Axie Infinity was created in 2018 by Trung Nguyen, Aleksander Larsen, and Jeffrey Zirlin. Following this, it was developed by Sky Mavis based in Vietnam. Axie Infinity raised nearly $10 million USD via several ICO’s and sales of in-game NFT’s from 2018-2020. Sky Mavis also raised over $160 million USD from several VC firms since 2019. Even though Axie Infinity has been live since 2018, it only began to explode in popularity in early 2021 after Sky Mavis introduced the Ronin sidechain. Both SLP and AXS were originally on the Ethereum network as ERC-20 tokens until April 2021. They now primarily exist on the Ronin Blockchain (an Ethereum sidechain). This was intended to lower fees to play the game but also made it more centralized.
Axies (the creatures in the Axie Infinity universe) are born into 1 of 8 categories, with each category having its own strengths and weaknesses. If you are familiar with Pokémon, this concept is very similar. For example, an Axie born into a Fire category will have an advantage over the Grass category yet having a weakness to the Water category - exactly how the game mechanics work in Pokémon. However unlike Pokémon, each Axie has 6 possible body parts out of 500+ that they are randomly born with. Each body part is further defined as a dominant (37.5%), recessive (9.375%), or minor recessive (3.125%) which provides many different possible Axies. The breeding mechanism randomizes their abilities and stats, this essentially functions as their inherited genetics.
In order to play Axie Infinity, you must first purchase 3 Axies (which exist as NFT’s). Axies can range anywhere from a few hundred USD up to tens of thousands of USD. Generally the better the Axie, the more expensive. It is also important to note that just because you spend a lot of money on your Axies, that doesn’t mean you will earn your money back. So it’s very important to not think of this as an investment, but rather as a game with the potential to earn.
In Axie Infinity, you can use your Axies to trade, battle, and breed. Trading your Axie NFT’s are pretty straight forward, you would trade one Axie for another. You might be asking yourself, “Why would I want to do this and what purpose does it serve?” Well when breeding, you might be looking for a specific genetic trait. Breeding produces an offspring with a randomized genetic profile that is based off its parents. Doing this also helps you breed stronger Axies that you can battle, ideally winning matches when versing other players or NPC’s in adventure mode. Winning matches against other players or NPC’s allows you to rank up and win SLP (Smooth Love Potion). The more you play, the more you earn, hence Play-to-Earn. SLP is a token that can be exchanged for other tokens that you can then sell for real-world fiat.
SLP, AXS, and breeding.
SLP or Smooth Love Potion as previously stated can be exchanged and sold, but is also required for breeding. Each Axie can only be bred 7 times, each time requiring more SLP. Smooth Love Potion can also be used to purchase in-game items. The SLP used from either purchasing in-game items or breeding is burned. Although, because it is constantly being created whenever you win games it is inflationary.
Breeding also requires AXS which is a token that you purchase or earn via PVP. Although to earn AXS from PVP you need to be in the top ranks of the leaderboard at the end of each season.
AXS or Axie Shards and SLP are the 2 main tokens that are used in Axie Infinity. AXS is also a governance token, and the fees from breeding go to the Axie Infinity treasury.
In August 2021, SkyMavis made some economic adjustments to ensure the longevity of the project. This was mainly because the amount of SLP minted compared to the amount burned had been imbalanced (due to an explosion in adoption). These adjustments are as follows:
The amount of SLP that can be earned each day from PvE (Adventure mode) has been halved from 100 to 50
The reward for completing the daily quest has also been halved from 50 SLP to 25 SLP
PVP SLP rewards increase at a steeper rate as a trainer’s rating improves
Also in August, FTX crypto exchange teamed up with Yield Guild Games to provide scholarships for Axie Infinity players. Scholarships were created by the Axie community which basically involve lending Axies to players who can’t afford to buy the 3 Axies they need to play from the Axie Infinity Marketplace. This will allow low-income players to earn SLP so that they can buy their own Axies after accumulating enough money to do so, also allowing a way for other players to earn passive income from their loaned Axies.
Shortly after this announcement Axie Infinity hit 1 million daily active users and a few days later they hit $1 billion USD in NFT sales. 1 week later Coinbase listed AXS.
However, towards the end of August this came with a bit of FUD. The Philippine Department of Finance warned that any citizens must pay taxes on income generated through the game, also warning SkyMavis that they could face sanctions on the grounds that it’s operating a business without a license in the country. Although the Philippine government hasn’t determined whether Axie’s in-game NFT’s are securities or currency, this is still something to be mindful of.
