The Development Stages and Investment Layout of GameFi

The current GameFi market is in a state of overheating, primarily supported by irrational funds and new users that sustain project values and token prices. Once the market adjusts, token prices and in-game asset values will decline, and the overall game economy will face a significant test. Users and funds are likely to turn to other sectors, and the current prosperity is bound to face a major correction.

As a primary market investor, even in the current boom of GameFi, it is necessary to calmly assess the subsequent development trends and prepare investment layouts for the next wave.

Three Development Stages of GameFi

Phase 1: GameFi 1.0 - Focused on "making money"

The current Play-to-Earn model mainly emphasizes "making money," with gameplay and sophistication serving more as supplementary narrative elements. A complete project that aligns with this stage should have the following characteristics:

• Can earn profits within a certain period of time
• Mechanism design enables early users to profit
• Can continuously attract new users to join and invest funds
• An economic model that can support the operation of the game for at least a few months.

Even if the graphics or gameplay of the game are not outstanding, it does not affect the core narrative of GameFi at this stage.

For primary investors, the focus is more on whether the team has a long-term business philosophy. The best strategy is to look for projects that are undervalued, willing to invest for the long term, and capable of generating sufficient income during a bull market. This ensures that the project can continue to operate during a bear market and keep iterating on its products and mechanisms, increasing the likelihood of recalling lost users during a bear market.

If the project mechanism design and product quality are good, and the marketing promotion capabilities are strong, it will attract a large number of users who come to make money in the early stages. The project could earn millions of dollars within a few months by selling character NFTs or blind boxes. Even if the game may not be launched yet, primary and secondary investors can also receive good returns during this process.

In summary, at this stage of the project, we are more focused on:

1. Can it attract new users to invest incremental funds from the real world?
2. Can it attract existing cryptocurrency users to transfer their funds from other projects?

For the first point, we focus on the project's genes. In terms of Southeast Asia GameFi, we pay more attention to whether the project has the ability for local promotion and marketing resources, including guilds and opinion leaders.

Such projects have a smaller demand for venture capital funds and are more willing to allocate investment amounts to opinion leaders and communities in different regions. The ability to provide effective suggestions for game mechanics and effective marketing resources becomes key to fund participation.

The quality of GameFi projects in Southeast Asia varies greatly, with many token designs and private placement investment allocation issues in modified chain projects. These types of projects often go online quickly after financing and make rapid profits, attracting retail investors with dozens of times the price increase through market cap management, and cashing out within a month.

It is quite difficult for primary and secondary investors to find familiar investment institutions in the shareholder list for endorsement, as investors in such projects are mostly local venture capital or community members. This is also the reason for our deep cooperation with a certain blockchain at the beginning of this year, where we jointly invested in and accelerated multiple projects, ensuring project quality and long-term operational attitude through strong local partners.

For the second point, we focus on the design of the profit-making mechanism. Although this is the foundation of project development, most projects have not done well. Currently, many GameFi projects have transitioned from traditional game studios, and the token economics mostly copy the whitepapers of existing projects. Considering these issues, attention needs to be paid when making investment decisions:

• Can the inflow of new users accumulate the value of project tokens and enhance the value of in-game assets?
• Break-even period
• Potential causes of mechanism failure
• Is there an additional attractive narrative ( such as beautiful graphics / a strong investment lineup or ecological support )
• Token distribution, will there be excessive selling pressure in the early stages?

Such games often require a certain degree of price increase in the early stages to attract users. If the token distribution and unlocking time are poorly designed, it may lead to heavy selling pressure on the tokens, making it difficult to attract attention from secondary market users through the token price.

Risk

At this stage, games are very likely to experience severe price adjustments to the current obvious premium due to factors such as a slowdown in new user growth, design flaws in the mechanism leading to a collapse, sudden changes in the mechanism by the project party, or a market correction. Not to mention that most games have only a very small market circulation for market value management, which can easily lead to huge price fluctuations in a short period, even causing the price to drop to zero overnight. Even a well-known project cannot determine the impact of a bear market on its existing ecology and economic system.

When a bull market starts, games may experience a short-term failure of their economic systems and key parameters when encountering a decline in coin prices. The user recovery period extends, asset values drop rapidly, which can significantly impact the credibility of the project. Game users will leave in large numbers and are difficult to recall. This is also why many games attempt to encourage users to continuously accumulate assets within the project, increasing the cost of leaving for users.

The good news is that GameFi will still have a place during a bear market. After all, in a bear market, funds are tight and the market conditions are not good, making it one of the better ways to pass the time and earn income by playing games. GameFi projects launched during a bear market still have huge potential; however, first and second-tier funds will begin to shift towards iterative projects and new narratives that can solve the Play-to-Earn problem, as the industry as a whole moves towards the next main theme.

Phase Two: GameFi 2.0 - Addressing the Single Game Economy Issue

This stage has higher requirements for the basic quality of games and token economics. Low-quality Play-to-earn GameFi will become a short-term speculative tool for a small number of high-risk enthusiasts, like junk mines. We will focus more on projects that have ways to solve single in-game economic mechanisms and those that possess social attributes for paid gameplay.

Even well-known projects can encounter issues such as slowing growth of new users, an oversupply of NFT assets, and declining earnings for all. The strengths of this project lie in its well-designed metrics, as well as the long economic activity links and reward acquisition cycles, which require each user to invest a certain amount of time and resources to achieve long-term benefits. However, if the economic system of the long link only circulates within a single game, factors both inside and outside the game can instantly impact the success or failure of the project.

