How Does GameFi Work and What Is It?

GameFi is one of the trendiest topics in the bitcoin industry right now. Its name alludes to the old-fashioned pleasure of winning prizes combined with modern crypto innovations known as DeFi. Players on GameFi may trade, lend, rent, and even borrow against their profits. That’s not possible with the toy cat you got at the county fair. As GameFi’s popularity grows, people are debating whether it will reinvent gaming or just remove the credulous from their money. The possibility of GameFi democratizing crypto possibilities — or becoming a type of digital sharecropping — is raised by reports of individuals borrowing to play.

What exactly is GameFi?

Decentralized finance, or DeFi, is a sector in which token-based transactions such as lending and borrowing take place on blockchains, which are decentralized digital ledgers similar to those used with Bitcoin. GameFi refers to decentralized applications (dapps) with financial incentives in their most common sense. Tokens are often awarded as prizes for completing game-related activities such as winning battles, mining valuable minerals, or cultivating digital crops. It’s also known as the “play-to-earn” strategy. Users may make money passively in several GameFi applications, such as Alien Worlds, by allowing others to mine their virtual territories. They may also earn interest by utilizing DeFi platform-developed strategies to lend assets like as digital characters or deposit them in staking.

How does GameFi function?

Details vary, but here’s the most simple — and so far most successful — model: it was first used in the game Axie Infinity, which had $564 million in on-blockchain transaction volume in the previous 30 days, according to DappRadar. The economy of Axie is built on two tokens, AXS and Smooth Love Potion (SLP), as well as non-fungible tokens (NFT), which are digital certificates of authenticity that represent game characters and digital real estate. Players often invest roughly $700 to purchase Axies, which are little blob-like creatures. They are rewarded with SLP when they win fights and complete tasks. Axies may also breed and sell their progeny. AXS is a governance token that grants the ability to participate in conversations about the project’s future direction. Interest may be earned by staking AXS tokens. Read more about GameFI here:

Isn’t it true that tokens have always been in video games?

Essentially. Virtual reality Robux may be used to buy virtual Gucci bags for avatars on Roblox, while V-Bucks can be used to buy pickaxes in Fortnite Battle Royale. The Pokemon Dollar is reward money for winning fights in Pokemon World, and it can be used to purchase potions and clothing. However, such money and digital items are seldom readily — or legally — traded or turned into cash outside of games.

What makes GameFi different?

The tokens are intended to function as fully functional cryptocurrencies. This implies that gamers may convert in-game earnings into cash on a variety of decentralized exchanges. GameFi tokens have the same volatility as other cryptocurrencies that aren’t tied to a fiat currency. The Metaverse Index, which analyzes the values of tokens from 15 different gaming and entertainment projects, including Axie Infinity and Decentraland, has more than quadrupled since its introduction last April. Of course, owning volatile assets may result in significant losses as well as profits, and players who attempt to cash out during a large downturn may confront difficulty. Some tokens may also be used in a variety of DeFi dapps, earning interest by being used as collateral for loans, for example.

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Is this about more than just generating money?

Many supporters view GameFi as a way for the little man — the player — to break free from the grip of conventional game developers. Many gamers despise the firms that produce their games. Some people are offended by the companies’ misogynistic attitudes, while others are offended by the way they lure users to pay for extra material. In their ideal state, GameFi applications are managed by their user communities, who decide on things like costs. Players own a portion of the work via tokens. Their digital avatars and other NFTs are also theirs.

Is GameFi being scrutinized by regulators?

Regulators are slowly catching up with past rounds of cryptocurrency innovations. They’ve already expressed alarm about the lawless world of DeFi, and they may issue further laws this year. It’s hardly a leap to believe that games with DeFi-like elements will have to follow the same restrictions, and that this will happen sooner rather than later, if the popularity of Axie Infinity is any indication.

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