The Strange Economy of Axie Infinity

Axie Infinity is a video game developed by the Vietnamese studio Sky Mavis, in which players make digital creatures, called “Axie”, fighting each other. The game is based on the blockchain and involves the exchange of cryptocurrencies to fuel its economy.

Each Axie is actually an NFT, a non-fungible token, which is a digital certificate that certifies ownership and authenticity of a product on the blockchain, the technology on which cryptocurrencies and related services are based. As an NFT, Axies can be created or traded with other users in exchange for cryptocurrencies. The first release of the video game dates back to 2018, but Axie Infinity has seen a surge in popularity over the past year, following the growing interest in NFTs. Besides popularity, controversy has also escalated, especially regarding the video game’s controversial economic model.

– Read also: Explanation of NFTs

Today’s Axie Infinity is one of the most famous examples of the “play to win” model. In this type of video game, users have to make an initial investment to start playing and possibly collect rewards for their wins. In the case of Axie Infinity, these winnings are expressed in an in-game cryptocurrency called Smooth Love Potion (SLP).

The idea behind the “play to earn” model is to turn video games into a means of livelihood for those who use them. In an interview last October, Ariana Simpson, CEO of venture capital firm Andreessen Horowitz, which has invested in Axie Infinity, presented this type of product as a natural evolution of the sector: “If I can play a video game, have fun and make money too, well, obviously. I’d like to do that, right?”

For a while, the system seemed to work. Last September, technology news site Rest of the world He recounted how in some Southeast Asian countries, such as the Philippines, Axie Infinity was able to guarantee a monthly income above the national minimum wage. Profits guaranteed by “play to earn” are influenced, however, by the trend of cryptocurrencies, which is a very unstable sector: after months of continuous growth, gaming revenues have fallen during 2022 (even below the Philippine salary minimum).

Moreover, on March 23, the video game was hit by a hacker attack that caused one of the most serious cryptocurrency heists in the history of the sector, in which $625 million worth of assets and coins were stolen.

Those responsible for the attack succeeded in their intentions by striking Ronin, a blockchain designed to act as an intermediary between the video game and the main blockchain, Ethereum. Through Ronin, the site explained the edgeUsers can deposit Ethereum or US dollars, buy NFTs or in-game currency, or sell their digital assets and withdraw their funds.

Ronin is a specific type of blockchain, called a “sidechain”, that connects to the main blockchain. Since cryptocurrencies are often isolated and cannot interact with each other, these “bridges” have become a key point in the system. Unfortunately, they are often the weakest link in the chain: second wiredAttacks on blockchain ‘bridges’ have become more common in recent years.

News of the attack, which was confirmed by the company itself on March 29, was a blow to many gamers who made video game a way to make a living. However, according to some, the product issues predated the hacker attack and are to some extent based on the economic model on which the video game is based.

US authorities said this week that the perpetrators of the attack may have been state hackers in North Korea.

Crypto Colonialism
To start playing Axie Infinity, each new user must purchase at least three hubs: at the peak of the game’s success last fall, this cost could exceed a thousand dollars, while today it has decreased to about three hundred. This economic barrier to entry has led to the emergence of a system in which some users – the main owners of video game NFTs – rent Axies to other players, in return for a portion of their earnings (“between 30 and 75 percent,” according to video game founder Alexander Lars). Players who own and rent an NFT are called “Managers”, while their clients are called “Scientists”.

This division into categories is exacerbated by the particular prevalence of Axie Infinity users: 40 percent of gamers reside in the Philippines, while just over 6 percent are in Venezuela; It is followed by Thailand and Brazil, which together account for less than 10 percent of the total users. Of the top five countries where video games are used, the United States is the only Western country, with 5 percent of the total.

The dynamics of asset concentration and exploitation of developing world regions have led some observers to speak of “crypto colonization,” a term used to refer to “blockchain-based technologies that allow new forms of resource exploitation from the global south.” These credits include land, labor, data, and other resources needed to promote growth. economics elsewhere. In the case of play-for-earning games, these assets are necessary to play and, above all, to be able to access an activity that, for some people, is the main form of economic support.

Axie Infinity is a clear example of a phenomenon that extends to other blockchain applications. Olivier Gutel, a former journalist today and researcher at the University of Otago in New Zealand, noted that “the developing world has become a testing ground for technologies that are challenging the independence of countries in this region, committing a colonial legacy to extract value and contribute to the media hype which is fundamental to inflating the value of cryptocurrencies.”

Also a recent editorial by coin deska news website specialized in this sector, which addressed the issue of crypto-colonization, especially in countries such as El Salvador, which under the leadership of President Najib Boukeleh pushed for the adoption of Bitcoin and other cryptocurrencies.

required growth
Axie Infinity issues aren’t just about cybersecurity. to me BloombergIn fact, the number of active daily users of the video game is down 45 percent from its peak in November before news of the theft, reaching 1.48 million. Decline affects another importance of the “play to win” system, namely the need for a constant influx of new users – and therefore new investments in SLP – to keep the gaming economy on its feet.

Players, especially “Scientists,” are paid to use their Axies to earn SLPs, which are then spent making (or buying) new Axies, in a cycle that is “a foolproof way to create inflation,” he explained. Video game internal economics expert A the edge. Such a system is only sustainable if the demand for SLP and Axie continues to grow – Axie Infinity users stopped doing it well before the $625 million was stolen.

Sky Mavis has so far responded to the hacker attack by receiving a new round of investments worth $150 million, through which it can pay off the stolen users. But it also launched a new version of the game, Axie Infinity: Origin, in which users are allowed to fight with Axies for free, with no initial investment and no gain, effectively eliminating the “win” from the “play to earn” model.

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