• Kirsten Saliba
  • 17 March 2022
  • 5.2 mins

One of the most popular facets of cryptocurrency to emerge recently has been GameFi. But what exactly is it, what does it entail, and how will it be affected by inevitable regulations? We’re here to take a look and bring you up to date, with what’s happening with crypto’s latest development.

What is GameFi?

If you hadn’t guessed it from the portmanteau, GameFi is a combination of videogames and decentralised finance (DeFi). The technology used for this type of gaming is, of course, blockchain technology, which allows players to be the sole and verified owners of the virtual elements of the game.

Within traditional video games, the predominant model is “pay-to-win”, in which players must pay in order to gain an advantage to succeed, whether that be upgrades, buying a virtual object or even lives.

GameFi, on the other hand, introduces the “play-to-earn” (P2E) model, where players are the ones who make money as a result of their knowledge of the game and their time invested in it.

Blockchain-based games that allow their players to receive real-world financial benefits are a perfect convergence of gamification, DeFi, NFTs and P2E models.

It is important, at this point, to highlight that in a lot of examples of GameFi, users need more than just luck in order for them to win. The activities that generate rewards vary depending on the game, but generally, they will reward skills and require some kind of strategy.

The games can also range in sophistication – going from simple lottery-based games to fully-fledged Massively Multiplayer Online Role-Playing Games (MMORPGs).

The Gamification of DeFi

So, let’s look at the gamification of DeFi. In this case, DeFi applications (dapps), like decentralised exchanges (DEXs), use automated market makers (AMM) to incorporate gamification elements.

For example, Binance Smart Chain’s (BSC) Pancake Swap AMM is a lottery system that allows users to earn prizes every 12 hours. Users buy lottery tickets in paying $5 in CAKE cryptocurrency; each ticket receives a random combination and, if that combination matches the same numbers as the winning ticket, half of the lottery pool is paid out to the winner. If only some numbers match, the users are rewarded with part of the total pool corresponding to the number of matches.

Another early DeFi gamification example would be DinoSwap’s raffle system. A raffle ticket costs 10 DINO. Users can buy as many tickets as they wish to take part in the weekly raffles. Every fortnight two winners are randomly selected via Chainlink. 20% of the total proceeds are burned and the other 80% is distributed equally to the lucky winners.

How Does it Work?

As mentioned, the ways of generating a reward will change depending on the game involved. However, most GameFi projects share two similar characteristics:


These digital assets created using blockchain technology, are unique, indivisible and have an owner.

As in traditional games, users can own avatars, animals, houses, tools etc but these can all be represented in NFT form. From there users can spend their resources on improving digital assets and then exchange them for cryptocurrencies, allowing them to generate extra profit.


DeFi is an experimental form of finance that does not rely on central financial intermediaries, such as banks, and instead uses smart contracts on the blockchain.

In some GameFi projects, gambling is allowed, for example. Players can thus block some of their tokens in order to earn some interest.

Where Does Regulation Come In?

As game makers look at adding NFTs and other blockchain-based features to games, many hard-core gamers worry they are simply looking for yet another way to milk them for money. Then there are a number of things that could go wrong in GameFi, besides the usual worry for token values to plummet.

Regular people playing these games can lose out to bots – there are programs designed to play these games for profit that can post millions of transactions a day. Sunflower Farmers, a game in which players are rewarded for planting and harvesting digital crops, had to take its website down to fix a vulnerability bots exploited; its SFF token fell from $5.25 on Jan 2nd to 8 cents by Jan 13th, per currency tracker CoinMarketCap.

Bugs in code can mean losses too.

There’s also the possibility of a “rug pull”, where game developers could make away with players’ money. That’s what happened with a game based on the hit Netflix show Squid Game: its currency fell from $2,860 to near zero in one day as the game’s creators cleaned out over $3 million in funds.

At this point, regulators are still trying to catch up with earlier waves of crypto developments. They have already signalled that they have concerns about the “freewheeling” world of DeFi, and could release additional rules surrounding it as early as this year. It isn’t a stretch to think that games with DeFi-like features will have to abide by the same rules, and probably sooner rather than later if previous developments are anything to go by.

What is the Future for GameFi?

GameFi projects have been on the radar of gaming users and investors for months now. The growing popularity of the Metaverse concept and of cryptocurrencies will help to relaunch an industry already going from strength to strength and one that already carries considerable weight.

The best example you can use to understand what the future of GameFi may be is to look at the evolution of existing projects such as Axie Infinity. It was released at a price of €0.12 in March 2018 and today would cost approximately €125, a significant growth.

Another example is the MetaSoccer game, a game that consists of football competitions in a Metaverse, which secured over $2 million in its first round of funding before it had even been released, such was the prospect of its success.

North American Company Fold has announced a collaboration with Niantic (creators of Pokémon GO) to develop an AR game that will allow players to earn Bitcoin. Fold AR will be a kind of Pokémon GO that will award cryptocurrencies while playing.

The future looks bright for DeFi and, undoubtedly, we will see a lot more movement and development in that area of the industry in the coming years.

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