The NFT Market Overview
GameFi’s Promise and Potential
Rise and Challenge of GameFi: Macro, Axie, NFTs
Surviving Crypto Winter
The Rise of NFTs — An Overview of the NFT Market
The NFT market has made a noticeable impact in the crypto space since its rise in 2021. In fact, Skyquest values the global NFT market in 2021 at $15.70 billion — even going as far as projecting the industry to be worth $122.43 billion by 2028 with a compound annual growth rate (CAGR) of 34.10% over years 2022-2028.
The rise and prominence of NFTs were largely driven by Ethereum-based, profile picture (PFP) NFTs trading on secondary marketplaces such as OpenSea. The graphic below from Dune Analytics shows the rise of NFTs, in terms of trading volume on OpenSea, where $3.4 billion worth of transactions were recorded in August of 2021. Momentum from 2021 carried over to 2022, with NFT transaction volume peaking in January of 2022 at close to $5 billion.
OpenSea Monthly Volume from Dune Analytics
Despite the current bear market, NFTs look to push for mainstream adoption. With projects such as Doodles bringing on mainstream talent such as Pharrell Williams to break into the entertainment industry, digital artist Beeple selling his NFT art on renowned auction house Christie’s for $69 million dollars in ETH, and Yuga Labs creating a unique brand through creating and acquiring NFT collections, the NFT market may not be as lifeless as it seems in the current cycle. Nansen also estimates that Yuga Labs received $147.9 million worth of royalty fees from over $5 billion worth of transactions made from their BAYC, MAYC, Otherdeed, and BACC/ Serum collections.
Nansen reports total royalties made by Yuga Labs. Image from Nansen’s Twitter
With the recent spotlight focusing heavily on the PFP NFT industry, the successes of other forms of NFTs such as gaming NFTs seem to fall under the radar. As such, we hope to dive deep into the rise of GameFi and explore the current state of the GameFi industry in terms of tokens and NFTs.
GameFi’s Promise and Potential
NFTs aspire to break into numerous industries, one of which is the gaming industry. According to data collected by CNBC, the gaming industry is valued at $191 billion in 2021. Within the gaming industry, in-game cosmetics rose to prominence, eliminating the monotony players experience with their default character appearances. In fact, games such as Fortnite, Call of Duty, and Roblox have made billions of dollars just on skins alone.
In 2020, Newzoo and DMarket conducted a comprehensive study on the global gaming market that estimates that the 2.7 billion gamers worldwide will soon reach the 3 billion mark in the next three years. In the same study, 85% of the active U.S. gamers from the age group 13 – 45 claim to be aware of in-game cosmetics.
Furthermore, 81% of these gamers who are aware of cosmetics wish to get real-world (fiat) money from the skins they own. Finally, 3 out of 4 players interested in trading skins they own would spend more money if these skins had monetary value outside the games they are played on.
US Demographics purchasing in-game cosmetics. Data from Newzoo
For these reasons, the idea of mixing gaming and finance, or GameFi, came into existence. GameFi involves the use of digital assets, in the form of NFTs, to access and participate in various games. These NFTs provide specific utility in games and have the ability to be traded for fiat money, unlike cosmetics that generally exist for aesthetic purposes.
These NFTs are traded on marketplaces such as OpenSea, which essentially gives users the opportunity to monetize their in-game assets. Tokens earned from participating and winning quests and challenges in blockchain-based games can also be cashed out in centralized and decentralized exchanges. The benefits of being able to use these NFTs to not only enjoy the game but to also earn from it contributed to the rise of GameFi.
Level 1 — GameFi’s Rise and Challenge
Rise to Prominence
The GameFi industry has experienced plenty of success over the last year. BlockchainSpace currently tracks 125 games and 130 tokens associated with these games. Based on data collected, at its peak on Nov. 26, 2021, the GameFi industry had a market capitalization of more than $30 billion.
GameFi Industry Market Capitalization. Data from BlockchainSpace
On Oct. 31, 2021, GameFi also recorded the highest amount of daily transaction volume of $33.97 billion in the 331 tokens tracked by BlockchainSpace across 319 games.
GameFi Transaction Volume Over Time. Image from BlockchainSpace
November 2021 was a particularly euphoric period in the crypto industry, with the total crypto market capitalization reaching $3 trillion on Nov. 10, 2021. Two days before that, when the total market capitalization was at around the $2.9 trillion mark, Axie Infinity’s native token, AXS, had a market capitalization of more than $10.48 billion just as GameFi was making a run-up before its peak on Nov. 26, 2021.
AXS Market Capitalization Peak Price in 2021. Image from CoinGecko
The Challenge Brought by the Bear
Similar to the rest of the cryptocurrencies, GameFi tokens were not spared from a pullback in cryptocurrency prices this 2022. From a peak market capitalization of $33.97 billion on Oct. 31, 2021, GameFi’s market capitalization fell to $6.82 billion as of July 21, 2022 This represents a loss of approximately 80% in market capitalization during the current bear market, which also saw Bitcoin shed more than 70% of its value.
In addition, as of July 21, 2022, 80% of the total GameFi market capitalization is centered around four games: The Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS and SLP), and StepN (GMT).
