Web3 Gaming and Investments During the Bear Market: How the Crisis can Bring GameFi to a New Level

While some conservatively-minded critics celebrate the collapse of an oversaturated market, there is a largely overlooked bright side — the reassessment of the sector and the cleansing of inefficient startups create an opportunity for sustainable projects to rise.

Can GameFi become the future of the traditional entertainment industry, and is the current crisis a perfect opportunity to enter the emerging market? The answer is yes — but only if several quality standards are met.

Popular GameFi recipes. Does quantity go to quality?

GameFi, like many aspects of the contemporary crypto-universe, is not an entirely new word. The idea is simple: take the steadily growing demand for digital entertainment, combine it with a blockchain-based reward system to attract new players, and you get a silver bullet, destined to succeed. Fueled by the hype train of venture capital, the number of Web3 gaming projects increased exponentially.

The supply of cheap money was so immense that questions of quality and sustainable tokenomics were not taken into consideration. The market was flooded with underdeveloped low-quality projects that failed to retain their gaming base, stabilize the price of their native assets, and, ultimately, survive.

How to understand that the project is really worthy of attention?

What are the key evaluating points for a GameFi project?

• Know Your Founder. What is the background of the team behind the idea? Do they have ample experience in management, Deep Tech, and raising capital? In the current market, investors seek confidence, and the personality of the founder is crucial to convince them that a project is viable and long-standing.
• Novelty. In the early days of GameFi, Play-to-Earn games were a breakthrough. Today, however, there must be something additional to the project’s competitive advantage. Is there anything novel a startup introduces? Do they deal with AR and VR or have a standalone research department? A good GameFi startup stands on the border between entertainment and tech — and if there are no potential technological advancements, there is not much to invest in.
• Tokenomics. It is extremely important to analyze the unit economics of the startup. What is the algorithm behind the native asset emission? It is safe from hyperinflation — as a simple check, are tokens burned? Does the project really use blockchain’s capabilities or is it just an attraction buzzword? A good example is the backlash Ubisoft faced when it recently attempted to sell Ghost Reckon NFTs which had no value other than collectability.

However, it would be a whole different story if those NFTs were used in smart contracts for staking, entering in-game events, or even renting digital property to other players. Ideally, the rewards for playing should not rely on native tokens exclusively — for instance, creating a self-replenishing Bitcoin pool would persuade the gamers that the prizes will remain worthwhile and help to retain a stable audience.

• Graphics and gameplay. While high-polygonal graphics, complex gameplay mechanics, and a carefully developed player interaction system have long become a standard for Web2 games, there is much space for GameFi to catch up. Monetary incentives help to attract new players, but they alone are not enough to create a mature ecosystem with stable revenue flows.

One of the most popular P2E games — Axie Infinity — is a Flash Player-ish 2D game. No matter how conceptually progressive it is, it’s no match to AAA Web2 titles. A successful GameFi startup shouldn’t necessarily use the state of art game engines like Unreal Engine 5, but it can’t be allowed to sacrifice playability.

The crisis is just a milestone in the GameFi’s development.

GameFi, just as crypto and tech in general, is hit by a crisis. But this is not a fatal blow — there is much merit to the perspective that it will become the logical evolution of Web2 gaming. The traditional gaming industry is stagnating, the market is in recession, we haven’t seen that since 2015.

On the other hand, there is explosive growth in GameFi: the GameFi market saw a 194.19% increase in Q1 funding compared with the data last year. More and more people from developing countries gain internet access and try to escape poverty by earning online; advancements in AR and VR bring Metaverse closer to reality — everything of these is a signal that GameFi is poised for long-term growth.

After inefficient projects are cleansed from the market, the industry must adopt new quality standards, thus overcoming the existing skepticism from the side of the Web2 gaming community. The new technical level, evaluated by the audience of projects, clear risk assessment criteria and, as a result, greater transparency make GameFi market truly promising for investments.

Ilman Shazhaev, founder of the Bitcoin mining-powered Farcana game