What is GameFi? How Does It Work?

Read everything you must know about GameFi here.

What is GameFi? How Does It Work?

The traditional gaming business as we know it is being disrupted by Axie Infinity and other GameFi ventures and play-to-earn games. These blockchain-based monetizations of the gaming platform are basically play-to-earn cryptocurrency games. What distinguishes them from typical games is that participants play to earn prizes rather than to win: think Monopoly for real money.

Interestingly, the ability to compensate players for their time and effort is at the root of the rapid increase in popularity of these play-to-earn games, colloquially known as GameFi. Who wouldn't want to earn money while having fun? We'll take a deep dive into the universe of GameFi games in this post.

What is GameFi?

GameFi, one of the crypto world's trendiest keywords, is a combination of "Game" and "Finance." It discusses the stimulation of financial systems in order to generate revenue from play-to-earn cryptocurrency games.


GameFi video game initiatives are built on the distributed ledger of a blockchain, allowing participants to have verified ownership of virtual things in the game. Unlike traditional gaming, where players play to win, GameFi initiatives encourage users to play to earn.

Early GameFi examples include early Minecraft networks integrated with Bitcoin, Gambit.com, online games such as Bombermine, and peer-to-peer programs that allow gamers to monetize their online activities.

The creators of MixMarvel, a blockchain game studio, addressed the possibility of using blockchain technology to disrupt the video gaming business in a keynote presented at the World Blockchain Summit in Wuzhen, China in November 2019.

Yearn. finance creator Andre Cronje, however, coined the name "GameFi" to represent this new trend in a September 2020 post. Since then, the phrase has come to designate video games that incorporate blockchain-powered decentralised financial components. These ventures use the appeal of video games, paired with the unique characteristics of cryptocurrencies, to make GameFi an intriguing space.

How Does GameFi Work?

GameFi is distinguished by its "play-to-earn" business model, which mostly relates to blockchain-based games that provide monetary rewards to participants. This implies that players are rewarded financially for playing these games and progressing through their levels. NFTs, in-game tokens, and cryptocurrencies are the most common rewards. When players gain in-game tokens, they may exchange them for more popular cryptocurrencies like Ethereum and Bitcoin, which can subsequently be exchanged for fiat currency.


The "play to earn" concept is not new. Because of the new technologies that support them, GameFi applications based on the play-to-earn model continue to generate a lot of interest. From blockchain infrastructure and smart agreements to in-game currencies, there is a lot that distinguishes these games from traditional games and makes them a better choice.

The majority of GameFi projects incorporate NFTs in the form of land plots, clothes, weaponry, and skins. These NFTs can be bought and sold in-game, but they can also be utilised on DeFi platforms for yield harvesting and collateral.

There are numerous games in the GameFi space, each with its unique system and set of requirements. One such requirement is that users have crypto wallets in which to store their in-game coins. However, in order for your wallet to function, it must be packed with cryptocurrency. Many games also need players to buy starter characters before they can begin playing.

GameFi’s Beginnings

Early GameFi titles utilised the Bitcoin network, but the high transaction costs and slow speed drove the development of Ethereum, a sophisticated contract-enabled blockchain platform.


Ethereum was widely utilised by crypto game makers, and it is still actively used, however it has performance problems due to restricted block capacity. When the viral popularity of CryptoKitties clogged the Ethereum network in late 2017, causing Ethereum's costs to rise, this vulnerability was revealed.

Because of the Ethereum blockchain's block space restrictions, transactions needing faster settlement times motivate miners to add them ahead of others via the included fee mechanism. As usage outstrips available block capacity, transaction costs rise, pricing some customers out.

Advantages of GameFi

There are many more advantages. DeFi principles such as staking, liquidity mining, and yield farming are making inroads into GameFi initiatives. These are all additional options for gamers to make passive cash in-game. Users can stake their in-game assets to receive annual interest and other incentives that can be used to unlock new levels or purchase extra in-game stuff. Simultaneously, players can obtain loans by collateralizing their gaming assets.


A DAO enables token holders to submit and vote on project changes, making GameFi truly participative. These suggestions frequently have a monetary consequence, such as DAO members voting to enhance the reward for a specific in-game action.

To join the GameFi DAO, you have to own a project's governance ticket. Generally, your voting power is proportionate to the number of tokens you possess.


Given the popularity of Axie Infinity and other GameFi products operating on various blockchain protocols, GameFi is definitely on the verge of a great future. However, because blockchain technology is continually growing, it is difficult to forecast what additional features and technologies will characterize future GameFi ventures. We will likely see far smarter blockchain developments in the future, but it remains to be seen how they will influence GameFi activities and create new methods to commercialise and enhance existing experiences.