What is GameFi?

In 2021, in a small town called Cabanatuan in Nueva Ecija, Philippines, thousands of people who had lost their jobs because of COVID sat in front of old laptops, played a virtual pet game called Axie Infinity, and earned real money. The money they earned was substantial, as many players earned two or three times the local minimum wage, enough to pay rent, buy rice, and support their children. Especially during the pandemic, that amount of money was extremely meaningful. Because it was simple, new, and capable of creating real value, GameFi created a genuine global craze and brought millions of new users into the crypto market. In this article, we will look at what GameFi means and why this narrative collapsed even after the world once saw it as the next generation of gaming.

What is GameFi?

GameFi is the combination of gaming and finance. It refers to blockchain-based video games, where in-game items and currencies exist as tokens or NFTs that players can truly own. Unlike traditional games, where every sword, skin, or virtual land plot belongs to the publisher and disappears when the server shuts down, GameFi assets live on a public blockchain. Users can sell them, trade them, transfer them between wallets, and, in theory, bring them into another game.

However, the real appeal of GameFi was not ownership. Ownership was only an additional feature. What made people obsessed with GameFi was the play-to-earn (P2E) model, in which players played games, completed tasks, received tokens, and sold them for fiat. For the first time in gaming history, the time players spent inside a game could be converted into money used to pay real-life rent. That was what made GameFi so special.

The Origins of GameFi

The idea of earning money from games is not new. Before blockchain, gamers around the world already had many ways to earn money. Examples include World of Warcraft, real-money trading in Diablo II, and the entire black market for Counter-Strike skins. Players had long understood that time spent in a game was a form of value, and value always finds a way to flow somewhere. However, that was how traditional gaming and Web2 gaming worked. In Web3, everything is built on blockchain.

The first game to create major attention was CryptoKitties, launched on Ethereum in late 2017. The concept of the game was very simple. Players bred and traded cartoon cats as NFTs. The price of those cats immediately increased, creating so much trading demand that it congested the Ethereum network for weeks. However, CryptoKitties did not last long and quickly faded. But it proved one thing: ownership on blockchain could create real economic activity. The real turning point came from the convergence of two major trends: DeFi Summer in 2020, when decentralized finance protocols attracted billions of dollars and proved that crypto could operate real markets, and the NFT boom that followed soon after. Building on the momentum created by these trends, Axie Infinity emerged as the first breakout success in blockchain gaming and popularized a new narrative known as GameFi.

Why Did GameFi Become So Attractive?

To understand the appeal of GameFi, we need to look back to 2021. COVID caused millions of workers in developing countries to lose their jobs, stay at home, and lose their income. At exactly that moment, P2E games appeared that allowed people to earn real money with only a laptop and an internet connection.

What made GameFi stand out from other crypto activities was how accessible and entertaining it felt. Trading tokens required market knowledge. Yield farming required capital and technical understanding. NFT flipping required timing and taste. But GameFi was different. Players simply participated in games and earned token rewards that could be traded or sold on the open market. It was more intuitive, more engaging, and far less intimidating than staring at charts on a DEX.

Axie Infinity, developed by Sky Mavis and widely regarded as the most successful blockchain game of its time, reached a peak of around 2.7 million daily active players, with nearly half coming from the Philippines. The game helped Sky Mavis generate more than $1.4 billion in revenue in 2021.

Axie's explosion inspired an entire wave of GameFi projects across different genres. The Sandbox turned virtual real estate into tradeable NFTs, attracting major brands like Adidas and Warner Music. Decentraland built an open metaverse where users could buy land and host events. Star Atlas promised AAA-quality space exploration on Solana. STEPN introduced the move-to-earn concept, rewarding users with crypto simply for walking or running.

At the peak of 2021, Axie Infinity was seen as the face of the Play-to-Earn movement, with many players earning several hundred dollars per month. According to a CoinGecko survey in July 2021, 41% of players reported earning around 151 to 200 SLP per day. With SLP trading around $0.30, that was equivalent to about $55.5 per day, or $1,665 per month.

A parallel system called scholarship quickly formed around the game. Wealthier players, teams, or managers with the resources to invest owned large numbers of NFTs and lent accounts or NFTs to individuals who did not have them, in exchange for a percentage of the earnings. The account lenders were called guilds, while the players hired to play and share the income were called scholars. This model also gave rise to some of the first large-scale Web3 gaming communities, where players, guild managers, investors, and content creators coordinated, shared knowledge, and built entire ecosystems around blockchain games.

By the end of 2021, GameFi had become one of crypto's fastest-growing sectors, attracting millions of users, substantial venture capital, and a wave of new projects. However, much of this growth depended on an economic model that proved difficult to sustain over the long term.

Why Did GameFi Collapse?

GameFi seemed poised to revolutionize the gaming industry as a whole. But when the number of new players stopped growing, the economic model behind this narrative also began to collapse. The economic model of most P2E games was fundamentally unsustainable, a point that becomes clear when examining its underlying mechanism. Most games issued reward tokens through a fixed inflation schedule; therefore, the system printed a new amount of tokens to pay players. But those tokens were not backed by real revenue, had no real utility outside the game, and most importantly, had no mechanism to remove tokens from circulation, also known as a value sink, at a speed equal to the rate of issuance.

The only thing that kept the token price stable was buying demand from new players. When new players entered faster than old players sold, the price held up. When the flow of new players slowed, even slightly, the loop reversed. The price dropped, which reduced income, which led to player departures, which in turn caused the token price to fall even further.

According to a report by Caladan, a market-making and trading firm, roughly 93% of GameFi projects are now inactive, with token prices down about 95% from their peak valuations. YGG, once the largest gaming guild token, fell over 99% from its November 2021 peak. STEPN, the move-to-earn app that once had more than 700K monthly users, now has almost no meaningful activity left.

Following the success of GameFi during the 2021-2022 cycle, several teams attempted to rebuild the sector by developing dedicated gaming infrastructure. One notable example was Pirate Nation, backed by a16z, which introduced the Proof of Play chain to support fully on-chain gaming experiences. These initiatives aimed to address many of the technical limitations that had constrained earlier GameFi projects. However, infrastructure improvements alone were not enough to revive the sector. While these chains were designed to deliver faster transactions, lower costs, and a better gaming experience, user demand remained closely tied to economic incentives. For many participants, financial rewards remained a stronger driver of engagement than gameplay itself. As a result, when the flow of new users and capital slowed, GameFi struggled to regain the level of activity seen during the 2021 boom.

Conclusion

GameFi remains one of the most influential experiments in crypto. It introduced new ideas around digital ownership, player-driven economies, and the possibility of sharing value with users rather than treating them solely as customers. At its peak, it attracted millions of players, billions of dollars in capital, and helped define an entire crypto cycle. However, the first generation of GameFi was built around financial incentives that proved difficult to sustain over the long term. As rewards declined and user growth slowed, many projects struggled to maintain activity, leading to a sharp contraction across the sector.

GameFi may still return, but likely in a different form. Future projects may place greater emphasis on game quality while using blockchain to enable asset ownership and open economies, with financial rewards acting as a complement rather than the primary reason to participate. Or GameFi may simply remain a defining memory of the 2021-2022 crypto cycle, a period when crypto was widely viewed as a source of life-changing opportunities and helped create many of the industry's most recognizable names.