Understanding DeFi Kingdoms: The Gem on Harmony Chain, a GameFi + NFT + DEX Hybrid
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Understanding DeFi Kingdoms: The Gem on Harmony Chain, a GameFi + NFT + DEX Hybrid
DFK aims to become the first fun play-to-earn game to capture mindshare across multiple blockchains, already competing with Axie Infinity for market share.
Navigating Web3 tides with focused insightsAuthor: Hans HODL
Translation and Editing: AZer Aize
At the beginning of 2022, looking back at GameFi projects from 2021, I personally believe Defi Kingdoms (DFK) will continue to perform strongly in 2022. Why? Because over the past few years, it has sat at the intersection of three major cryptocurrency trends: DeFi + NFTs + multi-chain collaboration.
DFK aims to become the first fun play-to-earn game to capture user mindshare across multiple blockchains. It has already gained market share from Axie Infinity, whose user base is relatively small and confined solely to the Harmony blockchain. DFK’s two key features are its decentralized exchange (DEX), where users can trade various crypto assets, and its hero NFTs, which players can use to summon new heroes, complete quests, and eventually compete against others in PvP battles. Compared to other ecosystems we’ve seen so far, DFK’s in-game economy and hero NFTs are among the most user-friendly. Regarding their DEX, users who stake the governance token Jewel in the treasury receive 30% of all trading fees. For liquidity providers, most initial token rewards are distributed through staking locks rather than early allocations to VCs and insiders during seed rounds, as is common with many other projects. Even within the hero ecosystem, much of the cost associated with summoning new heroes is recycled back into the system.
Thirty percent of all summoning fees are later redistributed as quest rewards to players, while 10% of summoning fees go to xJewel stakers in the treasury. As the project expands multichain—toward Avalanche and beyond—active players on Harmony will receive airdrops. Even considering future roadmap milestones, certain land purchases and upgrades in the game will be available only to those actively completing quests and leveling up heroes. Currently, many existing DeFi projects suffer from token designs that offer little real benefit to holders. By integrating these tokens into a well-designed in-game economy, players are incentivized and rewarded to become active participants.
GameFi refers to the convergence of three distinct technologies
In short, GameFi is the intersection of Metaverse, DeFi, and NFTs. It's an emerging ecosystem where players actually own the ecosystem itself. It’s about NFTs doing something meaningful—not just JPEG monkeys selling for millions with no purpose beyond speculation. It’s about decentralized finance becoming part of a world you enjoy spending time in. It’s about a metaverse beyond Facebook, where geographical boundaries fade and even economically disadvantaged individuals can benefit through scholarship programs.
A set of data:
To understand comparable industries, let's examine the market caps of the broader crypto sector, DeFi, Metaverse/GameFi, NFTs, and traditional gaming studios.
1) Today’s total cryptocurrency market cap exceeds $2.3 trillion
2) DeFi as a sub-sector has a market cap of $249 billion
3) The NFT market is valued at around $50 billion
4) Leading blockchain game Axie Infinity could be worth $10 billion
5) The two very small dots you see in the bottom right corner of this chart represent DFK’s current market value, calculated by the market cap of Jewel (DFK’s native token — $432 million) and the protocol’s TVL (Total Value Locked — $280 million)
The two small dots in the lower right represent DFK’s current market cap and TVL (room for growth)
Overall Overview
You might be wondering, “Why should we expect this project to take off and capture a larger slice of the pie?”
Great question. Here’s why.
1. DFK is at the forefront of a major emerging trend: the metaverse.
2. So far, no blockchain game has achieved massive success and widespread adoption across multiple blockchains. This represents a multi-billion dollar market gap.
3. The market is oversaturated with DeFi projects that offer nothing beyond liquidity mining, with dwindling rewards.
4. Too many GameFi projects have raised hundreds of millions but haven’t shipped anything meaningful yet (mostly just play-to-earn).
5. Points three and four lead us to an irresistible conclusion: there’s too much liquidity chasing too few quality opportunities.
6. DFK introduces functional NFTs—an industry first—that redefine what NFTs can even be.
7. The team is delivering and communicating well with the community.
8. The roadmap is ambitious, including interchain kingdom wars and PvP guilds.
9. The tokenomics were expertly designed and executed with help from DreamerDFK, former VP at Goldman Sachs.
10. While many current GameFi games originate from traditional industries, DFK offers a perfect solution.
Let’s discuss each of these points in turn. I think if you stick with me to the end, you might fall into FOMO just like I did. Not financial advice—just analysis for reference.
The Metaverse Mega-Trend
There’s still no true blockbuster GameFi title
There is currently frenzied capital pouring into the metaverse—a level of excitement rarely seen in financial history.
For example, Facebook announced it would rebrand as “Meta” to focus on the metaverse. In the past two months alone, over $8 billion in VC funding and new capital has flowed into this space (crypto and metaverse, especially the latter).
