Crypto Profile #1: Axie Infinity ($AXS)

Axie Infinity Logo and Pets
Axie Infinity and its animated pets are taking the crypto world by storm. Image source: playtoearn.online.

Axie Infinity might be the weirdest and yet most incredible cryptoasset.

It’s a video game where people fight with animated creatures & NFTs. But, people are getting paid to play it. Some people are even quitting their jobs to play Axie full-time.

Axie’s revenue, user growth, and future possibilities are breathtaking.

Is it just a fad? Or the dawn of a new global financial system?

Let’s dive into the Axie Infinity universe (and maybe soon, metaverse?).

What is it?

Axie Infinity is a fun game. But its core developers at Sky Mavis Labs are on a serious mission.

We don’t look at Axie as just one game — we see it as the entire universe,” said Axie Infinity co-founder and Growth Lead Jeff “Jiho” Zirlin in a recent interview with Bankless.

LOL, Jiho is a classic visionary. You gotta love it.

OK, in plain(ish) English…

Axie Infinity is a Pokémon-inspired video game built on its own Ethereum sidechain. Users can own, trade, breed, play, and battle with animated creatures called Axies.

Axie Infinity pets face-off in a player-versus-player battle.
Image: thecointribune.com.

Axie Infinity is a first-mover in the “play-to-earn” category of video games. Users can earn native tokens by completing daily challenges and competing in player-vs-player battles. These tokens can, in turn, be sold for other cryptoassets and ultimately real-world assets.

Each Axie pet is a NFT unique in its form, body parts, characteristics, and experience points.

Axie pets. Source: Axie Infinity whitepaper.

In order to create a new Axie, you must breed two Axies together. This is done by paying a fee in the game’s native Axie ($AXS) token and burning – we are not kidding – Smooth Love Potion ($SLP) tokens.

Breeding Axies is similar to real-life pets. Axie creatures can breed a maximum of only seven times (#scarcity). Newborn Axies share the traits of their parents. However, each Axie is the result of random chance and virtual genetics. Users cannot control exact traits of new Axies.

Users earn SLPs through completing daily challenges and player-versus-player battles. As Jiho puts it, “The creation of an Axie is kind of like a proof-of-work system. Each Axie is the result of real time spent in the game.”

More details about how the game is played are outside the purpose of this article but you can read about it here.

Besides Axie pets, the other most important in-game NFTs are plots of virtual land. This real estate is located in “the Axie homeland” called “Lunacia.” There are about 90,000 land plots but only 17,000 of them will ever be player-owned. Land plots are not fully operational right now, nor the main focus of this article. But, it’s worth noting that 9 premium land plots recently sold for $1.5 million.

The long-term plan is for Lunacia to be a world of many games. The community using Lunacia’s open-source computer code will create these games.

Thus, Axie’s gameplay options are expected to expand. Sky Mavis plans to create more games within the ecosystem and as well as make the game open-source. “Some of the games are created by us and some of the games in the future will be created by other developers [via the open source platform],” said COO/Co-founder Aleksander Larsen.

The most important token is the Axie Infinity Shards ($AXS) token. This is a newly-introduced governance token. Users can earn by playing the game, staking tokens, or participating in governance. Similar to equity stock, the $AXS token gives its holders voting and revenue-sharing rights. The $AXS token can also be used to purchase land, SLPs, or Axies. This $AXS token is a key differentiator in that it makes Axie a leader in an emerging type of video games called “play to earn.”

SLPs and AXS are Axie’s only ERC-20 tokens (eg, Ethereum-native tokens). This means that they are the only Axie assets that can be readily sent back to the base Ethereum network for trading in the broader world of decentralized finance (Defi); such as the Uniswap exchange. All other tokens (such as Axie pets and in-game NFTs) currently live only in the exclusively-Axie Ronin network.

Recent Growth

In the 12 months from July 2020 to August 2021, Axie’s daily active users (DAU) grew from 500 to more than 1 million. The protocol’s revenue has similarly exploded from around $670,000 in May to now more than $250,000,000 in July 2021.

Translation: user growth was roughly 200,000% in 13 months and revenue growth was roughly 37,000% in a quarter!

