investment to start playing and winning. At its peak, the average price of an Axie Infinity NFT is around $355 – and a minimum of three is required before a new player can play the game.

Gaming guilds such as UniX Gaming have sprung up to help gamers invest in NFT games by offering newcomers the opportunity to rent through a scholarship program. Profits are then split between the guild and the player. This is yet another approach that removes entry barriers for a player to participate and win.

Game Currency: A blockchain-based game will have an in-game token to function as in-game currency. It is possible to invest directly in these tokens. However, the extent to which the token supply is limited is a factor that should be considered when deciding to take this approach. Games with a capped token supply are more likely to appreciate, given the sustainability and demand of the game.

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

Stakeholders have a strong incentive to obtain governance tokens: they hold influence over the game’s tokenonmics. Some of these tokens offer voting rights on the strategic direction of the protocol. Additionally, these tokens will often include dividend-like cash flow rights with shares.

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

Take the UniX gaming guild as an example. UniX performs due diligence on games it believes will succeed and purchases NFT assets in those games. Therefore, holders of the UniX token benefit from professional custody of NFTs, just like an ETF or index fund. Additionally, the holder shares the revenue from NFT stock rentals and asset price appreciation. All these assets are managed in a decentralized way via a DAO. And diversification spreads risk across all investments.

Initial game offer (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 discounted price. If the game becomes popular with listings on major exchanges, investors can expect a big return on investment.

Further reading

The sponsor of this investment guide – UniX Gaming – has partnered with DAO Maker and SL2 on Final Round, its multi-channel launch pad, 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 NFT games will be bigger than Twitch | Justin Kan — Empire Podcast by Blockworks

FTX Gambling Strategy | Amy Wu – Empire Podcast by Blockworks

How Web3 will change the gaming industry | Carra Wu – The Unstoppable Podcast

This content has been sponsored by UniX Gaming.

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