Axie infinity

When Vincent Gallarte was laid off in July, the Manila IT analyst
found an unusual financial lifeline: an online game that rewards
players in cryptocurrency. In his first two weeks of Pokémon-like
questing and battling, Gallarte earned more than 37,000 pesos ($732),
three times what he would have made at his “real job.”

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Like a lot of newcomers to so-called play-to-earn games, the 25-year-

old Gallarte hadn’t had any particular interest in the world of Bitcoin,
Ether and other cryptocurrencies. Now he imagines a lucrative side-
hustle. “I started playing Axie the same day my employer terminated
my contract,” he said. “I’m so grateful.”

Axie Infinity is among the biggest — and most polarizing — of these

new games, which allow players to accumulate tradeable crypto
coins. To investors like billionaire Mark Cuban and Reddit co-founder
Alexis Ohanian, who were part of a $7.5 million funding round for
Vietnamese game-maker Sky Mavis in May, it’s a gateway to crypto for
people around the world. Others look at the buy-in cost, now more
than $600, and the influx of newbies “working” for low-value tokens
and see evidence the Axie Infinity model is unsustainable.

Axie Infinity’s daily active users swelled from 30,000 in April this year
to more than 1 million in August, with most logging on from
developing countries hit hard by Covid, including the Philippines,
Brazil and Venezuela. Originally built on the Ethereum blockchain,
Axie recorded around $30 million worth of Ether transfers a day over
the past month, according to Etherscan. That’s not much in the $2.2
trillion universe of cryptocurrencies, but meaningful for players—and
governments—in poorer countries. On Monday, the Philippines’
Department of Finance and the Bureau of Internal Revenue reminded
players that their Axie Infinity profits are subject to income tax, local
reports said. 

In Axie Infinity’s virtual world, players steer creatures called Axies — based on a Mexican walking
fish called axolotl — to acquire coins.
Source: Sky Mavis

Sky Mavis Chief Operating Officer and co-founder Aleksander Leonard

Larsen says they take their responsibility seriously, monitoring the in-
game currencies and tweaking the market as needed. “Some people
say we’re like the Fed,” he said in an interview. “We are ultimately the
creators of this universe and are responsible for making sure that it
lasts. We are always tracking the economy to make sure it stays at a
healthy level.”

In Axie Infinity’s virtual world of Lunacia, players steer colorful, blob-

like creatures called Axies to acquire two kinds of coins. Smooth Love
Potions (SLP) are awarded for successful battles and can be cashed out
or used in the game to breed new Axies. Axie Infinity Shards (AXS)
can be earned in seasonal tournaments or for selling Axies in the
game’s marketplace. AXS can be cashed out too, but like other
governance tokens, they’re designed to function like shares: Sky Mavis
says holders will eventually be able to vote on new game features or
corporate spending proposals. 

Axie Infinity's Crypto Riches

Gallarte heard about the game from a cousin. But players need three
Axies to get started, at a minimum of around $200 apiece. That was
far too much for the newly unemployed Gallarte. He sought out
a sponsor, someone who lends his Axies to new players in exchange for
a percentage of their in-game takings, sometimes as much as 90%.
Anything a player earns with a borrowed Axie accrues to its owner,
who is then supposed to wire the player his cut.

Gallarte appealed through Facebook to the Real Deal Guild, a group of

Filipinos who now sponsor hundreds of players. They agreed to let
him play their creatures for a small haircut: the guild would keep 30%
of his earnings. 

The boom has been a windfall for Sky Mavis, which takes a cut every
time an Axie changes hands and collects a fee when players breed new,
non-fungible token creatures. Players have created more than 2
million of the digital monsters, and the Axie trade has generated more
than $1 billion in transactions, the first NFT platform to do so,
according to CryptoSlam, which tracks NFT marketplaces.

Axie Infinity generated just $21 million in revenue for Sky Mavis from
its 2018 inception through July 1. Since then, it’s brought in $485
million.
Players spend tokens to breed new Axies, which can be sold as NFTs. To prevent hyperinflation,
Sky Mavis programmed Axies to go sterile after several rounds of breeding.
Source: Sky Mavis

Virtual goods with real-world value have been a staple of gaming for
years now. The difference between Axie and most other big in-game
markets is that Axie encourages players to cash out and gives them the
tools and transparency to do so. Instead of a semi-sanctioned peer-to-
peer exchange on an unauthorized third-party marketplace, Axie
players can take their SLP and AXS directly to a major crypto
exchange and sell for whatever’s on offer. Recent demand from the
Philippines was high enough for Binance to offer an SLP-peso trade, as
does Manila-based BloomX.

