# GameFi NFT AMM - explained By [seacows.eth](https://paragraph.com/@seacows-eth) ยท 2022-09-21 --- Imagine yourself playing an MMORPG farming NPCs and finishing quests, all to gain EXP and attain valuable items. You sell useless items and gather resources to purchase the ones that complement your character. Life is great. Zoom out, and zoom back into a web3 version of that. The gameplay is on a AAA level, however, your in-game NFT items are stuck and accumulating inside your wallet. To get rid of unwanted items, you have to find a seller. To acquire desired items, you have to find a buyer. Both through either an in-game or secondary NFT marketplace. Especially for less investment-savvy gamers this process sucks, adds friction and negatively impacts the gaming experience. The aspect of NFT ownership that makes Blockchain Gaming great and unique becomes its greatest shortcoming. NFT ownership should be easily tradable and built upon the gaming experience. This is what an NFT AMM can enable. ### The purpose of an AMM The core purpose of an AMM (Automated Market Maker) is to **allow digital assets to be traded without permission and automatically.** Not only is it a decentralised solution, but also increases the liquidity and ease of trading because it processes trades instantly and frictionless. It provides a superior alternative to the order book model, where a trade can only be executed when a buyer is matched with a seller. The underlying concept to make this work is called a liquidity pool, essentially a smart contract that is able to hold and manage financial assets. Buyers and sellers interact directly with the smart contract and receive instant price quotes that can be executed right away. Not only does this reduce price slippage but more importantly avoids having to wait for a buyer or seller to accept your offer. The AMM model has already proven itself in the market and enabled the tradability and liquidity of cryptocurrencies (i.e. ERC20 Tokens) with protocols such as uniswap gaining popularity. However, NFTs remained illiquid. ### The emergence of an NFT AMM NFT AMMs aim to apply the AMM concept to non-fungible tokens. With this, they take the concept of liquidity pools even further and enable them to additionally also hold and manage NFTs (i.e. ERC721 Tokens). While this initially sounds theoretically sound, there are various challenges. As indicated by their name, NFTs are non-fungible. Oppositely to ERC20 tokens, they cannot be interchangeably traded. Each has its individual price and rarity. An NFT AMM has to account for that while still being able to provide real-time price quotes to accommodate permissionless and automatic trading. At current, no system has yet been developed to provide a full solution. However, various teams including [SeaCows](https://seacows.io/usecase/gamefi) are tackling this problem from different angles. ![Comparison of Blockchain Marketplaces](https://storage.googleapis.com/papyrus_images/18a973abd1f192c9c52887e9def9c83237f8016c5cdc3ff84094c94ae561642b.png) Comparison of Blockchain Marketplaces ### A GameFi NFT AMM As of August 2022, **almost** **60% of all blockchain transactions can be contributed to Gaming.** Thus the biggest use case for NFT AMMs is to serve as an automatic market maker in GameFi. More specifically, a market engine that drives the transfer of any kind of NFT ownership and sits at the core of a Blockchain Game/Metaverse. The fundamental idea of SeaCows is to build a white-label NFT AMM protocol that is fully on-chain and can be utilised and integrated by any game to build an in-game NFT marketplace that provides a seamless buying, selling and trading experience. The protocol enables the game to create a liquidity pool that manages in-game NFTs and native ERC20 Tokens. We expect this to **not only upgrade the play-to-own experience but also increase in-game transactions.** The game can self-determine a transaction fee, which can be reinvested into the project. ### What does an NFT AMM-enabled game economy look like? **An NFT AMM-enabled game economy complements the gameplay.** Players can more easily interact with the game economy, make risk-free investments and can at any point further sell or reinvest. All while playing the game. Liquidity pools allow games to more effectively control the prices of in-game NFT items. As a result, this partly removes the speculative nature of NFT trading that has been the cause of rise and doom of previous Blockchain Games. Clearly, we still expect secondary marketplaces to support the trade of speculative high-value items, however, each game will be able to capture the value of most in-game transactions, earn a trading fee and increase the utility of their native token in the process. ![NFT AMM enabled game economy](https://storage.googleapis.com/papyrus_images/c8d9ce2cee3d63ab7a190ea3bfc84738c03786850d2d81649b37090f5a36e7d4.png) NFT AMM enabled game economy Last but not least, a fully on-chain marketplace leaves space for further innovation. Cross-game and cross-chain NFT item transfers will become possible and enable the entire GameFi market. **With increasing liquidity the possibilities become endless.** ### Conclusion My goal with this article was to look forward and predict possible challenges the GameFi industry will be facing as a whole, and describe the concept of an NFT AMM as a solution. With further adoption, and the launch of their core gameplay, Blockchain Games will have to find solutions to effectively manage their game economy. NFT AMMs are actively being researched and developed, and I strive to be as close to the industry as I can be and am therefore in close discussion with GameFi projects on a daily basis. [Follow me](https://twitter.com/JohnKaller_io) and reach out if you would like to chat! --- *Originally published on [seacows.eth](https://paragraph.com/@seacows-eth/gamefi-nft-amm-explained)*