The Hidden Danger to the Axie Economy that NOBODY is talking about.
My name is Bill Gains. I’m an investor, breeder, manager, mystic axie holder, land owner, player, MAJOR AXIE MAXI… and I never once thought about taking profits until all this discussion regarding SLP mint rate, burn rate, and price. As a mod in the Axie Infinity telegram, I hear every possible complaint and suggestion you can imagine… And it’s really starting to get to me. While hoping that someone else would provide everyone else with an in depth look at the state of the economy, I realized that I likely needed to take it into my own hands. The part that drives me craziest is that the Axie economy is actually really healthy, with a lack of saturation of both Axies and SLP… and if something is not done about either of these things, we will experience economic boom and bust cycles that will negatively impact new players, and is overall bad for the health of our economy. We need to be realistic with our expectations, and also realistic with our potential future growth. As a salesperson, my responsibility in my company was not only to have an indepth understanding of the products that I sell, what the customer want, and also how MUCH of everything needs to be ordered at a time, while calculating 3 month lead times on production. I’ve taken the same approach with my business in Axie, and identified months in advance the issues that we would experience as an economy, and took advantage of the opportunity. Now I’m here to tell you what happened, why, and how we can better control the ebbs and flows of our hype cycles.
THE TRUE VALUE OF SLP
I run a scholarship program, with 170 active scholars currently. I managed to pull this off by investing in SLP at 3.2 cents… which at the time I found undervalued. I figured the value for SLP should be somewhere along these lines… SLP$=(Value of human labor * time taken to farm) * hype. It’s a totally abstract equation, yes, but the most important part is SLP is the tokenized form of human labor. It is the equivalent to farming gold in a game… and right now I believe that value is completely out of line.
My goal is to create opportunities for people in developing nations who are suffering. My interest in having scholars produce SLP has nothing to do with how much money I am earning, only the fact that I am creating an opportunity for someone who is in a not so great situation. This is not supposed to be a full time job for them, and it’s not… This is a 90 minute a day gaming session for them, that they get to earn money from. It’s chance to earn a little bit of money, not to create a job that is better than the average wages. The value of SLP earned daily should be left to the people investing in SLP, and as someone with a background in commodities trading, I view SLP as the tokenized form of human labor to play a video game. With the valuation being based solely on the price of labor I would say the tangible value of SLP is around $0.01–0.03, mixed with hype factor and the axie economy it should be valued somewhere between $0.03 and $0.10 if we want to see stability in the market and minimize pump and dump cycles. If SLP adjusts downwards more towards the true price of human labor, we can conclude it should be profitable to add more axies to player teams, which will allow them to play and earn more hours of the day, while also contributing to the SLP burn.
Referencing wikipedia, due to a lack of knowing where else to look, there are 43 countries in the world where the average earnings are less than $1,000 a year. If these countries start entering the axie market in droves, do you think that the true value of SLP is going to remain at even $10 per 90 minutes of farming a day? They will be earning anywhere from 1/10th to 1/100th of their annual salary for playing a video game for 90 minutes a day. I think first and foremost the axie community should be focused on creating opportunities for these people, and stop focusing on the SLP price.
Now this is not to say that given the appropriate amounts of hype and demand that SLP price cannot soar to new all time highs, but just trying to look at SLP and figure out a realistic price evaluation for SLP as a commodity. I believe there will be times were we can hit 60 cents plus, even without making any changes to the economy, but I don’t think the team should be doing anything other than offering incentives for liquidity providers and creating NEW SLP sinks.
IDENTIFYING THE TRUE ISSUE BEHIND THE ECONOMY… LIQUIDITY.
Have you ever wondered what SLP was like before ronin? We had to pay ETH gas fees to claim… So it was kind of a big deal when we claimed. I used to own 25–35% of the LP pool on uniswap. Price impact on .5 eth was over 5%… I spent a lot of time swing trading on my own liquidity, racking up massive amounts of fees and also SLP. I pulled this liquidity at around 7 cents, and dumped after SLP pumped from 5 cents to 44 cents. The price pumped 800% when ronin launched due to LOW LIQUIDITY. The price dumped down to 5 cents again, and then pumped back up to 40 cents. This kind of price movement and volatility is not good for the health of our economy and community, as ultimately people will end up buying the pumps and losing value on their axie price as the market corrects.
I have some excerpts above from a conversation I had back in March with someone from the axie telegram. There will always be bottlenecks in the Axie and SLP supply unless we get high amounts of liquidity to provide cushions for the price impacts and the pumps and dumps. Turns out I was right about some things, but totally off base about where we were going to be player wise… which only took my predictions to an extreme.
