What Is GameFi?

In traditional games, characters, items, and in-game currency are held on the game company's servers and the player does not truly own them. In GameFi projects, these assets are held in the player's wallet as NFTs or tokens and can be bought and sold on marketplaces outside the game. The game economy usually consists of more than one token, such as a governance token and an in-game reward token.

The play-to-earn model reached wide audiences in 2021 with Axie Infinity, and in some countries players began earning regular income from the game. However, it was soon seen that the economies of many projects relied on rewards being funded by a constant inflow of new players. When the flow of new users slowed, the value of reward tokens fell sharply and player incomes largely evaporated.

After this experience, the industry turned to a “play-and-own” approach that puts fun first and aims for a more sustainable token economy. Token inflation, smart contract bugs, bridge attacks, and regulatory uncertainty are among the main risks in GameFi projects.