The DeFi Boom is Finally Here, And Blockchain Gaming Will Reap the Rewards

By Adrian Krion, CEO of Spielworks

As DeFi projects pick up steam, and Mark Cuban names DeFi as an industry with the potential to explode, the monthly volume of decentralized exchanges has skyrocketed from just $39.5 million in January 2019, to $45.2 billion in January 2021. Ethereum has reached all time highs, passing the $1,700 mark, and emerging layer-1 protocols, such as Polkadot and Elrond, are getting a huge boost from the DeFi boom some thought would never come.

Well, it’s here, and the implications venture far beyond higher prices for DeFi-based tokens. One of the biggest benefactors of this development will surely be blockchain gaming, a sector with great potential to introduce new forms of value for an unfamiliar, but curious, gaming sector. With more than two billion gamers worldwide, gaming remains one of the most immersive industries today. Despite the pandemic’s crippling effects on our economy, millions of people being confined to their homes has propelled the gaming industry. Microsoft’s latest earnings call reported that it earned $5 billion in Q4 from its Xbox business for the first time ever after experiencing 51 percent growth year-on-year.

Gaming itself is an immersive distraction, and for gamers, the more addictive a traditional game is, the more time and money the gamer invests into it. DeFi offers gamers a novel method of compensation through blockchain-based tokens and other rewards powered by an impressive armory of decentralized mechanics.

As a budding industry, blockchain gaming is still finding its feet. Yet its increasing adoption of DeFi mechanisms, sure to be propelled even further by the current success of the broader DeFi industry, gives it a unique upper hand in appealing to gamers.

The lines between assets purely used in games and financial assets are blurring, opening the door to a new type of asset class. Where once people saw in-game assets as digital coins with no real value, now they are becoming real financial assets. These new, scarce in-game assets will also be used as financial instruments by both gamers themselves and outside investors.

The mechanisms of DeFi enable blockchain games to provide players with different ways to make it worth their while and earn rewards. This growing proliferation of monetary benefits is a point of growing interest. Collectible and trading games are some of the most popular genres on blockchain, in part because they allow players to buy, sell, and trade unique tokens and assets. And with games increasingly creating and issuing their own native tokens, developers are essentially able to construct their own economies and ecosystems, and connect with each other through them, in many cases even across platforms.

The success of these tokens and NFTs will ultimately depend on their usability and value to the gamer, the very same reason a growing number of blockchain games are leveraging DeFi mechanics in order to maximize the liquidity of such tokens.

Greater variety of liquidity pools mean players can trade the currency of a game at which they excel for the currency of a game at which they’re struggling. They could also trade in-game currency for cryptocurrency or fiat currency, such as bitcoin or U.S. dollars. Through users borrowing and lending in-game tokens and items to other players, gamers can ascertain assets more valuable to them while dispensing of those better suited for others.

Another advantage DeFi brings to gaming is the ability of gamers to earn passive income on collectibles or other assets they’ve already accumulated in the game by staking them to liquidity pools. Agreeing to provide liquidity to the ecosystem is one of the many ways DeFi mechanics reward gamers beyond the methods of traditional, non-blockchain-based games.

The composability of DeFi has unlocked opportunities for product developers to build DeFi protocols directly into platforms across multiple verticals. Ethereum-based games have become a popular use case for DeFi because of their built-in economies and innovative incentive models. Prior to launching its game, The Sandbox allowed users to earn extra SAND tokens by staking SAND into liquidity pools. This gave early adopters a head-start once the game launched, it also enriched the pool’s depth so SAND’s fluctuation remained minimal.

For some time, blockchain has tested out the gaming space, dipping its toes to check the temperature before it fully invests itself. Separating itself from traditional gaming became a central tenet of any blockchain gaming development, blockchain’s relationship with gamers will be both its biggest separator, and its biggest catalyst. DeFi will fuel its success.

About Adrian:

Adrian Krion is the Founder of the Berlin-based blockchain gaming startup Spielworks. With a deep background in computer science and mathematics, Adrian started programming at age 7 and has been a gamer since he was a child.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.