Axie Infinity: A Deep Dive

Introduction

Over the past few years, blockchain has emerged as one of the most valuable tools in adding value to previously illiquid assets. By adding virtual assets to the blockchain, users have been able to create wealth in new ways.

According to Pew Research, online gaming has also grown immensely in recent years, with more than one-third of teens playing video games at least once per week. Traditional gaming models revolved around players paying for the cost of the game itself and buying in-game points that added value for the user. That model has changed in recent years, with companies like Epic Games rising to popularity using a unique model that allows players to download the game for free but have the option to pay for in-game items and/or subscription services. The impact of this change was massive, with Fortnite being able to onboard millions of players in just the first few months of launch by lowering the barriers to entry by not requiring players to purchase the game. Epic Games still saw substantial revenue from Fortnite, despite its ‘free’ download cost, which demonstrated the viability of alternative gaming models. 

While games like Fortnite have innovated the earnings model for companies like Epic Games, there are innovations in the blockchain space that allow for the model to be shifted entirely.

Pay to Play vs. Play to Earn

In a traditional model, users pay to play. Pay to play means that users can subscribe to a service, purchase a physical game, or buy in-game items by loading dollars onto their gaming accounts. In a Play-to-earn model, users do not have to pay to play and instead are rewarded for in-game activity with virtual currency that can be exchanged for dollars (or other virtual currencies). The implications of this shift are enormous; the barrier to entry is removed almost entirely as anyone with internet access can play the games, and there is little to no cost to get started. On top of the ease of entry, players are incentivized to play as they are paid for their time rather than paying for time.

Axie Infinity

Background

Axie Infinity initially launched in 2018 as a traditional online game but gained notoriety with the addition of the AXS token into the Axie ecosystem in November of 2020. AXS token launched with the goal of allowing players to get paid for winning battles and tournaments on their platform in the native AXS token and SLP token. Axie Infinity Shards (AXS) are the governance tokens behind the Axie Infinity platform, while Smooth Love Potions (SLP) are the utility token. Axie uses Ronin, an Ethereum sidechain, to allow for faster and cheaper smart contract interactions instead of using native Ethereum.

Axie infinity ecosystem model

(Axie Medium)

Axie has quickly become one of the highest revenue projects on Ethereum. Axie revenue is up over 17,000% since April 1 as user growth accelerated dramatically in Q2.

Axie infinity revenue growth

Token Economics

21% of the AXS allocation is dedicated to Sky Mavis, the parent company of Axie Infinity. 7% of the AXS are dedicated to advisors, with another 8% dedicated to the Ecosystem Fund. Axie held a private sale in mid-2020 at a price of $0.08 per AXS and held a public sale on Binance Launchpad in November 2020 at a price of $0.10 per AXS. The remaining 49% of the AXS in existence is to be distributed to the community via staking and play to earn rewards. 

AXS allocation and unlock schedule
AXS allocation and unlock schedule

(https://axieinfinity.com/axs/)

AXS is hard-capped with a maximum supply of 270,000,000 AXS to be released over 65 months.  AXS is released through the ecosystem fund, play-to-earn as a reward for winning tournaments, and in the future through staking. Smooth Love Potions, on the other hand, are uncapped and are distributed based on user engagement. A few ways to generate SLP on the Axie Infinity platform include winning matches in the Arena and Adventure Mode, winning tournaments with prize rewards, and having other users interact with your land.  Smooth Love Potions, on the other hand, are uncapped and are distributed based on user engagement. The ability to earn real money from playing Axie has helped Axie establish a cult-like following, with thousands willing to watch Axie players on Twitch every day.          

Axie Infinity Twitch viewership

(Sullygnome.com)

Users can expect to receive anywhere from one to eight SLP for each win they get in the Arena against other players or in adventure mode for completing new levels.  In order to win more matches (and thus earn more tokens), users look to enhance their Axies’ skill sets and genetic makeup through breeding. Users on the platform can breed Axies using Smooth Love Potions (SLP) given to them as a reward for winning battles in-game or bought on exchanges. Once a user has bred Axies, they are given an egg which takes five days to mature. Upon maturation, users can use the new Axie in Arena or Adventure Mode to earn more SLP, breed the Axie (as long as it isn’t bred with a direct relative), or sell the Axie on the Axie Marketplace. The ability for Axies to reproduce to yield more desirable traits has led some Axies to be more valuable than others, with the most valuable Axies fetching hundreds of thousands of dollars at auction. 

Axie Infinity SLP burned vs Minted

The ability for Axies to create real cash flows through battling, trading, and breeding has produced a microeconomy in the Axie Marketplace with solid demand. In countries like the Philippines, where the average worker earns a mere $30 USD per day, Axie Infinity has inspired a cultural revolution. Users on the platform can make upwards of 250 SLP per day if they invest enough time and complete challenges, equating to over $50 USD in income if sold on exchanges like Binance. The news that you can now earn money gaming on a mobile device rather than working a day job has sparked a massive trend towards blockchain gaming overseas. As a result, Axie Infinity has become the most popular NFT platform by volume, with over 140,000 users transacting roughly $300 million USD from mid-June to mid-July of this year. 

Top Volume NFT games

As a token, AXS has managed to appreciate over 2900% since its inception in November of 2020. In the future, AXS will also allow users to earn through traditional staking, but this is currently under development. Using TheTie’s Sigdev platform, we can analyze the correlation between in-game updates and sentiment changes in the underlying AXS governance token.

