Here we are at another stomach-churning moment for Cryptopians. The swan dive in the price of Bitcoin and Ethereum, the $40B sudden evaporation of Luna, the consolidation of the NFT market… Even my beloved Axie Infinity Shards (hard hit by a crypto heist) are down by more than a factor of seven from their peak. All this carnage is generating a lot of attention.
What are the Fundamentals?
I’m an Axie Infinity guild owner, so I’m taking it upon myself to explain the fundamentals that have been missing in every single analysis that I’ve read: SLP is created through playing the game, it can be sold on the open market, or burned to create more Axie pets. Currently, almost no one is burning SLP, and no one is buying Axies, leading to a seemingly catastrophic drop in the token’s value.
But is this the end, or is it something else that everyone is missing? Let me explain, starting with…
What is Axie Infinity?
Axie Infinity is a game that allows players to earn their own cryptocurrency through competitive play and then use it to build their empire. The game is similar to CryptoKitties, but with a few key differences. The biggest difference is that in Axie Infinity the players are not just buying and selling virtual cats.
Instead, they are battling to earn their own cryptocurrency (“Smooth Love Potion,” SLP, won and minted after winning battles). Then, use it to build an empire of players who use the digital pets you create by breeding (burning SLP and another token called AXS) to play, battle, and win.
The Mistake Many Analysts are Making
Suddenly, Google reveals the world to be flooded with analysts and commentators, including those writing for influential gaming and crypto publications. They are, like the fable in Lunacia Chicken Axie, shouting that the sky is falling on Lunacia (the land that contains Axie).
The critics point to a declining player base and the plummeting price of the token as proof that Play to Earn (we've actually started to call it "Play and Earn," but that's an article for another day) "doesn't work."
As a guild owner, I can't help but cringe when I read these articles. Not because I'm worried that Axie Infinity is over (it has the word INFINITY in the title, come on!). I find the lack of understanding that these analysts have for the underlying reasons for the current decline cringeworthy.
Lunacia’s Upgrade
Since the beginning of Axie Infinity, Lunacians have been playing the same game, with the same fundamental rules, which has been incrementally upgraded. Like Pokemon, your combination of Axies must be strategically balanced, with the four-card combination per Axie being vital to a winning team.
And the cards of the three Axies that play together must complement each other.
Because there's a huge upgrade coming out, called Version 3, or Origin, (expected imminently, for the last 5 months or so), the players haven't known which team and card combinations will work after the upgrade.
Markets hate bad news. But they hate uncertainty worse.
This has Caused a Decline in the Axie Economy
The issue is that people aren't using SLP (the token you earn) to breed Axies, because the new upgrade will actually, basically, be a completely new game with new cards and brand new dynamics. From the gameplay I’ve seen so far, the new game is likely a significant upgrade from the legacy game.
Yet… some of the legacy Axie teams are going to be useless going forward. The economist Schumpeter called this sort of progress “creative destruction.”
We don’t know which ones won’t be effective moving forward. We won’t know until the moment of the Big Reveal.
For this reason, the accumulation of SLP has been ever-increasing, without the usual mechanism (burning it to breed) to decrease the supply. Stakeholders are waiting for the new game to come out to breed.
Additionally, very few are buying Axies. Who wants to buy a digital battling pet that might not be a competitive player going forward?
This has caused SLP’s value to plummet. Meanwhile, the scholars (players who borrow your teams to play and earn and remit some of their earnings back to the owner) have been defecting as the price of SLP declines.
Origin’s Release and the Start of a New Axie Infinity Adventure
However painful this transition has been, I still believe a new game, and a large upgrade will be beneficial to the long-term health of the Axie economy. This is so despite how bitter the last five months have been.
Once the new game comes out, guilds who have been waiting for final card balancing and new technical dynamics such as rune charms can rebalance their teams, and finally, start buying and breeding Axies again as they’ll have a better idea of their use moving forward.
Currently, purchases have fallen to near zero, as you would almost be gambling by purchasing Axie teams now.
But What's the Point of SLP?
Finally, almost but not entirely unrelated, let’s look at the journalists who are dancing around spreading salt on the ground while saying "AHA! Play to earn doesn't work! SLP's value is under a cent. THIS PROVES IT."
Journalists, and other humans, I have some bad news for you. All currency (crypto or not) -is basically useless in its pure form (although you can use it to make fire, origami, and to write on).
SLP and other currencies minted through blockchain are no different, including Bitcoin, Ethereum, and all 18,465 cryptos out here. No, SLP has no intrinsic value. It's not even a physical coin, but like other cryptocurrencies, a marker of an input and output.
So, how do we assess the fundamental value? By the underlying assets.
What are the Underlying Assets of SLP?
It is the players, who are (for the first time, and it matters) owning the game they play, who furnish the underlying value.
It’s the developers, who were the first to show the world the true potential of crypto gaming.
Finally, the game and network itself, including the coming upgrades.
That’s where the value lies.
But the Players Will Just Keep Minting More SLP
True. Hopefully, the recent adjustments will bring more balance when that happens. We’re still early in crypto, and while the community starts to build out new games that can be used in part to spend or burn SLP, it may bring balance to the economy and stability. This is the first play to earn experiment, and while others are taking apparent glee in decrying it doesn’t work, I’m excited for the community making it work.
I don’t want to get too much into boring technicals, but one important thing to point out is for most of Axie, almost any player with three Axies, even not great ones, could basically collect 75 free SLP per day, which the developers took away recently. With this new adjustment, it’s about 75% harder to mint SLP, and from a community participant, I suspect this will actually balance the mint to burn ratio a lot on its own, although it was very painful for the community at the same time.
One day, we may be able to take our earnings out and actually spend them. At places like GameStop. Or the grocery store, which will add balance to an entirely new degree. And I’m excited for that.
Note:
-
This isn’t investment advice. I’m a guild owner and thus I have a stake in the Axie Economy and the tokens discussed in this article. At the same time, that didn’t affect this analysis—I wrote this piece to point out something that was missing from the viewpoint of analysts writing about the game from the outside without a player’s understanding of the economy.
-
Do your own research, and don’t invest money you can’t afford to lose. The last few weeks have been gutting for the crypto market as a whole, and even with strong fundamentals, there are no guarantees in crypto.
-
Origin is out in an Alpha test phase with no crypto rewards, without final balancing, and there’s currently no consensus on which teams will work when it’s given an official release. When I say Origin isn’t out yet, I am specifically saying the official game release with full dynamics, crypto rewards, and card balancing patches that players and guild owners could use to make informed financial decisions when buying new teams.