Present by @BitMetis & @BitMartResearch

Data Source–Footprint; Messari; The Block; Token Terminal;

This annual report aims to provide a comprehensive and accurate macro trend of Gamefi Market, allowing Gamefi enthusiasts to have a better grasp of the current Gamefi market.

Key Takeaways

Gamefi Market Overview

Gamefi Market Cap & GameFi Tokens

Overall, the trend of Gamefi market follows the crypto market, which declined from $23.2B to $4.3B, down 81.5% year-to-date. Last November, the Gamefi market cap reached its peak at $26.6B and began to drop ever since. The first two months of 2022 maintained the declining trend, but StepN came out of nowhere and became the game changer, turning the market around. With the extreme public FOMO brought by StepN, the price of GMT(governance token of StepN) went to the moon, which drove the entire Gamefi market cap almost to a new high.

But StepN’s Boom didn’t last long, fueled by the crash of LUNA and the raise of interest rates, the whole crypto market(including GameFi) began to collapse. Later on, the bankruptcy of 3AC triggered a further downturn. And it was not over, several months later, in early November, the bankruptcy of FTX and Alameda Research drove the whole market to the downside limit, suffering from continuous FUD.

Because of the macro downturn, the price of almost every Gamefi token had a sharp decrease of around 90% year-to-date. Here is the price change of the top 10 Gamefi tokens in market cap, all big titles in Gamefi space were in terrible situations: AXS -92.9%, SAND -92.5%, MANA -90.3%, GMT -93.9%, etc.

Active Users & New Users

Unlike the Gamefi token, the number of Gamefi active users tended to be more stable. This boom in active user numbers was triggered by the hype of Axie Infinity since the middle of 2021, which is the beginning of Gamefi’s bull market. And it reached its peak on January 6, 2022, with over 1.1M active users a day.

After the peak, there were two rounds of the boom in the number of active users. The first round was brought by StepN’s hit started in March, and lasted almost two months with an average of 800K daily active users. The second round started in late September and ended in early November, with an average of 600K daily active users.

Unlike the number of active users, the daily number of new users reached its all-time high on September 20th, with nearly 200K new users, up 38.17% DOD, which was mainly contributed by Alien Worlds, which had over 160K new users that day along.

Among the top 10 games with the most active users and new users, all of them have a Mobile version, most of which are well developed and Web2-based titles in Gamefi space. Although such a trend makes sense, as the Mobile games have natural advantages in gaining players, we wanted to see more innovative, native, and blockchain-based games being released, that is what Gamefi space lacks currently.

So far, the Gamefi market is stagnated. Although games are released every day, most of them are Ponzi or replicas, wishing to rip off money or simply coping others’ success, which is destined to fail. The Gamefi market is in urgent need of a real blockchain game to lead the trend, and we hope to see it in 2023.

Investment Analysis

According to the fundraising data from Messari, there are 374 funding deals in Gamefi space this year, $2.37B in Metaverse, up 207% YoY; and $5.37B in Gaming, up 40.6% YoY. We can see that nearly 80% of investment was raised in the first half of this year, both for Gaming and Metaverse. Such a trend makes sense, as the first half of this year saw the end of the last Gamefi bull market, which should be ended in February yet was lengthened by StepN’s hit.

Among the 12 months, April saw the largest funding amount, with 41 deals totaling $2.41B. And the biggest contributor is Epic Games, a Web2 gaming giant, which raised $2B to march into Gamefi space. The winter of investment in Gamefi space came in September, and we are still suffering now. Given the decline of the entire crypto market, the funding amount will continue to decrease in 2023, until the next Gamefi bull market is triggered.

To be more specific, Animoca was the largest contributor to invest in Gamefi market, who had taken part in 71 funding deals, totaling $1.56B. Infinity Ventures Crypto(31) and Shima Capital(30) rank second and third.

Hot Narratives in Gamefi Market

This year, we saw many narratives had dominated the Gamefi market, from Metaverse at the beginning of this year, to move-to-earn model promoted by StepN’s crazy popularity, and games with 3A titles built on Unreal Engine 5. How are these projects now? let’s find out.

Metaverse

According to the data from The Block, the Metaverse market reached its peak in the first two months of this year, with an average monthly trading volume of $48.75M, and the average sale price of Metaverse land reached $15K. However, the figures continued to drop throughout the whole year. In November, the monthly trading volume stood at $2M, a decline of 96%, and the average sale price went below $2000, down 87%.

