Axie Infinity was launched by Vietnamese game developer Sky Mavis in 2018, but it only started gaining popularity in the second half of 2021, three years after its release.

Pioneering the P2E (Play-To-Earn) Gameplay

Regarding gameplay, Axie Infinity is a P2E (Play-To-Earn) card battle game where players initially need to purchase three cute Axie creatures to start battling. Players can earn in-game tokens SLP (Smooth Love Potion) and AXS (Axie Infinity Shard) through daily missions and player battles or by breeding Axies and selling them to earn cryptocurrency.

SLP is an in-game reward asset obtained through battles and can be used for breeding and trading pets, while AXS is a governance token used for proposing and voting on game improvements. Players earn SLP rewards by winning battles or completing specific missions, and AXS is awarded monthly based on player rankings. These cryptocurrencies can be exchanged for fiat money on exchanges, allowing players to earn real-life income through the game. At its peak, Axie Infinity attracted two million players, most new to the cryptocurrency field.

Players must spend SLP and AXS to continually enhance their NFT pets or breed more pets to earn more tokens. Specifically, each Axie can only breed seven times and cannot breed with close relatives. Each breeding consumes 4 AXS and a certain amount of SLP, and each Axie transaction incurs a 4.25% fee. This creates a closed-loop economic system within Axie Infinity. As more new players joined, the prices of the related tokens also surged. In the first half of 2021, the daily active users of Axie Infinity rapidly grew from 38,000 to 2 million. According to Token Terminal data, on August 6, Axie Infinity’s game revenue peaked at $17.55 million, far surpassing most traditional games.

Axie Infinity is Popular in the Philippines

In 2020, the COVID-19 pandemic quickly spread worldwide. During the pandemic, the unemployment rate in the Philippines reached a historic high of 17.7%, with over 100,000 overseas Filipino workers being repatriated due to the pandemic. One reason for the explosive popularity of the game Axie Infinity was the scholarship system of the Philippine gaming guild Yield Guild Games (YGG). Through this system, players could rent three Axies from the guild at a low cost, and the guild would provide educational courses to teach new players the strategies to win in the complex card game. Successful players could often earn between $700 and $2,000 per month, far exceeding the average monthly income of a typical Filipino. At that time, 40% of Axie Infinity players were from the Philippines.

Source: activeplayer.io

In July 2021, Axie Infinity went viral, attracting a large number of players and generating significant revenue. By October 2021, the high profile of Axie Infinity attracted investments from major investment firms such as a16z and Paradigm, securing $152 million in a Series B funding round. The game developer Sky Mavis was valued at approximately $3 billion in October 2021.

In 2021, the user base of Axie Infinity grew exponentially, successfully introducing millions of people to cryptocurrency through the game. At its peak, Axie Infinity had over 2 million daily active users. Numerous imitation projects emerged, boosting the GameFi sector of blockchain gaming. Examples include the DNAxCAT project, a cat-themed P2E game based on the BSC chain, and the Crabada project, a hermit crab-themed P2E game based on the Avalanche chain.

Launching a Dedicated Ethereum Sidechain: Ronin

Axie Infinity quickly attracted a large number of players due to the promotion by the Philippine gaming guild YGG and other guilds. As the game’s popularity increased, the influx of users brought performance challenges, with transactions on Ethereum being slow and expensive for game users.

In February 2021, Sky Mavis developed its new sidechain forked from Ethereum called “Ronin.” With faster speeds and significantly reduced gas fees, the Ronin sidechain propelled Axie’s growth in the following months. By developing its sidechain, Sky Mavis could maintain control and flexibility over it. The Ronin sidechain uses the Proof of Authority (PoA) consensus mechanism, which relies heavily on reputable and trustworthy validators, essentially staking their social reputation. By May 2021, Axie Infinity had fully migrated to the Ronin chain.