Now, if you quickly search for metaverse games, you’d assume Axie Infinity dominates. Axie isn’t new, but recently launched its own sidechain to operate outside Ethereum’s high-fee environment (where transaction costs range from $20–$400).
But the big news was that their scholarship program suddenly provided living wages to Filipinos below the poverty line. That was novel and exciting. However, with SLP prices down over 90% in recent months, such programs are now hard to sustain.
Moreover, the entire Axie ecosystem runs exclusively on the Ronin sidechain. If SLP prices keep falling, the utility of the whole ecosystem may come into question.
DeFi Degeneration and Endless Yield Decay
In a world where most global debt now carries negative real yields, DeFi shocked traditional finance with unimaginably high returns—could this trigger a crypto subprime crisis? Nobody knows for sure.
Still, DeFi persists and grows. Despite the massive pullback since China’s policy-driven crash in May 2021, many protocols still hold billions in capital.
Wouldn’t it be great if there was more to it than just chasing LP rewards for worthless governance tokens?
Liquidity Hangover in the Metaverse
The global economy is awash with excess capital, thanks to the Federal Reserve and global financial systems creating trillions without a plan to resolve the bubble. Consider this:
Source: https://fred.stlouisfed.org/series/WALCL
It would be excellent if some industry or large project could absorb this liquidity—but remember, no amount of capital can force people to play a game; it must have solid fundamentals.
Where Will Hot Money Flow?
Eventually, it becomes clear the market craves novelty—something organic, fun, unique, and entirely different. DFK provides exactly such a destination for hot money.
Another way DFK stands out (if any) is its unique retro pixel art style.
Website: https://game.defikingdoms.com/
Innovation in DeFi Kingdoms
At this point, I want to dive into how DFK innovates. Instead of buying NFTs just because “NGU tech” (numbers going up), NFTs in DeFi Kingdoms have real utility. Let’s start with the first class of NFTs—Heroes!
Source: https://game.defikingdoms.com/#/tavern
In this image, you see the tavern where you can buy, sell, or even rent heroes. Each hero is unique and has the following attributes:
1. Primary and secondary classes
2. Generation and current experience level
3. Summoning count (ability to create more heroes)
4. HP/MP/Stamina and rarity ranging from Common to Mythic
5. Eight stats (one or two with bonuses) and four professions (one specialization)
Other games have heroes too. What sets DFK heroes apart is both their current utility and the extensive functionality planned on the roadmap.
For example, if you own a hero, you can:
1. Complete profession quests and earn skill points (fishing or foraging)
2. Collect another form of in-game currency
3. Use your hero to summon additional heroes
4. Rent your hero to other players
5. Sell or trade your hero
6. Level up to improve stats and stamina
Soon, you’ll also be able to:
1) Mine with your hero, unlocking gem rewards
2) Place your hero in gardens to boost farming rewards
3) Equip your hero with other NFTs
4) Hatch pets to enhance your hero
5) Participate in PvP combat
6) Join guilds
7) And ultimately undertake harder quests for greater rewards and items
We could go deeper—other games likely spark discussions about in-game currencies and deep NFT economic models—but for brevity, we’ll pause here on the economic model.
Even more important: the team
You can learn more about the DFKDAO team—GodofCoins, Anesem, and Satsdart—to better understand this project. Without a strong team, you can't build a strong community. Without both, a game cannot survive long-term.
What makes a good team? In DFK’s case, they’ve laid out a detailed roadmap and executed it consistently.
Source: DFK Discord
DFK originally launched on the Harmony blockchain. The core game token is called Jewel. Jewel can be staked in the Bank, where a portion of every Jewel transaction increases the value of xJewel, held by stakers. xJewel is the governance token and occasionally drops in-game items like land, gear, or other rewards.
The first expansion will occur in Q1 2022, bringing DFK to the Avalanche (AVAX) blockchain. AVAX is an order of magnitude larger than Harmony (ONE). When this happens, we could see a massive influx of new users. But if you’re worried this launch might dilute Jewel’s value, think again.
When the game launches on AVAX, a new token (Crystal) will reward users similarly to Jewel. But crucially, Crystal will be distributed to existing Jewel holders. All Jewel used on AVAX must be bridged from the Harmony chain. In other words, the supply remains capped at 500 million tokens. So if 10x more users arrive while supply stays fixed, we face massive demand with completely inelastic supply—economically bullish by over 10x.
Regarding the Jewel reward system, developers created a clever mechanism ensuring long-term holders, early adopters, and loyal supporters receive the best incentives. See the next chart showing the LP reward unlock schedule in DFK.
Source: https://docs.defikingdoms.com/how-defi-kingdoms-works/the-gardens
You’ll notice early adopters get the highest rewards, but these are mostly locked initially. Over time, total rewards decrease, but the unlocked portion increases. The Epoch system below illustrates the lock/unlock schedule for Jewel (mining on Harmony typically takes about a week per epoch, though some are longer).
