Once a gamer, always a gamer… but sometimes, people just grow up with bills piling up, responsibilities catching on, and less time for playing.
Time is money, which is why most people try to work hard to play hard.
So where does DeFi gaming fit in the picture?
Well, do you still play? And are you earning? Will you actually earn?
With DeFi, everything’s a risk, but trying out different DeFi gaming projects could be a good way to make good use of leisure time in order to take some profits from here and there.
This guide is designed to help explain DeFi gaming deeply, including how it works, the risks involved, and what to look out for.
What is Crypto Gaming?
Crypto gaming is any game involving the use of cryptocurrency and blockchain technology. Some of these games rely on NFT characters that can be played in-game for players to earn rewards, which can then be exchanged for fiat currency.
If you’ve heard of games like Axie Infinity, this is an example of a crypto game that relies on play-to-earn (P2E) metrics by offering users rewards when they accomplish adventures, win games, or win battles with other players. Axie Infinity, however, is just one of the many play-to-earn games within the cryptosphere. Here are a few features often being used in crypto gaming:
NFTs
Some crypto or DeFi games use NFTs as characters. These NFT characters often come with their own unique traits, which translates to their in-game rarity. The rarer a character is, the more valuable it usually becomes in-game, meaning it allows players to earn relatively higher rewards.
Reward Tokens
DeFi games often give rewards in a specific token, which can sometimes be exchanged in-game to upgrade characters or cashed as fiat currency. Some games even give players the option to stake their reward tokens to earn more.
Luck Metrics/Randomizers
Some in-game mechanics involve randomizers to make the game a little bit more complicated but also interesting. This involves not knowing whether you will win or lose a certain round. Instead of accurately being based on your in-game stats, randomizers or luck metrics depend entirely on chance or luck.
Play-to-Earn vs Play-and-Earn
DeFi gaming can be categorized into two depending on how it’s structured. Let’s learn more about the difference between the play-to-earn model and the play-and-earn model:
Play-to-Earn
The play-to-earn model involves playing a certain game and relying on in-game choices to affect the outcome of how much a player earns. The better the players’ character, strategy, or luck, the higher their chances of earning from playing.
Play-and-Earn
Play-and-earn takes a different approach to the reward system and instead of players focusing on winning or doing certain tasks to cash out, they want players to focus on playing the game. The reward metric differs per game but essentially, they want players that aren’t trying to mine for rewards but are actually playing to enjoy.
Following the Money
One critical mistake a lot of DeFi gamers make is not understanding how the game works. By better understanding of game mechanics, players could get a better view that would allow them to draw their own judgments as to whether they can actually earn from a particular game or not.
How Does a DeFi Game Make Money?
This is the first and most important question to ask yourself when choosing a DeFi game. If thousands of players are making money, where does the money come from? If companies are also paying out maybe hundreds of employees to maintain the game, how can they afford to pay salaries and even walk away with a profit?
If you do your research correctly, you’ll find out that the only way some games can afford to pay players is from the money that new players are bringing in. This is a very destructive practice and is the main reason why some outsiders view blockchain gaming as a Ponzi.
This results in a huge problem when growth slows and not a lot of new players are joining the game.
Tokenomics
Most DeFi games revolve around one or two tokens; the first token is used to fund the game while the second token acts as a reward for players. One key to understanding how the game works is understanding how it is funded.
There is a bit of variety in DeFi game tokenomics.
For instance, MOBOX only has one ecosystem token, MBOX, which is used to reward players while the platform earns income on its decentralized services. Axie Infinity, on the other hand, makes use of two tokens: AXS as the governance token to fund operations and the SLP token as rewards for players. Gala Games, however, has a governance token that also initially bootstrapped its launch and separate reward tokens for each of its games.
Most GameFi platforms have whitepapers explaining their tokenomics and use cases, but for reward tokens, however, can be tricky. Reward coins are initially funded and are given out to players to incentivize them to spend more time playing. But what happens when the initial funding runs out?
Another interesting metric to find out is how the game can manage to give out rewards to players and whether those rewards are sustainable. It would be more feasible if there was a mechanism that offsets the selling pressure of reward tokens, such as ads or services that require the buying/burning of reward tokens.
You also need to determine whether a reward coin is deflationary or inflationary.
Inflationary crypto
Inflationary cryptocurrencies have an infinite supply meaning they can never run out and their prices highly depend on the circulating supply and demand. New crypto can be created through mining, staking, etc. Essentially, the more coins in circulation, the less valuable it becomes.
Deflationary crypto
Deflationary cryptocurrencies have a finite supply of tokens, which decrease over time. This means that the value of the crypto will rise if demand doesn’t drop and remains consistent.
Play Investment
Some blockchain games require players to buy a specific type of NFT character in order to play a game. These NFTs can cost quite a lot depending on the popularity of the game and when trying to compute your potential profit, it’s important to include your investment as part of your computations.
Roadmap Assessment
Like any other game, the mechanics can evolve over time. Although some games may promise future upgrades along the way in their roadmap, it’s important to assess whether each new phase will have a positive effect on the game or whether it might lead to the game’s downfall.
How to Invest in Crypto Gaming
Although crypto gaming should be a source of entertainment first and investment second, if you really want to make good use of your time while playing, it’s important to come up with a good DeFi gaming strategy.
Not everything goes according to plan and this is extremely true when it comes to DeFi and crypto. When entering the realm of DeFi games, make sure to do so without risking more than you can afford to lose.
