Against the backdrop of BTC's ascent from $25,000 to $40,000, the GameFi sector experienced a notable surge, propelled by the introduction and anticipated launches of several projects.
Summary
The gaming sector has undergone a substantial transformation in recent years with the emergence of GameFi, a convergence of gaming and decentralized finance (DeFi) empowered by NFTs and blockchain technology. GameFi not only redefines the gaming landscape but also integrates financial elements into the gaming experience, thereby establishing an economic model for games.
During the last bull market, notable Play-to-Earn (P2E) games such as Axie, Farmer World, and StepN emerged. Strictly speaking, these games did not offer an exceptional user experience; rather, their surge was predominantly driven by conceptual enthusiasm. However, following the recent bear market, many game projects initiated during that period have undergone substantial, long-term development. This also implies that 2024 will witness the launch of a plethora of high-quality Web3 games.
Besides, recent data suggests a resurgence of interest and growth within the gaming sector. Our analysis leads us to forecast that this positive momentum is poised to endure throughout the upcoming bull market.
Overall GameFi Market Performance
Despite unfavorable market conditions, 2023 witnessed a substantial surge in networks targeting Web3 gaming. Especially since October, the web3 gaming sector has experienced robust growth in tandem with the resurgence of the crypto industry. Based on the data from Footprint, the market capitalization of GameFi tokens has reached $7 billion as of December 3rd, 2023, doubling compared to the end of 2022.
Throughout the year 2023, the market capitalization of GameFi tokens demonstrated a strong correlation with Bitcoin. Notably, during periods of fluctuation in Bitcoin's market capitalization, GameFi tokens displayed amplified volatility. This implies that GameFi projects inherently carry higher risks and are more susceptible to fluctuations in funding, especially during periods of market downturn.
Currently, the Web3 gaming landscape is vibrant, with approximately 2,700 active game projects and a market cap of $7 billion as of Dec 3rd. However, despite the substantial market cap, the challenges of user acquisition and retention persist. It’s important to note that games with more than 1,000 monthly active users are still a relatively small percentage, hovering around 9% of the total number of games, highlighting the difficulties faced by Web3 game developers in attracting and retaining users.
Throughout the first ten months of 2023, on-chain analysis reveals that the daily active users of Web3 games consistently hovered around 1 million. Subsequently, the number of active users exhibited a growth trend and remained high for Q4.
GameFi Performance by Chain
As of December 3rd, 2023, the distribution of games across various blockchains exhibits stability, with BNB Chain leading at 29.6%, closely followed by Ethereum at 23.7%, and Polygon at 14.7%. However, a significant disparity is evident between these top three chains and second-tier blockchains such as Wax and EOS, which hold distributions of 5.0% and 2.1%, respectively.
Since 2022, the distribution pattern of games across diverse blockchains has demonstrated a consistent trend. With the flourishing Web3 gaming market, there is an expectation that additional chains will emerge, potentially posing challenges to the dominance of the top three chains.
GameFi Investment and Funding
Based on data from Footprint Analytics, aimed to empower players through authentic ownership over in-game assets, a whole new market of crypto games has taken shape, evaluated at more than $27B at the beginning of 2022. Despite experiencing a decline of more than 85% by the end of 2022, the value proposition of blockchain gaming has not escaped the notice of investors. From $3.8B in 2021, venture capital funding increased to a staggering $5.4B in 2022 (for the Web3 gaming niche alone) despite the macroeconomic landscape.
Note: 2020-2022:Footprint(Web3 gaming niche alone);2023Q1-Q3:Dappradar(Game/Metaverse)
Based on data from Dappradar, Web3 gaming projects accumulated a substantial $2.3 billion in funding from Q1 to Q3 of 2023. Although this constitutes slightly less than 50% of the funds raised in the previous year, it's crucial to contextualize these figures within the unique market dynamics of 2023.
Furthermore, positive developments for GameFi were concentrated in November, with notable announcements from projects like Pixels, Illuvium, and Gala Games, among others. Additionally, the entry of traditional gaming giants like Ubisoft has elevated user expectations for the playability of blockchain games. With enhancing gaming experiences, and reduced user entry barriers, the future is poised to attract more capital and users into space.
On a note, we often reiterate that the investments executed in the previous year are poised to yield returns in the current year and potentially extend into the subsequent one. Notably, during Q4 2023, we were privileged to witness previews and beta versions of highly anticipated Web3 games. Consequently, a strategic decision was made to inaugurate the Coresky GameFi Season, thereby enhancing enthusiasm and unlocking the sector's inherent potential.
Prospects and Expectations for GameFi
In the previous GameFi Summer, major investment institutions heavily focused on the gaming sector. However, due to the heightened complexity of gameplay, substantial development tasks, and longer production cycles compared to other applications, coupled with the unfavorable timing of launching projects during the bear market, significant challenges were encountered.
As the crypto market environment improved and sector rotation dynamics shaped the current bullish trend, GameFi witnessed a renewed surge of interest. Notably, established entities introduced new games (GasHero), veteran blockchain gaming platforms (Ronin), and emerging game titles (Bigtime), all gaining prominence in this revived wave of enthusiasm.
In terms of project cycles, Web3 games that secured funding during the previous GameFi Summer are now reaching the final stages of game production, with funding consumption nearing completion. Combined with the overall improvement in the macroeconomic landscape, it is inevitable that a substantial number of high-quality games will be launched on the market over the next year.
Conclusion
As we know, the potential of gaming to attract millions of new users to Web3 can not be underestimated. Looking at the current on-chain data related to the revival of GameFi, it is reasonable to expect that this positive momentum in the GameFi sector will endure throughout 2024. And gaming tokens will likely be one of the biggest winners in the coming bull market.
Although GameFi has encountered new opportunities, it still faces many challenges, such as user experience, token economy, and security supervision. And observing the GameFi sector, there is no single game that has managed to navigate through both bull and bear markets, ensuring long-term and stable operations. Therefore, effective investment strategies are still necessary.
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