That’s the meme!
Recently the SLP (token earned through Axie Infinity game play) price has come under a lot of pressure. This is not something new - basically it’s always been a point of contention but it reached new levels in recent times.
SLP is minted through gameplay. SLP is required to breed more Axies. The SLP amount required for each breed increases after each breed. Details can be found here. Example - parent 1 has been bred zero times: cost 900 SLP; parent 2 has been bred twice: cost 2250 SLP; total SLP cost for parent 1 and parent 2 to breed and generate a new Axie: 3150 SLP. On top of that 0.5 AXS is always paid. That is fixed (not dependent on number of breeds). The SLP used to breed is then burned. In a perfect world, this mint to burn ratio would be reasonably balanced. The problem is this ratio has spiralled out of control, leading to inflation of supply and thus continual downward pressure on SLP price.
Traditionally Sky Mavis (Axie Infinity creators) have adjusted these breeding costs to keep the economy balanced. The last adjustment in December was made to address SLP inflation concerns - SLP prices to breed were tripled (and AXS price was halved), which seemed pretty drastic. For a couple of days it looked as though it might have worked until the trend reversed and business as usual resumed. This was also not long after the release of Katana (the Axie DEX on the native Ronin chain), which also did not have the transformative impact we all expected (or at least hoped for). Sky Mavis (SM) had lost its golden touch - the Axie FUDers were winning.
More back story
- Three Axies make one team, which can be used in PvE (player versus environment) and PvP mode (player versus player).
- Axies are NFTs which are bought and sold in the Axie Infinity marketplace. The initial investment required to buy Axies to play the game was seen as a barrier to entry for many, particularly for people living in developing countries.
- Initially the game was played on Ethereum mainnet. Around the time of DeFi Summer 2020 gas prices on Ethereum increased substantially so it was no longer economical to breed, buy/sell, claim SLP, etc - the Axie Infinity ecosystem effectively came to a standstill.
- In response to this, SM announced they would be developing an EVM chain (called Ronin) and all Axie assets would be migrated there allowing for cheap transactions once again.
- After migrating to Ronin in May 2022, a flurry of marketplace activity and breeding set the wheels in motion for a massive growth trajectory that far exceeded even SM’s expectations.
- ‘Scholarships’ became the new gateway for players in third-world countries (especially the Phillipines) to be able to play-and-earn without needing to own Axies.
- Everyone knew that demand for SLP came from breeding Axies, so while new players were coming in to the game - what was the problem? More Axies needed to be bred to support the growing player base so everything was rosy. Until the mint to burn ratio got out of hand.
How or why did this happen?
- Scholars were relying on SLP as their main form of income. They needed to sell it for something else to cover their living costs. With so much SLP coming on to the market, price goes down.
- New investments within the ecosystem became more attractive than breeding. AXS staking APRs were initially over 100%. Then came Katana and RON farming. Whilst we don’t know the value of RON, comparisons with other similar chains (eg- FLOW) suggest it’s much higher than the current futures price.
- The lack of demand for breeding meant that floor Axie prices also fell (similar trajectory to SLP price). This created another negative feedback loop for breeding. Why breed when the cost to breed is more than the price of floor Axies?
- Also - before the scholarship model took off, there weren’t many folks reliant on SLP. However, millions of new players later and the voices that are loudest are those who need SLP. They need the value of SLP extracted from completing the Axie daily quests to be equal or greater than the minimum wage in their countries. And now it’s not. Thus every SM tweet results in cries of ‘wen fix SLP?’. This has become the sentiment. This is the vibe.
Experimental sink - the Lunacian Express
SM have talked about ‘sinks’ (‘features’ resulting in burned SLP) in the past as a means to balance their economy. A few days ago an update was implemented - releasing Axies. All aboard the Lunacian Express. Axies can now be ‘released’. They are not burned but anyone releasing their Axies does so with the expectation that they permanently relinquish ownership of them. In exchange, they receive a Luna New Year land item. This promotion runs for 30 days only, there are five items to collect - assorted firecrackers (35%), traditional snack box (35%), blossom tree (20%), lucky lantern (9%) and crimson tiger (1%). With just a 1% chance of receiving the crimson tiger, the odds are stacked against you, incentivising folks to release more Axies until the prized asset comes up. Releasing Axies also puts you in the draw to win some cool prizes! Once the promotional period ends it will be interesting to see what crimson tigers are worth on the secondary market. It will also be interesting to see if further promotions are planned - I for one would hope so.
It’s hoped that these releases will incentivise people to sweep the Axie floor, resulting in higher Axie floor prices, making breeding more economical. If this results in increased breeding, guess what? - increased SLP burning, which will help to balance the mint to burn ratio and increase its value.
A few things to know about this event -
- The Lunar New Year land items are cosmetic only. They will have no land utility. The FUDers loved this. Unsurprisingly, they came back with questions like - ‘Why would you want to release Axies for useless land items?’. Personally I would love to be able to add all five LNY items to my collection. I haven’t released any yet but am excited to do so soon!
- The immediate impact was promising. Axie floor prices rose from about 0.016 ETH to 0.02 within the first couple of hours. HYPE! But we’re back down at around 0.016 at the time of writing. Sigh.
- There is an Axie release leaderboard. I think this is a genius move from SM. Whales will want their names on the leaderboard for the flex. I can see them jostling for the top positions throughout the LNY period.
I love the intention of this experiment and I think the LNY items are awesome. Honestly, though - this sink relies on folks willing to invest for the feels to balance extractive scholars and - by sheer weight of numbers - these folks cannot support millions of scholars that play Axie Infinity daily.
‘Origin’
The next card SM have to play is the release of their brand new version of the game - battles version 3, also known as Axie Origin. It’s highly likely that, no matter how good Origin is, Axie FUDers will be all over it. To silence the FUD, Origin must -
- Be a fun game. People should want to play the game purely for fun, with any earnings from the game coming as a bonus.
- Have multiple ‘sinks’ to be able to more effectively balance the SLP mint to burn ratio than we currently have.
Future of scholarships
During the peak of Axie hype (June/July 2021) there weren’t many people criticising Axie scholarships. They had the power to change lives! But now we’ve come this far that sentiment has changed a lot.
A lot of folks are calling for SM to release its own scholarship system. If it’s to be anything like AxieTree, a third-party dApp from the pre-Ronin days, it would be an autonomous system allowing anyone with their own Axies to lend them to a ‘pool’ and for prospective ‘scholars’ to select Axies from this pool, use them in battle and for owners and players to each take a pre-determined ratio of the earned SLP.
But this alone would not solve the extractive scholars problem. This system would need to force scholars to buy their own Axies once their earnings reached the required threshold. I’m sure the SM big-brains could reserve a percentage of scholars’ earnings and allow it to accumulate to the floor price of meta-Axies. Once invested, hopefully it would bring about changes in (ex-)scholars’ behaviour from grinder to investor.
I’m not a FUDer
It’s possible that Origin is Axie’s last chance. It has been very quick fall from grace. Sky Mavis have created a whole new ‘GameFi’ category on its own but, as the team have acknowledged, they cannot rest on past success. Other copycat play-to-earn games have the luxury of learning from Axie’s mistakes. Axie are the ones out in front with the target on their back. As a result of their success, a lot of VC money (A16Z!!) has been invested into growing the ecosystem. The SM team is now over 100. They’ve done it before and they can do it again. I could have sold my assets at floor prices and left with sweet profits but I’m still here supporting Axie Infinity. Onwards!