Axie Infinity daily protocol revenue during the past 90 days. August 16, 2021.
Source: Token Terminal.

This is bonkers.

To put some of these stats in context, Axie Infinity is currently:

  • 25x or more daily trading volume of the major NFT project NBA Top Shot (i.e. AXS is extremely liquid for anything in the NFT space)
  • The world’s #1 blockchain or crypto app by protocol revenue in last month (i.e. revenue accruing to the protocol and/or token holders)

Yes, you read that last one right.

Axie generates this enormous revenue by:

  1. charging a 4.25% fee on all NFT sales in its marketplace, and
  2. requiring that a 4 AXS minting fee is paid whenever a new Axie is created (SLP tokens are also burned to breed Axies)

For what it’s worth, the NFT transactions are often paid in ETH. Top-end Axies have recently sold for 200-300 ETH (approx. $450 to 600K at times of transaction). Axieworld.com is a great place to view top Axie NFT sales.

Last month, Axie generated 2x more protocol revenue than Ethereum, 20x more than Bitcoin, and 10x or more than any of the other crypto protocols/blockchains.

Top dapps and blockchains based on protocol revenue in the past 30 days. August 16, 2021. Source: Token Terminal.

Delphi Digital projected in mid-July 2021 that Axie will generate more than $1 billion in revenue this year. But, since Axie generated more than $250 million in July alone. So, that number is going to be way too low.

Are you surprised by these numbers?

Well, the Axie founders are well-aware. In fact, they see Axie playing a critical role in the adoption of crypto.

In terms of the endgame, we want Axie to be known as something that brought freedom to a lot of people,” states Jiho.

“We want Axie to be seen as something that brought freedom to a lot of people… a cute game that seemed really simple on the surface took us down this rabbit hole that made major societal changes.”

Sounds like it’s working so far.

Value Proposition

Axie Infinity is undoubtedly a first-mover in the new play-to-earn space. This play-to-earn concept is a new paradigm for the gaming industry wherein players can, well, play to earn money.

In the Philippines, thousands of people turned to Axie Infinity during COVID lockdowns for community fun and paying the bills.

One elderly couple in the Philippines, both in their 70s, began playing Axie during the pandemic to supplement the $5-10 per day income from their local store. Many other stories like this abound wherein this video game was an actual lifesaver in terms of income.

Unbelievable? Yes. But it really is happening. Here’s a full, 18minute documentary about the Axie’s takeover is Cabanatuan City, Philippines.

So, how much can Axie gamers earn? One podcaster polled Axie users and discovered that typical users can make “about $10/day by playing for a few hours.” However, the best users can make close to $600/day. That’s roughly $150,000 annually!

So is it really just about making money? Or is it about having fun?

“If you survey our users and ask them, ‘Do you play for fun or do you play to earn money?’ They’ll say they play for both,” states Jiho. “About 70% will say, ‘Yeah, I play for fun and also to earn money.'”

This summarizes Axie’s primary value proposition: it’s a fun video game where the revenue accrues to its own players

“Part of a crypto game is thinking very purposely about how you can make the economy prosper. In traditional games, in-game economies are bad or not supported. Incentives aren’t aligned,” Jiho stated on the Solana Podcast.

“But, in our gaming system, we don’t sell much right now. We just take 4.25% of all NFT sales in our marketplace as well as a minting fee when a new Axie is created.”

OK, so, you can make money while playing a video games. What else does Axie offer?

