Introduction
While crypto has been through several ups and downs over the past decade, GameFi as a new segment has only emerged since late-2020, and the first half of 2022 was the maiden bear cycle for the blockchain gaming industry.
This report takes the opportunity to look through the data and analyze how the sector has performed in terms of users behavior, transactions on chain, fundraising and price performances. We also discuss a few conundrums faced by the industry.
Key Takeaways
The events of 2022 highlighted a fundamental contradiction in combining the two verticals: Gaming and Finance. Gamers play games to have fun, while people participate with financial incentives to make money. A few key data points in this report show that** the **projects built upon hype and an unsustainable play-to-earn model collapsed the hardest during this downturn.
The report delves into the performance of each chain in the gaming ecosystem. We further examine the top GameFi tokens and how they performed amidst the H1 2022 bear cycle — most protocols have seen a sharp drop in both price and users.
The critical question remains: how can developers enable people to play and earn rather than toil and yield? How can GameFi titles be built to be sustainable?
Even though the data shows that investors are bullish on GameFi — GameFi and metaverse projects had large influxes of VC funding relative to other categories in the blockchain industry — no single smart contract platform managed to fully capitalize and become the go-to “GameFi chain.”
At the end of this report, we highlight the chain that could take this spot and propose a few games to watch in H2 2022.
Contents
CoinMarketCap Research is CoinMarketCap’s newly-formed research arm. It aims to leverage our data analysis and bring unique insights into the crypto market. We look to collaborate with other industry-leading voices and create a platform for people to learn and share their passion for crypto.
Footprint Analytics is a tool to uncover and visualize data across the blockchain, including NFT and GameFi data. It currently collects, parses and cleans data from 17 chains and lets users build charts and dashboards without code using a drag-and-drop interface as well as with SQL or Python.
Summary: From early 2022, the whole market has been trending downward amidst the harsh macro conditions and rising inflation. The fall in the equities market, broadly represented by the S&P 500 index, took BTC *— *now having absorbed billions in institutional funding *— *down with it. And in turn, BTC has taken the altcoin market along with the ride.
Figure 1: BTC & S&P 500 Price Correlation Analysis
The Fear & Greed Index reached an extreme fear state, and GameFi active users, measured by the unique wallet addresses interacting with the protocol smart contracts for a certain period of time, gradually declined. Although the Fear And Greed Index has recovered from around 10 (Extreme Fear) in late June to now 42 (Fear), the crypto market is yet to react strongly with meaningful price actions.
Figure 2: BTC Price ($) vs. Fear and Greed Index
Figure 3: GameFi Market Cap vs. BTC Market Cap
In terms of volume, Ronin, BNB (previously BSC), and Harmony outperformed all others by a wide margin. In the case of BNB, low transaction fees and its ease to build drove a multitude of projects coming aboard. However, Ronin and Harmony are singularly dependent on their ecosystem’s most prominent titles *— *Axie Infinity and DeFi Kingdoms *— *driving volume.
In terms of transactions (Txn) and average users in H1 2022, gaming-focused chains WAX and Hive remained the top two.
**Figure 4: **Gaming Transactions by Chain
Figure 5: Market Share of Gamers
Mainstream hype during the bull market has not been a good indicator of sustainability or future success.
Figure 6: Average Active Users by Game
Figure 7:** **Active Users Trend (Alien Worlds vs Splinterlands)
A dominant, go-to chain for GameFi projects has yet to emerge. It’s too early to predict long-term leaders.
Figure 8: Market Share of Average Gamers — WAX
Figure 9: Market Share of Average Gamers — Hive
Figure 10: Market Share of Average Gamers — BNB
Developers are increasingly aiming to create multichain ecosystems.
Figure 11: Number of GameFi Protocols Deployed on Multichain
**Summary:The growth of protocols on chains started to slow down significantly in May, and only 47 new projects were launched that month. This figure started to improve slightly in June to 63 new projects, though still far from the amount of projects launched in Q1. In July, 38 **new projects were launched, a small decrease.