GameFi Total Market Capitalization as of July 21, 2022. Image from BlockchainSpace
These four games contributed to 82% of the transaction volume among 319 games tracked by BlockchainSpace in the past 30 days leading up to July 21, 2022.
GameFi 30-Day Transaction Volume as of July 21, 2022. Image from BlockchainSpace
Interestingly, Axie Infinity commanded a large portion of the GameFi industry totaling 31.1% (AXS and SLP) in GameFi’s peak. In dollar terms, Axie Infinity’s tokens combined have lost the most value in terms of market capitalization this bear market.
Change in GameFi market share. Data from BlockchainSpace
Data by BlockchainSpace illustrates that 8.66% of market capitalization share was acquired by StepN this year, almost entirely from Axie Infinity. In fact, as of July 21, 2022, Axie Infinity’s combined market capitalization share trails behind The Sandbox’s and Decentraland’s.
Axie’s Rise and Slide
Axie Infinity is not just a trailblazer in the GameFi industry, but also the number one sold NFT collection with more than $4 billion in total sales based on data from CryptoSlam.
Axie NFTs for sale. Image from Axie Infinity Marketplace
Apart from the AXS and SLP tokens, Axie Infinity NFT transaction volume also went down around 99% from its peak in terms of ETH on July 11, 2021. When we consider the price of Axie NFTs relative to the dollar, transaction volume peaked on Nov. 4, 2021. Based on CryptoSlam, the total number of unique NFT buyers were also at its peak within the same period. Following this, a general downtrend is observed both in terms of transaction volume and number of unique buyers.
Axie Infinity NFT volume. Image from CryptoSlam
The downtrend in Axie Infinity NFTs is consistent with the early bearish signs of the crypto industry in November. To add to the already bearish looking market, during season 20 of Axie Infinity, average daily earnings in SLP went down 64% because of the new meta. This is the period starting Feb. 9, 2022 and ending on March 22, 2022 where Axie Infinity removed Adventure game mode and quests.
Data from BlockchainSpace
GameFi NFT Market in 2022
The general downtrend in NFT price, transactions, and number of unique users in this bear market is also evident with collections such as The Sandbox’s LAND.
The Sandbox LAND total transactions and unique buyers over time. Data from Nansen
The Sandbox LAND price and volume over time. Data from Nansen
On the other hand, StepN NFTs’ price peak came together with the GMT token price in early May 2022. In the week of May 2, 2022, StepN was trading at an average price of 16 SOL, whereas recent data show that StepN sneaker NFTs are trading at 1.56 SOL on average — a drop of almost 90% in price.
StepN NFT price and volume over time. Data from Nansen
Despite the general downtrend of GameFi, crypto winter presented an opportunity to buyers who could not purchase NFTs at the height of the bull run to enter the market. For example, The Sandbox’s LAND saw a general increase in the number of unique addresses in 2022, coinciding with the general downtrend of price in the same period. A selloff of assets at the end of April 2022 could be due to members of the NFT community liquidating to participate in the Otherdeed for Otherside mint on May 1, 2022 Singapore time.
The uptrend of unique addresses of The Sandbox’s LAND NFTs. Image from Nansen
A similar uptrend in unique addresses can be seen with StepN’s NFTs, with around 80% of users holding one NFT as of the time of writing. In comparison, that number was 52% at the start of 2022.
Although not the perfect indicator of success, the increases in unique addresses of both The Sandbox and StepN point to speculation among the public to participate in potential breakthrough games living on blockchain. For now, the challenge of surviving a potential long crypto winter is important for the sustainability of the space.
Enter Level 2 — Surviving Crypto Winter
The state of the current GameFi industry is indeed bearish; there are many hurdles to clear before a bullish case on GameFi can be reclaimed. Despite the recent cryptocurrency relief rally, attributed to the news of a temporary date of the long awaited Ethereum Merge event, NFT transaction volume still shows a 98% decline on July 30, 2022 compared to Jan. 31, 2022.
NFT transaction volume in USD. Data from Dune Analytics
However, the GameFi industry is very much different today. The rapid growth and acceptance of games such as StepN creates a use case for potential blockchain game developers looking to enter the space. As the space matures, we will no longer see Axie Infinity as the sole driver of a GameFi rally.
Still, current blockchain-based games are still lacking in the number of AAA-caliber games available and a game economy that interests and excites a wide range of gamers. As blockchain-based gaming companies attract talent from traditional gaming studios, and gaming companies such as Square Enix, the company responsible for the Final Fantasy franchise, play a more active role in the space’s development, the GameFi industry surely will be interesting to pay attention to where current games such as Axie Infinity and StepN will face stiffer competition.
Now, more than ever, the survivability of projects is the name of the game and will decide winners in this crypto bear market. Axie Infinity still looks to rebound after the $622 million hack on the Ronin bridge. The Axie team also introduced its Origin upgrade that looks to lower the barrier to entry for users by creating a play-and-earn game mechanic instead of the classic play-to-earn. On the other hand, StepN is still navigating the space after its compliance with policies in China that took out GPS services for users in the country.
Source: Bybit Blog