Axie Infinity and Play to Earn

One of the most interesting developments from blockchain games is a new model of “play-to-earn.” This is an emerging trend within gaming where players are not only consuming entertainment by playing games but can actually earn an income through those same games.

The technologies fueling this trend include blockchain, crypto, and non-fungible tokens (NFTs). Not only is it creating a new type of gameplay but it’s spawning an entire new career for people, especially in the emerging markets.

This emerging trend of “play-to-earn” is at the center of our thesis for why we invested in Axie Infinity (Sky Mavis). We are excited to join their $7.5M Series A (company announcement) and support the incredible team that includes Trung Nguyen, Tu Doan, Viet Ho, Aleksander Larsen,  and Jeffrey Zirlin. From our side, Jason has joined as a board observer. We invested alongside other fantastic investors such as Libertus Capital, Collab+Currency, BlockTower Capital, CMT Digital, Animoca, and Mark Cuban.  

The Axie Infinity token (AXS) currently has a market cap of $234 million, a fully diluted market cap of $1.1 billion, and a daily traded volume of $40 million. We are thrilled to be in their corner for this journey.

Decentralized economies: We have never seen a virtual economy like this before. Yes, Steam created a marketplace for CSGO in-game assets (among other games) and World of Warcraft currency can be purchased and sold. Yet what makes those different from Axie Infinity and other blockchain based play-to-earn games is their centralized versus decentralized nature. Centralized in-game economies are actually a big reason why Ethereum, the Blockchain that Axie Infinity is built on, was created.

“I happily played World of Warcraft during 2007-2010, but one day Blizzard removed the damage component from my beloved warlock's Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring.” - Vitalik Buterin, creator of Ethereum.

The Documentary: As you’ll see in the Axie Infinity documentary (18 min), individuals play the Axie games in an effort to earn the in-game currency ($SLP), which are used for creating new Axies, staking, or cashing out through a variety of exchanges into local fiat currency. From this, communities are organizing and companies are being built (offering “Scholarships”) to help compensate for the upfront costs to play these games.

How the profit sharing works: Scholarships are necessary because to play Axie Infinity you need three Axies which cost, as of today, ~$105 each. This is a steep cost for anyone, but especially for a majority of the population in emerging markets like the Philippines. In the Axie economy, Decentralized Autonomous Organizations (DAOs) buy Axies and rent them out to players through “Scholarships” in a profit sharing model.

All of this is built out through smart contracts, one of Ethereum’s most well-known use cases, so the business scales seamlessly. Scholarship owners benefit by having more people playing with their Axies, generating revenue and playing more games than they could individually, which then allows them to create more Axies, rank up their Axies faster, and earn more $SLP per Axie.

Resilient Gaming Economies: Games that are built with a “play-to-earn” component alongside the lack of a walled-garden (i.e. open vs closed economies) have incredible upside not only for the platforms that support them (Axie Infinity) but also for the communities incentivized to build on them (i.e. the Axie DAOs structure).

Axie Infinity was built by Crypto Kitty enthusiasts who shared a passion for open economies where anyone could participate, but they saw a gap in the current ecosystems that lacked compelling gameplay components. Even when limitations arose, like the cost to start playing, the community found ways to surmount the barriers.

The Axie Infinity ecosystem mimics that of a resilient, free, and open economy. The strongest economies allow for innovation to thrive and profit sharing from its hardest working participants. Looking forward, the most successful game platforms will share these characteristics and be resilient, vibrant, innovative, and prosperous (for everyone involved).