Axie Infinity was created in 2018 by a team of developers based in Vietnam called Sky Mavis. While the growth and popularity of the game was initially slow, within the space of two and a half years, the game have grown to be the number one blockchain game with more than a million active users and a market cap of more than one billion dollars. The game heralds itself as a play-to-earn blockchain game that promises to reward players based on the amount of time that they spent within the game's ecosystem. The new model is unlike that found in the traditional gaming industry where the earning aspect of the game are usually reserved for the game developers, investors, competitive e-sports players, or game promoters. After all, games are built for the purpose of leisure, the thing a person go to in order to take their minds off work, so why should a game economically reward its players?
The traditional gaming industry is a multi-billion dollar industry, but to use the term 'traditional' to describe the gaming industry is a contentious overstatement. The industry itself only emerged in the 1970s and even then the industry saw several major overhauls to its ecosystem as people's playing preferences change and new technological innovations are introduced. In just a span of a couple of decades, the gaming arcades and early gaming consoles that, just one generation ago, formed a fundamental part of people's lifestyle are now confined to a niche market of retro collectors and users.
Blockchain Technology
The current crop of blockchain games that have emerged in the past couple of months are still mostly at an early development phase, much like most other blockchain technology applications in the market. A quick search of the decentralised applications, or dApps, in the blockchain technology space will reveal mainly decentralised finance apps including yield farming apps. This was a concern raised by Ethereum co-founder Vitalik Buterin in the Ethereum Community Conference 4 event in Paris in July 2021. Money is an attractive factor to generate interest and attract investment into the technology space, but it should not be the prime factor as the concept of blockchain technology has other incredible potential uses that could revolutionise and capture the world's economy.
Blockchain technology is a useful technology that can bring better order and unity to a chaotic world and right now, it is at a stage where the technology is an idea, a belief at the back of people's minds. Blockchain technology will take root in our society one way or another because of its very useful application: its immutable ability to process transactions at possibly lower costs. As blockchain technology spreads and begin to entrench itself into our society, people will start to contribute more and more ideas about what we can do with this technology. It can be in insurance, health, journalism, or logistics. The technology has the potential to improve many of the current world's processes.
Blockchain Games - Egalitarian Multi-Level Marketing Schemes
As it stands now, play-to-earn blockchain games can be described as a form of multi-level marketing scheme that is built on blockchain technology's tokenisation utility. Multi-level marketing (MLM) is a marketing strategy used where the revenue of the company is derived from the non-salaried workforce selling the companies product or service while the earnings of the participants are derived from a commission system. So, if I want to be part of a multi-level marketing scheme, I have to be roped into the scheme by another person and make a contribution and in order for me to earn I have to rope in more people to earn in commissions. MLM schemes could also be structured in a way where if the person I rope in brings in more people or investment into the scheme, I can get a referral commission or compensation. In such a structure, the higher you are in this MLM scheme, the greater your compensation will be and the greater the model is tilted to to represent a pyramid scheme.
MLM or pyramidal schemes are not fundamentally evil or wrong as it is often portrayed to be. It is simply an economic model or marketing strategy which can be used for other purposes besides pure monetary gains. For example, it can genuinely be used to attract interest into a company's new product or service at a rapid scale. Once the scheme reaches its zenith (maximum number of adopters possible in a market), the monetary rewards are no longer there but everyone within the scheme would have been introduced to the new product or service.
Play-to-earn blockchain games are a form of multi-level marketing scheme. The success of the game is in its ability to attract new users, and sustain its economy for the long-term. To play and start earning in any of these games, a player must first invest into the game by buying the game's assets which can be in the form of fungible or non-fungible tokens. If the game is popular and attracts a lot of attention, it would naturally attract new players and investors into the game. The unique difference between blockchain game projects compared to pyramidal MLM projects is that existing players can multiply their gaming assets and re-sell them to other players. Thus, the blockchain game can be shaped in a way it is more egalitarian in distributing the MLM profits derived from new players' investments.
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Investing is not the only thing one has to do to guarantee a share of the MLM profits once they are part of the game's ecosystem. Continued participation is also another factor. If a person invests but does not participate in the playing aspect of the game, the person will not be able to multiply their gaming assets and earn by selling them. In this point of view, blockchain games are able to portray themselves as true play-to-earn models that de-incentivise passive players who do not want to spend time playing the game. Participation can be in the form of clicking a button several times a day or playing an elaborate strategy game. The game has to balance just the right amount of difficulty and ROI on people's time. Make it too easy or too quick to multiply your gaming assets, the value of the game's assets will plunge. Make it too hard or too difficult to multiply your gaming assets, people will be disinterested in the game, the game will not be able to attract new players and the value will plunge.
