1. GameFi’s development in the past year
In 2020, DeFi flourished on Ethereum, and protocols such as Uni, AAVE, and Compound established a complete financial system for the decentralized world. In 2021, the on-chain infrastructure has been highly stacked, and GameFi was born at the right time. The outbreak of Axie Inifinity made the decentralized world crazy again, and "Play to Earn" drove the enthusiasm of Southeast Asian users for blockchain games. The project party obtained funds by selling NFTs to attract users to join the game, and then attracted more users to join the market by adjusting the payback cycle. At the beginning of 2022, StepN pushed this model to the peak of this round of bull market, and behind this carnival, GameFi's Ponzi logic has not changed: the prosperity of the ecosystem needs to rely on the incremental funds provided by subsequent users. After the market style went bearish, due to the decrease in the number of people entering the industry, the game could not maintain high returns for a long time, and players gradually left the market. Although subsequent developers hope to attract users from the perspective of playability, in fact, protocols that lack investment returns cannot achieve relatively ideal results.
The GameFi wave has passed, and what follows is the narrative-based NFT market. This article will take a longer-term perspective, and we will discuss the GameFi 2.0 that the market expects, and which public chains have the best ecological niche. We will summarize the public chain ecosystem and the main line of future development. The topics we will discuss are:
What will GamFi players need, and what are the potential possibilities of GameFi 2.0 in the future?
The public chain ecosystem and how to match GameFi's needs
Which public chains occupy a better ecological niche?
2. What changes will GameFi 2.0 bring?
What changes will GameFi 2.0 bring that users are looking forward to? After reviewing this wave of GameFi, we believe that players' potential demands for "GameFi 2.0" are as follows:
Market liquidity: What is the most important condition for the rise of GameFi 2.0? My answer is: loose liquidity. As a highly stacked protocol, blockchain games need the support of market liquidity. As a practitioner, what Bittracy sees is that the secondary transactions of blockchain game tokens are shrinking, players cannot get enough economic incentives in the game, project parties have lost the motivation to continue operations, and investment institutions cannot exit. When the market lacks liquidity support, it is difficult for GameFi to gain user support.
Fresh experience: It cannot be denied that there is a lot of room for improvement in the playability of current chain games, but in the second half of 2021, high-quality games did not successfully attract players and take over the market. Instead, StepN, which cuts into the fitness scene, shines in 2022. Bittracy is not very optimistic that top 3A chain games will become the navigator of GameFi 2.0. First of all, players are unlikely to accept overly heavy protocols, so 3A games cannot be easily grafted into Web3.0 with mobile games as terminals. In addition, if developers compete around the quality of the game, it is tantamount to "using one's own shortcomings to attack the other's strengths", and it is difficult for chain games to compete with Web2.0 games in terms of game quality. We can see that StepN is not much behind Keep in terms of functionality, but this does not affect its success. Cutting into the scene in the right way through the appropriate economic model to bring fresh experience and economic incentives to Web 3.0 users, such protocol innovation is what we expect.
Meaningful title confirmation assets: When game assets become NFTs, with the help of technology, users can confirm the title of game characters. However, technical title confirmation and economic title confirmation are two different things. The premise that economic title confirmation has practical significance is that the assets have long-term value. When the game development is in trouble, game assets often lose their utility and cannot have lasting value, and title confirmation becomes meaningless. At present, GameFi cannot form an NFT asset that does not rely on Tokenomics incentive subsidies. The community cannot hold and recognize the value of game assets for entertainment/reputation/collection reasons. Therefore, there is still a lot of room for improvement in the current token economic model and game mode. The sustainable development of GameFi should establish a flywheel cycle of token rewards and economic construction to achieve value recognition beyond economic incentives. It would be great if the value created by users in the game could be gradually accumulated into the economic system!
