# Industry Background ### DeFi and NFT lay the foundation for GameFi \ Since the launch of the Ethereum mainnet on July 30, 2015, the advent of the Web3 era has been officially announced. The smart contract deployment function of the Ethereum mainnet supports the design and operation of DAPPs (decentralized applications). On this basis, a large number of popular DeFi (decentralized finance) have emerged, such as Uniswap's DEX (decentralized exchange) through automated market makers and MakerDAO's contract lending. These DeFis have attracted a lot of hot money with their high investment returns, openness and transparency, strong concealment, and complete openness. The total market value of the DeFi track has also increased from US$50 million in 2019 to US$100 billion in 2024.

Figure 1 DeFi market value growth

While DeFi is booming, capital has begun to explore the compatibility of decentralized finance with other fields. During this period, the NFT market ushered in a big explosion. In 2017, CryptoKitties, an Ethereum-based NFT project where players can buy, breed and trade digital cats, attracted widespread attention, and this project is often seen as the starting point of the NFT explosion. The total market value of the NFT market has risen from a few million US dollars in 2020 to 8 billion US dollars in 2024.

Figure 2 NFT market value growth

If DeFi has brought a steady stream of funds to the crypto market, then NFT has directed the blockchain's attention to entertainment and games. The two work together to provide a fertile ground for the development of blockchain games. Under this, GameFi, which combines the concepts of DeFi and blockchain games, has begun to emerge. ### The starting point of the GameFi dream \ In the second half of 2019, MixMarvel Chief Strategy Officer Mary Ma first proposed the concept of GameFi - "gamified finance" and "new gamified business". This concept combines the elements of games and finance, aiming to introduce new business models and economic systems to the game industry through blockchain technology. In Mary Ma's view, future games are not only entertainment tools, but also financial tools. Through blockchain technology, virtual items in games can be turned into valuable digital assets, and players can obtain, trade and increase the value of these assets through games. In this model, game companies and players can jointly participate in economic activities in a decentralized environment to achieve mutual benefit and win-win results. \ However, because blockchain technology and its application paradigm were not mature enough at the time, the concept of GameFi did not immediately attract widespread attention and application. ### The beginning of the outbreak of GameFi \ In September 2020, Andre Cronje, the founder of Yearn.finance, elaborated in detail his understanding and outlook on GameFi in a speech and public statement. With Andre Cronje's authority in the DeFi industry, the concept of GameFi began to truly enter the public eye. Andre Cronje's many views on GameFi also clarify the future development direction of GameFi. \ In Andre Cronje's concept, the DeFi industry is in the "TradeFi" stage, and users' funds are mainly used for transactions, pledges, lending and other operations, which fails to reflect the difference between cryptocurrencies and traditional finance. GameFi will be the future development direction of DeFi. User funds can not only be used for financial transactions, but also have practical application value in the virtual game world. Users can get rich token returns in the activities of the virtual game world, which will be similar to work in real life. \ Since then, the GameFi field has ushered in the first wave of growth! ### GameFi reshapes the game track \ GameFi is a blockchain technology that combines DeFi, NFT and Blockchain Game. It runs the assets and part of the logic of the game in the smart contract of the blockchain, and the DAO (decentralized autonomous organization) is responsible for managing the development of the game ecosystem to ensure the user's ownership of the assets in the game and the governance of the game; GameFi focuses on building a complete financial system and supports the use of game native tokens for props trading and other activities. Users can earn token income through games and share the benefits of game development. ### Completely solve the shortcomings of traditional games \ In traditional games, it has long been a consensus that items such as props and skins have certain value. The average annual sales of props in CSGO from 2019 to 2024 is higher than 420 million US dollars, and it is growing year by year; the annual sales of skin props in League of Legends has increased from 1.4 billion US dollars in 2019 to 2.5 billion US dollars in 2024; the annual sales of skin props in Honor of Kings will even reach an exaggerated 2.74 billion US dollars in 2023. Whether at home or abroad, game props have a broad market space.

