What is Axie Infinity?

Title: What is Axie Infinity?

Difficulty: Novice

Hashtags: Blockchain, NFT, Metaverse, DeFi (Is this a reference to Binance’s or adding GameFi and then taking the blockchain away?)

Introduction: Axie Infinity is the king of the GameFi track, and the dual-token AXS-SLP economic model and gameplay have deeply influenced the various GameFi that has emerged subsequently. Due to the rise of P2E, more and more newcomers have joined, and in order to cope with the gradually increasing fees, the Ronin test chain has been developed, and a special proof-of-authority PoA is used as a consensus mechanism.

Title link: what-is-axie-infinity

Description: Axie Infinity is the king of the GameFi track, and the dual-token AXS-SLP economic model and gameplay have deeply influenced the various GameFi that have emerged since then. Due to the rise of P2E, more and more newcomers have joined, and in order to cope with the gradually increasing fees, the Ronin test chain has been developed, and a special proof-of-authority PoA is used as a consensus mechanism.

Subtitle: What is Axie Infinity Launch of a dedicated Ethereum sidechain: Ronin Axie Infinity’s current predicament Be aware of the risks involved in Axie Conclusion

What is Axie Infinity Axie Infinity was launched in 2018 by Vietnamese game developer Sky Mavis, but it only began to gain popularity in the second half of 2021, three years after its launch. Created P2E (Play-To-Earn) gameplay In terms of gameplay, Axie Infinity is a P2E (Play-To-Earn) card battle game, the initial player needs to spend three cute Axie pokemon to fight, and players can obtain the in-game tokens SLP (SmoothLovePotion) and AXS (Axie Infinity Shard) through daily missions and player battles, or through the fertility elf Axie Sell to earn cryptocurrency. SLP is an in-game mission incentive asset that can be used for pet breeding and trading through battles, while AXS is an in-game governance token that can be used to propose and vote on game improvement proposals. Players who win a duel or complete a specified mission in the game can earn SLP as an in-game asset reward. The governance token AXS is a monthly ranking reward. Since these cryptocurrencies can be exchanged for fiat currency through exchanges, the equivalent of players earning real-life income through games, Axie Infinity attracted two million players in its heyday, most of whom were new to the crypto space.

For players, they need to spend SLP and AXS to continuously strengthen their NFT pets in the game, or breed more pets to earn more tokens. Specifically, each Axie can only be bred 7 times, inbreeding is not allowed, each breeding costs 4 AXS and a certain amount of SLP, and a 4.25% fee will be charged for each player trading Axie. In this way, Axie Infinity closes the loop on the economic system. As more and more new players join, the price of the associated tokens also rises. In the first half of 2021, the daily active users of Axie Infinity swelled rapidly from 38,000 to 2 million. According to Token Terminal_ data, on August 6, Axie Infinity’s game revenue reached a peak of $17.55 million, far exceeding the vast majority of traditional games. Axie Infinity is popular in the Philippines In 2020, the pandemic spread rapidly around the world, with the national unemployment rate reaching a record high of 17.7% during the pandemic, and more than 100,000 Filipinos working overseas were repatriated due to the pandemic. One of the reasons for the popularity of Axie Infinity is the Scholarship Program at Yield Guild Games (YGG) in the Philippines: players can rent three Axies from the guild at a low price, and the guild arranges educational sessions for those who are new to the game, teaching them the ropes to win in complex card games. Successful players are often able to earn up to $700-$2,000 per month, which is much higher than the average Filipino monthly income. At the time, 40% of Axie Infinity’s players were from the Philippines.

(Photo taken from activeplayer.io)

In July 2021, Axie Infinity exploded in popularity, with a large influx of gamers, bringing it huge revenue. In October 2021, Axie Infinity’s high profile attracted investment from a number of large investment institutions such as a16z and Paradigm, and received $152 million in Series B financing. Game developer Sky Mavis was valued at around $3 billion in October 2021.

