The Evolution of GameFi and Investment Layout

The current GameFi market is in an overheated stage, with the overall project value supported by irrational funds and new users. Once the market adjusts, the in-game economy will face tremendous challenges, and users and funds are likely to shift to other areas. As a primary market investor, even in the heat of GameFi, it is necessary to remain calm and make judgments to prepare for the next wave.

The Three Development Stages of GameFi

Phase 1: GameFi 1.0 - Focused on "making money"

The current Play-to-Earn model mainly highlights the concept of "earning money", while gameplay and refinement are more like a bonus. A complete project that meets this stage needs to satisfy the following conditions:

• Can generate returns within a certain period of time
• Mechanism design allows early users to profit
• Can continuously attract new users to invest funds
• The economic model can support the operation of the game for several months.

At this stage, first-level investors are more concerned about whether the team has a long-term operational mindset. The best strategy is to look for projects with lower valuations that are willing to invest long-term and have the ability to generate sufficient income during a bull market, ensuring that they can continue to operate and iterate their products during a bear market.

This phase of the project focuses on:

1. Can it attract new users to bring incremental funds?
2. Can it attract existing crypto users to transfer funds from other projects?

For the first point, we focus on the project's ground promotion capabilities and marketing resources, including guilds and KOLs.

Regarding the second point, we focus on the design of the revenue mechanism, including:

• Can the influx of new users increase the value of tokens and in-game assets?
• Break-even period
• Potential reasons for mechanism failure
• Is there an appealing narrative ( such as stunning graphics, a strong investment lineup, etc. )
• Is the token allocation reasonable, etc.

It is worth noting that this type of game often requires an initial increase in token price to attract users, and improper token distribution design may lead to excessive selling pressure.

In terms of risk, games at this stage are prone to collapse due to issues such as a slowdown in new user acquisition, loopholes in the mechanism, sudden rule changes by the project party, or market corrections. Most games have very small circulating supply for market cap management, making the currency price susceptible to severe fluctuations. Even Axie Infinity finds it difficult to determine the impact of a bear market on its ecosystem.

But the good news is that GameFi still has a place in the bear market. In a bear market, funds are tight, and earning money by playing games is a good way to pass the time. GameFi projects launched during the bear market still have huge potential, but funding will shift towards iterative projects that can solve the Play-to-Earn issues.

Phase 2: GameFi 2.0 - Solving the Single Game Economy Issue

This stage requires higher standards for the basic quality of games and token economics. Low-quality Play-to-earn games will become niche speculative tools. We are more focused on Pay to Play projects that can solve single in-game economic mechanisms and possess social attributes.

Even Axie Infinity faces issues such as slowing new user growth, an oversupply of NFT assets, and declining revenues. Mechanisms that avoid the token value circulating solely within a single game will be high-quality targets in this stage.

One solution is to establish an economic ecosystem that supports multiple games interconnectivity, such as Mobox quickly releasing multiple games through a strong development team, with a token economy running through various games on the platform. Sandbox, on the other hand, expects UGC content to continuously generate value by allowing users to purchase land and providing development tools.

Another option is to invest in game incubation platforms. Game interoperability may become an important narrative in the next stage, as the same incubator can ensure quality and mechanism, leading to lower collaboration costs in the future.

Encouraging users to be willing to Pay to Play is also a thought. In addition to the funds brought by new users, the "spending" of existing users within the game can also alleviate the economic difficulties. Such games becoming DAO would be even more valuable.

We pay extra attention to the social attributes of the game and its crypto native features:

• Can users communicate and make friends with each other?
• Can it reflect social status and satisfy the desire to show off?
• Can it connect to user identity and extend to other applications
• Can it extend to real social media?

However, whether it is developing innovative platforms or high-quality social games, a single team may lack resources. We expect that capable medium to large developers will make efforts at this stage. However, for super high-valuation games that require several years of development, we currently maintain a cautious attitude.

Other Points of Interest

1. Game and Guild Tools

Investing in gaming and guild tools is a relatively safe choice. You can focus on tools that solve problems for players, guilds, and project parties, such as game data display, item rental, Guild to Guild lending, DAO solutions, etc.

We expect that NFTs and GameFi will deeply integrate, requiring more focus on financial extension scenarios to enhance the liquidity of game assets and funds.

2. Unify game data standards/physics engine

The best solution is to treat each game as a part of a super-large economic system. The NFT and gaming data standards, along with corresponding physics engines that ensure consistent physical responses in adopted games, are the underlying projects that will carry the value of GameFi in the next phase.

Phase Three: Attempts at the Metaverse

This stage is an attempt for humanity to move into the virtual economic life, with GameFi serving as a guiding tool. Whether users can provide productivity in the virtual world in exchange for funds, consume or conduct financial activities in interoperable applications, and even interact with their real selves, is our ultimate vision for GameFi.

Conclusion

Overall, profit-oriented games are essentially a way to distribute project tokens. For most non-crypto native users, this is a more friendly and familiar method of acquiring project tokens. Gamification can enhance project attention and participation, and even stimulate positive behaviors such as user voting.

As long as the project has a demand for token distribution and marketing, profit-oriented GameFi is likely to continue to exist. However, whether the distributed tokens are used as short-term incentives or to encourage long-term positive behavior is a question that both the project parties and users need to consider.

Currently, GameFi and NFTs share the role of attracting users from outside the circle. Although it is at the peak of 1.0, the key for investors is to focus on the long-term development of the ecosystem and look for truly valuable innovations and teams.