  1. Fast & affordable blockchain transactions: In the summer of 2020, Sky Mavis realized Axie needed a scaling solution. directly on Ethereum’s high gas fees & slow settlement time were prohibiting growth. So, Axie built its own sidechain called Ronin. Currently, there are very few sidechains on Ethereum and none of them were built to service a specific protocol. But, Axie’s amazing foresight in building Ronin ignited Axie’s explosive recent growth. (Side note: Ronin is a Japanese word for “samurai without a master.” Pretty cool, eh?)
  2. Native wallet: Axie maintains its own native, wallet. Users can store and transact their assets on the Ronin sidechain with this wallet. Jiho recently mentioned that a traditional bank is looking to integrate with Ronin. This bank might even help users track their taxes through the native wallet. “[The next generation] is going to skip banks, they are going straight to digital wallets,” said Jiho.
  3. Property rights: traditional video games extract value from their players via centralized, in-game sales & purchases. But, Axie is different. Axie players can make purchases, of course. But these purchases are generally peer-to-peer. In fact, when Jiho states that when someone starts playing “that’s a peer-to-peer transaction.” share of the value accretion by simply playing. “I think one of the things our players really like is that 95% of the value that flows through the game is going to them. They like that, right through a governance token, they can own part of the game,” said Jiho.
  4. Open-source, expanding ecosystem: most games in Axie universe are built by Sky Mavis labs right now. However, the plan is for that to change. Jiho believes that Sky Mavis will not be able to keep pace with the demand for creative. “I hope Sky Mavis is one of just many entities that’s building on the Axie IP,” states Jiho.
  5. *Coming Soon* Native & Decentralized Exchange (DEX): in a recent interview, Jiho said Sky Mavis is building a decentralized exchange on Axie. In this DEX, users will swap in-game resources. However, there is no timeline for the release and further details are unclear.
  6. *More Distant Future* Its own, complete blockchain: as noted earlier, Axie Infinity is currently running on its Ethereum-based network called Ronin. Ronin is a permissioned blockchain that is centrally controlled by Sky Mavis. Coin Bureau reports that heavyweight crypto companies like Ubisoft and Binance are currently running some of the validators. However, Sky Mavis plans to ultimately make Ronin its own public blockchain complete with its own Ronin token.

All of the above basically means this: Axie is vertically integrating.

This will allow serious expansion opportunities into DeFi beyond simply gaming. Heck, there may be an Axie bank or PEO someday.

TL;DR: You can have fun and make money in the first video game owned/controlled by crypto’s fastest growing community. Owning $AXS means owning a piece of this massive, first-mover of many future blockchain protocols for gaming. Owning AXS means owning the world’s largest crypto community in terms of daily active users and revenue. The possibilities for the future of this protocol may go well beyond gaming. The metaverse, wallets, cards, and decentralized exchanges…all these may be in Axie’s future.

Founders & Team

Axie Infinity was founded in late 2017 and its continued development is led by the Sky Mavis team.

Key members listed in the whitepaper include:

  • Trung Nguyen, CEO/Co-Founder: According to his LinkedIn, Nguyen has been working holds a B.S. in Computer Software Engineering from FPT University (a young, tech-focused school and Vietnam’s first private college).
  • Aleksander Larsen, COO/Co-Founder: experience includes volunteer moderator at CryptoKitties, a freelancer for e-sports content, partnered streamer at Twitch, and an Executive Security Officer with the Norwegian government. He also briefly worked at a multiplayer online gaming organization called Parsec Frontiers (which failed to secure enough founding in its 2018 ICO). didn’t just prior to joining Axie. A native of Norway, Larsen’s LinkedIn states that he holds a degree in Economy and Administration from BI Norwegian business school.
  • Jeff “Jiho” Zirlin, Growth Lead/Co-Founder: joined the team in early 2018 after being an active member of the Axie Discord channel. He was soon promoted to co-founder status (wow, quite the promotion) and is now, by far, the most active spokesperson for Axie. Nearly all available interviews online are with Jiho and he’s insanely good at it. His clarity and composure are unquestionably top-notch (especially for a shadowy super coder, of course). Regardless of what happens with Axie, we suspect this is only the beginning of an impressive career for Jiho.
  • Viet Anh “Andy” Ho, CTO/Co-Founder: it’s admittedly difficult to find much information online about Viet and he doesn’t appear to give many interviews. However. according to his LinkedIn, he previously interned at Google and PayPal. He is based in Ho Chi Minh City, Vietnam (same city as CEO Nguyen). He joined Sky Mavis in July 2018.
  • Tu Doan, Art Director/Co-Founder: if you think you’re noticing Axie too late, rest easy. Doan, a co-founder of a token with $10+ billion in market cap, only has 35 LinkedIn connections. We are in a new age of networking over blockchain video games, friends.

Sky Mavis states on its website, “We built Axie Infinity and grew it to be the #1 Blockchain game. It’s now time to make it one of the biggest virtual worlds of all time, period.”