This has been a tough year for Metaverse projects. Besides finding new narratives and the right product-market fit, I see three main aspects worth improving:

So what should we do? Part of the solutions can be found in Roblox. People wish to have a life-changing experience in Metaverse, just like Roblox, which provides tools instead of only games. We won’t discuss the old-fashioned solutions of reducing costs and changing economic models, but work on how to transform the Metaverse by combining the features of Web3.

X-to-Earn

There is no doubt that StepN opened the gate of X-to-earn. With the hit of StepN, multiple X-to-earn projects came out of nowhere, and yet died nowhere: move-to-earn, listen-to-earn, sing-to-earn, learn-to-earn, and even sleep-to-earn, eat-to-earn, etc.

Let’s get back to StepN. Data shows that from February to May, StepN’s Daily active users (DAU) increased by 100x. And its governance token, GMT, STEPN’s success was hailed as another strong point in the case for crypto gaming. After the hype, StepN was facing an uninterrupted downtrend.

At first, the team has been actively making attempts to find a way out, measures like optimizing the Ponzi tokenomics and improving user experiences by developing intriguing functions, launching new NFT collections on ETH, and cooperating with BAYC.

However, StepN still failed to get out of the death spiral, and the downtrend continued. Several months later, in late November, the resignation of StepN’s Global Ambassador seemed to be the last straw that caused the complete collapse of StepN. Moreover, this former ambassador even told the public dirt about the core team on his youtube channel.

Here, We have no intention to judge StepN. From our perspective, StepN has a special meaning to the Gamefi market. On the one hand, it saved Gamefi market from further declining, indirectly bringing much capital and Web2 users into the Gamefi market; on the other, this project itself is a meaningful attempt to explore new narratives for the Gamefi market. We’d love to see more X-to-earn projects being launched, as such projects are literally influencing or even improving our lifestyles. Here comes the problem: how to achieve sustainable development?

We all need to accept one fact: Ponzi is a natural part of any X-to-earn projects. But in Gamefi space, Ponzi≠Scam. It’s the outcome of the Gamefi market. The reason why many tokenized projects, of which X-to-earn is part, failed can be attributed to three interwoven reasons:

Aftermath of Speculator effect & pump-and-dump

Lack of timely control from the project team

Failed at providing sustainable utility or being the first

The death spiral of every price-driven project goes like this: the market is good and speculators come in -> the token falsely mooned -> speculators dumped -> token price down -> fear leads to actual users sell -> token price further down -> price falls over a critical line -> users have little reason to stay on the platform due to smaller financial reward -> GG

How to get rid of such a spiral, that’s every X-to-earn projects need to work on. Maybe currently there is no answer to be found for this issue, but in the future, I’m sure we will get somewhere.

AAA Games

In traditional gaming, AAA games refer to titles with high development costs and long periods of development. Such games get a large number of high retention users because of the beautiful graphics, rich playability, and attractive narrative.

I don’t remember when people start talking about 3A Gamefi and Unreal Engine 5. Maybe after the market cools down, users begin to care about the quality and playability of a game. Over the past several months, many 3A games were revealed, like Ultiverse, Big Time, Alterverse, Alterverse, Delysium, Metalcore, etc.

So far, the 3A narrative owned much of the spotlight, especially under the bear market. Let’s take Illuvium as an example, which is the most famous and comprehensive 3A game so far, with token and NFTs being launched, and an ongoing Beta version gameplay.

Illuvium attracted a lot of attention since the first trailer was released, and the price of the token climbed, peaking at $1,800 last November. It then fell, especially in early January when the Illuvium contract was attacked due to a bug, and the attackers transferred 100 million sILV.

In early June, Illuvium completed the land sale with huge success: all Land Plots are sold out with over $72M in total sales and nearly 7K users participated. And the Lands Plots also perform well in the second marketplace, with nearly 6K total trades and $9M total volume.

By the way, Illuvium won the “Best RPG” award at the 2022 GAM3Awards. Given that most of the 3A games are still under development, we cannot refer to many stats to show that 3A games fit the Gamefi market. But one thing is for sure, 3A games have an edge in game quality and playability, which is what current Gamefi projects lack and what we players pursue. Let’s try to picture it, we play the Elden Ring or Red Dead Redemption while earning some real money, how sweet it is!

Nonetheless, if the project only intends to make some quick money by falsely advertising the 3A stunt, it is not only we players who will get hurt but the entire Gamefi space.

2. State of Major Gaming Ecosystems

In the past year, most gaming ecosystems have been on ups and downs. So many Black Swan Events(the collapse of LUNA, 3AC, FTX….) also caused many crises to major gaming ecosystems, which, as a result, limited the further growth of Gamefi market.