Research
Before putting down money or listening to your friends talk about how much they made or how fun the game is, it’s important to dig deeper and do your own research.
Technical Analysis
Technical analysis involves looking at the cryptocurrencies that both power the game and serve as rewards. One technique would be to use indicators like the following:
- MACD: The Moving Average Convergence Divergence is an indicator designed to follow trends to help indicate whether the crypto is on a bullish or bearish trajectory.
- RSI: The Relative Strength Index is an indicator that is designed to indicate when a coin is overvalued or undervalued. This could be used to help you know when to enter or exit the cryptocurrency.
- Bolinger Bands: Bollinger Bands are designed to give you a hint when big moves are expected to happen. Although it isn’t designed to tell you whether the next trend will be bearish or bullish, when the bands open up, you’ll know huge movement is expected.
Reserve Analysis
Reserve analysis focuses on the reward crypto and how it is designed. If it has a big reserve, it’s important to figure out how long that reserve might last or how the DeFi game plans to replenish that reserve. At the end of the day, DeFi games are investments, you either buy an NFT, purchase their crypto, or both in order to play and as a reward, you are usually given a different type of crypto.
Analyze how big their reserve is in proportion to both the game’s popularity and the rate of either growth or decline. If you calculate that it takes 3 months to ROI but in the last 3 months, its rewards have dropped by over 50%, this could be a huge red flag for you.
Reward System
A DeFi game is often as powerful as the rewards it gives out. Like most things, if it sounds too good to be true, it probably won’t last long. Find out the tokenomics regarding how rewards are structured and how the game plans to keep the value of its reward crypto constant.
The reason why a lot of DeFi games fail is because of shrinking rewards and sometimes, these can happen unexpectedly. If you look at the game’s whitepaper, AMA, or ask them directly, you’ll be able to study the tokenomics and find out whether their reward system is sustainable or not.
Investment Strategy
Before dumping in a huge investment, it’s important to first come out with proper research and an open-minded investment strategy. Most things are perfect in theory when they are consistent but in the crypto space, consistency is few and far between.
Profit Computation
Profit computation involves calculating how long it would take you to reach your return on investment (ROI) and what you need to do to become profitable. When calculating profits, it’s important to come up with the worst-case scenario, what if the price of crypto rewards tanks by 50%? Make an alternate computation for this so you’ll know the worst-case scenario.
If your research shows you that the game is extremely high-risk, it’s better to come up with short-term plans and have an exit strategy ready. When hitting ROI, it is important to withdraw your initial investment. Although this could impede your earnings, at least if the worst happens, you would have just lost time and not money.
Capital Needed
How much capital is needed to become more profitable in the DeFi game? Some games are designed to incentivize players that spend more by giving them higher rewards. Although investing more capital is riskier, find the sweet spot wherein your investment will give you significant returns but not at a risk you can’t take.
Don’t invest money you can’t afford to lose. While a lot of people only calculate the upside of an investment, it’s always important to factor in the loss. If losing your capital would put you in a tight spot, it’s better to bring down your investment or look for an alternative game that might fit your budget.
Longevity Plan
Not all DeFi games are built to last extremes. If you plan to genuinely find a game you can play long-term, it’s recommended to look for a game that has been around for a while and has been able to survive volatilities within the market.
While some gamers like to hop on a new game right away and exit before it tanks, others would look for games that have shown their true colors of having a sustainable system with a fair business model. One indicator of the potential longevity of a DeFi game is how its business is structured and its market cap.
But to be fair, very few games actually fit that standard. Axie Infinity is one but it’s hard to name another.
Small market cap games can be extremely risky to play since it only takes a few withdrawals for the price of the reward cryptos to drop drastically. Also, beware of rug pulls! When choosing a game, never sacrifice authenticity and security for that insane potential income.
Playing the Game
Since the play-to-earn DeFi gaming model gives rewards to players depending on their performance, it’s important to build your own in-game strategy to potentially rake in profits.
Gaming Metrics
If the game relies on elements, weapons, stats, or other quantitative metrics, it’s important to study them to know how to improve your win rate and performance. For games that require you to build teams, there are usually two approaches, either max out on a certain element or stat, or create a well-rounded team.
The benefits of focusing on one element or stat are that although you might lose to a specific element or stat, this depends on the likelihood of you battling those types of enemies. One good way to determine whether you should go all in on a certain element or stat is by looking at the number of elements or stats available. If there are more elements or stats, this decreases your likelihood of going against an element or stat you are sure to lose to.
If there are very minimal elements or stats, try creating a more well-rounded team. If there is an option for you to position your team, make sure to not forget defense. Sometimes, in order to win, you just have to last longer than your opponent.
Scholars
Some games incorporate the scholar feature where owners of characters can lend out their characters to other players in exchange for a cut of the rewards. A lot of people look at this method as a way for them to multiply their potential income and although it can be more profitable, this also places you at risk due to the higher capital requirements.
If you’ve been playing a game for a while, have done your research, and are convinced of its longevity, it is important to first hit your ROI before entertaining the idea of scholars. Investing in scholars should also be treated as another investment. Since you will have to share profits but still pay the same amount of capital, the rate of your ROI could be affected.
Join our newsletter as we build a community of AI and web3 pioneers.
The next 3-5 years is when new industry titans will emerge, and we want you to be one of them.
Benefits include:
- Receive updates on the most significant trends
- Receive crucial insights that will help you stay ahead in the tech world
- The chance to be part of our OG community, which will have exclusive membership perks
