Website: https://axieinfinity.com/
Whitepaper: https://whitepaper.axieinfinity.com/

Axie Infinity is a digital pet universe where players fight, raise, and trade fantasy creatures called Axies. It’s like Pokemon meets Mobile app games meets NFT.  It is fun and addictive for gamers who enjoy turn-based tactical fighting games.

Despite the crypto market being somewhat bearish now, the user growth remains strong and it could be rationalized that gamers, or at least Axie gamers and the Axie economy might not be correlated with the crypto market.

After all, gamers will continue to play games to destress even if the real-life economy is bearish, so it might be the same for crypto games.  

Let's explore the AxieVerse in this article.

Product Analysis:

Axie is the first blockchain game to introduce both a desktop and native mobile application with the ability to earn money by simply playing the game. This is now known as ‘Play-To-Earn’ or P2E.

Wallet:

It uses the Ronin Wallet, which is an ethereum sidechain that acts as a scaling solution built specifically for NFT games.

Gameplay:

Axies are like Pokemon that players can battle, collect, and raise, and each axie has different traits which determine their role in battle. They also have different body parts with different stats depending on the parts.

They also have classes which are similar to “types” in Pokemon.


The battle system is a turn-based card game where you need to eliminate your enemy. There are two modes, PVE and PVP.

PVP: Where you fight against monsters in a dungeon, and get rewarded with $SLP when you complete a dungeon but consume energy, similar to many other mobile games.

PVE: You fight against other players in an arena and the combat is done live. You earn $SLP for winning and your MMR goes up so you fight stronger competitors. The higher your MMR, the more $SLP you earn for winning in the arena. You don’t spend energy in the arena, which means you can play all day long.

Each card has different abilities that you need to use strategically to defeat your opponent.

Marketplace:

There’s a marketplace where users buy and sell their Axies to each other. Axie takes 4.25% commission for each Axie sold.

Rewards:

Players can get rewarded by:

  1. Competing in PVP battles to win leaderboard prizes.
  2. Breeding Axies and selling them on the marketplace.
  3. Collecting and speculating on rare Axies such as Mystics and Origins.
  4. Farming for the love potions that are needed to breed Axies. These can be sold on exchanges such as Uniswap and Binance.
  5. Starting in 2021 players can earn a governance token, AXS, which represents a real slice of the game universe as it has governance rights and fee sharing built into it. Transactions on the marketplace are subjected to a 4.25% commission fee deducted from the sellers, purchasers do not pay a fee. Since players can earn this token by playing, a Ready Player one type quest emerges where players can actually earn part of the universe. However, these quests are not winner takes all and rewards each player based on their effort and skill.

Incentives:

Players can breed and earn in Axie infinity. Each Axie can be bred a maximum of 7 times in order to manage the population, and breeding costs .002 ETH as well as Small Love Potions.

Small Love Potions can be earned by playing the game in PvE adventure mode and PvP arena. Small Love Potions can also be traded on Uniswap and Binance into stablecoins to earn real money.

Competitions

Competitive players can earn up to 500 $AXS for being top. At the current price, this is worth $1835, and was worth $5000 at the peak of their price.

e-Sports

Axie is potentially positioning itself to be an eSport game in the future, however the current battle mechanics do not seem exciting enough to watch. The new battle update, Battle V2, is said to be promising with more battle mechanics that adds depth to skill to the game.

With additional depth, the game might become more competitive and exciting, creating more attention. Ubisoft, one of their main partners, has mentioned that battles v2 is an amazing upgrade to the battle system.

Competitors:

Gameplay wise, it is a similar concept to a popular card game called ‘Slay-the-spire’ which is a roguelike turn-based card game. It costs $22 and has over 78000 user reviews with an overwhelmingly positive rating of 97%, showing that if done well, this category of games can be very popular.

Overall:

Just like Pokemon, the gameplay can be simple at first, but tactical enough for advanced players. It can be both fun and challenging, and the daily rewards makes it addictive and incentivizes players to play everyday.

Fundamental Analysis

$AXS Market Stats:

Market Cap: $204,800,273

FDV: $1,008,292,216

Volume: $23,258,694

Circulating Supply: 55,260,010 / 270,000,000

Axie Infinity Shards - $AXS

Axie Infinity Shards(AXS) are an ERC-20 governance token for the Axie Universe. AXS holders will be able to claim rewards if they stake their tokens, play the game, and participate in key governance votes. Players will also be able to earn $AXS when they play various games within the Axie Infinity Universe and through user-generated content initiatives.