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Independent analysts say it’s no mystery why Axie has been a hit in
emerging markets. The price of AXS has soared in the past two
months, a sharp contrast with the broader economy in the Philippines,
where roughly one out of 11 people are still unemployed. (SLP tokens
are less valuable and prices have been more volatile this
summer.) Access to cryptocurrency also appeals where local currencies
are weak or, in Venezuela’s case, in crisis. 
Play to Earn
Axie Infinity's tokens have rallied during a boom in the game's popularity
Source: CoinGecko
Note: Prices quoted are in U.S. dollar
 
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But the Axie frenzy has also bred criticism that the platform is
propped up by new money drawn to a get-rich-quick premise. Vanessa
Cao, founder of venture-capital firm BTX Capital, said the Axie model
is “fundamentally unhealthy and unsustainable.” “Players need to
spend hundreds of dollars upfront just to play,” she said. “It’s a
wrongful concept. You can’t ask people to pay before even having any
idea what the game is about.”
Cao offered Dream Card, from BTX portfolio company X World Games,
as a counterpoint. It’s free to get started; its almost 560,000 users
customize character cards and trade them. X World Games doesn’t
give a “misleading impression that Santa Claus is coming to town,” she
said.

Would-be Axie players are active on Telegram and Discord, looking for
sponsors help them get started. That’s how John Aaron Ramos, a 22-
year-old university student in the Philippines, says he connected to a
Venezuelan gamer in November, months before the game boomed. At
the beginning, he earned up to 300 pesos ($6) a day. 

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Over the next four months, he bred new Axies and the price of
Ether went up, increasing his earnings tenfold. He ended his
relationship with his sponsor and built his own stable of contract
players, lending Axies to 15 people including friends and relatives. He
keeps 30% of their earnings.

In March, he bought two apartments south of Manila for his parents.

He also bought insurance plans and is contemplating investing in
stocks. “The value of Axie could fall, but I’m not worried,” Ramos said.
“I must still have physical assets so that I am in a more secure
position.”

Sky Mavis doesn’t regulate the relationships between sponsors and

contract players, though in June, the company tweeted to condemn
reports that sponsors were soliciting nude photos from female
applicants. 

“Axie Infinity is a digital nation and, like in any society, certain people
might be criminals,” said Larsen. “How do we deal with those who
might be abusing other scholars or players? These are challenges for
us internally.” The company has banned “several thousand” accounts
for violating the game’s terms, he said, including for bot behavior or
when there is “clear evidence of scams.”

The company seems more comfortable in the role of central bank.

After the price of AXS rose nearly 650% from July to early August, Sky
Mavis reduced the price to breed Axies. It cut by half how much users
can earn each day on quests and increased the rewards available to
better players.
Some of the risks for Axie Infinity players and investors are in line
with the rest of the crypto world, where massive drawdowns are
common. Cuban himself took a bath in June, when a coin he liked went
from around $60 to 0 in a single day. “The investment wasn’t so big I
felt the need to dot every I and cross every T,” he told Bloomberg. “I
took a flyer and lost.” 
If AXS and SLP tank, as predicted by traders taking short
positions against the coins, players may not be able to cut their losses.
The game only allows them to cash out SLP every 14 days, a constraint
that, like all lock-ups, chafes a lot more when asset values are falling.
As it is, there’s evidence new players may not fully understand how to
protect their gains. Larsen says users seeking customer service
help have emailed their crypto wallet passwords to the company. 

For evangelists, the learning curve is the point. “It’s going to help

digital-asset adoption 100%,” says Lennix Lai, Director of Financial
Markets at OKEx, a crypto exchange headquartered in the Seychelles.
“Imagine a large group of people who have never had crypto before,
who have never had a wallet and they’ve never transferred within the
blockchain — here there are actually huge opportunities for crypto
education,” Lai said.