Beneath the prosperity of Axie Infinity, there are hidden concerns. What does the future hold for GameFi?

Original Title: "IOSG Weekly Brief ｜Axie Infinity, the Future of GameFi? #89"

Written by: IOSG

Source: ChainNews

Axie Infinity, the Future of GameFi?

Axie Infinity has become the market focus in recent weeks, with DAU surpassing 800,000 in July, and total trading volume exceeding $1 billion, surpassing NBA Top Shot, CryptoPunks, and Bored Ape Yacht Club, becoming a new benchmark in the NFT market.

As a P2P (Pay-to-play) game, its main Battle mode features PVE and PVP card gameplay similar to the traditional game "Slay the Spire" (Roguelike + turn-based, with randomly generated cards and battle modes in each game, players collect fragments during PVE battles, with cards categorized into skills, attack cards, etc., having specific rules and limitations on energy usage and card play).

Screenshot from YouTuber PVP battle video

In terms of playability, Axie offers a richer gameplay experience compared to other blockchain games. Its main card battle system is very similar to "Slay the Spire," featuring at least 138 different cards with a variety of effects, primarily categorized into four types:

1. Simple attack / recovery cards: Generally increase attack power or provide recovery.

2. Buff/Debuff cards: Apply various effects to Axie.

3. Special effect cards: Such as stealing energy, drawing cards, etc.

4. Targeting cards: Axie defaults to attacking the nearest enemy, and targeting cards allow Axie to attack eligible enemies.

Compared to traditional card games, Axie Infinity's card gameplay and game design are relatively simple, but unlike traditional games, Axie Infinity is based on the blockchain game P2E (Play-to-earn) model, requiring players to purchase three Axies to gain entry, after which they can earn SLP (Smooth Love Potion - non-limited game token) needed for Axie breeding through PVP/PVE and daily tasks.

Compared to other blockchain games on the market, its art style is more exquisite and cute, with the adorable aesthetic of Crypto Kitties allowing Axie Infinity to stand out amidst the relatively hard-tech and rigid styles of Aliens World and Decentraland, firmly capturing the attention of blockchain game players, and being referred to by the player community as the most worthwhile blockchain game.

As a blockchain game with a longer development time, its gameplay is simple, and the battle system design is relatively refined. Card games, being a familiar genre for traditional players, have a broad audience and low entry barriers, allowing players to quickly adapt to the game rules and environment. Axie's success stems partly from the shortage of similar GameFi products in the market and partly from its excellent and exquisite art style and thoughtful gameplay design.

However, as a blockchain game, the gameplay, visuals, and player experience seem to be viewed as less important, with the rising prices of play-to-earn and tokens AXS and SLP becoming the focal point for more people to truly engage with the game.

The Driving Force Behind the Boom --- Scholarship & YGG

P2E has become the focal point for Axie players, and its business model directly stimulates and drives the ecosystem of game developers, players, and gaming guilds, transforming players from pure gamers into economic sources akin to jobs.

Since each battle requires only 3 Axies, some players who have purchased many Axies find themselves with a surplus. To better utilize all Axies, some players (referred to as managers) hope to rent out their Axies to those who want to participate in the game and earn money through battles.

However, players without the initial funds to purchase Axies (these players are called Scholars) allow scholars to play the game on their behalf to earn SLP and thus gain monetary benefits. Typically, the revenue-sharing ratio between managers and scholars is 4:6, with different agreements between managers and scholars determined by the players themselves.

For instance, the NFT gaming guild Yield Guild Games (YGG) has launched an agency business model and has profited significantly from it.

According to ChainNews data, the number of new Scholars in July and the amount of SLP earned by Scholars both hit record highs, collectively earning over 11.77 million SLP, with a 70% revenue-sharing ratio distributed to scholars, the guild receiving 10%, and managers receiving 20%, eliminating the costs of managing scholars while ensuring that scholars' efforts are rewarded, which also boosted YGG's total TVL in liquidity mining to $1.09 million.

Research in multiple Axie communities shows that the overall player base is predominantly young people from Southeast Asia, especially the Philippines. This demographic often has more leisure time and, due to limited economic power, tends to choose to become scholars, voluntarily and organized within Discord communities to submit personal backgrounds and situations to managers to apply for scholarships, playing the game to earn money and share profits.

The official account has stated that managers are not official organizations and encourages scholar players to clearly negotiate revenue-sharing ratios and delivery times with their respective managers, while also warning of potential breach of contract risks.

Image source: Discord - Axie Infinity community screenshot

Behind the Prosperity, Axie's Hidden Concerns

SLP (Smooth Love Potion), as an unlimited utility token, is used in every breeding of Axie, and players can earn a certain amount of SLP through daily tasks or battle modes based on different levels and battle performance.

AXS (Axie Infinity Shards) has a total supply of 270 million, and AXS holders can choose to deposit their tokens into governance platforms to earn rewards, participate in public competitions, and even vote on governance decisions within Axie.

AXS can be obtained by generating products or contributing to the ecosystem, earning token rewards, such as different amounts of AXS coins awarded to the top 50/300 players each season.

Since the issuance of AXS and SLP, their prices have fluctuated multiple times after a surge in May 2021. The enthusiasm of players aiming to make money has been affected to varying degrees by the fluctuations in token prices, leading to growing skepticism about the logic of play-to-earn and the sustainability of Axie's popularity.

