As one of the biggest profit makers in the world, crypto is often misunderstood as a “Ponzi Scheme” for not being a sustainable industry. Critics believe that crypto projects have no actual business model or don’t make any profits. Truth is the crypto industry has developed a number of continuous revenue-generating models including DeFi, the NFT market and GameFi.
Decentralised Finance as a Growth Driver
An increasing number of people have admitted the benefits of blockchain technology. Originated from the world’s biggest crypto Bitcoin and backed by transparency and traceability, blockchain technology can be massively adopted in traditional industries such as finance and supply chain. Meanwhile, financial activities in the traditional sense are more frequent than ever in the crypto-native realm. As a matter of fact, Decentralised Finance (DeFi) has become a good option for many crypto investors.
Different from centralised banks or traditional financial institutions, ERC20-based DeFi protocols like Compound and Aave allow users to lend and borrow different tokens through collateral of coins that are less volatile in market cap, for example, ETH and DAI. Holders of Ethereum get to borrow different tokens based on their asset portfolios without actually selling their coins, while lenders of crypto will receive interest in return. An organic circle of financial behaviours, therefore, is closed, generating a sustainable financial ecosystem that is worth billions of dollars in crypto.
DeFi users are rewarded both by the usage of these protocols and the collateral token’s value appreciations against fiat money. According to The Block, top DeFi protocols produced more than $359 million AUD in revenue for token holders and users in April. The striving crypto market in macroeconomic terms has prompted the growth of DeFi sectors and DeFi returns the favour through injecting more energy in the crypto market as total value locked (TVL) in DeFi reached $ 220 billion AUD in October.
Crypto projects like Yearn.finance prove the possibility of continuous self-production in the value of the DeFi sector. Founded by Andre Cronje in 2020, Yearn.finance is an aggregator that helps users to maximise DeFi profits through liquidity mining. The project is a huge success, attributed to its innovation, governance and talent, it has been built into something superior by diving deep into the subdivided areas of finance and offering integrated products of insurance, options and flash loans etc. YFI, the native token of Yearn Finance, once surpassed the market price of Bitcoin.
NFT Markets in Fans Economy
Apart from the financial industry, crypto is also rejuvenating art in a digital form, building a different world of artwork and collectibles. Non-Fungible Tokens are revolutionising the art-centred digital economy and helping artists take back the ownership and value of their works from traditional tech giants as creators are capable of finding their fans and interacting with them directly. NFT markets like Opensea and NBA Top Shot have been generating profits for participants in an incredible way.
A leader in the NFT market, Opensea has been drawing attention from both the crypto and art world ever since the eruptive sales of profile pictures like Cryptopunks and Bored Ape. Creators are able to mint, sell artworks and receive payments altogether through a few clicks on Opensea. Combining the functions of banks, galleries, promoters and art labs, Opensea acts as a starting point for future artists and is insanely popular among the crypto community. According to stats from Dune Analytics, Opensea registered a transaction volume as high as $4.28 billion AUD in August alone, making it a strong platform even against traditional mega online marketplaces like Amazon. That is probably why different venture capitals are investing heavily in the platform.
Similar to Opensea, NBA Top Shot created a brand-new market targeting culture and community. Tokenising the video clips of Basketball players in the game, it allows fans to “own” the passion and athlete’s performance of those moments through the ownership of NFTs. NBA Top Shots proves that IP-based NFTs are possible, which broadens options for entrepreneurs and companies who want to grow their business around show biz and pop culture. Think of the unlimited potential of the market when NFTs of music, film or comic books are gradually embraced by their fans.
The dynamics of the crypto industry will only push forward the growth of the NFT market. Many newcomers are surprised to learn of the record-high figures of artworks sold on Opensea, which in turn intrigues them to find out why. More NFT markets like Rarible, Super Rare, Nifty Gateway are heating up the competition and providing more categories of choices for users.
Despite the fact that most of the above dApps are based on the Ethereum blockchain and are being challenged by high gas fees, network congestion problems, evolving technology and intensified competition will drive them towards perfection. Opensea, for example, is also deployed on Polygon to solve scalability issues. It is believed that the self-driven and innovative nature of the NFT marketplace is making the industry a steady and replicable profit generator.
GameFi and Play-to-earn
One of the incremental markets that blockchain and crypto have built from traditional industries is GameFi. The gaming industry is going through rapid growth after the outbreak of the pandemic as it fulfils the online social and recreation needs of players worldwide, while allowing players to keep a proper social distance to prevent infection. Though the Free-to-play (F2P) model in the traditional gaming industry means that players get to play games for free, they will have to pay more to get a better user experience as they progress.
GameFi changed everything. The success of Axie Infinity made it known to the public that games based on blockchain using a play-to-earn (P2E) model can be viable. Founded in 2018, Axie Infinity now ranks first among top collections according to DappRadar. Players of the game can earn AXS, the native tokens of Axie Infinity, through battles in the gaming system, cultivating and developing virtual land, breeding pets and using the exchange market. The game attracted a lot of users and grew. Integrated with NFT assets, the game manages to balance the supply of gaming assets without deluging liquidity, hence preventing the possible devaluation of tokens and assets in the game. Moreover, players get to make decisions about the future of the game through the Decentralised Autonomous Organisation (DAO) and control their own roles in the game, which increases their loyalty to the game and boosts the market value of the tokens.
This is how a virtuous circle is built. People are making money out of games in regions like the Philippines, where the unemployment rate surged to 40% because of the pandemic and Axie Infinity helped many players make their living through playing the game.
The business model that made Axie Infinity successful can be borrowed and used in more crypto projects of GameFi. Gaming guilds like Yield Guide Games can establish a social network that bridges traditional game IPs and provide early adopters of P2E more options while bringing more users to those games. Combining DeFi, NFT and gaming, GameFi is considered an indispensable part of the metaverse market that will be worth trillions of dollars in the foreseeable future. Though some argue that P2E games are not complicated in design or fun level compared with that of traditional games, it is possible that these problems will be addressed as the rejuvenating and recyclable profit generation pattern of P2E has attracted funds and attention from both traditional gaming companies like Ubisoft Entertainment and blockchain VC companies like Paradigm. Joint expertise of both game design and crypto-economics, together with sufficient talents and funds, will hopefully create more complicated and economically plausible crypto games that will not only beat traditional ones in profits, but also in quality.
The very nature of crypto makes it a sustainable industry and a robust sector fuelled by constant innovation and refreshingly fast growth in creation. Crypto adoption is injecting new energy to traditional fields including finance, art and games, thus improving the global economy in an unnoticed way. The crypto industry has evolved from primitive transactions in centralised exchanges to more complicated activities like DeFi . The rising tide of the NFT market place and GameFi has showed us that crypto can impact the real economy in a positive way. Satoshi Nakamoto created Bitcoin as an effort to reshape finance and save the global economy. The increasing number of use cases and crypto adoption have proven that crypto is not a bubble or a scam, it is here to stay and will make the world a better place.