Efficient But Less Decentralized

Under the PoA mechanism, Ronin has fewer validators, resulting in higher centralization but extremely fast transaction processing speeds. Transaction fees are almost negligible, enabling rapid and convenient on-chain transactions within Axie Infinity. This system facilitates all tradable assets in the game, including NFT pets (Axies) and tokens like SLP, AXS, and WETH. As the game evolves, new NFT items such as Land, Items, and Bundles have been introduced for trading.

Some view PoA as an improvement over PoS (Proof of Stake), where reputation in society is staked rather than cryptocurrency. Typically, PoA algorithms rely on

1. Effective and trustworthy identities with high moral standards and no criminal record.
2. Verification candidates should be willing to invest and stake their own reputation.
3. The criteria for screening candidates should be stringent to ensure the integrity and reliability of the system.

In the initial stages of Ronin, Sky Mavis set up 9 validators, with 5 of them under their control. However, this excessive centralization, coupled with improper private key management, led to a hacker attack in March 2022. This incident was unrelated to contract code security. Instead, it prompted reflection on the risks of excessive centralization in pursuit of fast transaction confirmation, high throughput, and low fees across various blockchains. Over-centralization can expose protocols to governance attacks or malicious validators confirming invalid and illegal transactions.

The Risks of the Ronin Bridge

Ronin Chain is an Ethereum sidechain. To transfer assets between the two chains, users must utilize the Ronin Bridge. When a user locks 1 ETH into the Ronin Bridge, they receive 1:1 ETH on the Ronin Chain.

The assets on the Ronin Chain derive their value from their ability to be exchanged for valuable assets on the Ethereum mainnet. Therefore, if the Ronin Bridge were to be attacked and tokens locked within it stolen by hackers, the assets on the Ronin Chain would lose their support instantly, leading to potentially severe price volatility.

The Current Difficulties of Axie Infinity

Spiraling Into Decline

As the first blockbuster Play-to-Earn game on the blockchain, Axie Infinity’s token economy model is a critical reference and reflection for subsequent GameFi projects. Axie Infinity adopts a “dual token” mechanism with the game token SLP and governance token AXS.

In Axie Infinity, the SLP token is an ERC-20 token on the Ethereum blockchain. Users earn SLP tokens through gameplay battles, also required for breeding Axies. Initially, the high demand from new players created a positive feedback loop, driving the price of SLP tokens up to $0.36 at one point. However, due to excessive token issuance, insufficient burning mechanisms, and unlimited supply, Axie encountered a crisis of inflation where the supply of SLP exceeded demand.

After November 2021, as the value of SLP declined, players could no longer earn substantial incomes as they did in previous months, leading many to exit the game. Factors such as limited gameplay depth, lack of additional income channels, and a decline in new and active daily players further exacerbated the death spiral of the SLP token. Currently, the price of SLP is $0.004, a decrease of nearly 99% from its peak of $0.36.

Ronin Experiences a Hacking Incident

In March 2022, hackers attacked the cross-chain bridge between Ronin and Ethereum, stealing approximately $620 million worth of cryptocurrency from the Ronin sidechain. Sky Mavis, the game developer, did not detect the hack immediately. Only six days later, when players were unable to withdraw ETH, the project team became aware of the attack.

Ronin sidechain operates on a Proof of Authority (PoA) consensus mechanism, requiring approval from 5 out of 9 validators to enhance transaction speed and reduce fees. However, this setup also led to issues of excessive centralization. Due to these centralization issues and inadequate private key management, hackers compromised five of the validators, facilitating the attack. Following the hack, Ronin sidechain was shut down and remained closed until June 28, 2022, when it was announced to reopen. Sky Mavis committed to compensating players for their losses fully.

On April 7, 2022, Sky Mavis secured $150 million in Series B funding led by Binance, with participation from Animoca Brands, a16z, Dialectic, Paradigm, and Accel. This funding was aimed at restoring funds to the Ronin sidechain. However, in July 2022, Binance announced it had reduced its investment in Axie Infinity and would not lead new financing rounds.