Case Study: Axie Infinity
The Axie Infinity's economy was fine-tuned over the course of the past two and a half years. It had the benefit of a first movers advantage and time to figure out an economic model that would be sustainable for the long term because the game only had to grapple with a few thousand players for the large part of the two and a half years unlike some of the newer projects that saw parabolic increases in the number of players entering their ecosystem in a much shorter time period.
The game requires new players to purchase 3 NFTs from other players to start playing the game and the cost of each NFT is not cheap. An initial investment is anywhere between $1000 to $3000. The game, unlike many other blockchain games, also have a degree of complexity to it as players have to strategise in order to win games and earn gaming assets but it is not too complicated because anyone is able to win the easier levels to earn gaming assets. The development team occasionally revise the game assets ecosystem to account for changes in the market in order to maintain an egalitarian earning platform for all stakeholders and they also clam down on multi-accounts which, if left unchecked, would drain the economic resources and create imbalance in the egalitarian distribution of profits. There are also withdrawal restrictions in the form of game asset locking features that require players to wait two weeks in order to withdraw the main in-game token, SLPs.
The high amount of initial capital, the complexity of the game, the frequent policing to ban game exploiters, and the withdrawal limitations all combine to be a good recipe for a sustainable long term growth for everyone participating in the economy. Due to the nature of how inputs and outputs to and from the economy are regulated, it also prevents market manipulation of the gaming assets i.e. pump and dump strategies. In the future, there is the possibility of injecting other sources of fund into the economy through other means such as franchising the brand where the game developers can look into producing Axie movies, clothing line, or toys whose profit can then be channeled back into the game's economy.
Case Study: CryptoBlades
CryptoBlade's economy is one that was clearly designed to be a multi-level marketing scheme that is focused on the earning aspect of play-to-earn. The game attracts users with the prospect of earning a huge return within a short amount of time. A player simply has to spend about $250 to get four character NFTs and an NFT weapon to start playing and earn a return. Although the project portrays itself as a 'blockchain game', there is no element of gameplay within the game itself. Basically, a player must click on a 'Battle' button 8 times a day in order to earn gaming assets in the form of SKILL tokens. The earnings in the game are controlled by what the developers call the Oracle that decides how much players are able to earn from winning a match. This Oracle acquires data from within and outside of the game such as the price of the game's token, SKILL, and the rate of withdrawal from the economy, in order to sustain the game's economy and price of SKILL. That includes making hard decision such as allocating negative returns for playing the game in order to prevent the price of SKILL from dipping and the economy from crashing. The game also have almost no checks to control the outflow of capital from the economy because in order to withdraw your gaming asset, one simply exploit a loophole in the Staking mechanism of the game that allows players to withdraw their gaming assets within 7 days. Furthermore, multi-accounting is allowed resulting in early players creating 30-50 accounts in order to profit even more. At its peak somewhere around early July 2021, tens of thousands of people entered the game resulting in an influx of capital into the game. However, correspondingly, people were also withdrawing from the economy just as fast by creating multiple accounts. There were YouTube videos where players were seen withdrawing more than $50,000 a month from an initial investment of just $250.
In a matter of weeks after CryptoBlades blew up and reached its all-time high in July 2021, the economy started to crack. People within the game were withdrawing from the economy at a rapid rate and the amount of new investors into the game are reaching a slowdown. The price of SKILL started falling about 20% day by day and the Oracle began allocating lesser and lesser earnings per match for each player. By early August 2021, earnings within the game was negative meaning that if you play the game, you are actually making a loss because gas fees alone outweigh your SKILL earnings. The price of SKILL in the market outside of the game remained fairly steady but it is as the result of the Oracle's intervention. All these development just means that users within the game will not be able to earn anything while new users who were not aware of the Oracle's manipulation of the price of SKILL continued to enter the game, only to realise they will lose money from playing.
The game developers are constantly seen engaging with players and trying to come up with better ideas and ways to increase the value of players earnings. In one of their AMAs, the developers were planning to increase the complexity of the game instead of simply clicking a button. However, with multi-accounts just waiting for the opportunity to seep capital out of the economy at a moment's notice, it is hard to see how the developers can address the apparent economic flaw in the multi-level marketing project that have already exhausted most of its resources.
Economics of Axie Infinity
Axie Infinity thus proves to be an interesting case study for future sustainable blockchain technology projects. The economic model is sustainable, attractive and egalitarian - a recipe for the future automatised humanist world that was envisioned by the most optimistic of technologists. In the short term, the economic model can also be replicated outside the gaming genre and can be used to support any kinds of project. It is thus interesting to find out what kinds of project can attempt to attract the attention that Axie Infinity is garnering from outside the gaming genre but the trails of success is there.
A new economic model is born.
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