NFTs, DeFi, and GameFi, What’s the Difference?

6 min readDec 21, 2021

Just a few months ago, Decentralized Finance (“DeFi”) was the talk of the cryptosphere. Now, with 50% of all active cryptocurrency wallets connected to games, GameFi has officially surpassed DeFi globally in terms of user popularity. The gaming craze has officially begun; daily, we are seeing upwards of 80–100 million in-game transactions, and, monthly, there are upwards of 70 newly released play-to-earn crypto games.

What is particularly exciting about GameFi, and perhaps why it has become so popular, is that the technology seamlessly blends two of its predecessors in the decentralized world. Those two trends are non-fungible tokens (NFTs) and decentralized finance (DeFi). If you lack a background in crypto, jumping into the waters might be pretty daunting. So, in today’s article, we will be discussing a simple question: what is the difference between DeFi, NFTs, and GameFi?

Components of GameFi

GameFi has only been around for about a year or two. In fact, the first mention of the term “GameFi” appeared on Yearn.Finance’s founder Andre Cronje’s Twitter in 2020. Though, technically, the first instances of GameFi in its truest sense — referring to video games embedded with blockchain-based decentralized finance elements — have been around far longer. In fact, early Minecraft servers were integrated with the Bitcoin blockchain.

However, it was the invention of the Ethereum blockchain and its on-chain decentralized applications, or “dapps,” that truly allowed GameFi to take shape. Since then, developers have leveraged this technology to create digital assets like non-fungible tokens (“NFTs”) and decentralized finance (“DeFi”) dapps. Now, GameFi seamlessly blends these technologies to create a diverse ecosystem of games with various income earning models for their players.

What Are NFTs? How Do They Fit Into GameFi?

Technically speaking, NFTs, or non-fungible tokens, are just units of data stored on a blockchain. In practice, they are typically associated with a digital media of sorts, which could refer to an image, song, and audio, among others. As alluded to by “non-fungible,” these units of data are non-replicable and non-interchangeable, which is the concept that allows individuals to own the exclusive rights to an NFT and what allows NFTs to grow in value as digital assets.

NFTs have made waves and befuddled many as news of multi-million dollar NFT purchases take place each and every day. For example, Steph Curry and other famous NBA players have dropped a pretty penny to collect NFTs from the Bored Ape Yacht Club NFT collection, which is a 10,000-piece NFT collection of various digital art pieces depicting apes. The collection was released in April 2021, and each ape in the collection was sold at a starting price of 0.08 ETH. Now, with the celebrity hype and general buzz that NFTs have garnered, the minimum price for an ape would cost you about 50 ETH, or about US$200,000. Yes, people are spending $200,000 — and some even more — on digital drawings of apes.

Many struggle to understand the value in NFTs; though, in play-to-earn gaming, the value of NFTs becomes much more apparent. In GameFi, developers have created virtual games and worlds in which players can use NFTs to play games and even earn NFTs as a source of income. For example, the game CryptoKitties was among the early adopters of games that leveraged the Ethereum blockchain to represent in-game assets as NFTs. In the game, players could purchase, breed, collect, and sell virtual cats. These CryptoKitties are NFTs, which means that each cat is unique, non-interchangeable, and holds value. As such, players pay ETH, the digital token native to the Ethereum blockchain, to buy or breed new kitties in hopes that they can later sell them for a profit.

The value that these NFTs represent in GameFi is not only as a unique digital asset but also as the idea that these NFTs are requirements to play a game. In addition, in many instances, these are play-to-earn games, which means that beating levels, successful raids, or beating other players — depending on the game — will earn players real-life cryptocurrency or more NFTs. So, while CryptoKitties may not have apparent tangible value at first glance, there is a willing bidder out there that recognizes the potential of that NFT to increase in value or unlock additional opportunities to earn more income through in-game accomplishments.

What Is Decentralized Finance (“DeFi”)? How Does It Fit Into GameFi?

DeFi is the concept of providing financial services on decentralized blockchains through the use of smart contracts. Various applications have been built under this umbrella term, including decentralized exchanges, lending protocols, prediction markets, yield aggregators, among others. The goal of DeFi is to widen access to financial services by removing traditional intermediaries like banking and financial institutions from the picture. In theory, and given the low barrier of entry into crypto — simply a device with an internet connection — DeFi envisions a world in which a farmer in India has the same access to financial services as a Wall Street banker.

While the exact origins of the concept are uncertain, it could be argued that decentralized finance, or DeFi for short, arose with the creation of the Ethereum blockchain. With its scalability and ability to support smart contracts, Ethereum’s 2015 launch beckoned to developers across the globe. In response, a wide array of decentralized applications, or dapps, with various functions were born.

Interestingly, there have been a variety of use cases of DeFi concepts in GameFi. DeFi concepts like staking, liquidity mining, and yield farming have gained a strong foothold in many games. For example, the popular Aavegotchi is a collectibles game focused on DeFi-staking NFTs. In the game, players can collect Aavegotchis, which are ghost-like characters that have unique collateral stakes, traits, and wearables. Players can stake their Aavegotchis with interest-generating tokens. As the platform is powered by Aave, staking will contribute to the Aave lending protocol, and players generate returns on borrowers’ interest payments.

Overall, DeFi concepts in GameFi have allowed developers to create diversified income streams for gamers. While most games offer play-to-earn models in which further and more advanced levels of gameplay will net the gamer with higher amounts of crypto or more valuable NFTs, DeFi uses in GameFi have opened up more passive forms of income. Users can employ DeFi protocols to stake their NFTs, mine liquidity, farm tokens, and otherwise create a passive income stream from their gaming achievements.

The Future of GameFi

NFTs and DeFi have revolutionized the concept of GameFi. Sure, while GameFi’s essence was captured in early games that were situated in the blockchain, NFTs and DeFi have created much more substantial opportunities for players to generate income. In the years to come, expect developers to blend these concepts further in order to create more unique income opportunities for hopeful gamers. And, expect Kyoko to be there at the center of it all, keeping play-to-earn gaming accessible and profitable for all.

About Kyoko

Kyoko.Finance is a cross-chain GameFi NFT lending market for guilds and players. Kyoko’s Guild-to-Guild lending, P2P NFT lending, and cross-chain asset lending platform aims to solve the most pressing issues challenging the GameFi market, including the rising cost of entry and siloed in-game assets across different blockchains. Kyoko’s metaverse will also allow Guilds to display their history, progress, and other accomplishments, while players can connect with others in a world that can be built in, developed, and sold off.

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