In Sept. 2021, Axie Infinity released a report that showed that the total value locked on the Ronin sidechain had increased 3x, while the daily active users had grown to 1.5 million
In response to this growth, SkyMavis adjusted the economics again by increasing the SLP cost per breed, while reducing the AXS cost per breed from 2 to 1 AXS.
Days later NFT sales on the Axie Infinity Marketplace hit $2 billion USD.
At the end of September, Axie Infinity released its AXS staking rewards starting with a mind-blowing 1200% APY. Staking rewards obviously declined later, but are currently around 114% APY with no minimum amount to stake and no unlock period. Staking can also easily be done using the Ronin Wallet browser extension.
Around this same time Axie Infinity airdropped over $50 million USD worth of AXS to its early users totaling around $5,000 USD per player.
In Oct. 2021, SkyMavis announced that they had raised $152 million USD in a Series B funding round. This was also followed by an announcement by Arca who launched a $30 million USD fund with a NFT gaming focus. It’s a fair assumption that some of this money will make its way into the Axie Infinity economy.
At the end of October, Axie Infinity price skyrocketed from the hype following Facebooks ($FB) rebranding to Meta.
In Nov. 2021, Axie Infinity launched its Ronin decentralized exchange or DEX called Katana, which is an AMM (Automated Market Maker) like Uniswap (UNI) or Sushiswap ($SUSHI). Unfortunately, Katana only offers 3 trading pairs. Despite this, the total value locked on Katana is currently over $1 billion USD.
As a part of this launch Axie Infinity announced the release of its RON coin which will be used to pay for gas fees and secure the Ronin sidechain. To incentivize Katana liquidity, 10% of RON’s 1 billion total supply will be rewarded to liquidity providers who stake their deposits in both SLP/ETH and AXS/ETH. The rewards for these pools were activated later that week with the hopes that it would accumulate AXS, SLP, ETH, and USDC to Katana.
A very important note is that RON is not for sale but can be farmed by using SLP.
The day following the launch of the Ronin DEX, FTX teamed up with Solana Ventures and Lightspeed Ventures to inject $100 million USD into gaming oriented crypto projects.
Also in November, an Axie Infinity guild known as CGU (Crypto Gaming United based out of Singapore) announced that it would be providing scholarships for Axie Infinity players’ worth up to $4,000 USD with a pension plan.
The Price Analysis
Since January 2021, AXS is up almost 10x with a very strong uptrend. Axie Infinity has a large market cap, which means that it will take more investments, adoption, and money if it’s going to reach new all-time highs.
AXS stakers are earning rewards, and very likely selling. When you take this is to consideration, AXS has an aggressive vesting schedule when compared to other cryptocurrencies which will create some price resistance.
According to CoinGecko’s WayBack Machine, 10 million AXS have entered circulation since July. However there is some good news, it seems that the sell pressure is being offset by the continued adoption of Axie Infinity creating demand.
When looking at the data, it’s possible we could see a 2x from current price before the end of this bull market. Although the same can’t be said for SLP which has seen a 6x increase in its total supply since July. Another potential reason for SLP’s price resistance is the concentration of SLP by whales, with the top wallet holding 27.67%. This means that we could be seeing some price manipulation, which would be fairly easy for these whales to do considering SLP has a small market cap.
AXS is an ERC-20 governance token for the Axie Infinity Metaverse that exists on the Ethereum blockchain that was also built into the game. AXS holders can stake their tokens and earn passive rewards in return. They can also access different in-game features, but most importantly they have governance roles in Axie Infinity.
Unlike other blockchain-based games, SkyMavis only holds 20% of all AXS tokens. This means that it doesn’t have the necessary voting majority to impose a decision despite the users’ preferences.
In early 2021, Axie Infinity launched the Community Treasury, which receives revenues that Axie Infinity generates. In addition, it stores a portion of staking rewards. AXS stakers will govern the Treasury as soon as the network reaches sufficient decentralization.
The Treasury receives inflows from:
25% of all Axie NFT Marketplace transactions
The AXS portion of the breeding fee
Depending on the project’s development, the Treasury should increase its inflow streams. The company looks at cosmetic sales, tournament entry fees, licensing fees, and others for this purpose.
Axie Infinity worked closely with Delphi Digital (a leading cryptocurrency research firm) to develop AXS tokens and a staking guide for holders.
