The idea for this article first took shape in December 2022 and was written in February 2023 after the Lunar New Year. It was then published on PANEWS in early March.
Blockchain gaming, also known as Blockchain Gaming, is a branch formed by the combination of blockchain technology and the gaming industry. In the past two years of development, it has gradually formed hot concepts such as Play to Earn, GameFi, and Move to Earn. With the arrival of the bear market in 2022/2023, blockchain gaming has gradually become quiet. So, how will the narrative of the next bull market evolve? Is the future development of blockchain gaming just about creating 3A-level games and issuing tokens and NFTs? In this article, the author proposes a viewpoint that the next bull market could be guided by DeGame to achieve the protocolization and decentralization of games.
The combination of blockchain and the financial industry: The evolution of DeFi
2012-2018:
Let's first review the development of DeFi. If we take 2018 as the starting point of the previous bear market, we can see a clear context. In the bull market before 2018, the mainstream narrative of cryptocurrencies was "payment," meaning that the existence of public chains was for "issuing coins," and the purpose of issuing coins was for "payment." The first generation of public chains based on Proof of Work generally did not have smart contracts, so having one coin for one public chain became the mainstream in the market. Ethereum, which was introduced in 2016, brought the concept of smart contracts and became a milestone for the second generation of blockchain. However, due to market inertia, the use of smart contracts in the industry was limited to "issuing coins," or "decentralized investment." Investment is a typical financial behavior where users give their funds to a centralized entity (institution or individual) in exchange for corresponding returns. In investment activities before the emergence of Ethereum, users generally used BTC as investment funds to exchange for the coins of a public chain. However, this centralized approach is prone to various fraudulent activities, such as the financing party running away with BTC. Ethereum changed all of this. This change was two-way, including both the project party and the investors. The project party no longer needs to spend a huge amount of manpower and resources to build a brand new public chain to issue a coin. They only need to build a smart contract for "issuing coins," and at this time, "coin" becomes "token." Investors no longer have to worry about not receiving the coins after giving out their investment funds because they only need to send ETH to the "ICO contract" and can receive "tokens" in a few minutes. I still remember the situation when I participated in the first public sale of "EtherDelta": I opened my wallet and sent 10 ETH to the EtherDelta ICO contract address, received EDT after 1 minute, and then EDT became zero. Although scams still exist, the investment method has been greatly upgraded. I call it a shift from "Centralized Investment" to "Decentralized Investment," or DeInvest.
2018-2022:
2018 was indeed a turning point because several important infrastructure of DeFi began to emerge. 2018 was also the beginning of the previous crypto winter. First, the narrative of "payment" came to an end: many traditional e-commerce platforms removed Bitcoin as a payment medium, and BitPay gradually declined. Everyone only knows that Coinbase is a compliant exchange but forgets that it used to be a well-known "payment processor." Then came the big drop in cryptocurrency prices, with many tokens falling 90% and then another 90%. But in this winter, the seed of DeFi was also incubating. Uniswap, Maker Protocol, and Compound were among the first explorers to emerge from the unknown field. The creation of these projects was based on a similar vision, which is to create a decentralized and trustless financial system to achieve censorship resistance and economic inclusivity without sacrificing operational capabilities and efficiency. Based on Vitalik Buterin's thought experiment on decentralized exchanges, Uniswap was launched in November 2018 as one of the first on-chain automated market maker protocols on Ethereum. Although Bancor first proposed the concept of liquidity pools, Uniswap popularized it with its famous "x * y = k" constant product pool formula, making decentralized exchanges the most important infrastructure of DeFi.
During this period, the narrative broke through the previous bull market's "issuing coins" and extended the functionality of blockchain to various aspects of finance. In other words, smart contracts were not only used for issuing coins but also for establishing basic financial rules to achieve decentralization in finance. This gave rise to the well-known "Decentralized Finance," or DeFi.
If we summarize the combination of blockchain and an industry into two aspects, they are tokens and smart contracts. The simplest combination is "issuing coins." The application of tokens lies in mapping rights, with the most common being equity, which can be further divided into governance rights and dividend rights. Dividend rights are typical applications of platform tokens (buyback and burn), while governance rights are typical applications of DAOs (voting). Other rights include gas fees, transaction intermediaries, fee deductions, and more. A more advanced combination is smart contracts, whose application lies in compiling specific financial rules into code and writing them into the blockchain system. So, we can summarize as follows: the combination of blockchain and finance can be seen as the combination of tokens and smart contracts. Tokens are used to map certain rights, while smart contracts are used to replace intermediaries.
The combination of blockchain and the gaming industry: The emergence of GameFi
2017-2021:
We can also use the development process of DeFi to think about the future of blockchain gaming. Assuming that the combination of blockchain and the gaming industry can also be summarized into two aspects, tokens and smart contracts, we need to note the variation of tokens here. The tokens here are not only about homogeneous tokens but also non-fungible tokens (NFTs). So, we can consider three aspects: smart contracts, tokens, and NFTs. The logic here is that the currency and bills and bonds used in finance are homogeneous, while the items and characters in games are non-fungible.
The reason why the initial year is set in 2017 is because of the birth of CryptoKitties. CryptoKitties used NFTs as game items, and the game's rules, such as the breeding system of cats, were written into smart contracts. The project did not issue tokens, but after the team renamed itself Dapper Labs, it released its own public chain and token, Flow. On the other hand, other so-called blockchain games during the same period simply treated games as "coins" for issuance, without using NFTs or smart contracts.