Possible Risks to Consider when Participating in Axie

Since November 2021, the Axie Infinity craze has weakened, with SLP prices plummeting rapidly. Many players stopped participating due to a lack of financial incentives. Starting in 2022, players from guilds in Argentina, Venezuela, and the Philippines began withdrawing.

By late March 2022, the number of daily active users of the game had dropped from 2.7 million at the end of 2021 to 1.5 million. Amidst economic downturns exacerbated by the Russia-Ukraine war and inflation, the cryptocurrency market experienced a drastic decline in the first quarter of 2022. The prices of SLP, AXS tokens, and Axie NFTs fell more sharply than the overall cryptocurrency market. During the peak of 2021, an Axie could cost up to $200, while the cheapest Axie in 2022 was priced at less than $10.

Source: Axie Infinity

What is AXS Token?

The governance token issued by Axie Infinity is AXS, primarily used for governance, token staking, payments, transactions, and mining.

1. Governance: Holders of AXS tokens can participate in governance voting, influencing major decisions and the game’s future development directions.
2. Token Staking: Players can stake AXS tokens to earn weekly staking rewards. These rewards may include additional AXS tokens or other in-game resources.
3. Payments: AXS tokens are used for transactions and payments within the game. Players can purchase game assets like Axies, land plots, and pay for participation in game activities using AXS.
4. Transactions: AXS tokens also serve as a means of payment both within and outside the game. For example, players can use AXS to pay transaction fees on the marketplace or for payments on external collaborative platforms.
5. Mining: Within the Axie Infinity ecosystem, players can also “mine” AXS tokens by completing in-game missions and challenges. These activities allow players to invest time and effort in the game to earn more AXS, representing a play-to-earn mechanism.

Tokenomics

Users can directly purchase AXS through the spot market on Gate.io.

Token Roles and Functions

The AXS token plays multiple roles within the Axie Infinity ecosystem. It serves as a means of payment for participating in gameplay and market transactions and as a crucial tool for players to earn in-game rewards and participate in governance.

Governance and Voting Rights

AXS token holders have the voting power over the direction of the Axie Infinity ecosystem. Players can vote on game updates, rule changes, and other decisions through their token holdings, reflecting the spirit of decentralized autonomous organizations (DAOs).

Staking and Returns

AXS token supports a staking mechanism, allowing players to lock their AXS tokens in specific smart contracts to support network security or participate in specific activities. Stakers can earn rewards in the form of transaction fee shares or other incentives as a return.

Transactions And Markets

AXS Token Serves As Trading Currency Within Axie Infinity Market, Allowing Players To Buy, Sell, Or Trade In-Game Assets Such As Axies, Land, And Other Virtual Goods.

Liquidity Mining

Axie Infinity encourages players to participate in liquidity mining programs by providing liquidity to decentralized exchanges. Participants can earn AXS tokens as rewards for contributing liquidity.

Token Distribution

The total supply of AXS tokens is fixed, and over time, the rate of new token generation gradually decreases, helping to control inflation and maintain token value.

Token Burning Mechanism

Axie Infinity may also implement a token-burning mechanism to reduce the supply of AXS tokens by removing them from circulation, potentially increasing the value of the remaining tokens.

What is SLP Token？

Axie Infinity, like most GameFi projects, follows a dual-token mechanism. It consists of the governance token AXS and the in-game token SLP, which stands for “Smooth Love Potion.” SLP is the in-game asset token in Axie Infinity used for breeding the in-game creatures known as Axies. Players obtain SLP in limited quantities daily through daily quests, battle modes, and adventure modes. When players use SLP for breeding, it is subsequently burned (destroyed).

Tokenomics

Users can directly purchase SLP on the spot market of the Gate.io platform.

In-game Rewards

SLP tokens serve as rewards for players’ participation in the game and completion of tasks. Players can earn SLP by winning battles, finishing quests, and participating in special activities, enhancing game engagement and reward mechanisms.

