GameFi is the integration of gaming and finance and is often framed as an essential stepping stone to the metaverse. We sat down with Blockworks reporter Ornella Hernandez to ask if current market conditions have changed this thesis.

Did the collapse of in-game economies and the pushback of gaming NFTs end GameFi’s mission to create a unified metaverse? According to Ornella Hernandez of Blockwork herself, the answer is no. Blockchain gaming remains a driving force behind virtual world interoperability. And the demand for games will persist regardless of economic conditions. In my conversation with Ornella, we help bring everyone up to speed on market conditions, competing factions, and future implications for the metaverse. 

Ornella is not alone in her positive sentiment. Absolute released a report forecasting more than $2.8 billion in GameFi revenue over the next six years.  

But the GameFi industry needs to resolve an identity crisis before producing a new paradigm. The industry is trying to push for a change from the play-to-win model to a play-to-win model. Ornella believes that the industry needs to go one step further and change the terminology from “blockchain games to fun games created on chain.” You need to direct your innovative energy towards game advancements rather than in-game economies. 

She also says that the face of gaming is changing. More and more women are showing an interest as hyper-casual games increase in popularity. If GameFi wants to produce a gaming culture first, it must include gaming and a general diversity of representation. 

What are play to win games? Is play and win a real solution?

Play to Win games are the first generation of GameFi. Games like Axie Infinity, which reward players with digital assets for in-game achievements, fall into this category. These digital assets can be bought and sold on a secondary market. In this model, the main focus of the architect is to design an in-game economy that provides long-term value to their digital assets. 

This model exploded in popularity in 2021 because it pioneered a new source of revenue for gamers. And it was particularly popular with people in developing countries because it offered new social mobility amid a pandemic-induced economic slowdown. 

However, this new economic incentive became a source of significant criticism. Many claimed that the popularity of games like Axie Infinity was only supported by their financialization. And if it lost its profitability, the gameplay would cease.   

His critics were somewhat vindicated when Axie Infinity’s native SLP token fell from its all-time high of $0.39 to $0.0044. At the same time, the weekly user base fell from 2.7 million users to 368,000. The game also suffered from a cross-bridge fishing hack that resulted in losses of over $625 million at the time.

Despite the confluence of negative news, including new claims of insider trading, the game is still alive and well. In July, the developers released a new version of the game called Origin, and as a result, sales of NFT Axies have been on the rise again.

This update is part of a move to address critics of play to win through an improvement attempt called play to win. In this model, game architects prioritize gameplay over game economics to attract engagement regardless of financial reward. The tokenomics is then designed to provide secondary value to the entire experience.  

For example, new users can get started using a free starter pack on Origin. Before the update, users needed to purchase three avatars called Axies to play. Since this update, the number of new monthly accounts increased from 4,030 in June to 5,387 in July. 

While this surge in new users is a turnaround, it remains unclear whether the new play-and-win philosophy can succeed in attracting engagement regardless of the “win” nature of the game. Because the developers initially designed Axie Infinity with the financialization component at its core, it’s hard to argue that the upgrade is really play and win.

The industry needs games that integrate a game-first philosophy from the start to test this new model. Ornella closely follows Star Atlas and Shrapnel as potential examples in her weekly Web3 Watch report. Star Atlas is an immersive strategy game of space exploration, territorial conquest, and political domination. Their virtual world is huge and contains a growing Discord community of 220,000 people. And Shrapnel, a first-person shooter trying to rival Call of Duty and Halo, recently featured two panels at Comic-Con. They are based on the Avalanche blockchain and integrate the philosophy of play and win through the use of narrative-driven game design.  

What role will he play and win in the metaverse?

Institutional investors are waiting to see if on-chain games succeed in luring gaming outside of the native crypto ecosystem. If there is a sign of crossover appeal, it opens up the industry to a $178 billion gaming industry. But more importantly, an increase in users will provide a foundation for a unified metaverse.  

Ornella defines the metaverse as an infinitely scalable virtual space with its own digital economy, but it is fundamentally about the gamification of social interaction. However, the industry cannot agree on what this virtual space is and its future. So, there are different virtual spaces/economies that compete to be the metaverse. 

In a follow-up conversation, Ornella explained that interoperability is a solution to this problem. Instead of waiting for the final succession of a virtual world like The Sandbox or Decentraland, these worlds will find a way to transact meaning and value across virtual borders. 

In theory, Blockchain technology provides the infrastructure for interoperability, but it does not provide the incentive. Ornella explains that the gamification of digital social interaction will ultimately drive these essential advances. And the user base acquired from the play-first-win model could provide the social foundation for that interconnected reality. 

The metaverse as the gamification of social interaction

One could argue that the web has always been and will always be about social connection. In Web1, individuals owned much of the connecting infrastructure but did not own the actual content. In Web2, social interaction became more centralized with platforms like Facebook. And in Web3, also called the ownership economy, users have the opportunity to directly participate in the ownership of their online identity and expression. But what does this property really offer?

The property gives limits. Like property titles, it offers a kind of scorecard that can be used to measure value relative to others. This is why private property has always been a form of gamification. 

Digital property records are the extension of the same game. They are simply a new way of leveraging ownership for social capital, and vice versa. We see this in the NFT culture. Influencers use their social capital to increase the minimum price of NFTs, and people with financial resources buy these NFTs to acquire social capital. NFTs can even be used as collateral for loans. 

This gamification of social interaction is a clear and present marker of Web3. But a neutral and decentralized space for digital expression is missing. There must be a space where ownership in one virtual world can be expressed and harnessed alongside ownership in other virtual worlds. NFT marketplaces and social media platforms are examples of neutral online spaces that offer a semblance of this, but the user experience is limited. And the platforms are centrally controlled and operated. At the fundamental level, the metaverse offers a solution by expanding the neutral and mutual space between virtual worlds in an immersive experience. 

And as virtual worlds and the games they contain grow, so will the demand for a unified metaverse. This demand seems like users are asking for new ways to leverage their ownership of digital assets. These could be ways to unlock new experiences, gain access to exclusive networks, or monetize digital creations. This innate inclination towards social gamification is why a unified metaverse feels inevitable. And that’s why GameFi is essential to unlocking that future.