Community governance discourse power: The community should transform the local optimum under the multi-party game into the global optimum. At present, the project party is the absolute leader in the development of the game, and it is difficult for players to participate in the governance of the game through DAO. In the operation of the game, in order to maximize their interests, players sell NFTs and tokens to cash out and leave. In an environment where the governance mechanism is unbalanced, it is common for players and project parties to kill the goose that lays the golden eggs. Adjusting reward parameters and script gold farming to meet short-term profits harm the long-term interests of the protocol. The community should give "healthy users" more discourse power and coordinate the governance rights of users and project parties. The healthy governance model is: Build for Valuation, rather than Valuation Extraction. Under a sound governance mechanism, users can have corresponding discourse power in governance, all parties in the community will strive for the global optimum, and GameFi will develop more healthily.
3. Development of mainstream public chains
After this round of market, investors have realized the value of GameFi. It is certain that GameFi will continue to create value as an important part of the market. As the core carrier of decentralized applications, the public chain is the Beta for seizing investment opportunities. The focus of this section is to compare the development of various public chains and think about which public chain GameFi 2.0 is most likely to occur on, which will also be our focus in the future.
ETH: A metropolis for innovators
As the birthplace of GameFi, Ethereum has the richest ecosystem, the largest development community, and gathers 60% of the market's funds and 80% of the users. These are the reasons why I ranked it first. To some extent, the decentralized nature of Ethereum will be difficult to replicate in the future. The biggest problem with Ethereum is network performance, and the high network usage fees have brought huge obstacles to user growth. However, as far as the current situation is concerned, Gas is already very cheap and will not bring serious cost burdens to interactions. In the project pitch, developers believe that Ethereum's Gas price is very user-friendly.
Ethereum has been working hard to improve performance: in the 2021 London upgrade, EIP-1559 increased the upper limit of Gas in a single block and increased the capacity of block processing. In September 2022, Ethereum completed Merge, and then Sharding will be implemented through Proto-Danksharding and Danksharding. It is worth mentioning that according to the Danksharding plan, the roles of information submitters and packagers in the network will be separated: the submitter will formulate the Crlist, and the packager will only be responsible for hashing the transactions in the Crlist, so as to solve the problem of MEV value distribution. In addition, Danksharding reduces the burden on verification nodes by establishing a data availability sampling (DAS) mechanism, which will greatly reduce the verification fee of Layer 2.
From the perspective of practitioners, Ethereum is not only the most comprehensive public chain, but also an active innovator. If the Ethereum Foundation can unite users and developers, it will still be the most innovative public chain. MakerDao, Compound, Uniswap, Punks, ENS. These ecosystems built on Ethereum are already dazzling enough, and there is no reason for users and developers not to continue to follow. Where will GameFi 2.0 happen? If I were to answer this question now, it would be Ethereum. According to Vitalik's outlook, Ethereum will focus on Rollup and fully support the development of Layer 2.
BSC: A development zone in progress
In 2020, many exchanges hoped to replicate Ethereum's success in DeFi. BSC had many competitors at the same time, such as Heco, Okchain, etc., and Binance was at the forefront. Looking back at this round of bull market, BSC has hardly missed any application innovation, and its excellent network performance enables it to undertake the ecological spillover of EVM. With the efforts of Binance, BSC Chain successfully established an independent DeFi ecosystem, and launched StarSharks, MOBOX, and Tiny World immediately after Axie Inifity. After the rise of "Move to Earn", Binance successfully persuaded the StepN team to deploy this hottest protocol at the time to BSC. The core competitiveness of BSC lies not only in the financial support of the backers, but also in the blood transfusion of the public chain ecology by investment teams such as Binance Venture and Binance Labs. The keen market judgment and efficient execution have promoted the rapid growth of the network's TVL, Dapps, and users.
Looking ahead, BSC has strong competitive advantages in terms of funding, ecology, and users. In addition, BNB has been fully unlocked, and most of it is held by Binance, which means that BNB will not face severe selling pressure during the bear market. The value center of the public chain is stable, and although it is somewhat centralized, the developer community does not have to worry about insufficient incentives.
