GameFi at its inception changed lives at a scale that was unprecedented in the history of the gaming world. It flipped the narrative of gaming from fun to livelihood. In July 2021 Axie´s monthly revenue of $300 million surpassed any other Dapp and was almost 3X of Ethereum´s ( Source: Dapp Radar). By encapsulating players in its ownership model, GameFi looked all set to vest the power of web3 into the masses but the paradigm was not agile enough to weather the changing market conditions. Any revolutionary technology needs reiterations and with some laser-focused reforms, GameFi could once again become the blue-eyed child of web3.

Let’s find it out how.

The focal point of GameFi has always been money. With little to no emphasis on the quality of gameplay, most web3 games are browser-based with graphics that were designed in the 90s. People played these games just for the sake of monetary incentives so when the money went thin, so did the volume of players. GameFi has a dearth of AAA titles that can provide an exhilarating gaming experience and this seems to be the biggest reason for the dismal retention of web3 gamers. Developers and builders should ideally focus on building an enthralling gaming experience in order for retention to sustain. Improving the game quality and mechanics would not only increase the retention for crypto natives but also bring traditional gamers into the foray. By onboarding web2 gamers to web3, we're essentially bringing in proven cash cows who are currently highly engaged and retained on web2 platforms mostly because of the game design and mechanics.

It is a known fact in the gaming industry that consoles and PCs are no longer the go-to gaming platforms. Total revenue for mobile gaming in 2022 stood at $164.10 billion which is more than that of PC and console gaming combined. Moreover, 1 out of every 5 people on the planet has played some game on their phone. The convenience of playing games on smartphones is everything for the average consumer. Increased focus on the mobile gaming market will significantly expand the Total addressable market for GameFi. This will further make it accessible to low-intent mass audiences as well as high-intent niche audiences.

Barring a handful of games like Galaxy Fight Club and StepN and Splinderlands mobile as a platform has been largely unexplored in GameFi. Mobile currently lacks adequate GameFi infrastructure in order to attract builders and users. Solid infrastructure would enable builders to create amazing games while offering seamless experiences for users. This infrastructure needs to come in the form of game development tools, distribution solutions (like Play Store for web2)

Tokenomics in GameFi is akin to the foundation of a building - if the foundation is weak, the building can collapse during an event of a calamity. This is exactly what happened with most GameFi protocols in the past and a lot of rubble has given way to this important learning.

The fundamental problem that almost every GameFi protocol has faced is the hyperinflation of its in-game currency. Despite various incentives and burning mechanisms, protocols just haven't been able to control the downward spiral.

The slowdown in the growth of new players decreases the demand for in-game assets which would mean less revenue for current players and the protocol as a whole. Once the incentives decrease for the current players, they sell their in-game assets and tokens instead of reinvesting, this puts further downward pressure on the token. In P2E tokenomics the reinvestment can seldom compensate for the lack of growth of new players.

It's important to note that there is no one-size-fits-all tokenomics structure that exists. Every game has a different set of moving parts that protocols have to balance and an appropriate tokenomics structure is a key to achieving this. The end goal should be to create a system that not only stimulates growth and reinvestment but can also withstand sharp demand/supply fluctuations.

The next section discusses some features that protocol can employ to have stable tokenomics.

Adding stablecoin to a multi-token system:

A stablecoin can be used for certain costs and revenue for the players. For example, in an FPS shooter, a 1V1 match could have the participation fee and rewards both in stablecoins. This way the players don't have to worry about the volatility of their costs and earnings. The protocol can also take a cut from every stablecoin transaction to build a sizeable portion of its treasury in stablecoins. This can serve as a hedge in case of price volatility.

Evolved NFTs:

While most web3 games rely on the users to upgrade their character/in-game item NFTs with game tokens, there is a need for more in-game aspects that can accrue value to the NFT. EIP-3664 would make that and other entropy-increasing possibilities for in/game NFTs. Example: In-game character NFT of an open-world game tied to players' skillset, style of play, or game duration clocked. This would open up a whole new facet of gaming.

Payment streaming:

GameFi protocols can create an integration with streaming protocols like Superfluid which can reduce the entry barrier for games that require high starting capital. This takes the often unfair system of the Manger-Scholar system out of the picture. Similarly, games with long quests can constantly reward users.

Leveraging composability:

GameFi 1.0 did not use the full potential of composability. Games need to integrate or build upon other games, an ever-expanding lego universe that creates more player conflicts and increases the quantifiable outcomes.

Every cloud has a silver lining. The current bear market has given GameFi protocols a chance to reflect on the core issues and build in silence. GameFi 2.0 would pick up the best elements of the traditional gaming industry and wrap them up with web3 foundations to give players an unrivaled experience. The games would get more complex with horizontal and vertical extensions employing different playing models that go hand in hand with tokenomics to create sustainable growth.