Figure 12: Number of GameFi Protocols by Chain
Figure 13: Chains by Number of New Projects
Figure 14:** **Top 5 Chains by Gamers
Figure 15: Market Share of Protocols by Chain
Figure 16: Gaming Volume by Chain
Figure 17:** **Gaming Volume by Protocol — BNB
Figure 18:Gaming Volume by Protocol — Ronin
Figure 19:Gaming Volume by Protocol — Harmony
When looking at the number of active projects, which Footprint Analytics’ data defines as having a minimum of 100 users active within the latest 5 days, there is a gradual decline across all chains. Although BNB Chain still has the highest number of active projects, it has seen a larger decline compared with Polygon.
Figure 20: Active Projects by Chain
Summary: Although the bear market came in May, the GameFi market’s mood has been uncertain since December 2021. Users have realized how the GameFi death spiral works, where a drop in either token price or players sets off a self-reinforcing downward cycle in both.As it stands, ”play-to-earn” only works with a sustainable supply of new players joining the game. Skepticism of many games’ futures has prompted more users to mint and sell assets quickly.
Figure 21: Top 10 GameFi Tokens by Market Cap
Figure 22: Top 10 GameFi Tokens Price (rebased to 100)
Figure 23: Top GameFi Tokens Average Trade Volume Ranking
Figure 24: Top GameFi Tokens Average Trade Volume
**Summary: **This year, VCs started to focus more on investments in Web3, especially GameFi and Metaverse, as seen in the changes below. Namely, GameFi and Metaverse take up a much larger share of the investment pie at the behest of Tooling, Trading and Lending/Borrowing. The investment by VCs into these two categories has increased from $874M in 2021 to $2.4B in 2022.
Figure 25: 2021 Number of Investment Market Share by Category
Figure 26: 2022 Number of Investment Market Share by Category
Figure 27: Investment Amount in 2021 and 2022 YoY
Figure 28: Top Invested Projects
Figure 29: Number of GameFi Projects by Investor
Figure 30: GameFi Fundraising Round
Figure 31:Metaverse Fundraising Round
What will matter in GameFi soon is whether the handful of highly-anticipated, expensive titles will live up to the hype.
The narrative in GameFi is that current games lack quality and have unsustainable tokenomics. However, once AAA games come out, these will bring GameFi to the masses after the bear market, solving much of the current problems.
These are slated to start going out in 2022 and 2023. The main ones to watch are:
Illuvium the game itself is yet to be launched, however it has gathered great interest as it promises to be the first major AAA game and has a star team of blockchain and game developers behind it.
Figure 32: Google Key Search Terms Analysis** — Interest Over Time for Illuvium, GameFi, and Blockchain Games**
Phantom Galaxies, which is a joint project between Animoca Brands and Blowfish Studios, offers a taste of what will likely be the future of blockchain game development *— *collaboration between proven studios in traditional gaming and blockchain, with enormous resources to get projects off the ground.
Big Time is being developed by Big Time Studios, founded by Decentraland co-founder Ari Meilich. It promises gamers a true AAA RPG experience, plus an easier onramp with its own hosted wallets.
The teams behind these projects have a record of success in both blockchain and gaming, and the resources to potentially make a AAA title work.
Will they win over the regular gaming market? If they do, will the chains be able to handle the influx of users? Those betting big on Web3 and blockchain gaming should be holding their breath right now, hoping they perform as well as people expect.
The future doesn’t always belong to the newest thing. While many chains are doing exciting things, Ethereum still holds the most mindshare and has the biggest developer community by far.
Combined with the development progress the Ethereum Foundation is making on the efficiency and scalability front, the chain could easily take a significant share of the GameFi market if it performs well, as the influx of chains was primarily driven by Ethereum’s congestion and high gas fees.
Both Illuvium and Big Time will run on Ethereum, and STEPN has already expanded to Ethereum. Depending on ETH’s scaling solutions and how well it handles congestion, it may become the go-to chain for gaming. These developments will align to stress test Ethereum upgrades.
Figure 33: Ethereum July 31 Active Users by Project