Decline In Gaming Activity On Ethereum: Minor Blip or Game Over?

Gaming activity has plunged more than 96% on Ethereum. In this article, we take a closer look at the state of GameFi on Ethereum and discuss whether this decline is merely a minor blip, or whether it poses serious concerns for the future of GameFi.

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@enter.artPUBLISHED 10TH NOVEMBER 2022

Over the past year, the crypto landscape has been particularly interesting — especially for GameFi. While the crypto markets continue to middle in a hard-biting bear market, several other subsets of the markets have taken hits. NFT floor prices have plunged, the crypto markets are wreaking havoc on many DeFi protocols, and GameFi has taken a beating too, with GameFi activity decreased by over 96% on Ethereum. This decline in GameFi activity creates a backdrop for this article to discuss the ever-raging question among critics and believers alike: Is the decline in GameFi activity a minor blip in what’s going to be a long ride? Or does the 96% drop in DeFi activity carry longevity concerns for the industry? 

Establishing The Hard Facts 

According to a weekly report published by Arcane Research at the end of Q3 2022, Q1 and Q2 of 2022 have served as a reality check, after what was a very prosperous last quarter for GameFi last year. Data from the report showed that active players of the most played Ethereum-based games on platforms such as Decentraland, The Sandbox, Axie Infinity, and many more, have declined by more than 90% from the peaks achieved in November 2021.  

The current situation of GameFi is perfectly accentuated by looking at where a pioneer GameFi project, Axie Infinity, is at today. The project pioneered the Play to Earn model in GameFi, leading to a sub-sector wide boom in blockchain gaming. Users were enthusiastic about playing to have fun, to win, and — most importantly — to earn. Axie Infinity is by no means a failure, but its in-game token, Smooth Love Potion, trades at $0.0033 per token according to CoinMarketCap, from an all-time high of $0.346 — an over 98% drop. 

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Smooth Love Potion’s value declined massively over the past few months. (Credit: SLP/USD, TradingView)

Important Takeaways…

The research published by Arcane came to a number of important conclusions. First, the slow momentum in NFTs and web3 has contributed to this decline in numbers. However, a key factor in the decline has also been the drastic reduction in rewards for players. This raises a point on the sustainability of GameFi projects: Do the numbers go when the money goes? Thus far, the answer is looking positive for the long-term survival of GameFi. 

Another conclusion from the Arcane study is that there are three pillars that the market needs to pay attention to. They are: Incentives, token inflation, and barrier (or cost) of entry. For GameFi, increased adoption would mean that projects have to address the issues that have come up thus far.  

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Arcane’s findings presented. (Credit: Bitcoinist.com)

Away From Ethereum’s GameFi Activity

Zooming out from Ethereum, there is enough evidence across GameFi to suggest that the outlook remains positive. According to a report by Footprint Analytics, a data analytics platform and De Game, a web3 game platform, there are three key points that show that GameFi is only experiencing a blip in fortune within a wider market crash. Let’s take a look at them. 

#1. GameFi Token Liquidity Remains High 

According to the report, in Q1 2022, between 20% and 30% of tokens listed on CEXs were GameFi tokens. The report also showed that the trading volume on these tokens were extremely high. In fact, trading on GameFi tokens occupied a major part of the total market share. 

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Within these numbers, STEPN was the project that saw the highest daily trading volume. The report, captured in the image above, shows that its governance token, GMT, posted an average trading volume of over $110 million per day. Games from Decentraland, The Sandbox, and Gala Games followed closely.

It is important to note that although the market conditions in Q1 2022 have worsened considerably in Q2 and Q3, these numbers suggest that the future for GameFi is bright. 

#2. GameFi Users Across Board Stay Playing 

Although the activity on Ethereum has declined significantly, the number of users, according to the report, remained stable from Q4 2021 at around 1.2 million users. This could be a telling sign that Ethereum dominance may be coming to an end. What it also does tell us for certain is that the gamers are going nowhere. The market capitalization of GameFi tokens decreased by 15% from Q4 2021, but this could be as a result of the harsh market conditions. By the end of Q4, this decline is expected to be more significant, but the number of gamers still around is a good omen. 

