GameFi Vs. DeFi: Where Is More Potential For Investors

GameFi is surely among the most trending topics in the current crypto climate. The concept involves blockchain games that offer economic incentives for participants, otherwise known as play-to-earn games. GameFi took the crypto world by storm in 2021, and the meteoric rise of Axie Infinity is proof. 

Despite its promising performance, it is worth noting that GameFi is entirely related to gaming. On the other hand, decentralized finance (DeFi) encompasses a wider range of financial instruments that leverage the power of blockchain technology to eventually overtake traditional banks. 

While both DeFi and GameFi share many similarities, they offer very different investment opportunities. In this article, we will explain both of these concepts, what they entail, and which offers more potential for investors.

What Is Decentralized Finance (DeFi)?

DeFi is an umbrella term for a set of financial applications built atop blockchain technology that allow financial activities like lending, borrowing, trading, and swapping to be carried out in a decentralized, secured manner. The main goal of DeFi is to eliminate middlemen and thus create a more cost-effective, censorship-resistant environment.

A major use case of DeFi can be found in decentralized exchanges (DEXes) like Uniswap, where users can exchange and swap assets without reliance on centralized parties. While DEXes are currently used for swapping cryptocurrencies, they can grow to include the whole foreign exchange (forex) markets one day. 

Source: Freepik

How Does GameFi Work?

GameFi is a blanket term for gaming applications that offer economic incentives to players and are built on a blockchain. GameFi shares many similarities with DeFi, like being open, decentralized, trustless, and permissionless. However, one distinct difference is that GameFi is all about games, whereas DeFi includes almost all forms of financial applications. 

In general, GameFi consists of games that allow players to earn rewards in the form of crypto assets for playing games. In such games, NFTs, or non-fungible digital tokens, are used to represent in-game items like avatars, lands, costumes, weapons, and more. 

Players can acquire NFTs by completing tasks, engaging in online competition, passing certain game levels or difficulties, or simply purchasing them. Since NFTs are blockchain-based tokens like cryptocurrencies, they can be removed from games and exchanged for cash or other crypto assets on marketplaces like OpenSea.

Games like Decentraland and The Sandbox also make it possible to own plots of virtual land, enabling players to buy digital pieces of real estate. Players can make money off these virtual lands by developing them and then renting them to other players. 

Notably, each GameFi game implements its own economic model and has a different set of rewards or earning mechanisms. 

Where is the Line Between GameFi and DeFi?

While GameFi and DeFi can have distinct definitions, the line drawn between the two is not much clear. For instance, if a user purchases a plot of land in a gaming project through a decentralized platform and then starts leasing it via smart contracts again through a decentralized service, would that be GameFi or DeFi? 

Since the user purchases and lends an asset, it can be argued that it is DeFi. However, it also involves a game, which suggests it can also be considered GameFi.

Another issue that comes up when trying to draw a line between GameFi and DeFi is the measurement units. In DeFi, popularity can be measured using total value locked (TVL), while GameFi often examines popularity using the transaction volume. 

When comparing DeFi and GameFi in terms of TVL, it is easy to notice that DeFi takes the edge. By December 2021, the top five DeFi Dapps had a TVL of $130 billion, while the top 5 games only had $14 billion. However, since DeFi includes a wide range of financial products, this is not an entirely fair comparison.

In terms of transactions, again DeFi outperforms GameFi by a wide margin. This is not surprising given the structure of DeFi, which encompasses trades, swaps, exchanges, and more. However, one thing not counted in GameFi transactions is NFT sales, which have seen massive growth recently. 

 

Does GameFi Have More Potential Than DeFi for Investors?

Two characteristics—money and users—often dominate when contrasting two things and their potential. In terms of money, DeFi is the obvious winner, at least for now. But what about the future?

The annual revenue of retail banks is estimated at $2.3 trillion, which is what DeFi could achieve if it were to overtake traditional banks. On the other hand, GameFi has massive potential. A metaverse report by Grayscale predicts revenue of up to $1 trillion for the metaverse sector. This suggests that, eventually, GameFi might catch up to DeFi in terms of money.

Although DeFi has prevailed in the financial race, GameFi is certainly dominating in terms of users and popularity. According to a recent report from DappRadar, games currently make up 52.4% of all Dapp user activity while DeFi accounts for 34.74%.

Moreover, while DeFi activity has recently taken a plunge due to the global macro trends, GameFi activity doesn’t seem to be bothered much. That can be largely attributed to the main characteristic of GameFi: it is simply a way for users to enjoy games while enhancing their gameplay by ownership and play-to-earn potential.

Capitalization Comparison

As of now, GameFi’s market cap stands at $10.7 billion. In comparison, DeFi has around $45 billion in market cap. However, it is worth noting that DeFi had a market cap of more than $170 billion at its peak in late 2021. 

Top GameFi Coins by Market Capitalization

The majority of GameFi tokens have seen a significant appreciation in value since the start of 2021 when blockchain gaming started gaining traction. While some of these tokens have been hit hard during the recent market crash, GameFi tokens are still among the best performers of the recent bull market. 