TheTie AXS Sigdev

AXS Sentiment spiked from 48 to 85 after Yield Guild, a popular play-to-earn gaming guild, announced their “Axie Scholarship program,” allowing users to earn SLP using borrowed Axies and split the rewards with the Axie owners. Yield Guild currently has over 3,000 Axie Scholars at the time of writing.

TheTie AXS Sigdev

AXS sentiment spiked from 40 to 56 after Axie released an update to the Ronin Wallet, making it easier for users to bridge their assets onto the Ronin sidechain.

Origin Axies

The most valuable Axies are known as the “Origin Axies”, the original 4,088 Axies that were released at the start of the game and are marked with the Origin Axie tag. These Axies serve as a status symbol within the game, similar to holding a piece of limited edition sports memorabilia. 1,375 of the 4,088 Origin Axie supply was dedicated to in-game prizes and future promotions and were stashed for later use. These unreleased Axies were given the title “Axie Origin Coins” (AOC) and can be exchanged 5:1 for Origin Axies. At the time of writing, 1,237 AOC remains in the Axie Deployer to be released over time, according to Bloxy, equivalent to about 247 Origin Axies. Within these Origin Axies, a distinct group of roughly 30% is given the additional tag of “Mystic Axies,” which are the most valuable characters due to their rare genetic makeup and skill set, which can not be inherited. These Mystic traits are the only traits in the game that can be upgraded to ‘Legendary’ skills, making them even more powerful in battle than other Axies. Some Axies can have more than one Mystic trait, making them even rarer and thus more valuable to users. In addition to the ‘Mystic’ trait, Axies can more than one Mystic trait, making them even rarer. 

Axie Infinity Mystic Axies

Institutional Interest

While retail gamers overseas and more recently American gamers have swarmed towards Axie Infinity, Institutions have taken notice of this trend too. Delphi Digital announced their foray into the Axie Infinity ecosystem in October of 2020 by purchasing roughly $160,000 worth of Axies [shown below]. All of the Axies purchased by Delphi hold the Mystic title, with four of the Axies having three Mystic traits and one of the Axies having four Mystic attributes.

Delphi Digital Axie Infinity

Delphi Digital Axie Collection (Delphi Blog)

At the time of writing, there are only four Axies with three Mystic traits for sale on the entire Axie Marketplace, with the cheapest ask at 1200 ETH or just over $2,300,000 USD. There is only one Axie with four Mystics for sale, asking for 3,500 ETH or just under $7,000,000 USD. With prices where they are after a sizable crash in the greater crypto market, it is safe to say that Delphi will see a healthy ROI on the 5 Axies they purchased less than ten months ago.

Axie Scholarships

Axie has also incentivized holders via alternative passive income programs that allow users to earn from the Axies themselves. Users with idle Axies can take advantage of the Axie Scholarship Program, where you can ‘sponsor’ other players who are willing to split the profits. Since the cheapest Axies available on the market sell for $100-$150 and 3 Axie are required to begin battling, the cost to start playing Axie is roughly $400.  Since $400 is a sufficient barrier to entry for most of the world, this program benefits both parties, allowing users to earn yield on their Axies and lowering the barrier to entry for those who would like to play by allowing them to get started for free. In exchange for borrowing their Axies, owners are paid a share of the rewards earned by the borrowed Axies as high as 45%.

Axie Infinity Scholarship Post

         Examples of Scholarship Posts in the official Axie Discord group

With an income of 150-200 SLP per day at a market price of 31 cents, one can expect to make a passive income of 52-70 SLP per day, equivalent to $16-$21 per Axie. For early users owning over 1000 Axies, the potential earnings could be as high as 78,750 SLP per day or $24,400 at current market prices.  Despite the serious earnings potential that comes with sponsorship, there is currently no formal marketplace for Axie lending, although it is in the works! (See Q & A Below). All sponsorships on Axie are made through peer-to-peer sponsorship groups run on apps like Discord with a fixed number of players and sponsors.

Axie Infinity Lending Earnings

Market Stats

Roughly 175,000 Axie users have done $338,000,000 in volume over the last 30 days ($1920 per user); we can see that Axie has become the dominant player in the space as far as in-game spending.

(https://dappradar.com/ethereum/games/axie-infinity)

Axie Infinity Market Stats

Axies lower barrier to entry compared to similar projects and strong growth has propelled it to the most talked-about NFT project on Twitter, surpassing Decentraland’s $MANA in early July of 2021.

Axie Infinity popularity

Updated Roadmap

(https://whitepaper.axieinfinity.com/roadmap)

Q & A With the Axie Team

Q: Are there any plans for an official Axie lending program rather than scholarships? – if so, would this be on-chain?

A: Yep – working on it

Q: Are you looking into other layer 1s as ETH becomes more congested?

A: No

Q: How do you think EIP 1559 will impact Axie?

A: It should be a positive thing. We are Ethereum bulls.

Q: Any plans on integrations with other gaming platforms or titles?

A: Not as of this time.

Q: Any updates on Project K from Sky Mavis? 

A: It’s a work in progress 😉

Q: Anything special coming up we should keep on the lookout for?

A: Axie:Origin later this year.

Conclusion

Overall, Axie Infinity is poised to continue scaling its user base exponentially due to the high incentives that come with playing the game and the growing fanbase. Axie is the most talked-about NFT project on Twitter, with a long-term sentiment score above 97 and garnering over 3,0000 unique tweets a day at the time of writing. In the future, AXS staking will further reduce the outstanding AXS supply, incentivizing holders to stake their AXS for a share of the protocol revenue. Axie lending, which is also in the works according to the Axie team, will allow all users to earn yield from their spare Axies providing an alternative stream of income that will further incentivize holding.

Appendix

Figure 1