The developers have been more focused on tokens than on making interesting games. As a result, GameFi has been languishing.

Over the past few years, play-and-earn games powered by blockchain technology have grown exponentially.

Gamers have jumped at the opportunity to collect cryptocurrencies, or non-fungible tokens (NFTs), generated in blockchain-based games.

Through the advent of this new technology, players have been able to generate income by selling in-game NFTs or earning cryptocurrency rewards, both of which can be redeemed for fiat cash.

Because of this, according to Absolute Reports, the GameFi industry will grow to a valuation of $2.8 billion by 2028, a compound annual growth rate of 20.4% over the same period. But such predictions may well prove unfounded.

Given the exponential rate of growth in recent years, one might think there is absolutely no reason to believe this trend won’t continue into 2023 and beyond. Right? Wrong.

As we’ve seen with the ignominious case of former crypto king Sam Bankman-Fried and the implosion of FTX, a castle built on a fragile foundation of sand can easily be washed away when the tides come and go.

Or, as legendary investor Warren Buffett likes to say, “It’s only when the tide goes out that you discover who’s been swimming naked.”

We may be about to learn who these people are. The fact is that the gaming industry is not built on solid foundations. The foundations are brittle and this may well spell trouble in 2023. The whole edifice looks like it’s about to collapse.

The current structure of the GameFi market is token-centric, which creates many problems. Project owners first issue tokens that are listed on exchanges before announcing that they are going to develop a game. The game is a utility of the token they issue. So the token comes first, and the content comes later. This is why the quality and design of games in the blockchain space are underestimated.

An environment has been created where players are not that interested in the games themselves, which is a strange state for the gaming industry to be in. In fact, more and more players are investors who want a return on their investment.

The current structure creates the wrong incentives, which is one of the reasons why the system is not working. I think DeFi Kingdom s is one of the most well-known blockchain games that has been ruthlessly destroying its token economics by creating perverse incentives.

The token market is generally in a downtrend and the speculative trading market is dead. An industry can survive on promises, expectations, and unjustified hype for a while. However, it can only do so for so long. Eventually, people start to notice that they are not receiving what they were promised. Patience starts to wear thin. They get angry, they get frustrated, and they start to back off. This starts as a trickle for the most savvy players, but it quickly turns into a flood.

Those who planned to obtain funding by listing their tokens will have to re-evaluate. Many will be forced to shut down their projects due to lack of funds. The situation has become so dire that venture capitalists (VCs) who have been bullish on cryptocurrencies so far have also paused new investments.

So, who will survive this investment drought? GameFi looks unlikely. However, other blockchain games may do so.

One example is Sorare, the Ethereum-powered, NFT-based fantasy football league operator that has become a Web3 unicorn. While many competitors have struggled, Sorare has continued to grow users and revenue during the darkest of times. They have an impressive auction volume of around 300-400 Ether per day and a growing number of users.

While its backend relies on blockchain, users don’t think of it as the GameFi project. They don’t offer their native token, but they do offer their content first on Ethereum, which looks a lot like the way the industry as a whole is going.

So GameFi may very well die in 2023, but that doesn't mean all is lost. Death is a necessary part of evolution. From it, new life may have begun to emerge.