$AXS receives a percentage of marketplace transaction fees that Axies Infinity earns, hence as Axie Infinity expands and becomes more active and popular, AXS value is likely to increase.

Gaming Macro Analysis:

The global gaming market has over 2.5 billion players worldwide, was valued at USD 162.32 billion in 2020 and generated over 100 billion in revenue last year, with the bulk of it coming from mobile games. It is expected to reach a value of USD 295.63 billion by 2026, registering a CAGR of 10.5% over the forecast period (2021 – 2026).

The gaming market is growing with the increasing per capita income, growing interest, and the rising number of dual-income households, which augments the transformation of the global market.

With the increasing usage of smartphones and consoles and cloud penetration, the market shows high potential growth in the future. There were more than 200 million mobile game players last year in the United States alone.

However, in terms of NFT the number of sales is still small compared to the non-NFT gaming market, with the total NFT sales in 2020 amounting to just 55m USD.
In terms of category, Axie belongs under the ‘strategy’ genre which is the 4th most profitable mobile game category.

Source:

https://www.blog.udonis.co/mobile-marketing/mobile-games/mobile-gaming-statistics

Opportunity:

Double high-growth sector:

Axie infinity is uniquely positioned to capture the growth potential from 2 high-growth sectors, NFTs and mobile games.

There are not a lot of NFT games right now, and Axie is one of the most popular ones, with about over 22,000 daily active users (recently this number might be as high as over 200,000). In comparison, another highly popular NFT game called Gods Unchained has less than 1,000 daily active users.

Axie is ranked the #1 Ethereum game by daily, weekly, and monthly active users. It has generated over 6,400 ETH in revenue (12M+ USD at $2000/ETH) so far.

Its daily sales have also been dramatically increasing, and since September 2020, the game has been experiencing hockey stick growth averaging 12.7 million in monthly sales. The boom was driven by the platform’s switch to Ronin with reduced transaction times and fees.Volume is up 291%. The number Axie NFT traders is up 160% and the quantity of NFT sales on their marketplace is up a staggering 409%.

Axie infinity also comes with daily quests that rewards you with $SLP that can be sold on Binance, creating a financially-driven and addictive incentive to log in everyday to play and earn money, creating high user retention.

For each axie sold, Axie takes 4.25% as fees from the seller. In the past 30 days (which is since the May 19 crash), the total volume is 80m and 4.25% of that is 3.4m. With a marketcap of 200m, the Fees/Mcap is at 1.7%.

Battle-tested:

Axie Infinity is founded by studio Sky Mavis, a technology-focused game studio founded in early 2018. It was founded after the popping of the crypto bubble in 2017. It is important to note that this was a period where most crypto projects failed while Axie Infinity continued to grow and survived the crypto winter.

Despite launching the beta version in mid-2018, in the bear market, the game’s beta version was an unexpected hit, to the point that revenue from pre-orders of Axies was enough to give the developers a full year’s cash runway.

This means Axie infinity is somewhat battle-tested and anti-fragile, which increases the chances of it surviving long-term, potentially through another bear market.

Target Audience:

Primary audience:

  • Mobile gamers (growing trend)
  • NFT / crypto fanatics (growing trend)
  • Both of the above

Secondary audience:

  • DeFi farmers / breeders (early trend)

Community:

The community growth is strong, with 50,000 members in discord and 12,000 members in telegram. Additionally, a sign of a strong and loyal community is the user generated content (UGC) which helps to differentiate between an active and dormant community. UGC is free advertising and marketing that attracts new players into a game. The vast amount of UGC from games like minecraft, hearthstone, fortnite, etc, act as free marketing to attract new users.

Similarly, Axie infinity has plenty of UGC, from online tutorials, to amazing art, chrome extensions, videos and dedicated websites that go in depth into the strategy. That is some serious dedication to a game. And the amount of marketing that Axie itself has done is close to none, proving that their word of mouth marketing is effective, which is one of the best forms of marketing.

Fanart from: Nuu_Art

Breeder simulator from https://axie.zone/stats


An extension that shows you additional details of the Axie in the marketplace.  https://chrome.google.com/webstore/detail/freaks-axie-extension/copjnifcecdedocejpaapepagaodgpbh?hl=en



This active community is shown by the growing traffic as shown in the next section.

Community members have even created a documentary, Play-To-Earn, which has gained significant traction by being featured in the mainstream media through CNBC and Hypebeast and receiving over 200,000 views on YouTube.

