My Thoughts on the NOT So Surprising Downfall of "Axie Infinity"
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| llustration: Daniel Guerrero Fernandez for Bloomberg Businessweek |
I remembered some time ago when I wrote about Axie Infinity. One article I wrote about why I never bothered to enter the Axie Infinity arena was the poor security. I compared it to a cockfighting game--a game where so few win and so many lose. A previous article I wrote was all about why play-to-earn games are too good to be true. What's not too surprising is the collapse of Axie Infinity. It's pretty much too good to be true. A casual gamer can testify that they buy online passes not to earn but to play. It's like buying a Playstation Plus card to play online for an entire year. You buy games out of the money you earn. You don't earn money out of gaming.
What truly never surprised me was how Axie Infinity crashed. It promised riches but onoy resulted to disaster. I even wrote that there could be an ironic moment somebody says that AXA is a scam while playing Axie Infinity thinking that it's an investment. Some people said their money got lower with AXA insurance. Insurance is not about investing in your personal expenses but to protect yourself and loved ones in times of need. It's like claiming insurance if the breadwinner should ever get incapacitated or pass away. Axie Infinity's crash was also linked also to cryptocurrency. That's why I wrote why I don't recommend investing in cryptocurrencies. Maybe, my past immature self will get into it. However, I just felt like cryptocurrencies are too good to be true.
From Bloomberg, I really wasn't surprised to read these details concerned the disaster of Axie Infinity's promise of easy riches:
By the time Yang made his proclamations the Axie economy was deep in crisis. It had lost about 40% of its daily users, and SLP, which had traded as high as 40¢, was at 1.8¢, while AXS, which had once been worth $165, was at $56. To make matters worse, on March 23 hackers robbed Sky Mavis of what at the time was roughly $620 million in cryptocurrencies. Then in May the bottom fell out of the entire crypto market. AXS dropped below $20, and SLP settled in at just over half a penny. Instead of illustrating web3’s utopian potential, Axie looked like validation for crypto skeptics who believe web3 is a vision that investors and early adopters sell people to get them to pour money into sketchy financial instruments while hackers prey on everyone involved.
As Sky Mavis’s revolutionary rhetoric began to look increasingly hollow, the company shifted its story. In December it quietly altered its mission statement, deleting the phrase “play-to-earn” and replacing it with the mushier “play-and-earn.” Days after the hack it launched Axie: Origin, a long-awaited new version with upgraded graphics and tweaks to the gameplay. Crucially, this iteration doesn’t involve cryptocurrencies at all, because Sky Mavis has acknowledged that many players are willing to engage with a new game only if the complications of crypto are removed. The plan is for Origin to supplant the original game, with the noncrypto version attracting a broad base of players. Of course, Sky Mavis would still also offer a full version with the original crypto economy.
Company executives are trying to give the impression that nothing is wrong, but a clear sense of tension has edged in since Axie token values began to plummet late last year. When I first spoke to Sky Mavis co-founder Jeffrey Zirlin in late January, he told me he was living somewhere in the US but paused when I asked where in the country he was. “I could live anywhere, I don’t usually leave my room,” he said. He did finally give me a more specific location, but asked me not to make it public, noting that his team has gotten death threats. “We have to be careful revealing our location, just like the president doesn’t always have to reveal his location,” he said. “We’re kind of like heads of state.”
Zirlin said he empathized with people who’d lost money—life-changing sums, in some instances. But he added that a crash that got rid of Axie profiteers could have its upside, too. “Sometimes having to flush out the people who are just in it for the money,” he said, “that’s just the system self-correcting.”
This was also written from the same article in Bloomberg about why Axie Infinity was already destimed to collapse:
The resulting game was hardly a revelation; Sky Mavis’s initial success owed more to a clever innovation in its technical architecture. At that point, anyone building NFT games was relying on the Ethereum blockchain to handle transactions, leaving character trading and other in-game actions subject to its inconsistent speed and notoriously high transaction fees. Sky Mavis built its own blockchain, Ronin, which lowered costs and improved speed by centralizing the key function of verifying transactions. Purists might have taken issue with the decision to abandon the core blockchain precept of decentralization, but on the other hand, the game actually worked.
