Axie Infinity was launched in 2018 by Vietnamese game developer Sky Mavis and went viral in the second half of 2021, three years after its launch.
Axie Infinity is a P2E (Play-To-Earn) card battle game where players have to buy three cute Axies to start gaming. Players can earn in-game tokens SLP (SmoothLovePotion) and AXS (Axie Infinity Shard) through daily quests and battles, or earn cryptocurrency by breeding Axies to sell.
SLP is the in-game incentive asset that can be earned through battles. It’s used for breeding and trading Axies. AXS is the governance token for proposing and voting on improvements. Players who win in-game duels or complete required tasks will receive SLP as the reward, while AXS is the monthly ranking reward. Since these cryptocurrencies are convertible to fiat currency through exchanges, which means players can earn real-life income through the game. Axie Infinity attracted two million players in its heyday, most of whom were new to the crypto space.
Players need to spend SLP and AXS to strengthen their Axies or to breed more Axies, so as to earn more tokens. Specifically, each Axie can only breed 7 times and inbreeding is not allowed, while each breeding consumes 4 AXS and a certain amount of SLP. A 4.25% fee will be charged to trade an Axie. In this way, Axie Infinity has built a closed economic system. As more and more new players join in, the token’s price rises. In the first half of 2021, Axie Infinity’s daily active users swell rapidly from 38,000 to 2 million. According to Token Terminal, its revenue peaked at $17.55 million on August 6, far exceeding most traditional games.
Axie Infinity went viral in the Philippines
In 2020, Covid-19 rapidly swept the world. During the pandemic, the unemployment rate in the Philippines reached a record high of 17.7%, and more than 100,000 Filipinos working overseas were repatriated. One of the reasons for the popularity of Axie Infinity was the scholarship system of the Yield Guild Games (YGG): players could rent three Axies from the Guild at a low price, and the Guild arranged lessons for these newcomers, teaching them how to win. Successful players were often able to earn up to $700-2,000 per month, well above the average monthly income of the average Filipino. At that time, 40% of Axie Infinity’s players came from the Philippines.
In July 2021, Axie Infinity exploded in popularity with an influx of gamers, bringing in huge revenues. In October 2021, it attracted investment from a16z, Paradigm and other big names, finally, it received $152 million in Round B financing. It was valued at approximately three billion dollars by Game developer Sky Mavis in October 2021.
In 2021, Axie Infinity saw exponential growth in users, successfully introducing millions of people to cryptocurrency. At its peak, Axie had over 2 million active daily users. A number of imitations emerged, sparking the GameFi, such as DNAxCAT (a cat-themed P2E game on the BSC) and Crabada (a hermit crab-themed P2E game on Avalanche).
Thanks to the promotion of the guilds including Philippine gaming guild YGG, Axie Infinity quickly attracted a large number of players. And as Axie Infinity became more well-known, the influx of users created performance challenges for the project. Users found that transactions on Ethereum were not only slow but also expensive.
In February 2021, Sky Mavis developed its own new Ethereum sidechain “Ronin”, who’s faster speed and lower price contributed to Axie’s takeoff a few months later. Sky Mavis chose to develop its own sidechain to enjoy control and flexibility over the sidechain. The consensus mechanism used by the Ronin sidechain is PoA (Proof of Authority), which relies heavily on trusted verifiers. In May 2021, Axie Infinity was fully migrated to the Ronin chain.
Efficient but Less Decentralized
The PoA mechanism has a small number of verifiers and a high degree of centralization. The transaction processing is extremely fast and the fees are almost negligible, which makes fast and convenient on-chain transactions possible in the Axie Infinity. The game’s tradable assets include Axies, SLP, AXS, and WETH. With its updates, there will be some new tradable props such as Land, Items, Bundles and other types of NFT.
Some consider PoA to be a modified version of PoS. In PoA, it is the reputation in the community that is staked rather than the token. Typically PoA algorithms rely on:
a valid and trustworthy identity, with high morality and no criminal record
the candidate should be willing to invest and stake his or her reputation
consistent criteria for screening candidates to ensure the integrity and reliability of the system
In the initial stage of Ronin, Sky Mavis set up 9 verifiers, but 5 of them were under the control of Sky Mavis. The over-centralization and mismanagement of private keys led to the hack in March 2022, which had nothing to do with the security of the contract code. Instead, it made people beware that while all blockchains are pursuing fast transactions, high throughput and low fees, over-centralization may lead to protocol governance attacks or malicious verifiers confirming invalid and illegal transactions.
Risks of Ronin Bridge
The Ronin chain is a side chain of Ethereum. If you want to transfer assets between the two chains, you must use the Ronin Bridge. When users put 1 ETH into the Ronin Bridge, they can get 1 ETH on the Ronin chain at a 1:1 ratio.
