What is Axie Infinity?
Axie Infinity is an online game that uses blockchain technology.
It uses tokens to incentivize its users to play and earn money. As a result, it is wildly popular in SE Asia where people can often earn a living by playing the game.
The game
Axie is a game with basic graphics that is played with virtual cards and some cute monsters that are inspired by Pokemon and Tamagotchi.
The monsters are called Axies and can belong to different breeds such as aquatic, beast, plant, bird etc.
Somewhat akin to rock paper scissors each breed has a special skill that can be used in battle: some Axies are faster, some are stronger, and so on.
In each round of the game, two players take turns to pit their Axies against each other. Each player has 3 Axies that fight the opponent’s 3 Axies sequentially according to how you have laid them out.
Before the game begins you draw cards that bestow special powers to each of your Axies during that round. You then select the cards you want to use.
Your opponent does the same. Their cards are turned the other way so you cannot see what your opponent has chosen.
The first Axies battle it out and you either win by eliminating the opponent’s Axie or lose if your opponent eliminates yours. You then select more cards to prepare for the next fight. The person who loses all 3 Axies loses the round.
If you win the battle you gain Smooth Love Potion (SLP) tokens and MMR (Match Making Rating). The higher your MMR the more SLP you gain. If you lose your MMR drops but you get to keep your SLP.
You gain the most SLP if you win against another player. You can also practice battling it out against the computer game (like a normal computer game) but there you win less SLP.
The economics of the game
Axie Infinity has multiple components to its economy. You can buy NFTs for Axies, land, and land items and trade tokens for real cash or other cryptocurrencies.
There are two tokens available in the game.
The first is Smooth Love Potion (SLP). This is equivalent to getting points in a normal non-crypto game except that you can sell SLP on trading exchanges. You can also use SLP to breed new Axies.
The second token is the Axies Infinity Shard (AXS) which is the token used for governance on the blockchain i.e. you can use it to vote on decisions that are being made about the game and its blockchain.
A small amount of AXS is also required to breed an Axie. Some proportion of this goes into the platform’s treasury which they use to further develop the game and some portion goes to the game’s developers.
The Axies themselves are NFTs that can be bought and sold on the marketplace. Similarly, land in the fantastical realm of Lunacia is parceled into NFTs and sold.
In the game, you can also breed Axies. There are probabilities attached to each Axie’s genes that determine the characteristics that the new Axies will have.
How Axie became popular
Axie became especially popular in SE Asia, the Philippines, and Indonesia in particular, where players can earn $400-$500 per month.
This amount is often times more than what they would get paid for in a job. Player growth increased tremendously when the game developers developed an Ethereum side chain called Ronin.
Up until then high ETH gas fees were prohibitively expensive for many new wannabe entrants to the game. Since AXS is an ERC-20 coin you can only use ETH to purchase it.
You need AXS in order to buy the 3 Axies you need to start the game. Very often the ETH gas fees ended up being higher than the cost of the Axie NFT.
In order to address this issue, Axie’s developers deployed their own blockchain. This blockchain is Ethereum compatible but it uses its own validators and consensus mechanism to validate transactions.
These types of custom blockchains that can plug into the Ethereum network are called side chains or layer twos. The Axie developers deployed their own sidechain in order to reduce the high gas fees on the main Ethereum network. Once they made the transition their usage skyrocketed.
Until recently transactions on Ronin were mostly free. Each user could make 100 transactions per day for free.
Recently though Axie’s developers built their own decentralized exchange called Katana. Here users will be able to trade their SLP and AXS for ETH.
Hence, Ron will be used as gas fees on Ronin and as a staking reward to those who offer liquidity in the form of AXS/SLP to the DEX.
Lack of a revenue model
Many crypto enthusiasts have criticized Axie for not really having a business model. They say it is ponzi-like in that for players to make money it relies on new players joining. Also, most people are not playing for the fun of it but rather in order to make money which oftentimes they end up losing. Especially in a bear market.
Many games became inspired by Axie but have better incentive structures in place. For example check out what Genopets crypto is, a game that banks your steps and you can convert them into tokens.
Axie origins: how did the game come about?
The team that developed Axie Infinity was inspired by the Krypto Kitties game. One of the first NFT crypto games here too you could breed kitties.
The CEO and co-founder of Sky Mavis, the company that developed Axie Infinity, is Trung Thanh Nguyen, a successful Vietnamese entrepreneur and computer engineer.
After successfully founding a social network for food bloggers and being involved in some other companies Trung along with his colleagues decided to develop an NFT-based crypto game.
He believes that a lot of the success of the game comes from developing the game during a downturn in the crypto market which meant that most people playing were in it for the fun of the game rather than speculating.
This allowed them to build strong foundations with a lively community of Axie enthusiasts.
Trung founded Axie along with another four people.
- Aleksander Leonard Larsen acts as COO. Alex was a competitive gamer in Norway and met Trung online. Both became inspired by the same vision to develop Axie.
- Tu Doan is an Art director and Game designer. Tu was a cofounder at Lozi, the startup which Trung set up which we mentioned earlier.
- Andy Ho, also a previous co-worker of Trung’s is CTO.
- Finally, Jeffery Zirlin, known as Jihoz, is Growth Lead. He works closely with the product team on token design. A student of economic history his thesis at Yale was on debt restructuring.
Growth potential
The game is available for third parties to develop and create tools that will benefit the Axie community further
Axie scholarships and an expanding ecosystem
In order to start playing Axie Infinity you need 3 axies.
With prices as high as $200-300 per Axie this can be quite expensive. Enter third parties that act as intermediaries to lend you Axies.
The intermediary, often known as a guild, will lend new players Axies to play with for a % cut from their earnings in AXS and SLP.
This is a whole different ecosystem with middlemen who recruit and train new players along the way. Many users have more than 3 axies especially early adopters who were able to purchase Axies at lower prices. These players can now lend out their idle axies to earn a yield.
Summing up Axie Infinity
With a market cap of $3Bn as of February 2022 (from a height of $9Bn in November) Axie Infinity’s scale is mind-blowing.
The game is of great significance because it inaugurated the era of blockchain play-to-earn games. It will remain to be seen how this space evolves as new games join.