Axie Infinity: Re-engineering Its Destiny in the GameFi Market
Axie Infinity is a form of “extreme entrepreneurship” where success and failure can happen overnight. Can Axie change its destiny in the current global downturn and crypto winter?
Axie Infinity, the blockchain-based game that popularizes play-to-earn gaming model and is still the largest player in the GameFi space, often invites awe and suspicion. The game creates a new type of job markets and allows a quick return for game investors, while its highly volatile in-game crypto (the Smooth Love Potion, or SLP), the hacking of its Ronin chain, and the resulting new digital inequality pose threats to its own existence. Axie is a form of “extreme entrepreneurship”, whereby success and failure can happen almost overnight, subject to the dynamics of SLP. Many predictions have been made on Axie’s coming collapse and lost of trust among its players. Can Axie rise to its former glory amid the crypto winter and uncertain global economy?
As a game lover myself, I was very intrigued with Axie’s future which led to my research journey to study Axie. I talked to many Axie Managers, Guilds, and Scholars — some are still active while others have quit or remain dormant — in 2022. I joined their Discord channel, read their Tweets, watched their Instagram and YouTube posts, and be their friend. I also watched them playing Axies in real time and while asking them questions to make sense of the nitty-gritty issues in the games and assess Axie’s mistakes and potential. I offer some strategies for how Axie can re-engineer its destiny and move forward.
Axie is a complicated system with many interacting mechanisms and variables. The feasibility of Axie P2E model rests on four equations: The Demand for SLP, Supply of SLP, Supply of Axies, Price of SLP, and # New Players.
Smoothing the Demand for SLP
One mistake for Axie was having too much demand for SLP. The #New Players must be kept steady but not excessively growing to offer a smoother demand curve for SLP. This could have prolonged the game’s shelf life. The Cost to Acquire Axies — which will influence how investors and new players plan their Return on Investment (ROI) and appetite to recruit new Scholars — should be kept steady but slightly growing over time.
Another mistake is that Axie has been dominated by players from lower wage countries. This is the case since the SLP earned is highly attractive compared to their local living standards. However, it is too risky to bet on a single group of players. Risk diversification is necessary. Axie can attracting players from medium to high wage countries and focus on the game’s “fun factor” while putting the “earning factor” as a bonus. A move toward “play-to-own”, where players have a say on the game’s development, is necessary.
One of the biggest mistakes was the abuse of Axie by multi-account players — which inflated the Supply of SLP. I heard stories of single players who played up to 50 accounts using multiple mobile phones. Axie was too late to react to this problem.
Balancing the Supply of SLP
Another mistake was Axie’s gamenomics that rewards SLP for all battles won. This seriously inflated the supply of SLP, which led to the downfall of its value. One strategy is to introduce more “balancing mechanism” that burns SLPs. Examples include having SLP “penalty” for those losing a battle, or offering a lower SLP in battle T2 after losing a battle at T1. Another issue was that many players do not Cash Out their hard won SLP. A healthy cashing out ratio of SLP is needed to prevent an oversupply of SLP. Axie should keep the “gas fee” in cashing out SLPs extremely low, and can introduce a time-based system for cashing out of SLPs or losing them, and set the breeding cost optimal to burn SLPs. Uncertainty element is important in gamenomics to prevent a game being exploited by players. Unfortunately, Axie was simply too predictable to win SLPs. Another strategy is to offer a “time delay” between breeding and the birth of new Axies or even adding some SLP costs to “raise” baby Axies. A randomized amount of Energy System for Axies within 24-hour will also help to balance the supply of SLP.
Creativizing the Business Model of Axie
A key component of Axie’s business model is the Price of SLP, which is influenced by a host of factors: demand and supply of SLP, supply of Axies, the regulations on crypto, volatility of crypto, and the behavior of the SLP traders. Thus, the price of SLP is partly manage-able and partly beyond Axie’s sphere of influence. Nansen estimated that Axie’s US$1.35 Billion revenue (May 2021 to May 2022) came from breeding fees (85%) and marketplace fees (13%). This shows how limited Axie’s source of revenue is. Axie must find ways to expand its revenue sources beyond breeding and marketplace fees.
A more creative business model is necessary. To increase the #New Players, Axie must innovate and offer gaming experience beyond a “static environment” (the small square battle space), which is very boring for players. The little monsters can be allowed to wander around the Lunacia and face danger (e.g., lethal epidemic) or Axie-eating beasts — which will burn the SLP or reduce its supply. Players must be allowed to team up their Axies with other players’ Axies in a colossal fight against other Axies — like the epic battles in Gundam — thus improving new demand for SLP. Co-developing the game with indie developers is essential but this requires “profit sharing” scheme for it to work. Axie can also modify Pokémon Go’s approach by allowing players spend money on decorations, avatars, to merchandise to beef up its revenue sources.
Some of my informants suggested that Axie should allow “burning SLP to upgrade into powerful Axies”, “grow the AXS market”, and “host global e-sports tournaments.” E-sports is one lucrative arena where Axie could make a mark in.
Another mistake was the perceived lack of communication between Sky Mavis with its community. Many of my informants claimed that Axie’s next plans are mysterious. There are also complaints about the “power play” displayed by the core team in Sky Mavis against its community. This requires a cultural fine-tuning in Axie.
The Not So Bleak Future of Axie Infinity
In the midst of this crypto winter, Axie sold over 325,000 Axies at more than 3,500 ETH in total (ca. US$3.9 Million) in the last 30 days (see Axie Marketplace by 20 June 2022). In my real time experiments in the game with some Scholars in June 2022, the “time to find enemies” for each battle remains the same, suggesting that there are still many Axie players out there, contrary to the prediction that most players have left Axie. There are temptations for Axie players and managers to join other attractive play-to-earn games such as Pegaxy, a horse breeding and racing game. This is a new battle for Axie: the switchers.
Axie Infinity might not disappear altogether. It will most probably reinvent itself and chart a new destiny in the fast-changing GameFi landscape. GameFi is here to stay, as space for experimentation in the metaverse that blurs the boundary between fun and work/investing.
The author, Yanto Chandra, is Associate Professor at The Hong Kong Polytechnic University. He conducts research on entrepreneurship and organizations in the Web3, GameFi, and Metaverse. The opinion expressed is his own. He can be reached at Twitter: @yanefted
This is a re-post of an original article in the CoinTelegraph (17 July 2022).