Scholarships (Copy pasted)

To encourage more players, the Axie community created scholarships as well which is a profit-sharing model where Axie owners lend their NFTs to new players so they can play the game and start earning SLP without having to buy any NFTs or invest any money upfront. Earnings are split among the player, the NFT’s owner and the community manager – the latter being the one responsible for recruiting, training and mentoring the new player.

The only upfront requirement of the new player is time, enthusiasm and a willingness to learn. It is not Sky Mavis who offers these scholarship programs. Rather, it is members of the Axie community who already own more Axies than they can feasibly battle themselves each day. So they rent them out, giving unused Axies greater utility.

The idea to rent your assets is one of the oldest business models in existence. Applying it to NFTs is new. And it’s only made possible in Axie Infinity because the player’s username and password are kept separate to the crypto wallet. This is different to most other dapps, where the user identity is the wallet. Instead, in Axie, the NFT owner can let other players borrow, use and enjoy their assets without having to give up their private keys.

Traffic / Daily Active Users:

Let’s take a look at the traffic, trends and daily active users for axie infinity.

Google Trends:

3 Months:

1 Year:

From google trends, searching only for Axie infinity, we can see that the interest over time has been increasing, with popularity concentrating in the philippines but popular worldwide as well.

Axie infinity is the most popular searched NFT game currently in the past 3 months worldwide, and it consistently remains the top search.

Source: https://trends.google.com/trends/explore?q=axie%20infinity

Similarweb

Web traffic to Axie continues to grow steadily with a high engagement of 1.85M total visits.


Source: https://www.similarweb.com/website/axieinfinity.com/

They have become the number 1 NFT Project by weekly volume as well.

Reddit

From Reddit, we can see that the daily chart of the subscribers have gone parabolic and have not topped out yet, indicating further potential. Despite the recent crypto crash, this trend has not been negatively affected which could be a positive sign of uncorrelation.  


Source: https://subredditstats.com/r/axieinfinity


Marketplace Statistics

$AXS receives a percentage of marketplace transaction fees that Axies Infinity earns, hence as Axie Infinity expands and becomes more active and popular, AXS value is likely to increase.

According to Nansen, they have over 30,000 marketplace participants and that number is continuously going up. There are currently 45,260 current holders of Axie which has plateaued recently, this is likely due to the Ronin upgrade where Nansen is unable to track.

Source: https://pro.nansen.ai/dashboard/152

In fact the traffic is so heavy that their server is unable to support as they are reported to have up to 200,000 daily active users.

Their mobile application which is only in Alpha and not available on the app store yet and requires users to download an SDK to play, has already hit 25,000 daily users. When actually available on the app store, it won’t be surprising to see this number go up massively.

Older screenshot in March:

Newer screenshot in June:


These figures are comparable with top steam games, with 200,000 DAU comparable to AAA games like PUBG and Apex Legends.

Source: https://www.statista.com/statistics/1179973/steam-games-peak-concurrent-players/

Emission Schedule:

There is a max supply of 270,000,000. AXS will be unlocked in a pre-determined schedule which lasts for 65 months (5.4 years) from the public sale. The initial circulating supply is set to 59,985,000 AXS - 22.22% of the total supply.


You can play to earn Axie. The play to earn issuance represents 20% of the total AXS supply. The goal of the play to earn tokens is to attract a wide range of players to the Axie ecosystem in the hunt for token rewards and to give ownership and stake to the most active community members.

Players are also able to stake their AXS to earn weekly rewards. These rewards will initially start out high to incentivize user growth and gradually decline as Axie Infinity reaches maturity.  AXS staking rewards will be escrowed for 1 year from when they are claimed and can be vested once the escrow period has concluded.

Daily Inflation Upkeep:


The annual inflation rate is 18.79% which is decent given that there is a max supply. The daily upkeep to mcap is also low at 0.25%.

AXS is better for a long-term investment given its max supply.

Small Love Potion - $SLP
SLP is an uncapped utility ERC-20 token that can be utilized within the game to breed new Axies. The token can either be mined through playing Axie Infinity, bought via Uniswap, or earned by participating in various promotions or tournaments.

The price of the Small Love Potion has been a significant driver for activity in Axie Infinity as it enables players to earn value from playing the game as they sell their SLP tokens to players who require it to breed their Axies.

Breeding Axies to sell has become a popular pastime for some. Some Axies are even reaching values of more than $60,000. Furthermore, fractional ownership is allowed through the sharding of a single Axie.

