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 games have gradually quieted down. So, how will the narrative of the next bull market evolve? Is the future development of blockchain games just about creating 3A-level games and issuing tokens and NFTs? In this article, the author proposes a perspective that the next bull market may 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 winter, we can get a clear context. In the bull markets before 2018, the mainstream narrative of cryptocurrencies was "payment." The existence of public chains was for "issuing coins," and the purpose of "issuing coins" was for "payment." The first generation of POW-based public chains generally did not have smart contracts, so the situation of one coin per public chain became the mainstream in the market. Ethereum, which appeared in 2016, introduced the concept of smart contracts for the first time, becoming a groundbreaking progress and a symbol of the second generation of blockchain. However, due to market inertia, the use of smart contracts in the industry was limited to "issuing coins," that is, "automated ICOs" or "decentralized investments." 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 certain public chain. However, this centralized approach is particularly prone to various fraudulent activities, such as the financing party running away with BTC immediately. 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." At this time, "coin" becomes "token." Investors no longer have to worry about not receiving the coins after giving out the investment funds because they only need to send ETH to the "ICO contract" and they can receive the "tokens" in a few minutes. I still remember the situation when I participated in the public sale of "EtherDelta" for the first time: I opened my wallet and sent 10 ETH to the EtherDelta ICO contract address, received EDT after 1 minute, and then EDT went to zero. Although scams still exist, the investment method has been greatly upgraded. I call it a change from "Centralized Investment" to "Decentralized Investment," or DeInvest for short.
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 and forgets that it used to be a famous "payment processor." Then came the big drop in cryptocurrency prices, with many token prices falling 90% and then another 90%. But in this winter, the seed of DeFi was also incubating. Uniswap, Maker Protocol, and Compound were the first explorers to stand out in 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 as one of the first on-chain automated market maker protocols on Ethereum in November 2018. 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 continuation of "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 used to establish basic financial rules to achieve financial decentralization. This gave rise to the well-known "Decentralized Finance," or DeFi for short.
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 scenario of tokens is the mapping of rights, with equity being the most common, further divided into governance rights and dividend rights. Dividend rights are the typical application of platform tokens (repurchase and burn), and governance rights are the typical application of DAOs (voting). Other rights also include gas fees, transaction intermediaries, fee deductions, and more. A more advanced combination is smart contracts, whose application scenario is to compile specific financial rules into code and write them into the blockchain system. So, we summarize as follows: the combination of blockchain and finance can be seen as the combination of two aspects, homogeneous tokens and smart contracts. Tokens are used to map certain rights, and 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 history of DeFi to think about the future of blockchain games. Suppose the combination of blockchain and the gaming industry can also be summarized into two aspects: tokens and smart contracts. However, it is important to note the variation of tokens here. The tokens here not only involve 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 currencies and promissory notes used in finance are homogeneous, while the props and characters in games are non-fungible.
The reason why the initial year is set in 2017 is the birth of CryptoKitties. The game props of CryptoKitties used NFTs, and the game 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. Other so-called blockchain games during the same period simply treated games as "issuing coins" props, 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 props were made into NFTs. Two tokens were issued to achieve governance and rewards. It is worth noting that Axie added a battle system on the basis of CryptoKitties' breeding system, 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, and game props used NFTs, while tokens represented game 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 wrapped in a game.
2022-2023:
With the arrival of the crypto winter in 2022, almost all GameFi projects entered a downturn. So, where will blockchain games develop in the future? Many people believe that existing blockchain games are of poor quality compared to traditional games. Is the future improvement in playability to create high-quality AAA games? However, these centralized games are still GameFi. The current narrative of blockchain games is that the adoption of NFTs can lead to the privatization of game props. For current centralized games, this is a complete deception. When the game servers are shut down, the game NFTs naturally become worthless. This privatization is meaningless. Before investing in GameFi projects, it is important to consider the following questions:
- The cryptocurrency community is already a minority, and the number of people who love playing games within this community is even smaller. High-quality games need to expand beyond this community to increase the player base.
- The act of issuing tokens is similar to an individual game's financing and listing, and often the project team runs away before the game is developed.
- If the issued tokens are similar to equity/dividend tokens, but the project adopts an X to earn model and has zero external cash flow, 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 props into NFTs and are not suitable for issuing in-game tokens.
DeGame: Protocolization and Decentralization of Games#
So, what is the future direction of blockchain games and even the mainstream narrative of the next bull market? I believe it is DeGame (Decentralized Game): game rules written into smart contracts, game props using NFTs, and governance tools using NFTs or tokens. The token can be a single coin 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 true automation, decentralization, and privacy in gaming, making it easier to create a fully open metaverse. On the other hand, it can achieve composability in game rules (not just the composability of game props). In traditional game development, many common game features can be reused without reinventing the wheel, thanks to the concept of "game engines." Similarly, due to the composability of smart contracts, Web3 games can also achieve similar "on-chain game engines." In DeFi, we can see many projects named XX Protocol. Similarly, if game rules are written into smart contracts, due to their open-source and automated nature, full-chain games will become a new "game protocol," and other teams can develop customized games based on this 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 full-chain games? My conclusion is:
- Games with relatively simple rules
- Games that do not require real-time feedback
- Games with social factors
- Games with a gambling element
- 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, simulations, adventures, 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 complement DeGame. Similar to the relationship between CeFi and DeFi, the crypto industry has both giant centralized exchanges (CEX) like Binance and decentralized exchanges (DEX) like Uniswap and dYdX. In the future, blockchain games 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 infancy, 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, gambling 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 demonstrated at the recent Devcon in Bogota, achieved customized development of game functions or components by the community within a short two-week demonstration period. In future full-chain games, plugins or code contributed by players or the community may become increasingly important components, and their importance may even surpass that of official teams.
If DeGame can truly lead the next bull market and has sufficient uniqueness and advantages in its narrative to lead a broader range of upstream and downstream industries, such as guilds, high-performance public chains, privacy computing, VCPE, NFTs, DeFi, metaverses, and SocialFi, and form a wide range of money-making effects, these are two indispensable factors for forming a bull market.