In 2021, Axie Infinity’s users grew exponentially, successfully educating millions of people about cryptocurrencies through the game. At its peak, Axie had more than 2 million daily active users. Numerous imitation disks have emerged, leading to the popularity of blockchain game GameFi tracks, such as DNAxCAT project (a cat-themed P2E game based on the BSC chain) and Crabada project (a hermit crab-themed P2E game based on Avalanche).

Launch of a dedicated Ethereum sidechain: Ronin Axie Infinity quickly attracted a large number of players due to the promotion of the Philippine gaming guild YGG and other guilds, and after the game’s popularity grew, the influx of users brought performance challenges to the project, and transactions on Ethereum were slow and expensive for game users.

In February 2021, Sky Mavis developed its own new sidechain “Ronin”, which was forked from Ethereum. The faster, dramatically reduced GAS cost of the Ronin sidechain drove Axie’s take-off a few months later. Sky Mavis game developers can choose to develop their own sidechains, and they can enjoy control and flexibility over the sidechains. The consensus mechanism used by the Ronin sidechain is Proof of Authority (PoA), which relies heavily on reputable and trustworthy validators, which can be understood as staking its own social reputation. In May 2021, Axie Infinity has fully migrated to the Ronin chain. Efficient but less decentralized The number of Ronin validators under the PoA mechanism is small and centralized, but transactions are processed extremely quickly. Fees are almost negligible, which makes it possible to make quick and easy on-chain transactions in the Axie Infinity game. All tradable assets in the game, including NFT pets - Axies, tokens SLP, AXS, and WETH. With the update of the game’s content, in addition to Axies, various types of NFT items such as Land, Items, and Bundles have also appeared in the game for trading.

Some people believe that PoA Proof-of-Authority is a modified version of PoS Proof-of-Stake, in which the reputation of the community is pledged rather than the cryptocurrency. Typically PoA algorithms rely on:

1. Valid and trustworthy identity with high moral standards and no criminal record
2. Verify that candidates should be willing to invest and stake their reputation
3. The criteria for selecting candidates should be consistent to ensure the integrity and reliability of the system

In the initial phase of Rodin, Sky Mavis set up 9 validators, but 5 of them were controlled by Sky Mavis, and excessive centralization and improper management of private keys led to a hack attack in March 2022, which had nothing to do with contract code security. Instead, it makes people think that while blockchains are pursuing fast transaction confirmation, high throughput, and low fees, over-centralization may face protocol governance attacks or malicious validators confirming invalid and illegal transactions. Risks of Ronin Bridge The Ronin chain is an Ethereum sidechain, and if you want to transfer assets between the two chains, you must use the Ronin Bridge, and when users lock 1 ETH into the Ronin Bridge, they can get 1:1 ETH on the Ronin chain.

Assets on the Ronin chain are also valuable because they can be exchanged for valuable assets on the Ethereum mainnet. Therefore, once the Ronin Bridge is attacked and the locked tokens are stolen by hackers, the assets on the Ronin Chain will suddenly lose support and the price will be subject to violent fluctuations.

(The picture is from Xu Ming’en, you can refer to and draw similar pictures) Axie Infinity’s current predicament Caught in a death spiral As the first popular Play-to-Earn game project on the blockchain, the design of the Axie token economic model has brought many references and reflections to the subsequent GameFi game projects. Axie Infinity pursues a “dual token” mechanism, with the game token SLP coin and the governance token AXS coin.

In Axie Infinity, SLP tokens are ERC-20 tokens on the Ethereum blockchain, users can earn SLP tokens through battle games, and SLP tokens need to be consumed when breeding Axies. Due to the demand of a large number of new players in the early stage, a positive flywheel was formed, and the SLP price also came to $0.36 at one point. However, due to the excessive issuance of SLP’s tokens and the lack of sufficient burn and uncapped issuance mechanisms, Axie experienced an inflationary crisis, with the supply of SLP exceeding demand.