Solana: an old town plagued by illness
Solana is the best performing public chain in the Layer 1 wave in 2021. Before the outbreak of GameFi, Solana had already established a rich infrastructure to support the gaming ecosystem. From a performance perspective, Solana decouples time and state through POH, thereby increasing the network's block speed. In addition, Solana's capital team provides a lot of support to developers in ecosystem construction. Referring to the number of code libraries on Github, Solana is second only to Ethereum.
In the past year, Solana has experienced several very serious downtime incidents, and the network has been unable to produce blocks for several hours. Since Solana adopts the Tower BFT structure, consensus needs to be finally reached through the Leader node. When large-scale transactions are sent on the chain, the computing power of the Leader node reaches a bottleneck, which may cause network congestion. In certain specific cases (hot NFT auctions), users will use BOT to continuously submit information to increase the probability of being selected. The Leader node needs to process a huge amount of verification information, which may cause network downtime.
Bittracy is not optimistic about Solana's continued prosperity for three reasons: First, the emergence of Aptos and Sui will split Solana's developer community. For security reasons, developers are likely to abandon Solana and choose Aptos, which will weaken Solana's developer community and affect the innovation ability of the ecosystem. Secondly, Solana's success is inseparable from the support of investment institutions such as FTX and Multicoin. After the launch of Aptos, the investor's support for Solana's resources will be affected. The reason is simple. Since parents have chosen to have a second child, the care and attention that the eldest child will receive will inevitably be reduced. Finally, Solana has not been able to solve its own network congestion problem so far, and many developers are disappointed with Solana's network environment.
Game public chains: Polygon, Flow, WAX, IMX, Robin
Polygon: It may be a bit inaccurate to put Polygon here. As the most successful Layer2 or Side Chain of Ethereum, Polygon's performance in GameFi is particularly dazzling. First of all, compatibility with EVM allows developers to easily migrate Ethereum's protocol without spending too much effort. Polygon is very good at taking over the overflow of the Ethereum ecosystem and coordinating with the head protocols to build infrastructure. Not only that, in order to better improve the public chain ecosystem, the development team established Polygon Studios to incubate the GameFi protocol. Referring to Footprint's statistics on the public chain GameFi Volume, Polygon is far higher than other competitors.
WAX: WAX was founded in 2017 and is one of the best performing old public chains in this round of market. The development team has many highlights in network performance, economic model, value cycle, and ecological construction. First of all, the blockchain structure of WAX is very similar to EOS, and its excellent performance is sufficient to support the high throughput required by games. Secondly, the value of WAX is supported by the NFT economic activities on the chain, which can not only improve the gaming experience, but also ensure that WAX holders benefit from the development of the ecosystem. More importantly, in order to enrich the on-chain ecology, WAX has established a cross-chain bridge to be compatible with Ethereum, and through WAXE, WAXG and WAXE-ETH, WAX and Ethereum are deeply bound. WAX Labs has successfully incubated games such as Famers World and Alien Worlds. However, as the market adjusted downward, the transaction volume of chain games shrank severely, and WAX also entered a low ebb in development.
Flow: Thanks to Dapper Labs' powerful resource capabilities, NBA Top Shot launched by Flow became popular in 2021, attracting a large number of users to join the community. However, during the rapid development of GameFi, Dapper Labs did not keep up with the pace, and the team did not empower Flow with its Web2.0 resources in time, causing the ecological construction to stagnate. Because it is not compatible with EVM, Flow is not so friendly to developers. It is more appropriate to describe Flow's performance in the past two years as high opening and low closing.