Breeding Axie

One of the primary use cases of SLP is for breeding new Axies. Players need to spend SLP to hatch Axie eggs, introducing new Axie characters into the game. This process is crucial for the continuous growth of the Axie Infinity ecosystem.

Transactions And Markets

SLP tokens can be traded on the game’s marketplace, allowing players to sell acquired SLP for other cryptocurrencies or fiat currency, thereby increasing the liquidity of game assets and players’ ability to cash out.

Token Supply

The supply of SLP tokens is not fixed but dynamically adjusted based on in-game activities and player participation. As new Axies hatch and the game progresses, the supply of SLP increases accordingly.

Token Demand

The demand for SLP is directly related to players’ demand for breeding Axies. As the player base grows and the demand for new Axies increases, the demand for SLP also rises.

Inflation and Economic Balance

The balance between the rate of SLP generation and the demand for breeding must be maintained to avoid inflation and the dilution of token value. The Axie Infinity team manages the circulation of SLP by adjusting breeding costs and game mechanics.

Community and Governance

Currently, SLP is primarily used for in-game activities. As the Axie Infinity ecosystem evolves, SLP may be integrated into broader community governance and decision-making processes.

Axie Infinity Timeline

May 2023

• Axie Infinity launched Origins on the App Store and iOS (in specific countries) and introduced Avatar Forge on App.axie.

July 2023

• Axie Experience Points (AXP) were launched and integrated into App.axie and Origins. Additionally, a new game, Project T, was introduced.

September 2023

• The Homeland game entered the Pre-Beta phase, and Lunalog was launched on App.axie.

October 2023

• At the CabsyCon event, Axie Infinity showcased the progress of its community and games.

December 2023

• Axie Infinity: Origins was announced to be available on the Google Play Store, marking a significant step towards global accessibility for blockchain games.

January 2024

• Released relevant data for 2023, including 662,647 annual active users, an average monthly active user growth of 170%, and AXS treasury revenue of $3.4 million.

March 2024

• Updated Axie Classic, including changes to the SLP burning policy, the introduction of AXS as rewards, and new in-game progression rewards.

2024

• Continued to focus on game balance adjustments, user experience improvements, and promoting decentralization through community governance.

Conclusion

Sky Mavis, the game developer, is attempting to modify the game rules to increase playability, transitioning Axie Infinity from “Play to Earn” to “Play and Earn,” so it is no longer merely a money-making tool. By changing game rules and reward eligibility, they aim to control the issuance of SLP and improve the token economy model.

Recently, a free version of Axie Infinity Origin was released, where players can obtain three free non-NFT Axies to familiarize themselves with the gameplay but cannot earn SLP, thus attracting more new users. Additionally, a land staking event was launched in July, allowing players to earn AXS token rewards, with reports indicating that over 90% of the land has been staked. However, recent marketing activities have lacked sufficient bullish factors, and increasing the game’s playability remains a significant challenge for the project team.

Axie Infinity undoubtedly pioneered the GameFi sector. As a trailblazer, many plans were executed for the first time. Despite the hype waning in the second half of 2021 following the decline in the price of its main earning token, SLP, and a sharp drop in player numbers, its innovative era has undoubtedly left a significant mark in cryptocurrency history.

With the cooling of the GameFi sector and the entry of renowned game studios developing new projects, maintaining its leading position will be challenging for Axie. For latecomers and interested investors, adopting an experiential mindset to understand the Play to Earn (P2E) model combining gaming and cryptocurrency is advisable, thus inspiring new perspectives and ways of thinking.

How is it different from previous online games? Why can you earn money by playing games? Where do the earnings come from? Can such a token economy be sustainable in the long term?

In conclusion, regardless of the operations carried out, it is about using current assets to obtain higher future returns. Therefore, it is still necessary to comprehensively consider various factors affecting returns, such as game updates, smart contract security, token price fluctuations, and the actual liquidity of NFT game items.