The Potential of GameFi and Stablecoins
GameFi will bring DeFi to the mainstream.
GameFi is DeFi and gaming together in a metaverse full of NFTs. The case of scholarships being created for playing Axie just shows how this mechanism can onboard a huge number of users around the world. This “infrastructure” that is being built, can be used as an onboarding platform for other crypto games too. Playing to earn is just in the beginning.
Low cost of transaction and a playful environment. New DeFi users will learn by playing.
The games optimize for engaging the public. Because of that, they tend to explore the cheapest chains in terms of transaction costs. The user cannot spend a lot of money for every action in the game. In that sense, games are one of the leaders in the exploration of alternative chains.
Games will be the center of the multichain world. They combine the creation of habits and high substitution costs because of network effects. These are two of the most significant entry barriers.
Games can go viral quickly as people like to invite friends to play together. In GameFi, there is the social incentive and also the economic incentive to bring more players.
From the games I saw, I want to highlight DeFi Kingdoms. This is a true GameFi. DeFi Kingdoms is a game, a DEX, a market of valuable, scarce and upgradeable NFTs (heroes, equipment, etc). It all plays out in the magic context of a Kingdom. It already surpassed Axie in transaction volume, with more than $ 1 billion in the last 3 months.
Source: https://dappradar.com/rankings/category/games
They first started with a DEX (called "Marketplace") and Liquidity Pools (called “Gardens”) and then created the game from it. The first users providing liquidity in the Liquidity Pools had relevant rewards in terms of locked JEWEL, the currency of the game. It was an interesting way to build the community. Currently, there is around $800 M locked in their Liquidity Pools.
Source: https://docs.defikingdoms.com/roadmap
Users can also stake their JEWEL in the bank. By doing that, they receive xJEWEL, which receive fees from the trades made in the DEX. To further incentivize staking in the bank, there are airdrops for the stakers and also some lottery aspects where you can win NFTs. Just to give an example, the users currently staking in the bank will earn Crystal, the token for the game expansion in Avalanche. Currently, the game is running just on the Harmony Net.
Another interesting aspect is the first NFTs in the game, the Heroes. You can buy one, you can combine two heroes and create a new one. These heroes can “work” to earn JEWELs based on your LP position in the DEX. They can also “work” to unlock earlier your JEWEL rewards. So they are rare and have economic utility.
The insight here is, gaming is very important. No matter if you are going to create a big story or not, including gaming aspects in the DeFi protocol is important. We can frame almost everything as a game. Games include a story, characters, scenario, music, objective and incentivize social interactions. The immersion level of the game can vary, but it helps when you think of a DeFi protocol as a game.
In the end, people want to earn money, socialize and have fun.
What is the integration potential for Stablecoins?
So after this context, let's dive into how stablecoins can integrate with this promising world of games.
First, stablecoins can try to incorporate some gaming aspects in their design. How to better design the user's incentives? How can they use NFTs? How can they incorporate airdrops and some contests to distribute rewards to the community? How to create a more fun and immersive user experience? One example is this one: https://abracadabra.money/. They created a concept around the magic internet money.
Let the imagination fly and play more. Let’s build more elements in this fantasy environment. Crypto users don't want boring TradFi experiences.
The second point is that every stablecoin protocol should have a strategy to integrate with games.
The first step for a stablecoin is to be available in promising chains that have low cost, such as Avalanche, Harmony and Fantom. While Ethereum has a transaction cost of more than $50, in these other chains this is less than $0.50. Stablecoins should consider expanding to chains that have viral games.
In Fei Protocol’s case, Rari Capital could be deployed on Avalanche and Harmony, enabling fuse pools to create a lending market in the game. This could happen in the case of DeFi Kingdom. Someone may want to borrow JEWEL to buy a hero for example.
When I started to study DeFi, I thought much about how DeFi could connect with traditional markets. Now, I see that there is a huge opportunity to integrate with more crypto native areas such as the gaming sector.
Even though DeFi Kingdom has almost $ 1billion in their Liquidity Pools, it does not have relevant liquidity with decentralized stablecoins. Their most liquid pairs are with BUSD and USDC. This is an opportunity for decentralized stablecoins. The Liquidity-as-a-Service could have a role here.
If you want to know more about decentralized stablecoins you can check it out here.
To sum up, this GameFi wave is only the beginning and the first movers decentralized stablecoins will have an advantage.
P.S.: Thanks for the comments from Bolon Soron and DioDionysos.
Please note that this letter is not intended as financial advice.