In regards to the rest of the Sky Mavis team, Jiho said recently in an interview there are about 45 people right now but they plan to triple that soon.

Investors

Axie Infinity’s core development team, Sky Mavis, raised $1.5 million in two seed rounds in 2019. The investors were:

Animoca Brands (Lead Investor): based in Hong Kong. Describes itself as, “The global leader in branded blockchain gaming.” Other notable investments include the 2018 bull run darling Cryptokitties and the massively successful, centralized, and regulator-targeted Binance.

500 Startups Vietnam: most active VC firm in Vietnam. Website states, “Supporting Vietnam’s next great startups.” More than 70 other companies are in their portfolio; most aren’t crypto.

Pangea Blockchain Fund: relatively small, Switzerland-based VC firm that has a sister Digital Asset Fund. CEO is William Duplessie and, notably, a former Managing Director Herbert Seif sits on the board.

Hashed: Team of blockchain experts and builders located in both Silicon Valley and Seoul, South Korea. With more than 58 investments, some of the most notable include household crypto names such as LINK, Ethereum, Terra, Cosmos, EOS, MakerDAO, and Synthetix.

Consensys: this investor is perhaps the one that catches our eyes the most. Per Coindesk, Consensys is a blockchain-based company in NY that was founded by Ethereum co-founder Joseph Lubin. The company develops infrastructure and dapps for Ethereum. Some of its products are absolutely foundational. These products include Infura (which is perhaps Ethereum’s most important API protocol) and MetaMask (one of crypto’s most-used wallets). The venture fund arm of Conensys was founded in 2017 and its portofolio includes more than 30+ projects. Furthermore, Consensys itself is funded by some of the world’s biggest names in finance: MasterCard, BlackRock, BNY Mellon, JPMorgan Chase, and Alameda Research.

Sky Mavis also raised a Series A round in May 2021. The VC firm 500 Startups Vietnam was a repeat investor in this round. Other investors included:

Libertus Capital (Lead Investor): Their website simply defines their name and states, “We invest in companies and protocols that enhance and protect freedom, privacy and trust.” Per Crunchbase, other notable investments include Ledger (Series C) and Zapper (Seed round & Series A).

Collaborative Fund: founded in 2010, this fund focuses on investing in a shared future. Other notable investments include innovative companies such as Coinbase, Kickstarter, Lyft, Codecademy, MakerDAO, and TaskRabbit. You can view the full list here.

Mark Cuban: one of the most well-known investors in crypto and billion serial entrepreneur. He is, of course, also one of the hosts of Shark Tank. Cuban was an early Ethereum and Polygon investor; both of which are wildly successful.

Mark Cuban For President? - American Grit
Billionaire Mark Cuban is an Axie investor. Image: AmericanGrit.

Alexis Ohanian: co-founder and executive chairman of Reddit. This is one of the other investors that is eye-popping. If anyone knows about how to capitalize on a strong user community, it’s one of the founders of Reddit. By the way, his Twitter profile features an Axie creature right now.

Reddit Co-Founder Alexis Ohanian’s Twitter. Aug 2021.

This investor section obviously excludes AXS token holders.

However, given the game’s stellar tokenomics, they are really the most important investors in Axie Infinity. That’s what makes video games with property rights so awesome.

Community

Its hard to put the strength of this community.

But let’s give it a shot.

Let’s start with the community size: Axie’s Discord channel is now the largest in the world. This glorified group chat (kind of like Slack) now contains more than 775K members. Yes, that’s more than Fortnite or literally any other group. And Jiho said they are starting to max out Discord’s server capacity.

Axie’s Discord channel is growing exponentially.

Also – if you go to the Discord channel, you’ll notice that there are sub-channels for more than 25 languages. “We have users in every nation except the Central African Republic,” said Jiho. “Around 60% of our users are from the Philippines. But we have many North American and European players as well as a lot from developing markets. South America is huge: Venezuela, Brazil.”

So, the community is huge. But, even crazier, the community is also growing explosively and adding about 20K people per day to that Discord channel.

More importantly, in July 2020, there were 500 daily active users playing the game. Now, there are more than 1 million daily active users (DAUs).

So, if Axie was founded in early 2018, why is the explosive growth happening now?