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Funding Trends in GameFi (Credit: DeGame & Footprint Analytics)

#3. There Is Room Across Board For More Projects 

With the exception of BNBchain and Ethereum, both of which saw fairly even distribution of projects, most blockchains continue to be dominated by single successful projects. On WAX, 100% of users play Alien Worlds; for Ronin, the story is similar with Axie. On Hive, Spinterlands take up 99.9% of users while Upland accounted for 94.1% of the gamers on EOS. 

Without doubt, the GameFi market is far from saturated, and if builders can build projects that offer real utility, there is room for many more projects to thrive. 

GameFi’s Triple-A problem 

Do these numbers and insights mean that blockchain games are inherently bad? Absolutely not. They just can’t compete with the mainstream gaming industry’s capacity to capture and keep the attention of most gamers. At least, not yet.

Gamers looking to have a good time just want one thing: an excellent gaming experience— except in GameFi, where many may be seeking to earn a quick buck. So where do the gamers who play for the experience go to look for new games? On online gaming marketplaces for the platform of their choice.

Sony, Microsoft, and Nintendo — the three biggest players in mainstream console gaming — have in-house marketplaces. On the other hand, PC gamers have options like the Epic Games Store or Steam. But what all these digital stores have in common is that the games they feature on their pages are big-budget triple-A game experiences built by some of the most talented and experienced developers in the industry. And of course, because of the quality of the games, the in-game economy and the gameplay, gamers just can’t get enough of them.

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Source: NPD

That is not just a blanket assessment of what gamers want. NPD’s report on the best-selling games of 2022 so far suggests that these types of games sell, and they sell really well at that. A lot of this comes down to trust in the quality of the games. Namely, trust that games shipped by big publishers will work, will come with a certain degree of quality and polish, and of course, will be fun. 

So how does GameFi usurp the mainstream gaming space? Blockchain game developers have to make triple-A games to appeal to mainstream gaming audiences. Funding certainly won’t be an issue for web3 game makers, as in web3 — specifically, the NFT space — projects regularly raise millions of dollars in funding, with some initiatives even rising into the eight-figure ballpark. The thing is, as events in the last year have shown, you need a lot more than just cash to make a good game. You need to know how to make one, and that means best-in-class creativity, talent, and skill.

But most of all, you also have to want to make a good game, full stop. Sadly, many blockchain game developers hoping to launch the next big web3 game don’t. Essentially, there are now hundreds of billions of dollars to be made, and all this money is up for grabs. This is discouraging the actual gamers from coming in and building games and instead attracting people who see the dollar signs. 

What We Can See From This Market And Audience 

There are limitless opportunities in the gaming industry for projects to optimize at scale. However, negative behaviors such as shilling and rugpulls are turning gamers away from NFTs. Amidst the harsh market conditions, research by NRG eSports shows that a lot of gamers believe in Play to Earn and the potential it poses to take gaming to the next level. 

Regardless of how gaming developers may feel about Play to Earn, it is evident that the market is ever-present. If there is a market demand, there will be enough developers to supply Play to Earn games. However, with the markets experiencing a meltdown, there is very little appetite across the board for gaming as gamers and builders alike are sheltering against crypto winter. 

Conclusion

There is every reason to believe that some “to-earn” models will not survive — especially in the short term. However, there are several indicators that suggest that GameFi and Play to Earn is just getting started. Today, the in-game rewards offered by many games has fueled participation across the board. Usage has been linked to the (extent of) financial rewards that are possible and, as we have seen, harsh market conditions are bound to affect individual and market-wide appetites towards blockchain-based gaming. In the future, however, much of what we will see with GameFi and Play to Earn remains undiscovered today. We will likely find more use cases, real utility, and GameFi will be ready to launch a new world of possibilities.




This article is written by Chidera Anushiem as a part of enter.blog's bounty program. Do you have an interesting topic, series or subject you think would be fitting for enter.blog? 

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