Metopia Research Report — An Analysis on the NFT Asset and Governance System of Axie Infinity

Project Introduction

Axie Infinity is a Play-To-Earn game incubated by Sky Mavis, where players can earn tokens by playing Axie Infinity and contributing to the Axie ecosystem. Meanwhile, Axie Infinity is an open-ended digital pet world where Axie NFT assets are made as the admission tickets to all activities built on Axie IP. Players can battle, breed, collect, nurture and build kingdoms for their pets (Axies).

In Axie Infinity, players need to hold at least 3 Axies NFTs to gain access into the game, which can be acquired through the secondary market and other methods. It newly released a free Arena mode version, “Axie Infinity: Origin”, where players can get 3 free Axies NFTs, lowering the barrier to entry and allowing more players to freely enter the Axie world.

Game & NFT

In Axie Infinity, the Axies-like NFT asset is one of the core components of the game. Players need to fight and breed in the game and build their Axie Land on Lunacia. They can also get the corresponding items and resources. All of these are in the form of NFT assets in Axie Infinity, which players can trade with other players through Axie’s NFT trading market: https://marketplace.axieinfinity.com/.

According to Sky Mavias’ official data, Axies’ internal NFT trading market has a trading volume of $3.6B, with the highest traded price of $820K for Axie NFT and the highest traded price of $2.33M for Axie Land.

Axies

Axies is one of the core components of the Axie Infinity. Players need to have at least 3 Axie NFT to enter the game, which can be used for fighting, breeding, developing, etc.

1. Combat System.

Axie Infinity’s combat system has undergone three main landmark events.

• In October 2018, the Axie team released the first battle system built on Axie game assets.
• In December 2019, the Axie team released an Alpha version of the real-time card battling system and App.
• In April 2022, the Axie Team released “Axie Infinity: Origin” with a new battle system and a free Axie NFT version.

At the same time, Axie Team and the 3rd party sponsors held several tournaments for Axie Infinity games, where many players gained lots of profits. In the latest version of “Axie Infinity: Origin”, it released a free Axie NFT version, which allows players to enter the game without the need to purchase, significantly lowering the barrier to entry. However, in order to balance the gameplay, Axies are obtained for free but cannot be traded, reproduced, or earn tokens from them.

2. Breeding

In Axie Infinity, players can breed the Axies they own to raise offspring. The process of breeding Axies consumes AXS and SLP tokens. To avoid Axie overpopulation, an Axie can only be bred 7 times and the amount of SLP consumed will increase as the number of breeding times increases.

Each Axie has 6 body parts and a body shape. For each part, an Axie has 3 genes. Dominant (D), recessive (R1) and minor recessive genes (R2).

The dominant gene determines the actual body part present on the Axie. When reproducing, each gene has the opportunity to be passed on to offspring:

Dominant (D): 37.5% chance of passing this gene on to offspring.

Recessive (R1): 9.375% chance of passing the gene on to offspring.

Less recessive (R2): 3.125% chance of passing the gene to the offspring.

Land

Axie Infinity game world “Lunacia” is divided into tokenized lands, presented as NFT assets, as its Axie home and the base of operations. Axie Land is used for the following main purposes:

1. Resource gathering and crafting: Resources will be used to upgrade lands and Axies.
2. PvE combat: Players will be able to fight individually or in groups against Axie Infinity characters in real-time battles. The battle will drop various resources, items, etc.

Axie Land is also planned in 3 main phases:

Phase 1: More focus on Axie Land’s simulation and land management.

Phase 2: Build additional game elements, such as skill trees, social interaction, etc.

Phase 3: More focus on team strategic game features and expand land features as much as possible.

Governance mechanism of the project and community treasury

Axie Infinity is governed by a progressive decentralized approach. Currently, Axie Infinity operates on a “product-market fit” core. The core goal of the project remains on the products that grow in users and meet the demands of massive growth. From the initial release “Axie Infinity: Classic” to the subsequent enrichment of the combat system “Axie Infinity: Origin”, Axie Infinity has entered a period of rapid growth globally, but has not yet met the originally planned “long-term sustainable growth rate of 5% per week”.

Therefore, Axie Infinity believes that a progressive decentralized governance approach is more in line with the current product and market fundamentals. Under certain conditions, Axie Infinity will eventually transition into full decentralization, where any contributor willing to participate in the Axie Infinity ecosystem can make decisions and benefit accordingly.

Axie Infinity has divided the governance mechanism into 3 main phases. It also set the corresponding standards for the next phase of governance.

Phase 1: Product and market fit

In Phase 1, the current stage of Axie Infinity governance, Axie Infinity’s product development and fund management will be conducted by the team of Sky Mavis, Axie Infinity’s parent company. Sky Mavis will lead Axie Infinity’s operations in product development, product decision making, managing ecosystem funds, building committees, etc.

