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What is GameFi and How Does It Work | by Solarsoft | Medium

What is GameFi

In October 1958, Physicist William Higinbotham created Tennis for Two, what is thought to be the first video game and the game that opened the world up to the future of gaming — Spacewar!, Gun Fight, Space Race and Pong which is said to have set off the game revolution.

Video games have been around for a long time, from gaming consoles as big as Pong to Sonic on GameBoy and Call of Duty on mobile or PlayStation. Gaming has evolved and will continue to, which brings us to today’s topic GameFi.

The past few months have been a rough awakening for many Web3 enthusiasts: the market prices of major cryptocurrencies have declined significantly, the trading volume of NFTs has slowed, and, some natives of the space have declared bankruptcy. Yet, GameFi — the play-to-earn blockchain gaming ecosystem that offers economic incentives to players is still going strong.

Disclaimer: This article aims to help you understand GameFi. It is based on general information and opinion. It is not for financial/investment advice.

What is GameFi?

GameFi is a fusion of the words game and finance.

It refers to play-to-earn blockchain games that brings together blockchain technology, including NFTs, cryptocurrencies, decentralization, and advanced gaming mechanics to create virtual environments where players can generate income from simply playing and enjoying their gaming experience.

So, how does it work?

Before we get into that let’s break down the main components of GameFi:

The Blockchain

Blockchain technology is the foundation of GameFi platforms. The majority of blockchain games built on the Ethereum network, although networks like Polykadot, Polkadot, B and Solana are increasingly being used as they have lower gas fees and speed features. Running a game on a blockchain’s distributed ledger not only enables player ownership but it also ensures that all game mechanics are transparent, fair and open.

Non-fungible Tokens (NFTs)

In P2E games, NFTs are used to represent assets and enable transactions in the marketplace. In-game NFTs can be exchanged for other NFTs, cryptocurrency or fiat money. P2E NFTs ensure that all in-game assets are unique and that they cannot be duplicated or fake in any way. A great number of P2E games are focused on encouraging players to pass through different game levels while monetizing virtual land and improving their digital characters (or avatars).

Play-to-Earn Model

In contrast to play-to-win games where players have to pay their way into and through gameplay, GameFi will reward you for just playing. As you keep progressing, you’ll amass digital collectibles, in the form of NFTs, and cryptocurrency. In return, players usually have to complete tasks, including winning battles and daily quests. These assets hold value and can be traded and exchanged in the marketplace.

DeFi Components

Many GameFi projects also integrate decentralized finance (DeFi) elements. Some of the top GameFi games will let players generate passive income through staking tokens, while others might let you earn in-game rewards in return for locking your in-game assets and cryptocurrency in smart contracts as part of a yield farming feature.

How Does It Work?

Unlike traditional video games, GameFi allows players to not only earn and collect in-platform assets, but also transfer them across different games and platforms. In doing so, gamers can also monetize their experience by selling or trading their items.

This is made possible thanks to decentralization and NFTs, which brings a brand new type of digital ownership to the table.

In GameFi, digital assets like plots of land, avatars, virtual clothing, special powers and weapons are represented by non-fungible tokens, allowing players to take ownership over them. Through gameplay, you’re able to earn more items and have the option of trading them via an NFT marketplace both inside a game and outside, thus opening up new monetization avenues.

The specifics — and rewards — differ depending on the game, ranging from tasks, developing mini-game and building virtual infrastructures to designing wearables and battling other players.

Keep in mind that the games actually have to be fun and accessible or it’ll only attract people who are looking to make money and then it’ll resemble a ponzi scheme which will lead to collapse.

GameFi is an expansion not a replacement. It’s a way to reach past the boundaries of the game itself and introduce digital ownership to players. That’s how GameFi will continue to revolutionize the gaming industry.

The difference between traditional gaming and GameFi


One of the most popular play-to-earn games is Axie Infinity. It’s an Ethereum-based NFT game that has been growing in popularity since 2018. Gamers can use their NFT pets (Axies) to earn SLP tokens by doing daily quests and battling other players.