“It took kind of a while to put all the pieces together. Building a blockchain game is probably 10x harder than building a conventional, mainstream game,” said Jiho on Bankless.

He credits the community for sticking with them through the bear market. Sky Mavis was working to make the game fun, develop the economy with property rights, and solve scalability issues.

Jiho also notes that the Axie community is incredible at onboarding new users. Right now, it’s very difficult to start playing. For one, the UX is actually pretty terrible. Here’s a peek at how hard it is to start playing:

Axie Community Alpha: Getting Started!” Source: axie.substack.com.

Since the process is difficult, most users are onboarded by friend or family that walk them through the whole process. Hence, Jiho stating that they want users to be like “missionaries.”

It’s also really expensive to onboard. You need at least 3 Axie creatures to get started and the cheapest critters are at least $200 right now. So, how do people in developing markets get started?

Incredibly, more than 10 scholarship programs created by Axie community members now exist. Through programs like Yield Guild Games, thousands of scholarship recipients are now playing Axie. These recipients play with borrowed critters and pay the Axie owners commission on their gameplay. This is not a joke: real people are submitting real resumes to be selected to perform proof-of-play in a play-to-earn video game.

Currently, the scholarship programs are not built into the game (though Jiho stated that they might build that later). So, the execution of these scholarship programs may have some bumps…but what in the world?

People really love this game.

Tokenomics

Axie’s website states, “Axie Infinity Shards (AXS) are the glue that binds all Axie community members together.”

The AXS token’s three main utilities are:

  1. Staking: players can lock-up their tokens in the crypto protocol. If they do so, then they will receive weekly rewards which are subject to a 12-month unlocking period. Users who are staking AXS tokens can also further increase these reward amounts through participating in governance and playing Axie. In the future, staking users may also receive NFT rewards or vote for portions of the Community Treasury to be distributed to stakers (kind of like equity holders voting for dividend distributions).
  2. Payment: AXS is accepted as currency within the Axie NFT marketplace and holding AXS may also be required for some protocol-initiated sales/auctions.
  3. [Future] Governance: the Community Treasury went live in early 2021 and is now amassing revenue. In the future, this treasury will be governed by AXS stakers once the network is more decentralized.

The total number of AXS tokens will never exceed 270 million. As of August 2021, there are approx. 82 million released AXS tokens. However, given the vesting period of staking rewards, CoinMarketCap lists the circulating supply at approx. 61 million.

AXS token allocation and unlocking schedule.

This aligns with Axie’s token allocation and unlock schedules are extremely transparent and clearly outlined in their whitepaper.

Besides AXS, there are two other important Axie tokens.

  1. Smooth Love Potions (SLP): there was no initial allocation of SLP tokens to any investors or founders. As CoinBureau notes, the SLP token was a “fair launch” cryptocurrency and there wasn’t any pre-mine given to the team. Thus, 100% of SLP that exists is also in circulation. Of course, SLPs are continually earned in the game. But, they are also burned whenever an Axie is created. Furthermore, each Axie needs more SLPs each time it reproduces (until it reaches the limit of seven breeding sessions).
  2. *Future* Ronin Blockchain Token: this token does not yet exist. But, this token will exist when Sky Mavis ultimately makes Ronin into its own, independent blockchain. The Ronin token will secure that network. This is pretty much all we know right now. However, co-founder Aleksander Larsen recently stated that the plan is for the Ronin token to be distributed primarily to the community, not whales or VCs. In other words, Sky Mavis wants this Ronin token to also be a “fair launch” token.

Sky Mavis clearly wants to focus on rewarding and incentivizing those most involved in the community. “

Therefore, if you want to heavily invest in Axie, the best strategy is most likely the one that fully immerses you in the community. In other words, you might want to consider:

  • owning and staking AXS
  • participating in governance whenever possible
  • playing the game and earning SLPs
  • purchasing land in Lunacia

Price Action

$AXS is currently trading around $66. It recently reached a new all time high of around ~$70 in the last few weeks.

The price of $AXS mooned in the last 3 months. However, the surge in its price was very reasonable given its incredible usership and revenue growth. Thus, $AXS appears to still be quite undervalued compared to other crypto projects. Its current Price to Earnings (P/E) ratio is trading around 4.5 to 5 (pictured below, bear in mind these numbers change rapidly).