Ronin: After Axie Infinity set off the GameFi wave in 2021, Ethereum's network performance seriously hindered the development of games. The Axie Infinity team migrated the protocol to Ronin, and the network capacity increased significantly, resulting in a doubling of the number of users. As of now, Ronin is still the public game chain with the highest transaction volume. Although Axie Infinity is the biggest winner in this round of GameFi wave, Ronin is more like Axie's single chain. After the market fell into a low ebb, the performance of several games launched by Ronin was mediocre, and it was difficult to retain players. Most users chose to withdraw Ronin assets to the Ethereum mainnet through Bridge. Ronin did not demonstrate GameFi's innovation and incubation capabilities.
IMX: Immutable X is based on Ethereum's Layer 2. Relying on StarkWare's ZK-Rollup, IMX can expand network performance while ensuring security. Some of IMX's designs are very eye-catching. For example, users can mint/transction NFTs with zero handling fees, and the network uses Validium verifiers to achieve high throughput. Due to its strong investment lineup and excellent network performance, the project was highly expected by investors as soon as it went online. However, compared with WAX, which is also GameFi Chain, the later operation and development of IMX are not satisfactory. Until now, the top project ILV has not been launched. During the bear market, the number of transactions on the network has lagged far behind other public chains such as Poylgon and WAX. By the end of 2022, IMX will have a large number of financing round tokens released (equivalent to the current number of circulating tokens, equivalent to doubling the circulating disk). Although the founder claims that it will continue to lock up for 1 year, the institutional round tokens will still be released (accounting for 50% of the circulation). In an environment of high inflation pressure, it will become more difficult to unite the community, and IMX may have missed the best time for development. When an economy's development stagnates but its currency is expanding at an accelerated rate, the only result can be capital flight and a plummeting exchange rate.
4. Which public chains occupy a better ecological niche?
Where does the value of a public chain lie? From the perspective of the profit model, GAS & MEV are the main revenue of a public chain, that is, the fees that developers and users need to pay to the public chain to run programs. If this logic is true, then the higher the TPS of a public chain, the less revenue it will get, and the lower the value of its token will be, which is contrary to the actual situation. Therefore, we cannot simply measure the value of a public chain by GAS & MEV revenue.
From Bittracy's perspective, the value of a public chain lies in the ability of the network to create value, and tokens are more like non-inflationary currencies in the public chain economy. Specifically, the development of a public chain comes from the development of on-chain economic activities. When assets are created, the role of a public chain token is to take on the economic value created by developers. The value of Ethereum comes from the economic ecology of DeFi, NFT, and GameFi that it has built, and it is the value support for countless EVM Side Chains / Layer 2s. Countless NFT, DID, and Token assets are priced through ETH in the form of AMM. In other words, ETH is the monetary expression of digital assets created by Ethereum.
So how can public chains achieve value creation? Some public chains choose to attract users through excessive inflation to stimulate on-chain economic activities, but the abuse of coinage actually harms the interests of users and developers and is difficult to work in the long run. The path to value creation should be: public chains can promote the construction of network ecology through their own innovation capabilities, achieve value creation and economic activity growth. This can not only unite users and developers to form a community, but also achieve high-quality development of the network ecology. Therefore, Bittracy believes that public chains with clear development directions, excellent innovation capabilities, and low inflation may have a better chance of winning in GameFi 2.0.
V. Conclusion
AC Capital has achieved good results in the GameFi wave in 2021. We will continue to help those outstanding developers turn interesting ideas into reality. To do this, we need to find investment opportunities with higher winning rates. Public chains such as Aptos, Sui, and Cosmos are not included in the article. It is not because they are not good, but because these public chains do not have a mature DeFi ecosystem and community, and the connectivity and huge technical risks of some emerging public chains may lead to the lack of a suitable evaluation system for analysis, which is of course not applicable to our predictions for the future.
References
1.https://foresightnews.pro/article/detail/11194
2.https://mirror.xyz/hiweiwei.eth/b_BRjFAfaVuY7S1jm8FJTwwtq1KTd55LYQ-ZUQtj9-o
3. The mystery of Mint Venture’s public chain valuation
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