The assets on the Ronin chain are valuable because they can be exchanged for valuable assets on the Ethereum mainnet. Therefore, if the Ronin Bridge is attacked and the tokens are stolen by the hackers, the assets on the Ronin chain will lose their support and the price will fluctuate drastically.
Is Axie Infinity Dying?
Axie Infinity was the first popular Play-to-Earn game in the crypto space, and its token economic model brings many lessons for subsequent GameFi projects. Axie Infinity has a “dual token” mechanism, with a game token SLP and a governance token AXS.
SLP is an ERC-20 token on Ethereum. Users can get SLPs through matchmaking games and need to consume SLPs when breeding Axies. Due to the demand from a large number of new players in the early stage, the SLP price rose to $0.36 at one point. However, due to the excessive issuance of SLP tokens, insufficient destruction and uncapped issuance mechanism, Axie experienced an inflationary crisis and the supply of SLPs exceeded the demand.
Since November 2021, due to the depreciation of SLP, players have no longer been able to earn as well as they did in previous months. So lots of players are leaving the game. The death spiral of SLP has been caused by the game itself, such as the lack of other revenue streams, and the gradual decline of new players and active players per day. SLP is currently priced at $0.004, down nearly 99% from its peak of $0.36.
The Ronin Bridge Hack
In March 2022, hackers attacked the cross-chain bridge between Ronin and Ethereum, stealing $620 million worth of cryptocurrencies from Ronin. However, Sky Mavis did not monitor the hack timely, and the project was not aware of the attack until six days after the theft, when players were unable to claim ETH.
The Ronin sidechain is based on the PoA (Proof of Authority) consensus mechanism, which requires the approval of only 5 out of 9 verifiers. In this way, the transaction speed is increased and the handling fee is reduced. However, because it is highly-centralized and the private key is not kept well, hackers took control of five of the verifiers. After the hack, the Ronin sidechain was closed and then reopened on June 28, 2022 while Sky Mavis promised to fully compensate players for their losses.
On April 7, 2022, Sky Mavis received $150 million in round B financing led by Binance with participation from Animoca Brands, a16z, Dialectic, Paradigm and Accel to restore capital to the Ronin sidechain. However, in July 2022 Binance said it had scaled back its investment and would not lead the new round.
From November 2021, Axie Infinity began to wane as SLP prices dropped dramatically and many players stopped playing the game because there was no incentive to do so. Players in Argentina, Venezuela and most guilds in the Philippines began to drop out in 2022.
By late March 2022, the game’s daily active users had fallen from 2.7 million at the end of 2021 to 1.5 million. The crypto market experienced a frenzied decline in the first quarter of 2022 amidst the recession brought by the Russian-Ukrainian war and inflation. And the price of SLP, AXS and Axie NFT outpaced the decline of the overall cryptocurrency market. In 2021, an Axie cost up to $200 while the cheapest Axie in 2022 costs less than $10.
(Source: Axie Infinity)
The game developer Sky Mavis is trying to change the rules of Axie Infinity to make it more interesting. It intends to change the rule from Play-to-Earn to Play-and-Earn, making Axie Infinity more than just a moneymaker. By changing the rules and the eligibility for rewards, the number of SLPs issued will be controlled and the economic model will be improved.
The game recently launched a free Axie Infinity Origin version where players can get three free non-NFT Axies to get familiar with it but can not earn SLP, so as to attract more new users. In addition, a land stake campaign was released in July this year, allowing players to earn AXS through staking, and it is reported that over 90% of the land has been staked. However, the marketing campaign in recent months still doesn’t lead to sufficient bullish trends, and how to increase the playability of the game will be a major test.
Axie Infinity undoubtedly opened up a new race track for GameFi, and as a pioneer, many of its plans were executed for the first time. Although the boom after the second half of 2021 was not as spectacular as before, as the price of the main revenue token SLP dropped and the number of players plummeted, the new era it created will definitely make a great mark in the history of cryptocurrency.
As the GameFi cools down and a number of well-known game studios enter the market to develop new projects, it will be very difficult for Axie to maintain its leading position. In the later stage, investors who are interested in entering the market are recommended to experience the P2E (Play to Earn) model that combines games with cryptocurrencies to inspire some new perspectives.
For example, how is it different from the previous online games? How can users make money by playing games? Where do the earnings come from? Is this token economy sustainable in the long run?
In a word, no matter what kind of operation is carried out, it is essentially using the current assets to obtain a higher yield in the future. It is still necessary to take into account various factors that affect the yield, such as game updates, smart contract security, token price, actual liquidity of NFTs and so on.