During this phase, community members can give feedback or make suggestions based on product data. They also conduct small-scale governance experiments in lightweight forums, use various voting protocols, etc. Thus, the community accounts for little in terms of governance in phase 1, and core decisions are still decided in a relatively centralized manner.

Phase 2: Growth Stage

After entering Phase 2 governance, Axie Infinity is gradually governed by on-chain governance, with community stakeholder users voting on the key decisions on products. At the same time, Phase 2 governance will be carried out in a progressive manner. The rules of voting proposal governance will be gradually improved. The participation of community users will gradually get involved deeply.

In terms of fund management, there are two core areas: community treasury and ecosystem fund. For the community treasury, Sky Mavix will “activate” the community treasury and will make recommendations to the community on how to use the community treasury. For the ecosystem fund, community users will also be able to vote on the governance of the ecosystem and make investment or grant decisions for the Axie Infinity ecosystem through voting.

Phase 3: Community Governance and Ownership

Entering Phase 3, Axie Infinity will enter an authentic community governance phase. The community can propose and vote on the governance of Axie Infinity’s products and funds, including product alignment, community treasury management, ecosystem funds, token allocation, and game distribution allocation.

Currently, Axie Infinity’s 3-stage progressive decentralized governance plan is a relative fit with its current situation of products and markets. The main goal of most users is still to use Axie Infinity as a vehicle for Play-To-Earn with profits as their main purpose. Although Axie Infinity has already made it to the forefront of the current GamFi industry, there is still room for growth in user data compared to traditional games. As a result, Axie Infinity is now also setting the standards for entering the next phase of governance, which will be used to better balance the relationship between product/marketing and governance/community fund management.

Phase 1 to Phase 2: DAU data as the core

From Phase 1 governance to Phase 2 governance, Axie Infinity sets the standard with product DAUs at the core. It is mainly divided into two parts: Axie Infinity itself and ecological projects:

1. Axie Infinity’s DAU exceeds 10M, with an average weekly growth rate of 5% for 6 consecutive months or 8 out of 12 months.
2. In addition to Axie Infinity, there are at least 3 eco-games with DAUs over 100K.

In addition, Axie Infinity needs to build a powerful governance structure and process to avoid the existing governance issues, including the whales leading the governance proposal, etc.

At the same time, Axie Infinity has set a time limit: the end of 2023. If Axie Infinity does not successfully transition to Phase 2 governance by this time, a committee will be established by Sky Mavis to help Axie Infinity move forward.

Phase 2 to Phase 3: Decisions based on community votes

Since the majority of Axie Infinity’s decisions in Phase 3 will be made through the community, Axie Infinity does not have the standards for Phase 2 to Phase 3 transition at the moment.

At Stage 2 governance, based on current plan, Axie Infinity’s community governance will be close to mature, in terms of both the governance framework and the level of community governance activity. So it makes sense to move to the next stage of governance, in which decisions will be made by the community.

Axie Infinity’s current governance progress

Currently, Axie Infinity is in Phase 1 governance. Its level of community governance is far behind the level of many projects/organizations/DAOs in the industry today.

Currently, Axie Infinity community users can post discussions and vote through a lightweight forum powered by Commonwealth (https://commonwealth.im/axie-infinity).

Currently, the threshold for Axie Infinity participation in governance is still based on holding AXS tokens. Axie Infinity has a total of 8 topics, including General, Axie Infinity-Land, Axie Infinity-Classic, and Axie Infinity-Origin. A minimum of 25 AXS is required to create a post on a specific thread and 15 AXS on a general thread. The amount held will be a snapshot of the AXS tokens owned by the user’s wallet and the number of AXS tokens already pledged.

In terms of voting, the current content is mostly about community polls, and less about the decision-making end on project operations or product parameter design. Forum core moderators often post general questions on the forum, and community members who meet the AXS-holding rule can vote and discuss accordingly.

According to the project document, the voting rules of Axie Infinity will be changed accordingly, and Quadratic voting might be adopted to make the voting more flexible and fair. At the same time, the types of proposals that community members can vote on will change from polls and minor issues on products and funding to full decentralized community voting governance.

Conclusion

In the overall GameFi market, Axie Infinity is already deservedly the leading project in the GameFi and Play-To-Earn industry. As for governance, Axie Infinity adopts a progressive decentralization approach. Its parent company Sky Mavis makes product and funding decisions in the initial stage. Then after meeting certain standards, it will transition to Phase 2 and 3, where product decisions and fund management will be completely decentralized to the community.

Although, the current governance of Axie Infinity is still relatively simple and early compared to other projects/organizations/DAOs, due to the nature of the Axie Infinity project itself, which is to focus more on user and market growth. Regarding the path of governance of Axie Infinity, it requires a longer period of engagement and observation. Meanwhile, Axie Infinity currently only uses tokens as a means of governance, but Axie Infinity itself has multiple types of NFT assets. We still look forward to seeing if multi-NFT assets will be used as another means of governance in the future.