2021-2022:
After the revamp in 2021, Axie Infinity became popular by combining smart contracts, tokens, and NFTs: the breeding rules were written into smart contracts, and game items were turned into NFTs. Two tokens were issued to achieve governance and rewards. It is worth noting that Axie added a battle system on top of the breeding system of CryptoKitties, but the rules of the battle system were not written into smart contracts.
During the GameFi boom that followed, games such as Farmers World, Cryptomines, Starsharks, and Metamon simply combined NFTs and tokens without using smart contracts, becoming true examples of GameFi (the combination of games and finance). The game rules were still managed and maintained by centralized entities, while game items used NFTs, and tokens represented rewards and equity. Therefore, in the traditional sense, GameFi is essentially a centralized game (Centralized Game). If the game has weak playability and the purpose of the token is only to achieve play-to-earn, then it belongs to a Ponzi project disguised as a game.
2022-2023:
With the arrival of the crypto winter in 2022, almost all GameFi projects entered a downturn. So, where will blockchain gaming go in the future? Many people believe that existing blockchain games are of poor quality compared to traditional games. Is the solution to create high-quality AAA games? However, these centralized games are still GameFi. The current narrative of blockchain gaming is that the adoption of NFTs can lead to the privatization of game items. For current centralized games, this is a complete deception. When the game servers are shut down, the game NFTs naturally become worthless. This kind of privatization is meaningless. Before investing in GameFi projects, it is important to consider the following questions:
- The crypto community is already a minority group, and the number of people who love playing games within this group is even smaller. High-quality games need to expand beyond the crypto community to increase the player base.
- The act of issuing tokens is similar to a single game's fundraising and listing, and in many cases, project teams run away before the game is even developed.
- If the issued tokens are similar to equity/dividend tokens, but the project adopts an "X to earn" model where external cash flow is zero, the business model resembles a Ponzi scheme and lacks sustainability.
- From the perspective of the game's economic model, only open MMORPGs are suitable for issuing game tokens to replace in-game currency circulation.
- Non-MMORPG games are only suitable for transforming items into NFTs and are not suitable for issuing in-game tokens.
DeGame: The protocolization and decentralization of games
So, what is the future direction of blockchain gaming and even the mainstream narrative of the next bull market? I believe it is DeGame (Decentralized Game): game rules written into smart contracts, game items using NFTs, and governance tools that can use NFTs or tokens. Tokens can be single coins or multiple coins, depending on the type of game. The more popular term for DeGame is Onchain Gaming, but I believe DeGame is a more appropriate term.
Similar to the comparison between DeFi and CeFi, DeGame can achieve the automation, decentralization, and privacy of games, and it can also lead to a fully open metaverse more easily. On the other hand, it can achieve composability in game rules (not just the composability of game items). In traditional game development, many common game features can be reused without a separate studio reinventing the wheel, which is why "game engines" exist. Similarly, due to the composability of smart contracts, Web3 games can also achieve a similar "on-chain game engine." In DeFi, we can see many projects named XX Protocol. Similarly, if game rules are written into smart contracts, because of their open-source and automated nature, full-chain games will become a new "game protocol," and other teams can customize development based on the game protocol. This open-source and decentralized metaverse will be more vibrant.
Due to the performance limitations of blockchain itself, what types of games are suitable for being made into full-chain games? My conclusion is:
- Games with relatively simple rules
- Games that do not require real-time feedback
- Games that have social factors
- Games with game theory elements
- Games with an open system
- Games that require online connectivity and are not single-player games
In terms of genres, turn-based RPGs, puzzle-based action games, simulation games, adventure games, card games, sports management games, sandbox games, gambling games, open-world competitive games, and board games are more suitable.
Although GameFi projects that only issue tokens (including regular tokens and NFTs) without using smart contracts are still considered centralized games (CeGame), I call them Web2.5 games because they are not fundamentally different from traditional Web2 games. Only full-chain games inherit the decentralized ideology of blockchain and are truly Web3 games. However, given the current investments from various VCs, they will continue to develop and form a complementary relationship with DeGame. Similar to the relationship between CeFi and DeFi, the crypto community has both giant centralized exchanges like Binance (CEX) and decentralized exchanges like Uniswap and dYdX (DEX). Similarly, blockchain gaming will also have AAA-level centralized games like "Big Time" (CeGame) and open decentralized games like "Dark Forest" (DeGame). Of course, only DeGame will exist on the chain, and its NFTs will theoretically always have value.
Considering that full-chain games are still in their early stages, game projects can try DeGame in various genres and combine them through mutual calls, gradually forming an "on-chain game engine" as a foundation for creating more advanced DeGames in the future. For example, combat systems, game theory systems, and strategy feedback systems. It is important to note that web2 game engines mainly provide rendering engines, physics engines, computer animation, scene management, and other functions, while web3 on-chain game engines should provide complementary functions. This phenomenon has been observed in the community development activities of the well-known full-chain game "Dark Forest." Similarly, OPCraft, a full-chain game that was demonstrated at Devcon in Bogota not long ago, also achieved customized development of certain game features or components by the community during the short two-week demonstration period. In future full-chain games, plugins or code contributed by players or communities may become increasingly important components of these games, and their importance may even surpass that of official teams.
If DeGame can truly lead the next bull market and has enough uniqueness and advantages in its narrative to differentiate it from traditional games, it can lead a broader range of upstream and downstream industries, such as guilds, high-performance public chains, privacy computing, VCPE, NFTs, DeFi, metaverses, SocialFi, and form a wide range of money-making effects. These are two indispensable factors for forming a bull market.