If you don’t know much about P/E ratios, the TL;DR is that a lower score is better. Currently, $AXS has the lowest P/E ratio of *all* major crypto assets right now. Token Terminal calculates the P/E ratio score of crypto projects by dividing the fully diluted market cap with fully annualized revenue of the protocol.

Top dapps & blockchains based on P/E ratio. Source: Token Terminal. Aug16, 2021.

Currently, the fully diluted market cap of AXS is around $18.3 billion. Annualized protocol revenue is around $3.9 billion. Thus, the current P/E ratio is roughly 4.7.

Top dapps and blockchains price, market cap, revenue, and P/E ratios.
Source: Token Terminal. Aug 16, 2021.

It is true that relying heavily on traditional equity evaluation methods, like a P/E ratio, is a bit experimental. Crypto is new and it is fundamentally a new asset class. So, it is a bit like comparing apples to oranges. But, it’s a good data point to get a gauge on the “fundamentals” of a potential crypto investment.

But to reiterate, at a P/E ratio below 5, $AXS looks massively undervalued — even after its recent 70% price increase!

July 17, 2021. Source: Twitter.

Of course, markets (and esp. crypto markets) are a lot more complex than P/E ratios. So, there are certainly analysts who find the price of $AXS to be unappealing. But the overall sentiment is pretty bullish.

We will close this discussion about price with a reminder: at BlockMaxi, we are unequivocally not traders. We are not interested in speculating on short-term price movements. We believe speculation is a nearly impossible game for most people.

Therefore, we mainly focus on finding crypto assets that we believe have clear long-term value demonstrated by their uses and communities. Like Warren Buffett once said, “Our favorite holding period is forever.”

However, we don’t turn a blind eye to current prices. That thinking is silly. It’s clear that crypto assets do undergo periods of intense volatility as they accrue value. This makes sense for assets that often average triple digit annual percentage returns.

Thus, we do think its wise to try to avoid buying assets with prices are clearly due for a correction. So, although we don’t do speculative trading, we do pay attention to price action. We also recommending trying dollar-cost-averaging via exchanges like BlockFi and their crypto rewards credit cards.

In conclusion, we believe that the $AXS is not in territory that clearly requires a correction / downward movement. The 500% increase since May simply follows the massive usership and revenue growth since that time.

Crypto’s best P/E ratio supports this belief.

Competitors

While there are no direct competitors to Axie Inifinity, Blockmaxi is currently researching other play-to-earn “revenue opportunities” in the Yield Guide Games DAO.

  1. F1 Delta Time – F1® Delta Time is a blockchain game on Ethereum. The game is based on the collection and trading of unique Cars, Drivers, and Components.
  2. The SandBox Game – The Sandbox is a virtual world where players can play, build, own, and monetize virtual experiences.
  3. League of Kingdoms – League of Kingdoms is a massive, multiplayer, and online (MMO) strategy game. Gamers fight for dominion within the game. You can fully own and seamlessly trade digital assets through NFT technology.
  4. Illuvium – Illuvium is an open-world, fantasy battle game built on the Ethereum blockchain. It provides a source of entertainment to both casual gamers and hardcore DeFi fans through its range of collecting and trading features.
  5. Star Atlas – Star Atlas is a massive multiplayer online (MMO) strategy game. Gamers perform space exploration, territorial conquest, political domination, and more. This game is built on the Solana network.