Apart from buying and selling Axies, players can lend their Axies to other players, which gives owners an opportunity to earn without playing the game. This lending model is known as scholarship. It allows scholars to use the borrowed Axies to play and earn rewards.

Some popular metaverse games, such as Decentraland and The Sandbox, focus on the concept of land ownership. They allow players to monetize their virtual land. In The Sandbox, gamers can purchase digital pieces of real estate and develop them to generate revenue. For instance, they can charge other players visiting their land, earn token rewards by hosting content and events, or rent their customized land to other players.

Some GameFi projects also offer DeFi products and features, such as staking, liquidity mining, and yield farming. Typically, players can stake their in-game tokens to earn rewards, unlock exclusive items, or access new gaming levels.

A handful of projects allow the community to participate in their decision-making process. They can propose and vote for future updates via decentralized autonomous organizations (DAOs).

For example, Decentraland players can vote on in-game and organizational policies by locking their governance tokens (MANA) in the DAO. The more tokens they lock, the higher their voting power. This allows gamers to communicate directly with game developers and influence the development of the game.

There are thousands of blockchain games in the market, and they each work differently. Be careful with scam projects and fake websites. Connecting your wallet or downloading games from random websites can be dangerous. Ideally, you should create a new crypto wallet specifically for this purpose and only use funds you can afford to lose.

If you’re sure the game you found is safe, follow these steps to get started.

Steps to get started in GameFi

1. Create a crypto wallet

To access the GameFi world, you need a compatible cryptocurrency wallet, like Trust Wallet or MetaMask. Depending on the game you’re playing, you might need to use different wallets or connect to different blockchain networks.

For example, if you want to play blockchain games on the Solana Chain you will need to connect your Phantom Wallet to the network first. You can also use Math Wallet or any other supported crypto wallet. Check the game’s official website to find out the ones they support.

2. Connect your wallet to the game

To play a blockchain game, you will need to connect your wallet. Make sure you’re connecting to their official website and not a fake copy. Head over to the game’s website and look for the option to connect your crypto wallet.

Traditional online games require you to set up a username and password, but most blockchain games use your crypto wallet as a gaming account, so you will likely be asked to sign a message on your wallet before you can connect to the game.

3. Check the requirements to play

Most GameFi projects will require you to purchase their cryptocurrency token or in-game NFTs to get started. The requirements vary from game to game, but you should always consider the earning potential and overall risks. Make sure to estimate how long it might take to get your initial investment back and start making profits.

If you don’t have any money or don’t want to take risks, consider looking for a scholarship program. They allow you to borrow NFTs to play, but you will have to share your earnings with the NFT owners.

The Present and Future

The number of GameFi projects has boomed since 2021 and will likely continue to grow in the coming years. As of March 2022, there are more than 1,400 blockchain games listed in DappRadar. We now have popular games across multiple blockchains, such as Ethereum, BNB Smart Chain (BSC), Polygon, Harmony, Solana, and many more.

A few weeks ago something exciting was announced; the Japanese gaming giant Sega is launching its first blockchain game! If you played Sonic the Hedgehog when you were younger or you’re a Sega fan, this news is very exciting.

The game is based off of the Sangokushi Taisen franchise. It’ll comprise of a series of strategy games that allows its players to use virtual cards in the virtual field. The structure of the game lends itself to the implementation of blockchain elements, like the tokenization of some of the assets of the game and the trading aspect of the cards. But, how the blockchain elements will be included as part of the game mechanics is yet to be announced.

As blockchain technology continues to develop, the GameFi growing trend is expected to continue at a fast pace. The ability to own in-game assets and make money from games makes GameFi very attractive, especially in developing countries.


Like I said earlier on in the article. GameFi projects have to be fun and accessible or the mere incentive of earning will not be enough to keep players active. The love for gaming is the game itself and the community that’s built around it. People will continue to play games that have no earning incentive and that’s okay, because GameFi is an evolution and expansion not a replacement.

What are your thoughts on GameFi and what P2E games do you play or recommend?

An article by Naomi Noelle

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