Three Stages of GameFi Development and Investment Layout

The current GameFi market is in a heated phase, with the overall project value and token prices supported by irrational funds and new users. Once the market enters a correction period, the prices of tokens and in-game assets will decline, and the entire gaming economy will face severe challenges. Users and funds are likely to shift to other sectors, and the current prosperous situation will inevitably face a significant adjustment.

As a primary market investor, even amidst the GameFi craze, it is necessary to make calm judgments about the subsequent development trends and prepare for investment layout 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 focuses on making money, while gameplay and refinement are more like bonus elements that assist the narrative of the project. A complete project should have the following characteristics:

• Can bring benefits to users within a certain period of time
• Mechanism design allows early users to profit
• Can continuously attract new users to join and invest funds
• An economic model that supports the operation of the game for at least a few months.

Even if the game graphics or gameplay differ from traditional games, it does not affect the core selling point of GameFi at this stage.

As a primary investor, we pay more attention to:

1. Does the team have a long-term operational mindset?
2. Can the project attract new users to invest incremental funds?
3. Can it attract existing crypto users to transfer their existing funds from other projects?

For the second point, we focus on the design of the project's Earn mechanism, including:

• Can the inflow of new users accumulate the value of project tokens and enhance the value of in-game assets?
• Break-even period
• Potential causes of mechanism failure
• Is there an appealing additional narrative ( such as beautiful graphics / strong investment lineup, etc. )
• Token allocation, whether there was excessive selling pressure in the early stage.

Games at this stage often require some degree of pump in the early stages to attract users. If the token distribution and lock-up period are not designed properly, it may lead to excessive selling pressure, making it difficult to attract secondary market users' attention through the coin price.

Risk Warning: During this stage, games are prone to issues such as a slowdown in new user growth, design flaws leading to collapse, sudden changes in mechanisms by project parties, or market corrections, which can trigger drastic adjustments in token prices. Most games have very small circulating supplies for market value management, making them susceptible to massive price fluctuations in a short period, even leading to a complete loss overnight. Even Axie Infinity cannot determine the impact of the bear market on its existing ecosystem and economic system.

Phase 2: GameFi 2.0 - Solve the single game economy problem

This stage raises higher requirements for the basic quality of games and the design of token economics. Low-quality Play-to-earn games may become short-term speculative tools for a small number of high-risk enthusiasts. We will focus more on projects that can solve single in-game economic mechanism issues and pay-to-play games with social attributes.

Even Axie Infinity may face challenges such as slowing new user growth, oversupply of NFT assets, and overall revenue decline. Mechanisms that prevent token value from circulating solely within a single game will become a hallmark of quality projects in this stage.

One solution is to establish an economic ecosystem that supports multiple games interconnection. For example, a certain platform quickly launches multiple games on its own platform through a strong development team, attracting developers to use the platform tools for development by leveraging traffic and platform funds, with a token economic system running through all the games on the platform rather than being limited to a single game.

Another approach is to invest in game incubation platforms. One of the potential narratives for the next phase is game interoperability. In addition to ensuring quality and mechanics, the same incubator can also reduce collaboration friction costs in the future.

In addition, allowing users to feel that the game is the purpose and being willing to pay to play is also an important direction. Besides the funds brought by new users, the "consumption" of existing users in the game can also alleviate the current economic difficulties of the game. Only games of this type have the value of transitioning to DAO; otherwise, DAO remains a short-term means to attract users to stake platform tokens to solve sell pressure.

We will also pay extra attention to whether the game has social attributes and whether it is crypto-native. For example:

• Can communicate and befriend other crypto users
• Can it reflect social status and assets, satisfy the desire to show off, and connect NFT assets?
• Can it connect to user identity and extend to other GameFi or DeFi applications
• Can it be extended to users' real social media?

Games with these features are highly valuable investment targets.

However, whether it is developing an innovative mechanism platform or high-quality social games, a single development team may lack sufficient resources. We anticipate that capable medium to large developers will start to make moves at this stage. However, for highly valued games that require several years of development before going live, we currently maintain a cautious attitude.

The reason lies in the fact that the development iterations of GameFi are still unclear, and there may be significant changes every six months in terms of gameplay/mechanism/token models/expandability. A single economic system game that goes live after a few years carries a higher risk. In addition, the majority of project token prices are already overvalued at the time of launch, so it is not too late to invest in similar projects when the logic is clearer.

The advantage of such projects lies in the fact that they usually have the most well-known investors in the industry, enabling them to perceive market changes more quickly, and to launch games at the most suitable time while adjusting economic models to align with current market trends. At the same time, the projects can generally ensure a certain level of delivery without running away.

Phase Three: Attempts in the Metaverse

This phase marks humanity's exploration into virtual economic life, with GameFi serving as the most comprehensible metaverse application and becoming its traffic tool. Whether users can provide productivity in the virtual world in exchange for funds, consume or engage in financial activities across different but interconnected applications, and even interact with their real-life selves, is our current ultimate imagination of GameFi.

Of course, the metaverse has been overly rendered and fantasized, and it is currently unclear what its final form will be and how long it will take to build. The construction of the metaverse infrastructure still has a long way to go, so investment considerations at this stage will not be elaborated here.

Conclusion

In summary, games focused on making money are essentially a way to distribute project tokens. For those who are unwilling to spend too much time researching DeFi or most non-crypto native users, this is a friendlier and more familiar way to acquire project tokens. Whether in DeFi or other sectors, gamification can enhance attention and participation in projects and even stimulate positive behaviors such as user voting. In the future, there may even be mining services that gamify the original distribution mechanism.

As long as a project has the distribution of tokens and marketing needs, profit-oriented GameFi is likely to continue to exist. However, whether the distributed tokens serve as a short-term incentive to boost the token price or encourage long-term positive behavior is a question that project parties and users need to consider before participating.

Currently, GameFi and NFTs jointly play the role of attracting users from outside the sphere. We are at the peak of GameFi 1.0, but for investors, the most important thing is to focus on the long-term development of the ecosystem and to find truly valuable innovations and teams.