Analysis of the Three Stages of GameFi Development and Investment Layout

The current GameFi market is in a state of overheating, mainly supported by irrational funds and new users, which uphold project value and token prices. Once the market adjusts, token prices and the value of in-game assets will decline, and the overall game economy will face a huge test. Users and funds are likely to shift to other fields, and the current prosperous situation is bound to undergo a significant adjustment.

As a primary market investor, even in the current hot trend of GameFi, it is necessary to make calm judgments about future development trends and prepare investment layouts for the next wave.

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 points that aid in project narrative. A complete project that aligns with the current stage needs to meet the following conditions:

• Users can receive returns within a certain period.
• The mechanism design allows early users to make money.
• Can continuously attract new users to join and invest funds
• An economic model that supports at least a few months of game operation.

Even if the game’s graphics and gameplay are not outstanding, it does not affect the core selling point of GameFi at this stage.

For first-tier investors, the focus is more on whether the team has a long-term operational mindset. The best strategy is to look for projects with low valuations that are willing to invest long-term and have the capability to generate sufficient income during bull markets. This ensures that the project can continue to operate and constantly optimize its products and mechanisms during bear markets, increasing the chances of recalling lost users during downturns.

If the project mechanism design and product quality are good, and the marketing and promotion capabilities are strong, it will attract a large number of users looking to make money in the early stages. The project could potentially earn millions of dollars within a few months by selling role NFTs or blind boxes. Even if the game may not be online yet, first and second-tier investors can also achieve decent returns during this process.

Overall, at this stage we are more focused on the projects:

1. Can it attract new users to invest incremental funds from the real world?
2. Can it attract existing cryptocurrency users to transfer their funds from other projects?

For the first point, we focus on the project’s genetics. In terms of Southeast Asian GameFi, we pay more attention to whether the project has local promotion capabilities and marketing resources, including guilds and KOL resources.

Such projects have low demand for venture capital funding and are more inclined to allocate investment amounts to KOLs and communities in different regions. The ability to provide valuable suggestions for game mechanics and to offer effective marketing resources to the project has become the key for funds to participate.

The quality of GameFi projects in Southeast Asia varies greatly, with many projects facing issues in token design and private placement investment allocation. Such projects often go online quickly after financing and rapidly turn a profit, attracting retail investors with dozens of times the increase in market value management, and cashing out within a month.

It is difficult for primary and secondary investors to find well-known institutional endorsements in the investor list, as the investors in such projects are mostly local venture capital or community. This is also the reason why we have been deeply collaborating with Vietnam’s KardiaChain since the beginning of the year, jointly investing in and accelerating multiple projects, ensuring project quality and long-term operational attitude through strong local partners.

Regarding the second point, we focus on the design of the profit mechanism. Although this is the foundation of project construction, most projects have not done well. Currently, many GameFi projects are transformed from traditional game studios, and the token economy mostly references the white papers of existing projects. Considering these issues, when making investment decisions, attention needs to be paid to:

• Can the inflow of new users accumulate the value of project tokens and enhance the value of in-game assets?
• Investment Recovery Period
• Potential reasons for mechanism failure
• Are there any other attractive narratives ( such as ultra-high quality graphics / strong investment lineup or ecological support )
• Token distribution, will there be excessive sell pressure in the early stage?

Such games often need to rely on a certain degree of price increase in the early stage 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 the attention of secondary market users through the token price. ( However, an exaggerated short-term price increase in the secondary market is likely to be the result of releasing a small amount of circulating tokens, using small funds to manipulate the price increase to attract retail investors, and then quickly harvesting ).

Risk

At this stage, games are highly likely to experience drastic price adjustments to the current significant premium in situations such as slowing growth in new user numbers, design flaws leading to a collapse, sudden changes in mechanisms by project parties, or market pullbacks. Not to mention that most games have only a very small circulation for market cap management, which can easily lead to severe price fluctuations in the short term, even resulting in a total loss overnight. Even relatively mature projects cannot determine the impact of a bear market on their existing ecology and economic system.

When the bull market starts, games may encounter short-term failures in their economic systems and key parameters when the coin price declines. The user return cycle may be prolonged, and asset values may rapidly decrease, which can cause a huge blow to the project’s credibility. Many game users will leave in large numbers and it will be difficult to recall them. This is also why many games want users to continuously accumulate assets in the project, increasing the exit costs for users.

The good news is that GameFi will still have a place in the bear market. After all, in a bear market, funds are tight, the market situation is poor, and earning money by playing games is one of the best ways to pass the time and participate at a low cost. GameFi projects launched during a bear market still have huge potential; however, primary and secondary funds will begin to shift towards iterative projects and narratives that can solve the Play-to-Earn problem, and the industry will move toward the next theme.

Phase 2: GameFi 2.0 - Solving the Single Game Economy Problem

This stage has higher requirements for the basic quality of games and token economic design. Low-quality Play-to-earn GameFi will be like short-lived mining projects, becoming 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 problems and paid game projects with social attributes.

