Analysis of GameFi Development Trends and Investment Strategies

The current GameFi sector is in a state of overheating, with project values and token prices mainly supported by irrational funds and new users. Once the market adjusts, token prices and in-game asset values will decline, putting the overall gaming economy to a severe test. Users and funds are likely to shift to other sectors, and the current booming situation may face a significant correction.

As a primary market investor, it is essential to remain calm and assess the subsequent development trends even during the GameFi craze, in order to prepare for and strategize investments for the next wave.

The Three Development Stages of GameFi

Phase 1: GameFi 1.0 - Focused on "making money"

The current Play-to-Earn model mainly emphasizes the profit-making attribute, while the gameplay and refinement are more like bonus points that assist the narrative of the project. A complete project that meets the current stage must have the following characteristics:

• Can earn profits within a certain period of time
• Mechanism design allows early users to profit
• Can continuously attract new users to join and invest funds
• An economic model that supports the operation of the game for at least a few months.

Even if the game graphics and gameplay are not on par with traditional games, it does not affect the core narrative of GameFi at this stage.

For primary investors, greater attention is paid to whether the team has a long-term operational mindset. The best strategy is to look for projects that are undervalued, willing to invest for the long term, and capable of generating sufficient income in a bull market, ensuring that the project can continue to operate and iterate on products and mechanisms during a bear market, thereby increasing the likelihood of recalling lost users.

High-quality projects can profit millions of dollars in a short period by selling character NFTs or blind boxes, even if the game has not yet launched, allowing both primary and secondary investors to achieve substantial returns.

At this stage, we mainly focus on whether the project can:

1. Attract new users to invest incremental funds from the real world
2. Attract existing crypto users to transfer their funds from other projects.

For the first point, we focus on the project's DNA. Taking Southeast Asia's GameFi as an example, we pay more attention to whether the project has local promotion capabilities and marketing resources, including guilds and key opinion leaders.

Such projects have a lower demand for venture capital funding and tend to allocate investment amounts to opinion leaders and communities in different regions. The ability to provide effective suggestions for game mechanics and marketing resources becomes key for fund participation.

The quality of GameFi projects in Southeast Asia varies greatly, with many blockchain reform projects facing issues related to token design and private placement investment allocation. These types of projects often go live quickly after financing and make quick profits, attracting retail investors with significant price increases through market cap management, and then exit in the short term.

For the second point, we focus on the mechanism design of Earn. Considering that many projects are transitioning from traditional game studios, the tokenomics often copy existing project whitepapers, investment decisions need to pay attention to:

• Can the inflow of new users accumulate the value of project tokens and enhance the value of in-game assets?
• Payback period
• Potential Causes of Mechanism Failure
• Is there an attractive additional narrative ( such as ultra-fine graphics, a strong investment lineup, or ecosystem support )
• Token allocation, whether there was excessive selling pressure in the early stages, etc.

Such games often need to rely on a certain degree of pump in the early stage to attract users. If the token distribution and unlocking time are not designed properly, it may lead to excessive selling pressure on the tokens, making it difficult to attract secondary users' attention through the token price.

Risk Analysis

In this stage, games are prone to issues such as a slowdown in the number of new users, collapse of mechanism design flaws, sudden changes in mechanisms by the project team, or market corrections, leading to severe adjustments to the current obvious premium. Most games have only a very small market circulation for market cap management, which can easily lead to drastic fluctuations in coin prices in the short term, even resulting in a complete loss overnight.

When a bull market starts but the game encounters a decline in coin prices, the economic system and key parameters may malfunction in the short term, extending the user's break-even period, causing asset values to plummet rapidly, and dealing a significant blow to the project's credibility, leading to a massive loss of users that is hard to recover. This is also the reason why many games attempt to encourage users to continuously accumulate assets within the project, increasing the cost of user exit.

However, even in a bear market, GameFi still has a place. After all, in a bear market, funds are tightening, and market conditions are bleak. Earning money by playing games is one of the better ways to pass the time and profit for free. GameFi projects launched during a bear market still have huge potential; it's just that first and second-tier funds will begin to shift towards iterative projects and new narratives that can solve the Play-to-Earn problem, driving the industry as a whole towards the next theme.

Phase 2: GameFi 2.0 - Solving the Single Game Economy Problem

This stage places higher demands on the fundamental quality of games and token economics. Low-quality Play-to-Earn games may become short-term speculative tools for a small number of high-risk enthusiasts. We will pay more attention to projects that can solve single in-game economic mechanism problems and have social attributes in Pay to Play.

Even successful projects will face issues such as slowing growth of new users, oversupply of NFT assets, and overall decline in revenue. Mechanisms that avoid the situation where the value of tokens circulates only within a single game will become the highlights of high-quality targets at this stage.

One solution is to establish an economic ecosystem that allows multiple games to interconnect. For example, some platforms quickly launch multiple games on their own platform through a strong development team, leveraging traffic and platform funds to attract developers to use platform tools for development, with a token economy system that runs through various games on the platform rather than being limited to a single game. Other platforms hope that by allowing users to purchase virtual land and providing development tools, the content generated by users can continuously create valuable content and applications for the platform to support the currency price.