The other key to Axie’s popularity was an economy based on a form of paid labor that has long existed in gaming: the for-profit player. People who owned Axies could rent them out to players, usually in lower-wage regions in Southeast Asia or Latin America, who treated the game as if it were a job. Players who don’t own their Axies are akin to digital sharecroppers, but they’re widely referred to as “scholars,” because they’re supposedly using their rental Axies to learn about the broader potential of investing in crypto. In Axie’s biggest market, the Philippines, the average daily earnings from May to October 2021 for all but the lowest-ranked players were above minimum wage, according to the gaming research and consulting firm Naavik. Of course, actually converting this income into usable form meant cashing out their cryptocurrencies, at a time when many people involved in Axie were saying cryptocurrencies were only going to get more valuable.
The rise of the scholar class made Axie look like a hit. Player-speculators wanting to get in early flooded the game, sending the prices of its digital assets skyrocketing. Many were open about their mercenary intentions. “I started playing because earning money playing video games seemed pretty unbelievable and amazing,” says Filip, a Slovakian in his 30s who asked to be identified only by his first name. While he doesn’t mind playing Axie, exactly, he acknowledges he’s in it 100% for the money and 0% for recreation. “When I want to play games for fun, I play real games,” he says.
That Axie was widely viewed primarily as a way to make money has proven a major problem for its virtual economy. The game is designed to offer ways to both earn and spend SLP within the game. Any tokens spent within the game just disappear. But play-to-earners instead cash out all SLP by selling them on crypto markets, meaning the total number of tokens increases over time. The additional supply depresses prices, in a crypto version of hyperinflation. Players are constantly hounding Sky Mavis to tweak how the game works in ways that would reduce the amount of SLP in circulation.
SLP prices peaked last July, but as they dropped, players began hoarding tokens in hopes of a market recovery. This strategy is self-defeating, according to Lars Doucet, co-author of a detailed—and overwhelmingly negative—analysis of Axie’s economy published by Naavik in November. Doucet says Axie is stuck with the “sleeping dragon” problem: Every time SLP value begins to rise, the dragons—the people who have been waiting to cash in their SLP—wake up and liquidate their stashes, pushing the price back down.
Even before the broader collapse of crypto, Sky Mavis struggled to address the issues with Axie’s internal economy. A financial system consisting of people all hoping to put in $1 and take out $2 can last only as long as someone else shows up believing others will come in after them with more fistfuls of cash. Once Axie began looking less profitable, its ability to draw new players decreased, making it even less profitable and setting off a vicious cycle. “Axie has just been this fascinating tale of people learning hard lessons of economics and monetary policy in microcosm,” says Doucet.
It's not too surprising that it's all a Ponzi scheme. The first players got the benefits but the benefits are just for bait. Eventually, they will "re-invest" hoping for fast returns. It's pretty much different from stock earnings or any managed funds that are re-invested. It's because in stocks--you really may want t wait for the values to rise up before selling it or holding some of it. Stocks having dividends might be the best investment yet. Currently, I'm into some unit investment trust funds (UITF) but since the stock market is down--I might as well hold it. I intend to invest a minimum of PHP 1,000.00 or go higher if the Net Asset Value Per Unit (NAVPU) is lower. These things go down slower and rise up slowly. In short, stocks aren't as volatile as they look. Though, one can lose a lot of money in stocks if they buy the wrong kind or do panic selling.
This makes me think the money that could've been spent for AXA (or any investment) was wasted. Why say AXA is a scam (because of the management fees) and think Axie Infinity isn't? Right now, I think that money could've been used in GInvest's UITF offerings or any bank UITF offerings. UITFs are powered by stocks and have a management fee of usually 1.0 to 1.5% per annum. It's a necessary loss compared to the gambling of Axie. I treat Axie the same way I treat cockfighting--an easy way to gain money (at first) but much money is lost later.
