Axie Infinity: The Future of Blockchain Gaming
By Bitazza Team
For many years, the blockchain community has been excited about the advent of blockchain applications in the gaming industry. Despite the interest and numerous technological breakthroughs, we have yet to see any gaming project gain any significant traction. Using blockchain technology and a revolutionary “play to earn” business model, a gaming project called Axie Infinity shocked the world with its skyhigh revenue streams north of $30 million per week while its user base exceeded 500,000 daily active users. By far the most successful blockchain game in the world, Axie Infinity quickly garnered attention from players all over the world, especially in developing countries like the Philippines and Indonesia where players earn more than their minimum wage amidst an ongoing spread of COVID-19 and a global economic lockdown.
Axie Infinity was founded in early 2018 by a 26-year old Vietnamese blockchain developer, Trung Nguyen, with his interest in the concept of owning pets like the game Pokémon. While other games over the years may revolve around digital ownership, players are not able to really own their own pets as they rely on centralized servers to custody and process their digital assets. Not until Non-Fungible Tokens (NFTs) became mainstream was there a way for users to create, own, and use digital assets that are unique. NFTs are different from regular digital tokens in that they are unique and not interchangeable with other NFTs. For example, one NFT representing a piece of digital art is not the same as another NFT representing a different piece of digital art. Nguyen himself spent over $600 in CryptoKitties NFTs, a popular collection of digital cats. This made him realize that there is a tremendous opportunity in this sector and inspired him to start Sky Mavis and build Axie Infinity, a game with a simple yet revolutionary concept of earning by playing games centered around NFT technology.
The game Axie Infinity allows players to play the game and contribute to the ecosystem by governance and staking. Players who gather three Axies will compete and earn tokens called Smooth Love Potions (SLPs), distributed by an Axie smart contract with infinite supply. At SLP’s high, players can earn around $5-6 per game in a Player-versus-Environment (PvE) mode with a cap of 100 SLP per day equalling $27.39 given the price of $0.2739 at the time of this writing. However, in a Player-versus-Player (PvP) mode, players will be able to earn an unlimited amount of SLPs with the assumption that they win battles.
Figure 1. Axie Infinity Gameplay.
The intrinsic value in SLP comes from the gaming demands of current players, driving SPL’s price. This demand will only increase as more players join the game. Moreover, SLPs are the main ingredients for breeding new generations of Axies. This mechanism allows players to strengthen their rosters with Axies with better genetics and attributes while also contributing to the diversity of Axies in the ecosystem. Since Axies are rare, new players have no choice but to purchase these new Axies, creating a large business opportunity for digital breeders and directly creating an upward pressure on SLP’s price. Axie Infinity’s daily active users (DAUs) have increased by 1,000% from April with its Ronin sidechain launch and are currently at around 500,000 DAUs, compared to Pokémon Go’s DAUs of 1.7 million. If this trend continues, Axie Infinity will be able to outgrow Pokémon Go in months. These remarkable growth numbers contributed to the recent jumps in SLP’s price. As demand and supply stabilize, the price of SLP will see less volatility and help players plan their expected income with more certainty and sustainability.
Figure 2. Axie Infinity Community Growth Chart.
The Axie Infinity ecosystem has another token that is central to its ecosystem, the AXS token. Unlike SLP whose token’s value is primarily due to new demands from players joining the space and breeding Axies, AXS holds the long-term growth and value of the Axie Infinity ecosystem. With the recent surge in popularity, Axie Infinity’s transaction volume surpassed that of OpenSea, the largest NFT marketplace, to an astounding figure of $423 million in transaction volume per month. The company will be able to earn 4.25% of the $423 million going to the community treasury vault and distribute a percentage of that to AXS holders, a distribution mechanism to be implemented in Q3 2021 using staking and governance. Another factor to consider is that in the past 7 days, Axie accumulated over $35.8 million of revenue and, for the first time, outperformed the top 2 platforms in the market, Ethereum ($30.2m) and Uniswap ($16.2m). Despite the recent increase in AXS price, AXS is still trading at a P/E ratio of 7.66, giving it a relatively low valuation compared to the S&P500’s P/E ratio of 37.7 and to even richer valuations of over 40 in the technology sector.
Figure 3. AXS Ecosystem.
Figure 4. Axie Infinity Revenue Comparison.
Figure 5.AXS FDV and P/E ratio Chart.
As Axie Infinity attracts more players, it also entices investors looking for institutional investment in the future of blockchain gaming and NFTs. In 2019, Axie Infinity ran two seed round investments, raising $1.5 million in venture capital with Animoca Brands as the lead investor and leading digital asset investment firm Delphi Digital. It then went on to raise $7.5 million from a series A round in May 2021 from Libertus Capital and Mark Cuban, a prominent shark tank investor and billionaire. This investment and subsequent media headlines helped propel the NFT space into the mainstream market.
Axie Infinity’s performance has gone beyond many’s expectations, as it may be the standard business model in the future of the gaming industry, not to mention its record-breaking milestones in both revenue and DAU in July. The future of Axie Infinity looks very promising with its packed roadmap ahead. As mentioned before, staking AXS will be a big part of Q3 2021 as the company will be able to decentralize its network further. In late 2021, Axie Infinity will be ready for its mainstream release on iOS/Android, bringing upon mass adoption. And in 2022, we look forward to Axie delivery in Lunacia SDK Alpha providing Axie Infinity more heterogeneity and traction. Little steps have been taken, the global wealth is starting to transfer to players who are dedicated and play hard. Are you ready?
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Liberman, Yan. “Axie Trends Towards Infinity.” Delphi Digital, 14 July 2021, Accessed 18 July 2021.