Here are the top five GameFi coins in terms of market cap:

  1. Decentraland (MANA): MANA is an Ethereum token that powers the Decentraland Metaverse. The coin is the largest GameFi token with a market cap of around $1.7 billion.
  2. The Sandbox (SAND): SAND is the native cryptocurrency of The Sandbox, a popular Metaverse game built on the Ethereum network. The coin is the second-largest GameFi token with a market cap of over $1.6 billion.
  3. ApeCoin (APE): APE is an Ethereum token linked to the popular NFT collection Bored Ape Yacht Club. Despite being released just four months ago, the coin has a market cap of $1.5 billion.
  4. Axie Infinity (AXS): AXS is an Ethereum token that powers the popular blockchain game Axie Infinity. The coin currently has a market cap of $1.2 billion.
  5. STEPN (GMT): GMT is a Solana token that governs STEPN, a lifestyle app that implements the move-to-earn mechanism. The coin has a market cap of $577 million.

Top DeFi Coins by Market Capitalization 

Similar to GameFi tokens, DeFi coins also enjoyed a substantial increase in value during the latest bull cycle. However, these coins have been hit hard during the recent market crash. Here are the top five DeFi coins in terms of market capitalization:

  1. Dai (DAI): DAI is an algorithmic stablecoin issued by MakerDAO, an Ethereum-based protocol. The coin is currently the largest DeFi token with a market cap of around $7 billion.
  2. Avalanche (AVAX): AVAX is the native token of Avalanche, a decentralized, open-source proof of stake blockchain that rivals Ethereum. The coin has a market cap of around $5.5 billion.
  3. Uniswap (UNI): UNI is the governance token for Uniswap, the largest DEX operating on the Ethereum blockchain. The coin has a market cap of more than $4 billion.
  4. Chainlink (LINK): LINK is the native token of Chainlink, a decentralized oracle network. The coin currently has a market cap of over $3 billion.
  5. Tezos (XTZ): XTZ is the native token of Tezos, a decentralized open-source blockchain. The coin has a market cap of $1.4 billion.
Source: Freepik

Why Are Investors Excited About the DeFi-Zation of GameFi?

By dividing up the ownership and use of gaming assets, GameFi has given birth to unprecedented investment opportunities. Compared to DeFi, GameFi is young but booming, making the industry even more exciting for some investors. The financial aspects of GameFi include layer 2 solutions for blockchain games, on-chain leasing solutions, fractionalization, staking, NFT marketplaces, and others.

Despite many similarities, GameFi has less structure compared to DeFi, meaning there are not many rules and standards. Moreover, GameFi is less exposed to whale manipulation. And it has a significantly greater chance of luring non-crypto users into the crypto market, particularly in developing economies.

In GameFi, the investment thesis is all about investing in what makes playing blockchain games more enjoyable, financially efficient, and trustless. In contrast, during the latest DeFi upcycle, investors were largely focused on the building blocks of DeFi, which included lending protocols, decentralized exchanges, synthetic assets, and more.

However, as the DeFi-zation of GameFi continues, investors will shift their focus away from the gaming aspect of blockchain games to their financial infrastructure. In other words, the focus should be on the Fi part of GameFi which is the tech infrastructure and will last longer, instead of the gaming part because a single game’s lifetime could be short.

Will GameFi be Bigger Than DeFi?

The full potential of GameFi has not yet been unearthed. But as it currently stands, GameFi has shown a comfortable edge over DeFi in terms of users. Also, companies like Gala Games, Galaxy Interactive, and Solana Ventures have already devoted funds to support GameFi projects. 

All in all, it remains to be seen if GameFi manages to surpass DeFi in monetary terms, but it is surely heading in that direction.

GameFi Projects Worth Watching 

Whether you want to play the game for fun or monetize your gaming skills, here is our take on some exciting gaming projects to watch out for.

  1. Goons of Balatroon

Goons of Balatroon is an NFT universe featuring a card battle game, where Goon factions fight each other for the control of Balatroon using Goon Cards and earn GOB tokens in the process. Built on Polygon, the game features the play-to-earn model and allows players to discover the lore of Balatroon, participate in the GOB economy, and craft abilities that will lead them to victory. 

  1. Planet Mojo

Planet Mojo is a Web3 gaming metaverse where players compete with their NFT-owned customized teams in a player-versus-player (PvP) auto chess game. Developed on Polygon by LucasArts, EA, Activision, and HappyGiant veterans, the game allows players to participate in ongoing tournaments and generate income. 

  1. World of Masters

World of Masters is the first NFT and Metaverse game with a martial arts theme. The game is built on BNB Chain and was developed from Tan Minh Chu, one of the most successful card battle games in 2021.

Wrapping Up

GameFi and DeFi are among the most promising and lucrative industries. Both have performed remarkably well during the latest bull cycle, delivering huge returns for early investors. However, the question is which offers more potential for investors in the future.

While there is no short answer, we can argue that GameFi is more promising. By blending the play-to-earn mechanism and traditional cryptocurrency tools, GameFi has attracted a new wave of investors. GameFi is dominating DeFi in terms of users and popularity, and is even trying to catch up in terms of money.

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Disclaimer. This material should not be construed as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.