Another approach is to invest in game incubation platforms. One of the potential narratives for the next stage is game interoperability. Apart from ensuring quality and mechanisms, the same incubator can also reduce cooperation costs in the future. This approach can alleviate the situation of economic system failure, exchanging time for development space.

The root of the problem with a single game economy lies in the fact that most GameFi rely on continuously bringing in funds from new users outside the game ecosystem to provide returns for everyone. The game itself is merely a packaging and medium rather than the true purpose, failing to provide genuine game value.

Therefore, another idea is to make users feel that the game itself is the purpose and that they are willing to pay to play. In addition to the funds brought in by new users, existing users' "spending" in the game can also alleviate the current economic difficulties of the game. Such games also have more value in transitioning to decentralized autonomous organizations; otherwise, DAO remains a short-term means to attract users to stake platform tokens to address selling pressure.

If we can attract users to spend within the game, large investments in producing high-quality games is also a feasible path. However, there are already many top AAA games available on traditional gaming platforms, so users do not need to spend time understanding cryptocurrency mechanisms. Therefore, whether the game has social attributes and whether it is crypto-native will be additional aspects we focus on.

Games that can reflect these aspects of value are highly valuable investment targets.

However, at this stage, whether it is the development of innovative mechanism platforms or high-quality games with social elements, a single development team may lack sufficient resources. We anticipate that capable medium to large-scale developers will begin to make efforts at this stage. However, for ultra-high valuation games that require several years of development before going live, we currently hold a cautious attitude.

The reason lies in the unclear development iterations of GameFi, where significant changes may occur every six months in aspects like gameplay, mechanics, token models, and scalability. Games with a single economic system that are launched years later carry a higher risk. Additionally, most project tokens have already been overdrawn at the beginning of their launch, so it is not too late to invest in similar projects when the logic becomes clearer. After all, it is not possible for there to always be only one successful AAA GameFi title in the market.

The advantage of such projects lies in having the most well-known investors in the industry, which allows them to perceive market changes more quickly, enabling them to launch games and adjust economic models at the most opportune moments to align with current market trends. At the same time, projects can generally guarantee a certain level of delivery and are unlikely to easily run away; in the worst-case scenario, they may choose to soft exit with the price of ( dropping, handing it over to the foundation ).

Other Concerns

Game and Guild Tools

The development of GameFi requires iterative time. For users and funds optimistic about GameFi, a more prudent strategy is to invest in tools for games and guilds. This can be subdivided into tools focused on solving current issues for all participants, including those aimed at players, guilds, and project parties. For example, providing tools for users to display data and calculate game asset returns in wallets, offering platforms for game item rentals and inter-guild lending, and providing services for project parties with decentralized autonomous organization solutions.

We expect a deeper integration of NFTs and GameFi, requiring more projects focused on financial extension scenarios, allowing the currently fragmented game assets and capital to achieve stronger liquidity. For example, projects that provide services such as NFT collateralized lending and NFT cross-chain solutions.

Connecting the game's data standards/physics engine

Pay-to-Earn, while it can alleviate the economic difficulties of a single game with multiple platforms, the best solution is to treat each game as a part of a larger economic system, known as the metaverse economy.

For example, users may obtain funds in Game A through creation, design, or writing, and then spend them in high-quality, highly playable Game B. Just like in the real world, if assets and values can circulate between games at this point, it can solve the current problem of the Play-to-Earn economic chain being too short and singular.

Therefore, the standards for NFT and game data, along with the corresponding physics engine, will allow the games that adopt them to have consistent physical responses. This will be the underlying project that can carry all the value of GameFi in the next phase. Only after the infrastructure is perfected will the third phase of the metaverse become possible.

Phase Three: Attempts in the Metaverse

This stage marks humanity's attempt to transition into a virtual economic life, with GameFi serving as the most easily understood application of the metaverse and acting as a tool for attracting users. Whether users can provide productivity in the virtual world to exchange for funds, consume or engage in financial activities across different but interconnected applications, and even interact with their real-world selves is our ultimate vision for GameFi.

Of course, the metaverse has already been over-rendered and fantasized about, and currently, no one can determine its final form and the time required for its construction. The infrastructure construction of the metaverse still has a long way to go, so the investment considerations at this stage will not be elaborated here.

Conclusion

In summary, games that focus on making money are essentially a method of distributing project tokens. For those who are unwilling to spend too much time researching decentralized finance or most non-crypto native users, this is a more friendly and familiar way to acquire project tokens. Whether in decentralized finance or other tracks, gamification can enhance attention and participation in projects, and even incentivize positive behaviors such as voting. In the future, we may see mining services that gamify the original distribution mechanisms.

As long as a project has the demand for token distribution and marketing, profit-driven GameFi is likely to continue existing. However, whether the distributed tokens are used as a means of short-term incentives and price appreciation or to encourage long-term positive behavior is a question that project parties and users need to consider before participating.

The current GameFi and NFT jointly play the role of attracting users from outside the circle. We are at the peak of GameFi 1.0, but for investors, the most important thing is to focus on the long-term development of the ecosystem and find truly valuable innovations and teams.