GameFi Season: Unveiling the Dynamics of Encryption Games

Against the backdrop of Bitcoin rising from $25,000 to $40,000, the GameFi sector has experienced significant growth, mainly due to the launch of multiple projects and upcoming releases.

Overview

In recent years, the gaming industry has undergone significant changes. The emergence of GameFi combines games with decentralized finance ( DeFi ), redefining the gaming landscape with the help of NFT and blockchain technology, and integrating financial elements into the gaming experience, establishing an economic model for games.

During the last bull market, some eye-catching "play-to-earn" ( P2E ) games emerged, such as Axie, Farmer World, and StepN. Strictly speaking, these games did not offer an exceptional user experience; their popularity mainly stemmed from enthusiasm at the conceptual level. However, after experiencing a recent bear market, many game projects that launched during that period have undergone long-term, substantial development. This also means that a large number of high-quality Web3 games will be released in 2024.

In addition, recent data shows that interest and growth in the gaming sector are recovering. Our analysis predicts that this positive momentum is expected to continue in the upcoming bull market.

GameFi Market Overall Performance

Despite the unfavorable market environment, there has been significant growth in the network for Web3 games in 2023. In particular, since October, with the recovery of the encryption industry, the Web3 gaming sector has experienced robust growth. According to data platform statistics, as of December 3, 2023, the market capitalization of GameFi tokens has reached $7 billion, doubling compared to the end of 2022.

Throughout 2023, the market value of GameFi tokens showed a strong correlation with Bitcoin. Notably, during fluctuations in Bitcoin's market value, GameFi tokens exhibited greater volatility. This indicates that GameFi projects are inherently riskier and more susceptible to capital fluctuations, especially during market downturns.

Currently, the Web3 gaming ecosystem is thriving, with approximately 2,700 active gaming projects as of December 3, boasting a market value of $7 billion. However, despite the considerable market value, challenges in user acquisition and retention remain. Notably, games with over 1,000 monthly active users still account for only about 9% of the total number of games, highlighting the difficulties Web3 game developers face in attracting and retaining users.

Through on-chain analysis, it was found that in the first ten months of 2023, the daily active users of Web3 games have remained around 1 million. Subsequently, the number of active users showed a growth trend and remained high in the fourth quarter.

Performance of GameFi on Various Chains

As of December 3, 2023, the distribution of games across various blockchains remains stable, with the BNB chain leading at 29.6%, followed closely by Ethereum (23.7%) and Polygon (14.7%). However, there is a significant gap between these top three chains and the second-tier blockchains (such as Wax and EOS, which account for 5.0% and 2.1%, respectively).

Since 2022, the distribution pattern of games across different blockchains has remained consistent. With the booming Web3 gaming market, it is expected that more chains will emerge, potentially challenging the dominance of the top three chains.

GameFi Investment and Financing

According to the analysis of data platforms, a brand new encryption gaming market has emerged, aimed at empowering players through the true ownership of in-game assets, with a valuation exceeding $27 billion at the beginning of 2022. Despite experiencing a decline of over 85% by the end of 2022, the value proposition of blockchain games has not been overlooked by investors. It grew from $3.8 billion in 2021 to $5.4 billion in 2022 (specifically for the Web3 gaming sector), despite the unfavorable macroeconomic situation.

According to data from the data platform, Web3 game projects secured a total of $2.3 billion in funding from the first to the third quarter of 2023. While this is slightly lower than the 50% raised in the previous year, it is essential to understand these figures in the context of the unique market dynamics of 2023.

In addition, the active development of GameFi is concentrated in November, with projects like Pixels, Illuvium, and Gala Games making noteworthy announcements. Furthermore, the involvement of traditional gaming giants like Ubisoft has raised user expectations for the playability of blockchain games. With improvements in the gaming experience and a reduction in user entry barriers, it is expected to attract more capital and users into this field in the future.

It is worth mentioning that we often emphasize that investments made in the previous year will generate returns in the current year and may even extend into the following year. Notably, in the fourth quarter of 2023, we were fortunate to see previews and beta versions of the highly anticipated Web3 games. Therefore, we decided to launch the GameFi season to enhance enthusiasm and unleash the potential of this field.

The Prospects and Outlook of GameFi

In the previous GameFi summer, major investment institutions heavily focused on the gaming sector. However, due to the increased complexity of game mechanics, heavy development tasks, and longer production cycles compared to other applications, coupled with the poor timing of launching projects during a bear market, they encountered significant challenges.

As the environment of the encryption market improves and the dynamics of industry rotation shape the current bull market trend, GameFi has once again sparked interest. It is worth noting that in this wave of revival, established entities have launched new games (such as GasHero), veteran blockchain gaming platforms (such as Ronin), and emerging game titles (such as Bigtime) have all gained attention.

In terms of project cycles, the Web3 games that received funding during the previous GameFi summer are now approaching the final stages of game production, with funding consumption also nearing completion. Combined with the overall improvement of the macroeconomic environment, a large number of high-quality games will inevitably be pushed to the market in the coming year.

Conclusion

As we all know, the potential of games to attract millions of new users into Web3 should not be underestimated. Observing the current on-chain data related to the revival of GameFi, it is reasonable to expect that this positive momentum in the GameFi sector will continue throughout 2024. Game tokens may become one of the biggest winners in the upcoming bull market.

Despite the new opportunities that GameFi has encountered, it still faces many challenges, such as user experience, token economics, and security regulation. Observing the GameFi field, no game has successfully navigated through bull and bear markets and maintained long-term stable operations. Therefore, effective investment strategies are still essential.