Firstly, the price of Axies, primarily pegged to ETH, fluctuates with the coin price, meaning that an increase in ETH will directly raise the entry barrier. Secondly, as Axie gradually enters the public eye, the player base continues to expand, with more players participating in Axie breeding and a growing variety of Axies, making the hybrid breeds increasingly complex and less friendly for new players.

At the same time, the rising price of SLP has increased breeding costs, with high-quality rare Axies trading at increasingly expensive prices in the market, leading to a higher entry barrier for the game. These factors may contribute to a decline in Axie's popularity in the future.

Data source: CoinMarketCap - SLP

The Sky Mavis (Axie) team seems to have noticed this, thus choosing to make adjustments and improvements to the cost of playing for players. After previously launching the Ronin sidechain (a scalability solution), last week they reduced the number of AXS required for breeding from 4 to 2.

To maintain the game's lifecycle, they are adopting a similar approach to traditional game content, expanding horizontally in terms of game content richness and upgrading vertically in gameplay and battle systems. For example, with Axie Land and other derivative games and products, which quickly topped the NFT rankings after their launch.

At the same time, to enrich the audience and user demand for NFTs and its token AXS, the team is about to launch AXS staking features and the Alpha test version of the battle system Battles V2 (Axie Infinity: Origin).

Origin, as an independent team established within the Sky Mavis team for the V2 version, may make further upgrades in the battle system direction, enhancing complexity and playability. The market is still observing; if a new version upgrade can be introduced amid a slight decline in Axie's popularity, it will undoubtedly bring about a new wave of peaks.

Moreover, the protective measures inherent in AXS have also contributed to a steady rise in AXS prices. 4.35% of the market trading volume in Axie and all breeding fees will be allocated to the community treasury, distributed among AXS holders.

This means that the more participants there are, the more active the trading, and the higher the support level for AXS prices. Even if user activity declines in the future and SLP prices drop, AXS prices will still have a high support level.

The Future of DGame

Image source: Nansen

According to a report by Nansen, DGaming can be divided into four stages.

1. The first stage: The market is primarily dominated by innovative NFTs mini-games and nurturing mini-games, with weak game attributes, but this opened up the DGaming market.

2. The second stage: End games and mobile games that highlight Play-to-earn and NFTs as main features and attributes. These DGames have certain game attributes but are less playable compared to traditional games, with shorter development cycles and a greater focus on asset value rather than gameplay. Due to the short development cycles, many mini-games of varying quality quickly seize the market.

3. The third stage: Higher quality game products developed almost simultaneously based on the second stage, also independent game teams with blockchain as the main background. However, compared to the second stage, more indie teams and members have joined, significantly improving overall game quality. A small portion of traditionally curious players are attracted to relatively high-quality games and join the blockchain gaming community, gradually bringing DGames into the public eye.

4. The fourth stage: The entry of higher quality AAA game developers, either developing entirely new high-quality blockchain games or adding blockchain elements to their existing ecosystems, with NFTs and Play-to-earn becoming common elements in games.

We believe that the current blockchain gaming market is between the second and third stages, and many AAA developers are also making attempts in this area. However, there are still few mature products in the blockchain gaming market, with the main products being play-to-earn end games, and the overall quality is uneven.

The thousands of players who have already entered the market are supporting the blockchain gaming market, and as more players join, the demand for game quality will only increase.

At the same time, traditional gamers are willing to pay for game products and content, making it easier for them to accept the P2E logic of blockchain games. In the future, with the development and popularization of blockchain technology and the entry of more traditional game developers, a more diverse and high-quality gaming landscape will also attract more traditional players to the blockchain market.

From an optimistic perspective, the professional development of blockchain games and the entry of AAA game developers will bring a fresh influx of blockchain talent, and we look forward to seeing games become a bridge connecting centralized and decentralized systems.

As a phenomenon-level product, Axie Infinity currently holds a leading position in the GameFi field. The explosive popularity of Axie and the recognition and promotion of P2E logic by gaming guilds like YGG have opened up more possibilities in the market.

However, due to the unique nature of gaming, it is unlikely to have a clear leading project and high concentration like DEX and other fields. In the future, we are likely to see a flourishing scene with various types of games, and the logic of P2E will continue to improve and evolve with the consensus of players and guilds.

What Improvement Space is Left for Blockchain Games?

Although it currently seems that the importance of early positive economic incentives in blockchain games outweighs playability, the first step for products is not solely to create entertainment-focused products but to design an economic system with certain speculative attributes. Once the entire economic flywheel starts turning, the entertainment shortcomings can be gradually addressed. However, we still believe that entertainment is a key factor for products to maintain long-term healthy development:

There is still significant room for improvement in game playability.

In terms of the game experience itself, Axie has put considerable effort into the design of game graphics, the attributes and abilities of each pet (which combine with cards to represent different skills usable in PVP battles). Compared to a few years ago with Cryptokitties, there has been a significant improvement. However, from a purely gaming perspective, aside from PVP and PVE battles, the playability of this product still has much room for enhancement.

The land-selling model will become the foundation for the ecosystem of derivative mini-games.

The continuous operation of the Axie game and its later playability are crucial factors in attracting more new players while retaining old players in their community.

Regarding this issue, it is evident that the team has given it some thought. In addition to pets, they also want to integrate more mini-games through a land-selling approach, which may have advantages over Decentraland, where the product sells land upon launch, primarily attracting early investors and struggling to engage new users.

The bootstrap power of professional gaming guilds.

In the traditional gaming industry, gaming guilds are already a very mature and professional market. YGG's significant role behind Axie Infinity has made us realize that professional gaming guilds will play a crucial role as accelerators in the blockchain gaming market.