Even with the current rates of production, we aren’t even generating that much extra SLP. On our days with the lowest burn rates, we are experiencing a surplus of 100,000,000 slp per day? That’s only 55,000 new players at 600 SLP cost per axie (3 breed average cost). What happens in the next hype cycle? Whether it be in 1 month or when battles v2 comes out, we need the surplus of SLP we are creating in order to deal with large population growth. Even a player growth of 100%, from 1.4m to 2.8m players would require 2,520,000,000 SLP burned to meet that demand in one month, which is less than the surplus we are producing in one month now. Our current supply of SLP right now is 1,536,091,017 SLP on ETH and 1,863,958,905 on ronin… despite the panic around SLP minting rates, this just simply isn’t enough to sustain short term cycles of large growth. Heaven forbid we see another hypecycle of 200%+ player growth in a month, or we will have skyrocketing axie prices and SLP prices as well as a dump on both after that hype cycle is over. Also, realistically, what is our projected player growth as important mile stones come out? Battles V2 including release on iOS App Store, Google Play Store, Steam, Free2Play starter axies… Land Gameplay Alpha… Land Gameplay… and so on? I don’t think even at the mint/burn rates we have now that we will realistically be able meet the demand long term.
Since most players aren’t breeding the axies to 5–7 times, the burn rates of SLP are going to be low, and that has to do with the price being high and the profitability (or lack thereof) of breeding multiple times. I’m not sure the difference between increasing breeding fees now, or having lower SLP prices so players just breed more times on their axies. I feel as if increasing breeding cost in SLP is only going to slow the rate of new axies produced, creating a bottleneck on the supply, when the increasing rate on breeding was supposed to mitigate that issue already. An alternative to increasing breeding cost by a percentage across the board, could be to increase the cost of first 3 breeds and leave the higher breed count as is, or do away with scaling breeding fees all together and impose a flat rate of the average cost of 7 breeds. This would cause 2070 SLP to be burned per breed, which would cause a tremendous amount of burn, guaranteeing investors that their axies can only be created through a significant amount of game hours, protecting the price of axies instead of causing people to breed once or twice to maximize their profits. Alternatively, perhaps, the team could start the curve higher and taper it off so the first breeds have an increased price, but the later breeds increases are reduced a bit. I feel as if there are a lot more creative solutions than adjusting simple tokenomics, which lead to large short term market impacts.
Future Bottlenecks
Despite all the panic and concern regarding SLP price, there is no argument for saturation of axies in the market. The average axies per holder continues to decline, meaning most players are stuck playing the same three axies day in and day out. THAT IS SO BORING. If there was over saturation of SLP, there would be more breeding going on, and that would result in the average axies per holder increasing. I can safely say that if this isn’t a persuasive argument for WHY we should leave minting rates alone, I’m not sure what is.
The current number of axies on the market place is just BARELY over 5% (5.012%) and based off the current sales from the last 30 days, paired with current rate of production of axies we actually BARELY have enough axies. If 100% of all bred axies are put on the market, at a rate of 60,000 a day, paired with the existing axies on market, we just barely have enough to continue our current rate of growth. Considering I only put about 1/3 of my axies up for sale, I don’t think 100% of all bred axies are going to marketplace.
So why are we making changes? It’s very apparent that there is not saturation of axies. There is not a saturation of SLP (sure, more is being minted than burned, but that’s needed for liquidity). So from an economic standpoint I’m absolutely dumbfounded at the notion of proposed changes.
The Tweet…
This tweet from JIho has sparked much fear into the people who are investing into the axie economy.
Decreasing the AXS portion of the breeding fee only negatively impacted the people who are investing into your economy (the breeders). When the breeding costs were cut by half, the value of my 150 eggs in incubation lost 2 AXS worth of value (since axies value is partially based off the materials value). This caused me to have a really weird loss of some 300 AXS worth of value that I would have been better off holding before you made this change. I’m not expecting anyone to see it exactly my way, but in my view I lost over $20,000 in the tangible value of my eggs because of a sudden economic decision the team made. This has negatively impacted the breeding rates, the price of axies, and faith in some investors, as the market makes short term adjustments to these long term changes.
As you can see the new axies per hour has only been on a decline since the last AXS change. Making ANOTHER change to the price will not have a positive effect on the economy or breeding, at least in the short term, if we are to base that assumption based off previous experience. This could be a simple correction as everyone is trying to make adjustments as they raced to the bottom to dump axies before the “cheaper” axies came to market. Despite there being absolutely zero difference in the USD cost to breed when the change of 4 to 2 axs took place, floor axie price still lost $120-$130 value, and most meta axies did as well. Ultimately this leads me to worry that if I invest money into breeding axies, that they may be devalued at any time by economic changes, and my $2000 meta PVP axie that’s hard to breed may become valueless as it becomes cheaper and cheaper to breed. These kinds of changes can make the tangible value of most axies almost valueless, and I think this is a big concern for any person (players and breeders) contributing to the economy of the game right now.
I agree that increasing SLP cost to breed, while decreasing AXS cost to breed could work for managing SLP prices. I don’t really like the notion of making the lions share of materials put into an axie as what can be farmed in a game. I feel as if with this change we will see a slow and steady decline in axie price as SLP is farmed. It will increase SLP burn, but I’m not really sure that’s what the economy needs long term. Again, I believe our issues stem from liquidity in both axies and SLP. What I am worried about with these changes, is whether or not it results in a lot of 1 or 2 breed axies on the market. Perhaps a flat rate for breeding instead of a curve for breeding costs can be a more viable solution, as it increases the average cost of SLP for the first few breeds, while making it cheaper than it is now to breed 5–7 times.