Figure 4 Annual sales of CSGO props

Figure 5 Annual sales of League of Legends props

Figure 6 Annual sales of Honor of Kings props

However, since the transaction of props often damages the profits of game publishers and touches the legal red line of certain countries and regions due to its financial attributes, game manufacturers have always adopted two strategies for the transaction of game props. One is that CSGO and Steam jointly monopolize the prop transaction market and charge higher transaction fees. The second is that League of Legends, Honor of Kings, etc. adopt unlimited prop supply, unify prop purchase channels, and strictly prohibit game account transactions. \ It is precisely because of the prohibition of game manufacturers and local regulations that the black market sale of game props has become a highly profitable business. Within a certain limit, as game manufacturers and local regulations increase their crackdown on black market transactions, the supply line of black market props shifts to the left, and the profit from sales increases.

Figure 7 Rough curve of the relationship between private transaction profit and transaction difficulty

\ GameFi, built with blockchain technology, naturally has DeFi attributes, which can perfectly solve the current situation of game manufacturers monopolizing and black market rampant. GameFi is both a game and a market. Game skins and props exist in the form of NFTs. All transactions will follow the market rules and remain as transparent as possible. \ In addition, through DAO governance of game development, allowing all players to share the governance power of the game is also a major feature of GameFi. At present, game manufacturers often operate the probability of lottery in secret and sell some high-priced game props at a lower price in the past to increase sales, which harms the interests of players who have already purchased them. Players' protests against these measures are also difficult to concentrate, and are often covered up by these technology giants through traffic control. DAO governance measures can shatter the current situation of absolute discourse power of game manufacturers. Users no longer have to worry about the game developing in a direction that is unfavorable to users, and enjoy the overall economic benefits brought by the development of games. ### Perfect fit for the development of games \ Looking at the development of games, the improvement of computer technology, hardware upgrades, and innovation of game concepts are often important factors. \\ \ Early computer game stage (1970s-1980s): The early stage of the development of electronic games was mainly concentrated in laboratories and university environments. Famous early games include "Spacewar!" and "Pong", and the release of "Pong" marked the beginning of commercial electronic games. \\ \ Home console era (1980s-1990s): Nintendo released the home game console NES, bringing classic games such as "Super Mario Bros." \\ \ 16-bit game console era (1990s): Sony released PlayStation, opening the era of optical disc games, and the game "Final Fantasy VII" triggered a game boom. \\ \ 3D game era (late 1990s-early 2000s): Valve released "Half-Life", which won wide acclaim from players for its deep plot and immersive experience. \\ \ Online games and MMORPG era (2000s): Blizzard Entertainment released World of Warcraft, which became one of the most successful MMORPGs and promoted the development of online multiplayer games. \\ \ Mobile games and social games era (2010 to present): Supercell released Clash of Clans, which became one of the most successful mobile strategy games, and Niantic released Pokémon GO, which combined augmented reality (AR) technology with mobile games, triggering a global craze. \\ \ In the past, the development of games mainly relied on the three major factors of computer technology improvement, hardware upgrade, and game concept innovation. Today, GameFi is a powerful combination of DeFi and NFT, representing one of the most cutting-edge and interesting technologies in blockchain; it is also a cross-integration of computer and financial disciplines, with a novel "play-to-earn" game concept; at the same time, it provides examples for financial market research; it can be said that GameFi perfectly meets two of the three major elements in the development of games and conforms to the history of game development. \ In recent years, GameFi has developed rapidly, proposed novel concepts and designs, and has given birth to many top projects. \\ \ Early Exploration (2018): Decentraland was launched. As one of the early GameFi projects, Decentraland allows players to buy, develop and trade virtual land, using blockchain technology to achieve true ownership. Gods Unchained launched a blockchain-based collectible card game where players can buy, sell and trade cards, demonstrating the potential of NFT in games. \\ \ Concept Proposal (2019): Mary Ma proposed the concepts of "gamified finance" and "new gamified business", marking the birth of the GameFi concept. In the same year, Axie Infinity launched by Sky Mavis began to approach the public's vision. \\ \ Initial Rise (2020): Andre Cronje, founder of Yearn.finance, reiterated the concept of GameFi in September 2020, predicting that DeFi will develop into a gamified financial stage in the future, and user funds will be used as equipment in the game. At this time, the DeFi and NFT markets also ushered in a golden period, laying the groundwork for the explosion of GameFi. \\ \ Explosive growth (2021): Axie Infinity has achieved great success, attracting millions of players and reaching a daily transaction volume of $1 million in August. Through the "play-to-earn" model, players can earn money through games, becoming the main source of income for hundreds of thousands of residents in Southeast Asian countries during the epidemic; in the same year, The Sandbox became popular, allowing users to create, own and trade virtual assets and land, and was sought after by a large number of venture capital institutions. \\ \ Traffic has fallen sharply (2022 to present): Affected by the overall downturn in the crypto market, GameFi's popularity has declined severely. Axie Infinity's daily active user satoshis plummeted from 740,000 in August 2021 to 35,000 in August 2022. At the same time, many GameFis are facing serious inflation problems, and the number of DeFi Kingdoms tokens has risen from 60 million at the beginning of 2022 to 100 million in the middle of the year. \\ \ The popularity of GameFi has also driven the concept of the metaverse. The essence of the metaverse is to build a virtual shared space realized by AR (augmented reality) and VR (virtual reality), combined with decentralized technologies such as blockchain, which covers not only games but also all aspects of life. GameFi's free ecological construction method makes it synonymous with the metaverse in many scenarios. From 2021 to 2022, many traditional technology companies began to intervene in GameFi and the concept of the metaverse. \\ \ Facebook changed its name to Meta, reflecting its long-term vision for Metaverse. \\ \ Tencent established a new TiMi Studios, focusing on the development of metaverse-related games. And participated in The Sandbox and Decentraland. \\ \ Microsoft acquired Blizzard for $68.7 billion, planning to combine traditional popular games with blockchain technology to create a new generation of GameFi. \\ \ Goldman Sachs Softbank increased its investment in GameFi, supporting well-known GameFi projects such as Axie Infinity and The Sandbox. \\ \ GameFi's overall market value has also risen from $200 million in 2018 to $24.52 billion in 2023, with a growth rate of 733.3% from 2020 to 2021.