At the beginning of this year, ETH, BSC, and Solana dominated the Gamefi market; while in the middle of 2022, Ecos like Polygon and IMX began to emerge; in the end, Arbitrum has become the new trend. Next, let’s focus on the state of major chains this year.

Key Metrics by Chain

Market Share of Game Protocols

On the whole, the year saw nearly 500 new games released, and the number of total games stands at 2171, up 39% YoY. However, in 2021, there were 767 newly released games, up 111.6%. And the growing trend this year follows the macro environment: in the first half of 2022, the average growth rate per month was 4.32%, while in the second half, many games were shut down, and there was even negative growth in December.

According to the figures, BNB Chain owned the largest number of new Gamefi projects almost every month this year. BNB Chain remained the largest gaming chain in the Gamefi market, attracting most new games, but the truth is the qualities of these games are quite spotty, which is why the number of active gamers stays small on BNB Chain.

Polygon came second. As the L2 Scaling Solution built on Ethereum, Polygon has been working on supporting the best Web3 projects, including Gamefi. Over the past year, many good games have been deployed on Polygon, like The Sandbox, Metalcore, Wilder Card, Benji Bananas, etc.

Ethereum, although may not be suitable for Gamefi projects, it still owns much on-chain traffic and considerable game foundation, despite the fact high gas fee and low transaction speed hinders the growth of Gamefi projects.

Harmony is an open and fast layer-1 blockchain on Ethereum with faster transaction speed and lower prices. Harmony may not be as famous as the Chains above, but it does provide a suitable environment for Gamefi projects.

Analysis of Active Users & New Users

The number of active gamers and new users is the most straight figure to measure a Gaming Ecosystem.

As the data are shown below, it’s clear that BNB Chain owns the largest number of active gamers throughout the year, which makes sense given that BNB Chain ranks first in the number of Gamefi projects. And HIVE tends to be the second largest, to which Splinterlands is the major contributor. Polygon comes third, which accord with the market growth of the Polygon Gaming Ecosystem.

From the general picture, because of the downturn of the macro environment, almost every chain tended to decline in the number of active gamers.

According to the daily new users by chain, Polygon and WAX outperform others. As I have mentioned, unlike BNB Chain, Polygon owns quite a few games with good quality, which could be the main drive to attract new users in the Gamefi market. And it’s interesting that on September 20th, WAX reached its peak with over 160K new users a day, higher than any other chains on any other date, which was brought by Alien Worlds.

Daily Revenue & Gas Fees

Given that Ethereum is the largest chain with much higher revenue and gas fees, to which Gamefi is not a major contributor. Here we mainly focus on five chains: BNB Chain, Polygon, Avalanche, Solana, and Arbitrum,It turned out surprisingly that Avalanche had nearly two times of cumulative revenue than the total of the other four chains by the end of the year. BNB Chain ranks second and Solana is third.

The daily revenue data shows that Avalanche had crazy revenue numbers before the first 5 months this year, and it collapsed in just a few days after May 11th, which was caused by the collapse of LUNA. Back in the first 5 months of 2022, Avalanche and Terra were closed, and the boom of Terra brought much spotlight to Avalanche, while the collapse of LUNA also crashed Avalanche. As a matter of fact, Gamefi projects took up a large portion of the Avalanche ecosystem, so most of the players chose to leave after the collapse.

Unlike Avalanche, the daily revenue of BNB Chain and Solana tended to be more stable, to be specific, the daily revenue of BNB Chain and Solana is stably declining throughout the year.

As for the L2 Scaling Chains like Polygon and Arbitrum, though the daily revenue is quite low currently, with the ETH merge and further development, they are growing fastly.

We all know that the gas fee of major chains is strongly related to the token price and transactions. Apparently, BNB Chain has absolute advantages in token price and user numbers, which led to nearly 4 times of cumulative gas fees than the total of the other four chains by the end of this year.

Avalanche came second, as I have explained before, the boom of Terra also brought Avalanche much spotlight, and soon Terra’s collapse crashed Avalanche.

Polygon and Arbitrum had the lowest gas fees, which makes sense. As L2 Scaling solutions, the low gas fees and high TPS make them more affordable than Ethereum.

Growth Plan for Gaming Ecosystem

Over the past year, the Gamefi bull market at the end of 2021 made major Gaming ecosystems realize the huge potential of Gamefi projects, thus becoming more serious about the Gamefi market. Gaming Ecos like BNB Chain, Polygon, IMX, Arbitrum, Avalanche, etc all went big into games, and their growth plans are worth mentioning.

