Axie Infinity ($AXS) is a prominent play-to-earn NFT blockchain game where users can earn money through gameplay and contribute to the ecosystem. Inspired by the popular Pokémon video game series, it allows players to battle creatures called Axies, capture and raise monster pets, and build land-based kingdoms for them as they advance.
As one of the most popular games in the blockchain industry, Axie Infinity was developed by the Vietnamese game studio Sky Mavis. In May 2022, the game secured $7.5 million in funding, attracting investors such as Reddit co-founder Alexis Ohanian and billionaire Mark Cuban. According to Bloomberg, daily active users soared from 30,000 in April 2022 to 1 million by August 2022. Sky Mavis’s earnings from Axie Infinity grew from $21 million in April 2018 to $485 million by August 2022, marking an increase of over 2,200 percent.
Despite its meteoric rise to global fame, Axie Infinity has experienced a significant decline in daily revenue and public interest since reaching its peak value of USD 165 in November 2022. To understand the downfall of one of the most well-known blockchain games, let's examine some of the challenges Axie Infinity has faced in recent months.
Accusations of Digital Exploitation
One of the significant challenges in Axie Infinity is its high barrier to entry. While the game is free to download, players must begin with at least three Axies, each costing a minimum of $29. This initial expenditure can be prohibitively expensive for many, discouraging them from starting the game.
Due to the high initial investment, many potential players seek sponsors in active Discord and Telegram groups to help them get started. Unfortunately, some sponsors make unacceptable demands before assisting. For instance, Axie Infinity had to address allegations that some sponsors were asking for nude images from gamers in exchange for an Axie.
Another controversial practice is the "Scholarship" system, where players without the initial capital (known as "Scholars") borrow Axies from "Managers" in return for a significant share of the in-game revenue. In some cases, the revenue split between Scholar and Manager could be as high as 50:50. This practice was particularly prevalent in the Philippines, where many individuals left their jobs to play Axie professionally due to its high returns. Numerous scholarship "guilds" were established during Axie's peak in 2021, some with over 3,000 participants playing various games for their Managers. These Managers sometimes threatened to revoke scholarships if performance expectations were not met. Given that the average income for a Filipino worker is only $3,218, critics have likened Axie Infinity's business model to "digital serfdom," or modern exploitation in the digital realm.
In response to accusations of unethical practices by some players, Sky Mavis Co-founder and Chief Operating Officer Aleksander Leonard Larsen likened Axie Infinity to a digital nation, suggesting that every society has its share of wrongdoers. He acknowledged that this issue is an internal concern for the company and stated that the platform has banned "several thousand" accounts.
Decrease in Revenue
Since its peak in November 2021, Axie Infinity's revenue has steadily declined. According to a Token Terminal graphic, Axie Infinity began October with $6 million in daily earnings. Revenue surged to over $10 million between October 4th and early December but then dropped to about $2 million. By mid-December, Axie hadn't surpassed $2 million, with earnings hitting a low of $21,000 on March 30th. A recent report indicated that Axie Infinity’s revenue fell by 40% in September alone.
Ronin Network Hack
The most significant challenge Axie Infinity has faced in its four-year history is the $625 million hack on March 23, 2022. Hackers attacked Sky Mavis' Ronin Network validator nodes and Axie DAO validators, which powered the game. As a result, they managed to steal 25.5 million USDC and 173,600 Ether (ETH) by emptying funds from the Ronin bridge in two transactions.
Ronin has nine validator nodes to approve transactions to prevent further breaches, requiring five validatory signatures for withdrawals or deposits. Sky Mavis had been allowed to sign transactions in November to handle the surge in new Axie players, but this privilege ended in December. However, the attacker exploited this system by accessing Sky Mavis' systems and obtaining a signature from the Axie DAO validator via Ronin's gas-free RPC node. This enabled the hacker to control the network by compromising most nodes.
Sky Mavis is collaborating with blockchain analytics firm Chainalysis to trace the stolen funds in the hacker's wallet. Ronin has assured users that efforts are being made to ensure no financial loss occurs.
Additional measures are being implemented to prevent further losses, such as increasing the number of signatures required for transaction recognition from five to eight. Binance has deactivated its bridge to and from Ronin, and there is a temporary halt on the Ronin Bridge. The Katana DEX was also immediately suspended. Despite these efforts, the price of the AXS token has plummeted by 25% since the attack.
Is This the Demise for Axie Infinity?
Despite the challenges, many in the gaming community believe Axie Infinity has a promising future. Some experts argue that the platform's growing user base suggests long-term success. Axie Infinity has gained significant popularity and boosted AXS token values to a level many see as no real competition. However, the recent hack could quickly alter public perception.
Axie's revenue has steadily declined since late last year, with a sharper drop in March 2023. According to Token Terminal data, Axie earned $184,500 on March 1st, down from $2.1 million on January 19th. By March 25th, revenue had fallen below $10,000.
Initially, competitors like Crypto Kitties and Decentraland struggled to compete with Axie Infinity. Now, these alternative play-to-earn ecosystems have an opportunity to attract Axie's dissatisfied users. They can capitalize on Axie Infinity's current difficulties by introducing new features or products compelling enough to entice players to switch. Many players might welcome the idea of maintaining accounts across multiple popular play-to-earn games.
With the ongoing upheaval in the GameFi world, this could be an opportune moment for new games to launch or for existing ones to meet gamers' demands. Potential strategies include enhancing security, offering more gaming options, creating accessible play-to-earn models, and developing immersive games rivaling Axie Infinity. If competitors eliminate financial barriers to entry, Axie Infinity might struggle to regain its footing once the Ronin Bridge is reopened.
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