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GameFi is one of the most controversial areas in the blockchain industry. From grand promises of passive income in games to widespread disappointment and the collapse of some key projects — the path has not been easy.

In 2025, the segment entered a new phase: a rejection of speculative hype, an increase in the quality of platforms and gaming mechanics, as well as adaptation to the real needs of players and investors. This article presents an analysis of the evolution of GameFi, the key challenges, and the prospects for market development.

What happened

In 2020–2021, against the backdrop of the rise of decentralized finance (DeFi), a Play-to-Earn (P2E) model was added to the simplest gaming mechanics offered by projects like CryptoKitties. It allowed users to earn tokens for their activity, attracting millions of users, especially in countries with unstable economies.

At the peak of its popularity, the Axie Infinity project allowed players from the Philippines and Venezuela to earn an income above the average salary: they bought NFT pets, participated in battles, and received rewards in the form of Smooth Love Potion tokens (SLP).

Nevertheless, the P2E model proved to be economically unstable. After a sharp rise in 2021, Axie Infinity experienced a significant decline: the user base shrank by almost 90%, and tokens lost value.

As noted in the Nansen study for 2022, the model was built on the premise of a constant influx of new players — this made the system vulnerable. Mass profit-taking and fiat withdrawals intensified pressure on the SLP token, triggering a "death spiral." As a result, its value fell by approximately 86% over the year.

A similar situation occurred with The Sandbox — despite collaborations with well-known brands, the project could not retain users. According to Messari, as of March 1, 2025, the market capitalization of The Sandbox was $661.7 million ($1.3 billion in December 2024). The price of the SAND token dropped from $0.54 to $0.27, losing more than 50% in a quarter.

But the most telling case was Decentraland — despite its promoted status, the metaverse experienced a constant decline in activity: in October 2022, there were less than 1000 transactions per day in the system.

The architectural features of the first GameFi projects initially created a number of problems:

1. Speculative tokenomics. The main motivation for players and guilds has been quick earnings, leading to constant movement between projects in search of maximum profit. In such conditions, the value of tokens in many GameFi projects primarily rose due to the influx of new players, while the in-game economy did not rely on the actual use of assets, serving as fuel for short-term hype.
2. Weak gameplay. Developers rushed to release the product, often ignoring the main element — the quality of the gameplay. As a result, such projects quickly lost user engagement.
3. High entry threshold. Traditional onboarding in GameFi is a quest in itself. Difficulties with setting up crypto wallets, purchasing tokens, interacting with DeFi interfaces, and paying fees created significant barriers for newcomers. Games with a Pay-to-Win model, where the winner is the one who pays for the necessary assets in the form of expensive NFTs, lost their motivational value in the eyes of the audience.
4. Lack of AAA-level. In game development, "triple-A" refers to projects with large budgets, deep development, and quality on par with studios like Bethesda or Blizzard. In Web3, there is no full equivalent of AAA development: major publishers are not rushing to enter the experimental zone, and startups lack the resources for a complete production cycle. This hinders the integration of GameFi into the mainstream.

What happened

After the failure of the first generation of GameFi projects, a wave of criticism hit the market - both from traditional gamers and the crypto community. Many teams left, but some remained and began a complete restructuring of the segment's architecture. Projects started to rethink their approaches, including the following points in production.

Smart Tokenomics. The Play-to-Earn model, originally focused on profit, often contradicted the quality of gameplay. It is being replaced by the Play-and-Earn approach — where the emphasis is on the gaming experience, and income becomes a pleasant bonus. In successful projects like Pixels and Big Time, tokens serve a utilitarian function: they provide access to events, upgrades, and DAO voting. Rewards are limited, and the in-game economy is balanced.

Updated UX. To address the issue of high fees and slow transactions on Ethereum, GameFi projects are moving to L2 solutions: Arbitrum, ZKsync, Starknet. This significantly reduces the cost of operations and brings the user experience closer to the familiar Web2 level.

Over the past year, the total locked capital in Ethereum L2 solutions reached $33.45 billion. The largest platforms are Arbitrum One, Base, OP Mainnet. Data: L2BEAT. At the same time, onboarding is becoming easier: passwordless authorizations, account abstractions, and subscription models are emerging. The player no longer needs to understand the intricacies of blockchain — they just log in and play.

Delphi Digital analysts emphasize that layer two solutions play a key role in improving UX and reducing transaction costs. In the report The Complete Guide to Rollups, they detail the advantages of ZK-rollups and "optimistic" rollups — from scalability to cost minimization, which is critically important for gaming dapps.

Hybrid game design. Previously, it was enough to create a token to launch a project. Now the GameFi community competes with Web2 game development in terms of the depth of mechanics, user interface convenience, and level of engagement.

Many projects are returning to a proven monetization model: in-game purchases (skins, upgrades, characters) remain optional and do not affect the balance. This allows the implementation of Free-to-Play, where NFTs can be obtained through in-game achievements or drops without mandatory investments at the start.

This approach lowers the barriers for new users and creates a fair gaming environment. An example is Big Time, where NFTs are used solely for customization and do not provide any advantages in gameplay.

Rise of the UGC ecosystem. Games with user-generated content have become a key trend. Through DAO communities and built-in editors, players create their own maps, modes, and items that influence the development of the project and generate income.

Projects that are undergoing a large-scale restructuring of the GameFi architecture include:

• Axie Infinity.** After a massive hack, the team focused on launching the new Ronin 2.0 blockchain, updating the economy, and transitioning from an aggressive Play-to-Earn model to a Play-and-Earn model with an emphasis on gameplay and player retention;
• Decentraland.** Actively develops DAO governance and integration of user content, improves UX, and enhances engagement through events and economic incentives;
• Illuvium.** After the release of the beta version, the team focuses on balancing the tokenomics and expanding the gameplay, enhancing RPG mechanics and offering new ways to engage.

In 2025, it becomes clear: GameFi will not be able to, but will transform.

What's next: AI, AR/VR, and cross-chain gaming

On the horizon is an even deeper transformation. The integration of artificial intelligence allows for the creation of an adaptive gaming experience: dynamic NPCs, procedural narratives, and personalized scenarios. For example, developers use LLMs that learn and adapt to the player's actions.

The company NVIDIA is already testing autonomous game characters called ACE — they can engage in dialogues, adapt to player actions, and assist them in battles, as demonstrated in a showcase based on PUBG. The development of AR/VR and spatial computing is also accelerating: scientists are using reinforcement learning for dynamic procedural generation of narrative AR worlds.

Cross-chain gaming solves the problem of fragmentation: the Inter Blockchain Communication protocols (IBC) and Cross-Chain Interoperability Protocol (Chainlink CCIP) allow NFTs and other tokens to move freely between chains, which is critical for building multi-game ecosystems. All of this expands the potential of GameFi as a long-term ecosystem and enhances its appeal to new players and developers.

It can already be said that the GameFi industry has undergone a tough filtration: pragmatism has replaced the hype. Instead of racing for tokens, there is hypothesis testing and selection of working solutions.

Among the winners are L2 technologies and ZK-rollups, convenient onboarding tools, Play-and-Earn models, as well as UGC and DAO ecosystems. Attention has shifted to key metrics: daily activity (DAU), retention, TVL, and NFT trading volumes.

At the same time, the integration of AR and VR is developing - technologies that are gradually turning gaming worlds into more immersive and socially rich spaces.

In 2025, GameFi is no longer an experiment, but a forming niche with clear logic, where gaming mechanics and quality products are prioritized. Mass adoption is still ahead, but for this, the ecosystem has the necessary infrastructure and an established community.

Text: Ekaterina Kostenko