Axie Infinity's revenue declines, how will GameFi evolve?

Author: Kyle

GameFi has become the hottest trend in the blockchain industry. According to DappRadar, in October this year, the number of active wallets related to games accounted for 55% of the total in the blockchain industry, with over 20 game projects receiving investment in that month.

The leader of this round of GameFi craze is undoubtedly Axie Infinity. From July to August this year, this pet-raising battle game generated astonishing revenue, with daily earnings at one point exceeding that of the hit mobile game Honor of Kings. However, according to a recent report by blockchain research firm Naavik, the player income from Axie Infinity is showing a downward trend, with the daily income of its casual players dropping below the minimum wage line in the Philippines.

Analysis shows that the decline in the price of the game's output token SLP and the increase in the number of players are the main factors leading to the overall decline in player income. Naavik researchers noted that the user growth rate of Axie Infinity is slowing down, and the drawbacks of its insufficient playability are beginning to emerge.

The blockchain analysis platform Nansen believes that GameFi is still in a relatively early stage of development, constrained by blockchain performance, with varying game quality. Developers and players focus more on the asset value rather than gameplay. This situation inevitably brings about a negative effect—when the gold mining effect of the game weakens, players will quickly leave.

In Nansen's view, improving game quality is the theme for the next stage of GameFi development. As more players join, the demand for game quality will increase, and the overall level of blockchain games is expected to continuously improve.

Declining Revenue of Axie Infinity Reduces Player Attraction

After the explosion of DeFi, the blockchain application ecosystem entered an unprecedented phase of rapid development, with GameFi, which integrates DeFi (decentralized finance), NFT (non-fungible tokens), and games, gradually becoming another star track on the chain.

How popular is GameFi?

DappRadar data shows that in October this year, the number of active wallets related to games accounted for 55% of the total wallet addresses. Meanwhile, the booming GameFi projects attracted significant attention from venture capital, with data showing that in October, venture capital firms invested over $127 million in GameFi-related projects, with more than 20 game projects completing financing.

From the ranking of GameFi projects, the pet-raising battle game Axie Infinity remains the leader in this track, and its development status can be seen as a barometer for the track.

As a representative of Play To Earn games, Axie Infinity's revenue exceeded $780 million in the third quarter of this year, placing it among the top tier of single games globally. In August, its daily revenue once exceeded that of the hit mobile game Honor of Kings.

However, according to a recent report by research and consulting firm Naavik, the income of ordinary players in Axie Infinity is gradually declining.

Naavik researchers wrote in the report that after several months of incredible growth, the daily income of casual players in Axie Infinity has dropped below the minimum wage line in the Philippines (according to data from the Philippine Department of Labor and Employment in 2021, the average daily minimum wage in the country is 537 Philippine pesos, equivalent to $11.17). These casual players are the "workers" in the game, as participating in the game requires collecting at least three Axies, but each Axie is quite expensive, so there are "sponsors" who provide these casual players with Axies and take a share from them.

In the early development of Axie Infinity, its gold mining attribute was the main driving force behind its phenomenon as a game. At that time, a large number of Filipinos earned income far exceeding the local average wage by participating in the game, but now, the wealth effect of the game is diminishing.

Blockchain data analysis company tokenterminal shows that Axie Infinity's game revenue peaked in July-August this year, with daily earnings typically exceeding $10 million. However, in the past two months, the overall game revenue has significantly declined, with total revenue on November 14 being $6.9 million, only about half of the peak period.

As game revenue decreases, player income also declines. Some analyses suggest that the drop in player income is mainly related to the decline in the price of the game's output token "love potion" SLP.

In this game, SLP is one of the main earnings players obtain, and it is also a consumable for breeding Axies. Between July and October, SLP fell from a high of $0.41 to around $0.07, a decline of 82.9%. Meanwhile, the number of players continues to increase, with Naavik's report showing that the cumulative DAU (daily active users) of Axie Infinity from September to October was about 1.45 million to 1.95 million.

As "involution" becomes more severe, a situation of too many monks and too little porridge forms. Under the declining player income, Naavik's researchers found that the user growth rate of Axie Infinity has begun to slow down. Researchers noted that most Axie Infinity players come from low-income areas, "the primary motivation is to make money," so the game's retention rate resembles "work retention rather than game retention."

Although Axie Infinity remains a blockbuster game in the GameFi field, it also reflects that if the game's "gold mining" effect begins to weaken, its attraction to players will also decline. Industry insiders point out that although Axie Infinity has achieved success in terms of blockchain application significance, the game content it presents to players is still very superficial—the gameplay only involves breeding and battling, "simple game mechanics lower the threshold for gold mining but sacrifice playability."

Game Quality Determines the Upper Limit of GameFi Development

It is undeniable that GameFi is still in its early development stage. Whether it is Axie Infinity or the popular card game Alien Worlds, they have not yet escaped the "mining" gameplay of the DeFi era; the model has simply shifted from liquidity mining to "games as mining."

Looking at the entire blockchain game sector, most Play To Earn games currently have shortcomings compared to traditional games, such as insufficient playability and simple game mechanics. Although a large number of blockchain games have emerged on chains like BSC and Polygon in recent months, the gameplay is largely similar, whether in role-playing, card collection, or nurturing games, all requiring similar setups to mine through battles and competitions.

With limited game quality, players are more attracted by rewards and do not pay much attention to the gameplay itself. Developers often rush to catch up with the GameFi craze, lowering the standards for game scene development and exploration. This has led to a large number of games with short lifecycles—when the "mined" price in the game drops, blockchain games become neither profitable nor enjoyable, and traffic quickly leaves to seek the next early profit.

Researchers at blockchain analysis platform Nansen believe that for GameFi to reach greater heights, it should focus on upgrading the quality of "Game" in addition to the financial attributes of value circulation.

Nansen divides GameFi into four development stages. The first stage features innovative NFT mini-games and nurturing mini-games, with weak game attributes, but it opened up the market for blockchain games; the second stage sees Play To Earn games becoming mainstream, possessing certain game attributes, with shorter development difficulty and cycles, focusing more on asset value rather than gameplay; the third stage begins to develop higher quality game products, with more independent game teams and members joining compared to the previous stage, significantly improving overall game quality, and a small number of traditional gamers starting to join the blockchain gaming community; the fourth stage will see higher quality AAA game developers entering, either developing new high-quality blockchain games or integrating blockchain technology or elements into their existing ecosystems.

"The current GameFi ecosystem is between the second and third stages, characterized by a lack of mature products in the market and varying game quality." Nansen believes that only with the continuous influx of high-quality players will the demand for game quality increase, and the overall level of blockchain games will continue to improve.

Of course, mature game development technology is just one factor in the rise of GameFi; high-performance GameFi platforms are also essential.

Blockchain performance is currently undergoing another round of major upgrades. From Ethereum to BSC, and then to the emergence of higher-performance public chains like Solana and Fantom, the efficiency of blockchain transactions and transfers has greatly improved. However, existing public chains as the infrastructure for games are still far from sufficient to support the operation of MOBA-type competitive games and FPS-type first-person games. Therefore, for GameFi to reach the same scale as traditional games, more efficient blockchain solutions are needed.

Regardless, GameFi is one chapter of the on-chain ecosystem. From the early CryptoKitties to today's Axie Infinity, blockchain games, along with the concept of the metaverse, are gradually stepping out of their small circles and even becoming a part of national income in some countries. Its evolution is also worth long-term anticipation.