Figure 11 GameFi market value growth rate

\ Although GameFi may face some problems at present, due to the strong involvement of traditional technology companies and the gradual maturity of technology, there are still unlimited possibilities in the future. ### A narrative that combines the strengths of hundreds of schools \ GameFi itself is a combination of DeFi+NFT+Blockchain Game, which not only makes the original boring DeFi lively, but also gives NFT technology without application scenarios an opportunity to land. At the same time, GameFi's governance model also provides an opportunity for the implementation of DAO organizations. Combined with the current hot concepts such as the metaverse, AR and VR are also expected to become part of GameFi's 3A masterpieces. Therefore, GameFi is a major application field that deeply applies blockchain technology and integrates it with virtual technology. \ DeFi+NFT token economy, building an independent financial ecosystem \ Financial characteristics are the biggest difference between GameFi and Blockchain Game. Blockchain Game often only focuses on using blockchain technology to improve game transparency, fairness and asset ownership, while GameFi focuses on introducing a complete financial system into the game to create a Blockchain Game with financial attributes. Therefore, Blockchain Game can be a simple blockchain application game, while GameFi must include financial functions and economic systems. \\ \ From a technical perspective: The uniqueness and indivisibility of NFTs give each game prop a unique value. By limiting the number of NFT props issued, the scarcity value of props can be created. \\ \ From a rights perspective: In GameFi, the project party only appears as a game developer, bug fixer, and resolution caller. At the beginning of the game, it sells tokens and props NFTs to players, and at the same time, most of the power is delegated to ordinary players. The update and development of the game, the distribution of benefits, and other matters are decided by the DAO organization jointly composed of players and project parties. \\ \ From the perspective of mechanism: GameFi’s “play-to-earn” model allows players to earn NFT props or tokens in the game through time and initial financial investment, and exchange them with real legal currency to generate economic benefits. \\ \ Introducing the financial system into the game is not unique to GameFi. Some traditional games already have complex financial systems, proving that this measure is feasible. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://penny-whale-world.gitbook.io/penny-whale-world/market-analysis/publish-your-docs.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.