There are 6,774 holders of SLP, with 89.5% of them on Axie Infinity Token Swap, 5.8% of them on Binance.

Supply

Its purpose is not to gain value over time, and more is given out as the game gains more users. SLP is given out as rewards for PVP and PVE games.

Demand

As the game expands, demand arises from breeding Axies. As price of Axies increases, SLP tokens also gain value since SLP is required for SLP to breed Axies.

Thus SLP will fluctuate within a fixed range likely, unless the team will change the demand and supply factors. So it is a better short term investment to sell when its around 7 cents.

SLP holders have significantly decreased as users are able to swap SLP into AXS or withdraw SLP to sell on Binance.

Users have been steadily increasing on Axie, alongside volume as well as transactions on the smart contract.

Network Effect:

The more players there are in a game, the more it enhances the gaming experience for current players, making the game more attractive to play. Being one of the first play to earn game, it can easily gain a lot of publicity if popular live streamers give it a shout out, especially when the free starter axies become available.

Once Axie Infinity gets mass adoption, users may prefer to only spend time focused on this game that they and their group of friends have chosen to get good at, because being good in this game means more opportunities to earn money as well, instead of starting from scratch in another game.

Being the first to achieve scale is critical in allowing Axies to continue to have sustained success. If the gameplay and the ability to earn money is addictive enough, it can likely achieve a hockey stick pattern in terms of user adoption, which will attract even more players into the ecosystem.

Team

The CEO of Axie Infinity is Trung Nguyen. At the age of 19, Trung co-founded and was CTO of Lozi.vn, an early Vietnamese e-commerce startup which has raised around 10 M in funding and is still in operations as of now. He left Lozi once it became a stable business and the team's focus shifted from building to business/operations. Trung also had stints at Trusting Social (25 M recent funding round led by Sequoia) and Anduin Transactions (a Joe Lonsdale company) before founding Axie Infinity.

The COO is Alexander Leonard Larsen. He also serves on the board of directors in the Blockchain Game Alliance and holds the secretary position. He has worked in the Asia Pacific region since early 2018 and has a vast network of Blockchain industry and gaming connections, particularly in Vietnam, Hong Kong, South Korea, and Japan.

The CTO is Andy Ho, who leads the engineering team and is responsible for our technical strategy and engineering operations. He previously worked as a software engineer at Anduin Transactions and interned at Google and Paypal. He also attended the International Olympiad in Informatics (IOI) 2010 held in Waterloo, Canada. He graduated from Nanyang Technological University, Singapore and also represented Singapore in the ACM-ICPC World Final 2015 held in Marrakech, Morocco.

Road Map and Milestones:

They have fulfilled all their milestones on time so far.

Q1 2020: Land and Items migrated to Ronin ✔️

Q2 2021: Axies migrated to Ronin ✔️

Q2 2021: Axie: Origin Alpha ✔️

Q3 2021: $AXS staking

Q4 2021: Land Gameplay Community Alpha

Late 2021 / Early 2022: $AXS ecosystem begins

  • Governance
  • Play to Earn
  • Mainstream release of Axie Infinity on iOS/Android

First half 2022: Land gameplay

Land Gameplay

The Axie game is centered in the Axie universe known as Lunacia which is made up of tokenized plots of land that can be purchased, rented out or developed by players.Lunacia is made up of a 301 x 301 grid of land plots. Landholders can upgrade and customize their territory to host shops, Chimera summoning beacons, produce resources, house NPC’s and even act as access points for dungeons.

Lunacia has 4 different types of Land: Savannah, Forest, Arctic and Mystic. During the initial Land sale in Jan 21st 2019, 1/4 of the total Land Plots were available.This means there are still three quadrants that remain, which will be up for sale at a later date.

  • Savannah: 5349 Plots, (initially sold for .05 ETH each)
  • Forest: 5459 Plots (initially sold for 0.16 ETH each)
  • Arctic: 4171 Plots (initially sold for 0.45 ETH each)
  • Mystic – 2338 Plots (initially sold for 1 ETH each)

There are also land items which can be placed on land plots to boost Axies abilities. Players can customize their land through land items and structures in the gameplay. Structures will have a variety of functionalities such as crafting rare ingredients (think blacksmith), housing Axies (inn), fishing, resource production, and more as Lunacia evolves. Thus, land gameplay is one of the crucial gameplay aspects of the game and could further grow as the remaining three limited quadrants of land are sold.

