How Axie Infinity Turns Unemployed People During the Pandemic into Cryptocurrency Traders

Authors: Kristine Servando and Ian C Sayson, Bloomberg
Compiled by: Chain Catcher
When Vincent Gallarte was laid off in July, the Manila IT analyst discovered an unusual emergency solution: an online game that rewards players with cryptocurrency. In the first two weeks of exploring and battling like Pokémon, Gallarte earned over 37,000 pesos ($732), three times what he made in "real jobs."
Like many newcomers to so-called play-to-earn games, the 25-year-old Gallarte had no particular interest in the world of Bitcoin, Ethereum, and other cryptocurrencies. Now, he envisions a profitable side hustle. "On the same day my employer terminated my contract, I started playing Axie," he said. "I’m grateful."
Axie Infinity is one of the largest—and most extreme—of these new games, allowing players to accumulate tradable cryptocurrencies. For investors like billionaire Mark Cuban and Reddit co-founder Alexis Ohanian, it is a gateway for people around the world to access crypto technology. They provided $7.5 million in funding to Vietnamese game maker Sky Mavis (the team behind Axie Infinity) in May. Others are focused on the buy-in cost (currently over $600) and the large number of newcomers "working" for low-value tokens, seeing evidence that the Axie Infinity model is unsustainable.
Daily active users of Axie Infinity surged from 30,000 in April to over 1 million in August, with most coming from developing countries severely impacted by the coronavirus, including the Philippines, Brazil, and Venezuela. Etherscan shows that Axie was initially built on Ethereum, with daily recorded Ethereum transfers worth about $30 million over the past month. This is not uncommon in the $2.2 trillion cryptocurrency space, but it is significant for players and governments in poorer countries. Local reports on Monday indicated that the Philippine Department of Finance and the Bureau of Internal Revenue reminded players that their Axie Infinity profits are subject to income tax.

In the virtual world of Axie Infinity, players control creatures called Axies—derived from a type of Mexican walking fish known as axolotl—to earn coins. Source: Sky Mavis
Sky Mavis COO and co-founder Aleksander Leonard Larsen stated that they take their responsibilities seriously, monitoring the in-game economy and adjusting the market as needed. "Some say we’re like the Federal Reserve," he said in an interview. "We are ultimately the creators of this universe and are responsible for ensuring its sustainability. We have been tracking the economy to ensure it remains healthy."
In the virtual world of Axie Infinity, Lunacia, players drive colorful, spotted creatures called Axies to earn two types of tokens. Successful battles yield Smooth Love Potions (SLP), which can be cashed out or used in-game to breed new Axies. Axie Infinity Shards (AXS) can be earned through quarterly tournaments or by selling Axies in the game marketplace. AXS can also be cashed out, but like other governance tokens, they function similarly to stocks: Sky Mavis states that holders will eventually be able to vote on new game features or corporate spending proposals.
Gallarte heard about the game from a cousin. However, players need three Axies to start, each costing at least around $200. This was too much for Gallarte, who had just lost his job. He found a sponsor—someone who lends their Axies to new players in exchange for a percentage of the latter's game earnings, sometimes as high as 90%. Players borrowing Axies must give any earnings they make to the actual owner of the Axies, who then shares a portion of the profits with the player.
Gallarte reached out to Real Deal Guild on Facebook—a gaming guild made up of Filipinos that now sponsors hundreds of players. They agreed to let him use their Axies, provided that the guild would take 30% of his earnings.
This boom has been an unexpected windfall for Sky Mavis, which charges a fee every time an Axie changes hands and when players breed new, non-fungible offspring. According to CryptoSlam, which tracks the NFT market, players have created over 2 million digital monsters, and the Axie marketplace has generated over $1 billion in transactions.
From its founding in 2018 until July 1, Axie Infinity generated just $21 million in revenue for Sky Mavis. But afterward, it brought in $485 million.