The project will unlock the total supply of AXS tokens for 65 months, starting from the public sale. Also, the initial circulating supply will be up to 22.22% of the total supply (59.985 million AXS). The entire supply will never exceed 270 million AXS.
The Play-to-Earn mechanism will receive 20% of the total supply (54 million AXS), during Q1 and Q2 2021.
Staking Rewards will receive 29% of the total supply (78.3 million AXS), starting with Q1 and Q2 2021.
The Ecosystem Fund will receive 8% of the total supply (21.6 million AXS), some will be unlocked and the rest will be locked.
SkyMavis will receive 21% of the total supply (56.7 million AXS), some will be unlocked and the rest will be locked.
The Project Advisors will receive 7% of the total supply (18.9 million AXS), some will be unlocked and the rest will be locked.
The Public Sale event will receive 11% of the total supply (29.7 million AXS), and is unlocked.
The Private Sale event will receive 4% of the total supply (10.8 million AXS), some will be unlocked and the rest will be locked.
AXS is currently trading for just over $100, with a circulating supply of 61 million AXS ad a market cap of $6 billion USD.
Axie Infinity is currently in the process of releasing its own Metaverse called Lunacia, similar to the Sandbox and Decentraland. Lunacia consists of 90,601 parcels of LAND which exist as NFT’s. The difference from other Metaverses is that it has its own law with a central quest to save the princess. Most of the LAND will be owned by the Axie Infinity team and private investors.
Most of the 2022 roadmap seems to focus on LAND gameplay and a goal to release an improved mobile app. They will also be working on Lunacia SDK which will make it possible for users to customize their LAND and create their own in-game quests.
When looking at long term goals, Axie Infinity is aiming to create and launch a social network. In an interview Jeffrey Zirlin said that the next generation social networks will be found in games, not interfaces like Facebook and Twitter. In July Jeffrey Zirlin noted that the team will eventually introduce burning mechanisms for Axie Infinity. This is backed up further by a blog post for Axie Infinity, where it talks about the eventual ability for users to release their Axies into the wild in exchange for crafting materials. These crafting materials could be used to upgrade LAND, Axie body parts, and LAND items. They could also be used to create consumables and buy/roll cosmetics.
In this same blog post, they also discuss the release of new features and Axie game modes that would increase demand for Axies through access to new experiences and utility.
Another note is that the Axie team is working to make the game available on Steam, which gives Axie Infinity exposure to millions of gamers.
Axie co-founders also discussed concerns to the decentralization of Axie Infinity’s ecosystem. The original roadmap noted that this would happen by 2023 but seems to be missing from its updated roadmap. In an August interview, Aleksander Larsen said that it could be at least a decade before Axie Infinity becomes fully decentralized.
Concerns and Conclusions
A major concern of both fans and critics is sustainability. It seems nearly impossible for Axie Infinity to continue to provide profits for players forever. This is because its sustainability requires new players to join and purchase Axies, and because each new player must purchase 3 Axies, this increases the price of existing Axies. An increase in the price of Axies incentivizes existing players to makes new Axies which in turn increases the demand for SLP and AXS required for breeding. This would cause both cryptocurrencies to go up in price. If you are thinking to yourself that this sounds like a Ponzi scheme, you’re not alone. On a positive note however, Axie Infinity is still in the early stages of its adoption with the potential to bring in millions of more players. This gives the project years not months.
The Axie Infinity team is working to expand the ecosystem for the long term to a point where each Axie will be like an admission ticket to all its applications and use cases that the Axie Infinity ecosystem has to offer. The Axie team is hopeful that with enough use cases for Axies, Axie Infinity will sustainable for the next decade.
This is of course assuming that it won’t be dragged down by regulators. Sorry for the FUD, but this only increases in likeliness as the game increases in growth and adoption. So it will be important to watch the Philippines as they will be among the first to do so. The FatF or Financial Task Force recently release its finalized crypto recommendations. In these recommendations are provisions that would require companies like SkyMavis to collect KYC from all users or face regulations and/or sanctions.
In response to this in a July interview, Jeffrey Zirlin said that mass adoption is the best protection against aggressive crypto regulation because at the end of the day the nation-state will bend to the collective will of its people.
Lastly my other concern is the fact that their servers are under a lot of strain due to the exponential adoption of the game, which will only increase over time.
Not financial advice.
DYOR. DCA. BTD. HODL.
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