Bear Case

  1. Axie is just a silly game: crypto is a world with serious Austrian economists looking to replace the traditional financial system. Sure, Dogecoin also exists. But, Axie is literally an alien world with fuzzy creatures that’s already achieved at $12 billion market cap. That’s a bubble, right? How can a cartoon universe possibly accrue this much value so quickly?
  2. No underlying storylines or nostalgia: Pokemon Go is one of the most viral games of all-time. It exploded in 2016 to 232 million users and still retains 150 million daily active users. The similarities between the games are striking. But, Axie is missing something critical: an complete cultural universe of TV shows, memorabilia, movies, trading cards, and memories. Axie’s narrow cultural band increases its risk of becoming a fad.
  3. Axie’s exponential growth is due for a correction/unsustainable: I mean, roughly 2,500% price appreciation since December? This kind of price appreciation is so steep; it typically implies a near-term price correction.
  4. Axie’s universe is too narrow/niche. Currently, Áxie serves about 1-2 player archetypes. Most players are pursuing the same goals and put the same economic value on the same items/outcomes. If a game is too singularly structured, then it may grow rapidly in niche markets. However, the growth is tough to sustain. (h/t Adam Cochran)
  5. Gamers are fickle: viral video games are notoriously trendy and the dedicated preferences of the masses can be hard to predict (we see you reaching millions of people, Flappy Bird). Axie Infinity clearly reached mainstream adoption in the Philippines and its also widely played in a few other countries like Brazil and Venezuela. There are also players all around the world. But, will players in the USA and Europe like Axie enough for it to reach mainstream adoption there?
  6. Some indicators that growth is slowing: this is definitely relative, of course. Axie’s revenue growth is still amazing. But, its NFT marketplace slowed by 87% yesterday to a *mere* $4.36M in daily trading volume. If gamers are fickle, is this the beginning of the end of the fad?
  7. Axie isn’t fully decentralized: this is probably our biggest concern. Currently, the gameplay and data storage of Axie infinity are not decentralized in any way. Jiho makes it clear in every interview that the team cares deeply about putting the game in the hands of the community. Jiho maintains that the property rights are decentralized via their NFT format. But, what are the Axie NFTs worth if the Axie Infinity universe falls apart? COO/Co-founder Larsen touched on this this issue on the Unchained Podcast:

There is an ongoing discussion to how decentralized the game should be. Purists think that all the rules should be on-chain and, if bots can exploit the rules, then they can do that.

We are very confident in our approach right now, even though it isn’t decentralized per se, because the game as a whole – there are so many centralized pieces of the game that we can tweak here and there because it isn’t ready to be released into the wild as a decentralized product.

I’m not going to say we are ever going to get [to full decentralization]. It has never been created in a sustainable way. But, we do have an approach where we want to turn Axie into a kind of decentralized organization. I don’t like the word DAO, per se, because I think an autonomous organization is also really far-fetched. But having a decentralized organization where we can have token-holders who have a stake in the ecosystem not only Sky Mavis…

We are treading new grounds here, so it’s very easy to criticize. But, I would advise people to take a step back. We are also experimenting here and we have to be very upfront about the things we can change. We try to do that as much as we can. But, those who think [our current approach to decentralization] goes against their principles…Axie probably isn’t the place to be right now.

Yeah, Bitcoin maximalists/purists probably are sick if they read that. Oh well.

Bull Case

Here’s our bull case for this astonishing asset.