Even mature projects may encounter issues such as slowing new user growth, oversupply of NFT assets, and overall decline in revenue. Some projects perform well in various numerical designs, while the economic activity links and reward acquisition cycles are relatively long, requiring each user to invest a certain amount of time and resources to benefit in the long term. However, if the economic system has a long chain but only circulates within a single game, both internal and external factors can instantly impact the project’s success or failure.

Avoiding mechanisms where token value circulates only within a single game will be a quality investment target at this stage, with a better narrative.

The first idea for a solution is to establish an economic ecosystem that allows interoperability among multiple games. For example, some platforms quickly release multiple games on their own platform through a strong development team, attracting developers to use platform tools for development by leveraging traffic and platform funds. The economic system of tokens runs through various games on the platform and is not limited to a single game. Additionally, some projects expect users to create valuable content and applications to support token prices by purchasing virtual land and providing development tools.

Another approach is to invest in game incubation platforms. One of the potential narratives for the next phase is game interoperability. Besides ensuring quality and mechanics, the same incubator can have lower collaboration costs in the future. For example, several games that some incubation platforms are about to launch. This approach can alleviate the situation of economic system failure, trading time for space.

The reason for the existence of a single game economy problem is that most GameFi rely on the continuous influx of funds from new users outside the game ecosystem to provide profits for everyone. The game itself is merely a packaging and medium, not the true purpose, and does not offer real game value.

Therefore, another approach is to make users feel that the game is the purpose, and they are willing to pay to play. In addition to the funds brought in by new users, the “consumption” of existing users within the game can also solve the current economic dilemma of the game. Only such games have the value to transition to a DAO; otherwise, DAO would still be a short-term means to attract users to lock platform tokens to address selling pressure.

If we can attract users who are willing to spend in-game, developing high-quality games is also a viable path. However, there are already many top AAA games available on various platforms outside the cryptocurrency space, and users do not need to spend time understanding cryptocurrency mechanisms. Therefore, whether the game has social attributes and whether it is natively integrated with cryptocurrency will be aspects we pay extra attention to.

We will focus on the game:

• Can users communicate and make friends with other cryptocurrency users?
• Can it reflect social status and assets, satisfy the desire to show off, and connect NFT assets?
• Can it connect to user identities and extend to other GameFi or DeFi applications?
• Can it extend to users’ real social media?

Games that can reflect the value in these aspects are highly potential investment targets.

However, at this stage, whether it’s developing an innovative mechanism platform or high-quality games with social elements, a single development team may lack sufficient resources. We anticipate that capable medium to large-scale developers will begin to exert their strength at this stage. However, for ultra-high valuation game projects that require several years of development time before going live, we currently maintain a relatively cautious attitude.

The reason lies in the unclear development iteration of GameFi; there may be significant changes in gameplay/mechanics/token models/expandability every six months, making single economic system games that are launched years later quite risky. Furthermore, most project tokens have already been overdrawn at the time of launch, so it is not too late to invest in similar projects when the logic is clearer. After all, it is impossible for there to always be only one AAA GameFi blockbuster that can succeed in the market.

The advantage of such projects is that they will have the most well-known investors in the industry, allowing them to perceive market changes more quickly, enabling them to launch games at the most opportune moments and adjust their economic models to align with current market trends. At the same time, the project can generally ensure a certain level of delivery and will not run away; usually, the worst-case scenario would be a soft exit when the price of ( drops, handing it over to the foundation ).

Other points of interest

Game and Guild Tools

The development of GameFi requires time for iteration. If users are optimistic about the growth of GameFi in terms of users and funds, it is safer to invest in tools for games and guilds. This can be split into focusing on solving the current issues faced by various participants, including players, guilds, and project parties. For example, providing tools for users to display data and calculate the returns on game assets in their wallets, offering a platform for game item rental and inter-guild lending, and providing DAO solution projects for project parties.

We expect a deeper integration of NFTs and GameFi, requiring more projects focused on financial extension scenarios to enhance the liquidity of currently fragmented game assets and funds. For example, projects that provide NFT collateralized lending and NFT cross-chain solutions.

Unified Game Data Standards/Physics Engine

Pay-to-Earn and multiple platforms can alleviate the economic difficulties of a single game, but the best solution is to treat each game as a part of a super-large economic system, which is the so-called metaverse economic system.

For example, users may earn income in game A through creation, design, or writing, and then spend it in game B, which has high quality and gameplay. Just like in the real world, if assets and values can circulate between games at this time, it can solve the current problem of the Play-to-Earn economic chain being too short and singular.

Therefore, the NFT and game data standards, along with the corresponding physics engine, allow the games that adopt them to have consistent physical responses. These will be the underlying projects that can carry all the GameFi value in the next phase. Once these infrastructures are built, the third phase of the metaverse will become possible.

Phase Three: Attempts in the Metaverse

This stage marks humanity’s attempt to transition into a virtual economic life, with GameFi being the most easily understood application of the metaverse and serving as a tool for attracting users. Our current ultimate imagination of GameFi is 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-world selves.

Of course, the metaverse has been over-rendered and fantasized, and currently no one can.