1. Binance Lab.

Binance Labs was established in 2018, as the venture capital arm and accelerator of Binance, Binance Labs is on the continued lookout for the next big Web3 innovation. This year, Binance Labs has invested in nearly 20 Gamefi projects, totaling over $1.91M. And its accelerator programs like Web3 Accelerator Program and Incubation Program all provided strong assistance to the chosen projects, many of which are now big titles in Gamefi market, like Ultiverse, StepN, Alterverse, Gameta, etc.

2.Polygon Studios

Polygon studios serve the same functions as Binance Labs in the Polygon Ecosystem, and it tended to be bolder concerning the investment. Polygon Studios has backend over 30 Gamefi over the past year, totaling over $341M. And Polygon joined Game 7 for the $100M Grants Program to support the development of better sustainable and open-sourced games. Apart from investment, Polygon Studios also partnered with multiple Web2 brands to seek further development, such as Mastercard Incubation Plan, Starbuck’s Odyssey Program, Disney Accelerator Program, Adidas and Prada NFT Launch, etc… All these partnerships not only promote Polygon’s image in the Gamefi space, but also open the gate for Gamefi projects to seek the new growth path.

3.Immutable X

Immutable X, as a game-specific chain, also made much progress in building its gaming ecosystem. In June, IMX established co-funds with leading venture firms BITKRAFT, Animoca, Airtree, King River Capital, and GameStop which are focused on web3 games and NFTs to give developers access to additional investment opportunities, which attracted dozens of Gamefi projects to build on Immutable X, including Illuvium, Cross the Ages, Gods Unchained, Tatsumeeko, etc.

4. TreasureDAO

TreasureDAO, a decentralized gaming ecosystem built on Arbitrum, has become a new trend in Gamefi market at the end of 2022, triggered by The Beacon, a dungeons ARPG game. According to the data released by Arbitrum, in the first weeks of December, The Beacon had surpassed 40K mints, 22.7K users, and 20K average DAU, with their Discord and Twitter numbers doubling since the beginning of their launch. The affordable and fast infra is ideal for Gamefi projects. This reality, combined with all the advances yet to come for Arbitrum, makes this L2 fertile ground for a web3 gaming boom.

3. New Technologies Emerged

The fast development of NFT drives its application to a wider range and becomes important, especially in Gamefi.

But with the rise of the Gamefi sector’s requirements, like various gameplays and more complex tokenomics, the ERC-721 Standard no longer meets the increasing demands, which, as a result, brings attention to other ERC Standards.

Here, We will break down two ERC Standards being adopted or to be adopted in the Gamefi space.

ERC-4907

The ERC-4907 standard is an extension of ERC-721 that introduces the dual roles of ‘owner’ and ‘user’ at its application layer and is based on the architecture of Decentraland LAND NFTS/ENS Domain Names, both of which have this feature

The ERC-4907 is fully compatible with the ERC-721, it streamlines NFT rentals through an automated ‘expires’ function which enforces the time-limited role of the user.

The ERC-4907 standard enables users to gain access to the owner’s NFT briefly but does not grant the user the right to transfer or change the state of the NFT.

The adoption of ERC-4907 will unlock rental possibilities in blockchain games from the contract level.

ERC-3525

ERC-3525 is a Semi-Fungible token standard designed by Ryan Chow and members of the Solv Protocol. It is an NFT’s scalability token standard, in which each token is unique and exclusive, and it can be split, merged, and traded.

For example, the game equipment can be upgraded and merged. The computability and composability of SFT can significantly simplify the development difficulty and improve the liquidity of virtual commodity trading, thus enriching playability to a large extent.

Besides, this protocol also limits the out-flow of in-game assets through taking. Under the ERC-3525 Standard, staking can be mandatory instead of optional: if a player wants to sell NFTs, he must stake half, and the other half can be tradable. Additionally, the tradable part can still be offered an extension (like 7 days).

4. Outlook for 2023

2022, a rather significant year for Gamefi market, has passed eventually. We see great potential in Gamefi and are eager to discover more innovative and diverse narratives. Now, everyone is anticipating Gamefi 2.0, but no one knows exactly what it looks like. We are looking forward to the boom of web3 gaming, which will open the era of Gamefi 2.0.

Also, crypto native games are able to solve the ownership of virtual assets. Since the use value of tokens in crypto native games is directly defined by on-chain smart contracts, users’ holding tokens or NFTs can truly represent their ownership of these assets instead of just trusteeship.

Web3 space is constantly evolving and there may be more unknown and new trends waiting for us.

But one thing is for sure, the unlimited potential of crypto native games is worth our expectations.

Let’s hope for a thriving 2023. See you on the other side!