Source: https://docs.defikingdoms.com/how-defi-kingdoms-works/the-gardens
Looking at this schedule might make you wish you could go back in time to catch 256x gains, right? Just know we’re currently in Epoch 14. With the upcoming launch of Crystalvale (the Avalanche expansion), we’ll get a second chance to participate.
Another thing worth discussing is the mechanics of Gardens and the Bank—excellent examples of thoughtful tokenomics.
In the image below, you see the DFK Gardens, where you plant seeds to earn rewards—functioning similarly to UniswapV2 (in fact, the code is forked).
Source: https://game.defikingdoms.com/#/gardens
Currently, rewards for providing liquidity to these pools are extremely high—over 800% APY. But to encourage long-term thinking, reduce flash loan attack risks, and promote active participation, several mechanisms are in place.
First, depositing and withdrawing in the same block incurs a severe penalty (25% slashing fee). Second, withdrawal fees drop from 8% after one hour to 0.01% after about a month. Third, 31% of all rewards—locked Jewel—are not claimable until July 2022 (depending on Harmony’s average block speed), after which all locked rewards begin unlocking linearly.
This linear unlock will take a full year to complete, while demand for Jewel may surge significantly. Why? As the main phase of Jewel rewards ends, Crystal issuance ramps up. Remember, you need Jewel to earn Crystal, and DFK on AVAX could eventually be 10x larger than on Harmony.
Additionally, the “Kingdoms & Land” phase is approaching—holders of Jewel may receive a free kingdom via airdrop. If not, there will be another opportunity to purchase, but I’ll cover that later.
If that’s not enough, plans (though not fully detailed) exist to expand to two more blockchains, repeating the process twice more. Which chains? Unclear—but if I had to guess, watch Polygon (MATIC) and Fantom (FTM). Will their power tokens be called Amethyst and Sapphire? Pure speculation.
So potentially, there could be four (or more?) chances to participate in power token launches, land sales, zero-gen heroes, and more!!
The Bank
Another cool system in DFK is the Bank. If you dislike the risk of impermanent loss (IL), you can safely deposit Jewel into the Bank for modest rewards and some xJewel.
Source: https://game.defikingdoms.com/#/bank
Each time Jewel is traded, a portion of the fee goes into the Bank, gradually increasing the xJewel exchange rate. For example: suppose the xJewel rate is 1.5. If you deposit 150 Jewel, you receive 100 xJewel. Later, if the rate rises to 1.7, withdrawing your 100 xJewel gives you 170 Jewel—more than your original 150. The brilliance is that you always get back more Jewel than you put in, even if the growth rate is lower than that of Liquidity Pools (Gardens).
But the Bank’s utility doesn’t stop there. Developers want to incentivize staking Jewel to increase its value for everyone. So they run regular airdrops and raffles for xJewel holders, offering chances to win Mythic, Legendary, or Rare amulets.
Amulets will be the first wearable gear in the game—but certainly not the last. They’ll provide stat boosts to heroes, though exact mechanics haven’t been revealed yet.
Game Mechanics Continued
The best games don’t let you make easy decisions. — GodofCoins
Consider Axie Infinity’s flaw—the only strategy is to farm SLP before the price crashes.
What about DFK? No one truly knows the optimal strategy because, frankly, the game has many nuances and engaging incentive layers. It really depends on your interests.
For instance, you could dump everything into liquidity pools. Buy zero-gen heroes and summon more. Acquire multiple heroes and run profession quests for passive income. Deposit large amounts into the Bank to win rare items. Level up heroes and flip them for more Jewel. Build the strongest hero and form the top PvP guild. Buy land and decorate it.
Many top players try everything!
All popular GameFi projects today suffer from homogenization and problems
For example, many friends playing Pokémon GO face the same issue—one item is always scarce, another is overflowing. Meanwhile, your friend needs what you have too much of, but can’t use it? That’s the problem.
This is a universal game problem—and it's simple: insufficient liquidity. Items aren’t tradable, so you’re stuck with things you don’t want and can’t access things you do—unless you pay. And once you pay, you don’t even own what you bought!
Think about it. How much is that caught Pokémon worth? That legendary sword in World of Warcraft you grinded for months—what’s its resale value? Zero. It belongs to the platform. Your best hope is trading it for petty cash in the company store—feels like forced labor.
But in DFK, your heroes and everything they produce are your property. You can complete a quest and sell the loot for stablecoins, Bitcoin, Jewel, etc. It’s yours. Do whatever you want with it.
Conclusion
When we broaden our view of a project and its industry, the impact of GameFi projects extends far beyond what people currently perceive. DFK positions itself as the first fun play-to-earn game to capture user mindshare across multiple blockchains. It has already taken market share from Axie Infinity, whose user base is limited and confined to the Harmony blockchain. DFK’s two main features are its decentralized exchange—where you can trade various crypto assets—and its hero NFTs, which can be used to summon new heroes, complete quests, and ultimately compete in PvP battles. Compared to other ecosystems I’ve seen, DFK’s in-game economy and hero NFTs are the most user-beneficial.
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