  1. Gaming is the world’s largest entertainment industry: roughly 2.3 billion people play video games. Furthermore, the global games market achieved more than $150 billion in revenue in 2020. This was was more than double the revenue at the box office and from the music industry. It’s huge.
  2. It is very hard to replicate Axie’s community: from 500 to more than a million daily active users in about 12 months. The community is holding the hands of new players to onboard them. Hardcore believers are literally spending millions of dollars on NFTs in a not-yet-decentralized environment. The world’s largest Discord group is now larger than even Fortnite and it is breaking Discord’s underlying servers. Yeah, communities like Axie don’t grow on trees. As Jiho noted, “You cannot form a community like Axie in a bull market. You just attract all these mercenaries; all these people that are more about the hype than the tech.” We agree. It ain’t easy to build a community like Axie.
  3. Incredible growth despite UX deficiencies: it is very hard to start playing Axie. The UX experience is very complicated and it’s also expensive. And yet, its adoption rate is explosive. Jiho said that they are mainly focused on the game But, they definitely want to improve the user onboarding experience. What happens when onboarding is easily done in a single mobile app?
  4. Axie’s community is global: there are players from every country except the Central African Republic. “Around 60% of our users are from the Philippines,” said Jiho. “But we have many North American and European players as well as a lot from developing markets. South America is huge: Venezuela, Brazil.”
  5. Axie’s revenue is stunning: 37,000% revenue growth over a quarter and on-pace for more than $2 billion this year; despite only reaching double-digit monthly revenue in May! It’s ridiculous.
  6. New gameplay this fall: Jiho recently told Solana founder Anatoly Yakovenko, “Later this year, we hope to release an entirely new battle system that’s gonna be upgraded with new cards, new art. So it’s constant iteration…you could think of it as a new game.” Sky Mavis now possesses a clear track record of impressive iteration in response to community feedback. New and improved gameplay this fall might really propel this game unforeseen adoption levels.
  7. Full vertical integration is coming: Axie’s native infrastructure currently includes wallets, gameplay, NFTs (including virtual land), native currency (SLPs and AXS), and a decentralized exchange. Axie’s future plans include turning the sidechain into its own native blockchain (independent of Ethereum) and possibly even lending/scholarship programs, tax assistance, and banking services. This means that Axie is on a trajectory for serious, full vertical integration in one of the most rapidly growing sectors in the world.
  8. Infinite users = infinite possibilities: The phrase “infinite possibilities” cheesy phrase that predictably surfaces in regards to Axie. However. we must confess that it is becoming very true. If the world starts to be tokenized on the blockchain, well, Axie will be in a great starting spot. The stated goal of the Sky Mavis team is to use Axie to achieve widespread crypto adoption. Thus, the future of Axie may or (explicitly will include): real-world assets tokenized, a labor force, an open-source platform for further game development, a decentralized crypto exchange, virtual real estate that hosts online events and sponsorships, tax support for its users, and perhaps even a bank. With what may be crypto’s largest daily active user base, Axie will have the critical mass of users to support nearly any kind of ecosystem built within its universe.
  9. Axie’s low P/E ratio suggests it is undervalued: it’s jarring to see that crypto’s number one asset for user growth rate is also currently the #1 asset in terms of P/E ratio. The only logical explanation is that investors see the parabolic price action without realizing that the underlying revenue and user growth fully support it.

Evaluation

As noted earlier, we are not speculative traders. We invest in assets that we believe we can hold for the long-term.

Thus, we find Axie’s “fad risk” and its lack of decentralization most concerning. The risk of Axie coming and going is extremely real. Nearly all crypto assets have meteoric rises and then serious corrections. But, AXS is very different than an asset like ETH. Axie’s underlying value proposition is currently very narrow (albeit compelling) and it is specifically in a space known for fads (eg, gaming). On top of that, we believe that Axie’s lack of cross-pollination across other games means that a gaming metaverse might pose a serious threat. In this metaverse, game assets are extremely interoperable with other games. For example, if a world is created where Call of Duty, Halo, Fortnite, and Nintendo NFTs can all be swapped or even used in parallel….well, will people want to keep playing a game with just puffy creatures?

Axie’s lack of decentralization is a problem because we are unsure what the future might hold for the rules of the game, its security, and how it might change. Ultimately, Axie is only reaping settlement security and liquidity right now through its connection to the Ethereum. It is otherwise quite centralized. Thus, admin key risks must also be considered. **see website about this**

Put another way, Bitcoin maximalists will likely barf at the thought of investing in AXS.

On the other hand, everything that’s stated above is also true about most DeFi projects. Furthermore, we are not Bitcoin maximalists. Per our name, we are blockchain maximalists. We believe blockchain technology provides value in a myriad of ways. Property rights in gaming is definitely one of those ways.

We find Axie’s rabid community, first-mover advantage, and fundamental valuation to be extremely compelling. Axie’s recent explosion in price raises doubts about buying right now. But, Axie’s total addressable market of 1-2 billion gamers remains barely tapped and its P/E ratio is literally the best in crypto.

In summary, we are bullish on Axie Infinity in the short to medium term. Therefore, we invested a small amount of our portfolio into AXS. Axie’s continued growth rates and P/E ratio were too attractive to ignore.

However, due to Axie’s risk of being a fad and lack of decentralization, we will remain vigilant on community developments.


Editor’s Note:
BlockMaxi originally published this article on August 09, 2021. Less than 24 hours later, the price of AXS exploded from about $43 to $68. This article was later updated and republished to account for the massive price changes. We regretted not immediately investing as soon as the article was published. But, as is frequently the case, everyone always thinks they are too late to the game.

In reality, it’s still very early.

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