Avoiding mechanisms where token value circulates only within a single game will be a quality target in this stage, providing a better narrative.

The first solution is to establish an economic ecosystem that allows multiple games to interconnect. For example, a platform quickly releases multiple games on its own through a strong development team, attracting developers to use the platform's tools for development through traffic and platform funds. The token economic system runs through various games on the platform and is not limited to a single game. A certain sandbox game allows users to purchase land and provide development tools, expecting users to create content that continuously generates valuable content and applications for the platform to support the token price.

Another option is to invest in game incubation platforms. One potential narrative for the next stage is game interoperability, where the same incubator can not only ensure quality and mechanisms but also have lower cooperation friction costs in the future. This approach can alleviate the situation of economic system failure by exchanging time for space.

The reason for the existence of a single game economy problem is that most GameFi relies on continuously bringing in funds from new users outside the game ecosystem to provide profits for everyone; the game itself is merely a packaging and medium rather than the true purpose, and does not offer real play value.

Therefore, another idea is to let users feel that the game itself is the purpose, and they are willing to pay to play. In addition to the funds brought in by new users, the "spending" of existing users within the game can also resolve the current economic predicament of the game. Such games also have value in shifting towards decentralized autonomous organizations; otherwise, decentralized autonomous organizations remain a short-term means of attracting users to stake platform tokens to alleviate selling pressure.

If we can attract users to spend within the game, large investments in producing high-quality games will also be a viable path. However, there are already many top AAA games available on various platforms outside the cryptocurrency circle, and users do not need to spend time understanding cryptocurrency mechanisms. Therefore, whether the game has social attributes and whether it is natively tied to cryptocurrency will be additional areas of our focus.

• Is it possible to communicate and make friends with other cryptocurrency users on it?
• Can it reflect social status and assets, satisfy the desire for show-off, and connect NFT assets?
• Can it connect user identity to other GameFi or DeFi applications?
• Can it extend to users' real social media?

Games that can reflect value in this aspect are highly valuable investment targets.

However, at this stage, whether it is to develop a mechanism innovation platform similar to a certain platform or high-quality games with social elements, a single development team may lack sufficient resources. We anticipate that medium to large developers with resources will start to make progress in this phase. However, we currently hold a cautious attitude towards ultra-high-valued games that will take several years to launch.

The reason lies in the fact that the development iteration of GameFi is not clear enough. There may be huge changes in gameplay/mechanics/token models/expandability every six months, and a single economic system game that goes live years later carries a higher risk. Furthermore, the prices of most project tokens are already overextended at launch, so it is not too late to invest in similar projects when the logic is clearer. After all, it is impossible for there to always be only one successful AAA GameFi masterpiece in the market.

The advantage of such projects lies in having the most well-known investors in the industry, which allows for a quicker perception of market changes, enabling the game to be launched at the most suitable time and adjusting the economic model to fit the trends of the market at that time. At the same time, the project fundamentally ensures a certain level of delivery and won't run away; generally, the worst-case scenario would be a soft exit with a price drop of (, handing it over to the foundation ).

Other concerns

Tools for Games and Guilds

The development of GameFi requires iterative time. If users and funds are optimistic about GameFi, a safer investment would be tools for games and guilds. This can be divided into focusing on solving the current problems of various participants, including players, guilds, and project parties. For example, providing users with tools for data display and calculating the returns of game assets in their wallets, offering a platform for game item rentals and lending between guilds, and providing decentralized autonomous organization solutions for project parties.

We anticipate a deeper integration of NFTs and GameFi, requiring more focus on financial extension scenarios to strengthen the liquidity of currently fragmented game assets and funds. Solutions such as NFT collateralized lending and cross-chain solutions for NFTs are examples.

Connecting the data standards/physics engine of the game

Pay-to-Earn and multiple platforms can alleviate the economic difficulties of a single game, but the best solution is to consider each game as just a part of a larger economic system, known as the metaverse economic system.

For example, users may participate in A game's Create-to-Earn, Design-to-Earn, or Write-to-Earn, contributing productivity and providing value to acquire funds, and then consume in the high-quality, high-gameplay B game. Just like in the real world, if assets and value can circulate between games at this point, it can solve the existing problem of the Play-to-Earn economic chain being too short and singular.

Therefore, the NFT and game data standards, along with the corresponding physics engine, will allow the games that adopt them to have the same physical responses. This will be the foundational project capable of carrying all GameFi value in the next phase. After this type of infrastructure is built, the third phase of the metaverse will become possible.

Phase Three: Attempts at the Metaverse

This stage marks humanity's attempt to transition into a virtual economic lifestyle. GameFi, as the most easily understood application of the metaverse, will serve as a tool to attract users. Our current ultimate imagination of GameFi is whether users can provide productivity in the virtual world to exchange for funds, consume or engage in financial activities in different but interoperable applications, and even interact with their real-world selves.

Of course, the metaverse has already been rendered and fantasized too much, and at this moment, no one can determine what form it will ultimately exist in and how long it will take to build. The infrastructure construction of the metaverse still has a long way to go, so the investment considerations at this stage will not be discussed here.

Conclusion

In summary, games primarily focused on making money are a form of distributing items.