How blockchain games create entire economies on top of their gameplay: Report

Axie Infinity turned its game into a billion-dollar economy that helped thousands of players in the Philippines and other low-income countries to weather the fallout from pandemic mitigation measures. The main ingredient for success: strong property rights. 

Players can take in-game material out of the game and trade on third-party marketplaces like OpenSea. The freedom to set prices and to easily trade unlocked a veritable tsunami of economic activity in and outside of the game.

The 30-page report from Cointelegraph Research analyzes the top five titles and what changed since the days of Second Life and is produced in partnership with Galaxy Fight Club, The Sandbox, Planetarium, Immutable x, SolaDefy, Decentral Games, X World Games and Animoca brands.

The making of a new economy

The report dives deep into the differences between virtual economies of the past, like Second Life or World of Warcraft, and modern blockchain-powered games such as Axie Infinity or DeFi Kingdom.

Developing a well-functioning marketplace complete with an in-game currency and open standards for game material was simply beyond the scope of any development studio in the past. But, blockchains offer economic building blocks to game developers. The technology allows developers to launch a token within an hour or to define game materials as nonfungible tokens (NFTs). This gives users strong property rights and the ability to take their characters and items outside of the games onto third-party marketplaces or even other games at little additional development cost.

Download the full report here - for free.

With the addition of decentralized finance (DeFi) technology, players have financial opportunities they never had before, which led to the lightning-fast adoption of these games.

The report then compares the top five blockchain game titles Alien Worlds, Axie Infinity, Bomb Crypto, DeFi Kingdom and Splinterlands. Each of these games has different gameplay and offers different incentives to players. Daily active users, transaction volume, deposited balances and gameplay — as well as tokenomics that are the economic incentives for the in-game currency — are each put into comparison.

But, no report would be complete without covering the dark side of blockchain gaming. Environmental concerns, a sharp divide between the haves and the have-nots, the legality and tax implications are all valid concerns around these new economies. This is especially important as the sheer success makes these games increasingly attractive to players and game developers.

GameFi titles were responsible for more than 35% of all Polygon transactions during peaks in 2021 and early 2022. But, without addressing the possible issues, the long-term viability of the whole blockchain game space is compromised, as critics and regulators will use these arguments to hinder development or make it harder for players to participate.

Get ready, fight!

The report has an optimistic conclusion about the future of blockchain gaming and the potential unlocked by economic freedom. Lower transaction costs, stronger property rights and open standards all work together to break open the planned economies of prior game markets.

Blockchain technology opens a world of new opportunities for developers and players. If environmental and regulatory concerns can be addressed, 2022 will be the best year for GameFi yet.

This article is for information purposes only and represents neither investment advice nor an investment analysis or an invitation to buy or sell financial instruments. Specifically, the document does not serve as a substitute for individual investment or other advice.