Players spend tokens to breed new Axies, which can be sold as NFTs. To prevent hyperinflation, Sky Mavis programmed Axies to become infertile after several rounds of breeding. Source: Sky Mavis
Virtual goods with real-world value have long been a staple of gaming. The difference between Axie and most other major gaming markets is that Axie encourages players to cash out and provides them with the tools and transparency to do so. Axie players can take their SLP and AXS directly to major cryptocurrency exchanges and sell them at reasonable prices, rather than engaging in gray peer-to-peer trades on unauthorized third-party markets. Recent demand from the Philippines has been enough for cryptocurrency exchange Binance to offer SLP-peso trading, as has BloomX, based in Manila.
Independent analysts say the reasons for Axie's popularity in emerging markets are not mysterious. The price of AXS has skyrocketed over the past two months, contrasting sharply with the overall economy in the Philippines, where about one in ten people remains unemployed. (The SLP token has a lower value and has seen more volatility this summer.) In situations where local currency values are weak or in cases of extreme inflation like in Venezuela, obtaining cryptocurrency is also appealing.

But the Axie craze has also sparked criticism that the platform is supported by new funds attracted under the premise of getting rich quickly. Vanessa Cao, founder of venture capital firm BTX Capital, stated that the Axie model is "fundamentally unhealthy and unsustainable." "Players need to spend hundreds of dollars upfront to play the game," she said. "It’s a flawed concept. You can’t ask people to pay before they know what the game is about."
Cao provided Dream Card from BTX portfolio company X World Games as a comparison. Dream Card started free, with nearly 560,000 users customizing and trading character cards. She said X World Games does not give the impression that "Santa Claus is coming to town."
Prospective Axie players are active on Telegram and Discord, seeking sponsors to help them get started. John Aaron Ramos, a 22-year-old college student from the Philippines, is one such player—he connected with a Venezuelan player in November, just months before the game took off. Initially, he earned up to 300 pesos ($6) a day.
In the following four months, he bred new Axies, and as Ethereum prices rose, his earnings increased tenfold. He ended his relationship with his sponsor and formed his own cooperative player alliance, lending Axies to 15 people, including friends and relatives. He takes 30% of their earnings.
In March, he purchased two apartments for his parents south of Manila. He also bought an insurance plan and is considering investing in stocks. "The value of Axie may go down, but I’m not worried," Ramos said. "I have to still have physical assets so I can be in a safer position."
Sky Mavis does not regulate the relationship between sponsors and actual players, but in June, the company condemned reports of sponsors asking female players for nude photos on Twitter.
"Axie Infinity is a digital nation, and like any society, there may be some people who are criminals," Larsen said. "How do we deal with those who may abuse other guild members or players? These are challenges we face internally." He said the company has banned "thousands" of accounts that violate game terms, including those with bot-like behavior or "clear evidence of fraud."
The company seems to be adapting more to a central bank role. After the price of AXS surged nearly 650% from July to early August, Sky Mavis lowered the breeding costs for Axies. It halved the daily earnings users could make from tasks and increased rewards for top players.
Some risks faced by Axie Infinity players and investors are consistent with those in other areas of the cryptocurrency world, where large-scale losses are common. Cuban himself experienced a day in June when a token he liked dropped from around $60 to $0 in a single day while he was in the shower.
If AXS and SLP fail, as traders predict with short positions on the tokens, players may not be able to mitigate their losses. The game only allows them to cash out SLP once every 14 days, and this restriction, like all lock-ups, becomes more troublesome when asset values decline. In fact, there is evidence that new players may not fully understand how to protect their earnings. Larsen noted that users seeking customer service help have emailed their cryptocurrency wallet passwords to the company.
For "evangelists," the learning curve is key. "This will help with 100% adoption of digital assets," said Lennix Lai, head of financial markets at Seychelles-based cryptocurrency exchange OKEx. "Imagine a large group of people who have never interacted with cryptocurrency before, who have never had a wallet and have never made a transfer on the blockchain—there is actually a huge opportunity for cryptocurrency education here."
Larsen said that regardless of what happens to the currency, the game has lasting appeal. "We see it more as a social network than a game," he said. "People come in because it’s a new opportunity, and then they fall in love with the community and the game we’ve been building."
(Felix Tam and Amanda Wang also contributed)