Decreasing SLP issuance will not change the value of SLP farmed per day, as the market value will always drift towards the true value of human labor in the market. Decreasing it will inflate SLP prices, sure, but the true value of a player playing axie is always going to remain the same. Decreasing SLP issuance hurts breeders who are trying to continue to create the ability for new people to have accounts. Focusing on providing people artificially inflated SLP prices by manipulating them, which now pushes axie price UP and makes it harder for people to start playing axie, negatively impacting player growth.
I would also like to note that nowhere in the whitepaper is it ever disclosed that the team would step in and make economic decisions around SLP and AXS, or breeding fees. This omission can be very confusing to investors who don’t keep up with AMAs, interviews, every announcement and substack article, and so on. When I invested into AXS and SLP I never had any idea that these kinds of things were going to occur.
PROPOSED LONG TERM ECONOMIC SOLUTIONS
My proposal is simple, offer incentives for liquidity providers. If we want to avoid pump and dumps and create a stable economy around SLP, we need to create an incentive to hold it. RoninDex could give SLP/AXS or SLP/WETH providers AXS from the treasury, which would give the people playing the game a way to earn AXS, while helping the overall economy. There would be less incentive to dump it, as you could earn a passive income from it. We need this liquidity to grow long term, and I wholeheartedly believe that manipulating the economy is the worst any institution can do. With this implementation, you also no longer need to reduce AXS cost for breeding as the axs goes back to liquidity providers so they can make axies with it. Furthermore, building this LP rewards system where they get a portion of the AXS from the breeding fees, would create a type of economic scale. If the demand for SLP is high, and the breeding rates are high, the rewards for LP holders is excellent, offsetting any impermanent loss they may occur from price fluctuations. If the breeding rates are low, it could benefit LP holders to invest the AXS they have earned into breeding axies.
If this kind of LP rewards structure isn’t sufficient by itself, then perhaps introducing SLP bonds, with rewards in AXS. Since the team doesn’t own much, or any, SLP, this is your way to create liquidity sources by giving AXS payouts from the treasury. Helping provide liquidity as new players enter, absorbing the price impact, and rewarding your players. Once Sky Mavis starts marketing Axie Infinity, we are going to need it, and as people who want to assist the economy so much, this is a way for you to help out with the SLP liquidity issues.
SLP sinks are another good one. A once seasonal mystic lottery where you buy tickets with SLP and it’s burned. SLP sinks inside land gameplay, from operating and building buildings, to paying for resources and items. SLP sinks are really only required once we have sufficient liquidity in SLP to allow for large player growth.
Breeding events. A surefire way to spark breeding is to have a breeding event similar to the Christmas or Japanese axies. This would be a really good thing to do if you do go forward with making adjustments to the cost of breeding, as it will spark interest in breeding, instead of just giving us breeders something to complain about.
Changing the breeding curve so that first few breeds cost more, while 4–7 cost less, or even changing the breeding fees to a flat rate per axie. Potentially create a system of rewards for 7/7 breed axies to encourage people to really work their studs.
Slow Price Adjustments for AXS… I.E. instead of dropping the cost of AXS from 2>1 overnight, have the cost drop 0.03 AXS for 33 days. Minimizing the price impact on your breeders. When it was dropped from 4 > 2 and everyone dumped their axies in a mad rush, I wound up selling 60 virgin axies for materials fee only (600 SLP + 2 axs) to my scholars because I was going to get about the same on the marketplace anyway, and my value in them was more than that, so I ate the loss and let them take advantage of the changes. These changes impact the economy so strongly that it negatively impacted breeding rates for every manager I know.
Marketing? There has been $0 spent on marketing on this game. If we need new players in this economy, Sky Mavis has the money to do it. The thing is that unless we have the LIQUIDITY we will run in to bottle necks again, causing pump and dumps.
IN CONCLUSION
Regardless of what SLP price is, Axie will continue on. My only fear as someone with a massive amount of exposure in this game is that the team will continue to manipulate the economy instead of play by the rules they previously established. The dollar value for playing a video game for 90 minutes a day will eventually reach stability, but if our goal is the health of the axie economy, I would say we need to stop making such severe changes. We have to prepare ourselves for player growth… 10 million, 20 million, and beyond. If we are stuck in a cycle of pump and dumps then new players panic sell when it’s not going the way they want. If we’re stuck in a cycle of market manipulation, there will be severe short term negative impacts on the market that will take time to correct, and make breeders unhappy. I believe that providing liquidity rewards, breeding events, and new SLP sinks can be our solution, and the Axie Team doesn’t need to make changes… just build solutions to our problems. My only hope is that both Axie players and Staff alike can agree to one thing… lets all STFU about SLP price and do what we all came here to do… enjoy this amazing game. See you in the Arena fellow Lunacians!
Questions we can ask ourselves as a community…
What should drive the tangible value of an axie?
What should the ideal price point for bar of entry be for Axie? $500? $1,000? $1,500? More? Less?
What is the amount of time a player should spend playing the game to be able to breed a new axie?
How do we make sure that the choices we are making instills trust in new people investing into the economy?