Second half 2022: Lunacia SDK Alpha

  • Social networt
  • Marketplace
  • Progression of Axies (Leveling, achievements)
  • Breeding Game
  • PvP with ladder and tournaments
  • PvE / Adventure mode
  • Land Gameplay: Players expand their kingdom, harvest resources, attack Chimeras and other players.
  • Lunacia SDK - Allowing developers and creators to make games using existing Axie Infinity assets and hosting them on land.

The Lunacia SDK will initially be a map editor where players can use Axie Infinity art assets to create games and other experiences. Once a game has been created it is saved as a Non-Fungible Token and can be traded. These NFTs can be placed on land and players will be able to click on them to enter the game inside.

Through this process, the team aims to gradually decentralize the game creation aspect of the Axie universe.

Battle v2

Battle v2 adds more mechanics, depth, skill, and strategy to the game, but not much is known yet at this point. It is being assisted by Ubisoft and they said it is going to be an amazing upgrade. If done well, this could be the upgrade that allows axie infinity to achieve mass adoption from serious gamers as well.

This is an example of their new design for Battle v2 updated during their AMA which features much richer and detailed design.

Image

Sources:

Partnerships & Marketing

Axie is working with big name partners such as Ubisoft, Binance, Samsung, Maker. They are also working with well-known crypto projects such as Chainlink through using their price feeds as well as Aave. Hence, tweets by Chainlink and Aave also help increase their awareness.

Their marketing team is also strategic and engages frequently with the community to promote user generated content and gain significant traction while building a strong community. They recently hosted a video production competition for Axie Infinity content with attractive prizes and required users to upload the video on Twitter as a requirement, helping them broaden their social reach.

Investors

In their Sky Mavis series A, they have raised 7.5 M USD to scale Axie Infinity and NFT gaming to billions of users.

Risks

Multi-account farms

Individuals are hiring others to create multiple accounts on Axie in order to farm for as much $SLP as possible, which could cause prices of $SLP to fall in the longer run as supply is increased disproportionately.

Unable to scale

At the current DAU of about 200,000 users, the server is overloaded and the game is near unplayable with a lot of disconnects and lag. This is more likely a centralized server issue rather than a blockchain issue, as their ronin sidechain has appeared to launch successfully, allowing buying and selling of Axies to be cheap on the marketplace.  

Technical Analysis

Price Growth:

$AXS started the year around $0.50 and skyrocketed to $11, which is a 22x return. The market cap at the top was around 600m.

The price of $AXS topped out around $11 during the NFT hype / bubble, and has since had a healthy retracement by 66% to $3.67 as of this writing, making the year to date a 7x return. The current market cap is now 200m.

Fibs:

Taking a look at the fib retracement on the log setting, we can see that it had a strong bounce off the 0.382, which could potentially be the bottom as it appears to be a capitulation wick.

It is now resting on the 0.236 level which could be a healthy consolidation zone before the next leg up.

Taking a look at the Fib extension, extending it from the bottom, to the top, to the retracement, the 0.618 profit taking level is around $33, which would make $AXS marketcap around $1.8b. Definitely bubble territory but not outside of the realms of possibility if the whole market gets hyped up again if we get a new bull run.


Risk reward ratio:

In terms of RR, if we were to go back to our previous highs and don’t go below $1.8 (which would make its market cap only around $100m, considerably low for a high potential company), and our profit taking is more conservatively placed at the previous all time high, the RR would be 4x which is acceptable.

If we take profit at the new 0.618 fib extension level, it would be at $32, the RR would be 15x which is incredible.

Other indicators such as the bollinger bands, RSI, stoch RSI, and others, are indicating that the price has bottomed out temporarily, and is historically relatively cheap.

Conclusion:

Axie is one of the most popular NFT game at the moment, with bright future prospects for pioneering the ‘play-to-earn’ movement as well as its fun and engaging gameplay.

The revenue generated was $3.4m in fees in the past 30 days as the crypto market was crashing is impressive. Based on their existing fees and price, their PE ratio is 21 which is multiple times lower when compared to other crypto projects.

The internal metrics from users, revenue generated, user generated content, and more are showing impressive growth as well, with 15% month on month growth or potentially higher.

With an RR of 4x to 15x and beyond, it is an attractive investment at its current price.


About Switcheo Labs

Switcheo Labs is a creative and experimental think tank that guides and nurtures decentralized ecosystems in the DeFi space. Founded in 2018, Switcheo Labs was born out of a simple desire to make finance accessible and trust optional. Recognizing the financial challenges that currently exist, Switcheo Labs innovates on robust alternatives to put power back where it rightly belongs, in the hands of the people.

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