After November 2021, due to the depreciation of the SLP price, players were no longer able to earn as well as in previous months, and players left the market one after another. Factors such as the lack of playability of the game itself, the lack of other revenue streams, and the fact that new players are added every day and the number of daily active players is gradually decreasing, leading to a death spiral for SLP tokens. SLP is currently priced at $0.004, down nearly 99% from its peak of $0.36. Ronin has a hacking incident In March 2022, the hacker attacked the cross-chain bridge between Ronin and Ethereum, stealing $620 million worth of cryptocurrency from the Ronin sidechain.

The Ronin sidechain uses the Proof of Authority (PoA) consensus mechanism, which only needs to be approved by 5 out of 9 validators. In order to improve the transaction speed and reduce the transaction fee, it also has the problem of over-centralization. Due to the problem of over-centralization, coupled with the problem of improper management of the private key, the hacker took control of five of the validators, which also led to the attack. After the hacking incident, the Ronin sidechain was shut down until June 28, 2022, when the reopening was announced, and the Sky Mavis game developer also promised to fully compensate players for their losses.

On April 7, 2022, Sky Mavis raised $150 million in Series B funding led by Binance with participation from Animoca Brands, a16z, Dialectic, Paradigm, and Accel to restore funds for the Ronin sidechain. However, in July 2022, Binance said that it had scaled back its investment in Axie Infinity and would not lead the new round of fundraising.

Risks to be aware of when participating in Axie Starting in November 2021, the Axie Infinity craze began to wane, the price of SLP dropped sharply, and many players stopped participating in the Axie Infinity game because there was no monetary incentive. Beginning in 2022, players in most guilds in Argentina, Venezuela, and the Philippines began to withdraw.

By late March 2022, the game’s daily active users had dropped to 1.5 million from 2.7 million at the end of 2021. The first quarter of 2022 saw a frantic decline in the cryptocurrency market amid the recession caused by the Russia-Ukraine war and inflation. The price of SLP, AXS tokens, and Axie NFTs has fallen more than the crypto market as a whole, costing as little as $200 at its peak in 2021 and less than $10 in 2022.

(Photo credit: Axie Infinity) Conclusion The developers of the Sky Mavis game are trying to change the rules of the game to increase the playability of the game, so that the game will change from Play to Earn to Play and Earn, so that Axie Infinity is no longer just a money-making tool. Improve the token economic model by changing the rules of the game and changing the eligibility of rewards to control the amount of SLP issued.

The game recently launched a free-to-play version of Axie Infinity Origin, where players can get three free non-NFT Axies to familiarize themselves with the gameplay but not earn SLP, in order to attract more new users to join. In addition, a land staking campaign was launched in July this year, where players can earn AXS token rewards through land staking, and it is reported that more than 90% of the land has been pledged. However, the marketing campaign in recent months still lacks enough bullish factors, and how to increase the playability of the game will be a big test for the project team.

Axie Infinity has undoubtedly opened up a new track for GameFi, and many of its projects as a pioneer are being implemented for the first time, although after the second half of 2021, the craze fell with the price of the main yield token SLP, the number of players plummeted, and the subsequent performance was less than before, but the new era it ushered in will definitely add a great addition to the history of cryptocurrency.

With the GameFi track cooling down and well-known game studios entering the market to develop new projects, it is very difficult for Axie to continue to maintain its leading position. Investors who are interested in participating in the market are advised to have an experiential mindset and learn about the P2E (Play to Earn) model of games combined with cryptocurrencies, so as to inspire more new perspectives and ways of thinking. How is it different from previous online games, why can you make money by playing games, where does the revenue come from, and can such a token economy be sustainable in the long term?

Finally, no matter what kind of operation is carried out, it is essentially using the current assets to obtain higher returns in the future, and it is still necessary to comprehensively consider various aspects that affect the income, such as game updates and revisions, smart contract security, token price fluctuations, and the actual liquidity of NFT game props.