GameFi Decrypted: What Led to Axie Infinity’s Downfall in 2022?

Axie Infinity's downfall explained

In 2021, Axie Infinity not only became the most popular Play-to-Earn (P2E) blockchain game but also the decentralized application with the second-highest revenue after Ethereum.

However, this year hasn’t been going too well for the project.

In March, the Ronin sidechain’s bridge was hacked for $625 million, which many players used to conduct free transactions within the P2E ecosystem.

However, Axie Infinity has been facing serious challenges well before the Ronin bridge hack, with the project’s daily active users dropping significantly since the start of the year.

But what went wrong with Axie Infinity before the $625 million attack? Let’s find out together!

Inflation and Unsustainable Tokenomics

As part of a Pokémon-inspired universe, Axie Infinity players breed, raise, manage, and trade teams of cute creatures called Axies, which they use to battle other players or participate in player-versus-environment (PVE) games.

By winning battles against other players and climbing the ranked ladder, users can earn the Smooth Love Potion (SLP) in-game currency. Gamers need SLP, along with a fixed amount of the native AXS token, to breed new Axies and create new NFTs. 

However, due to an oversupply of NFTs on the platform and the massive inflation of the SLP currency, Axie Infinity’s tokenomics have become unsustainable.

As Smooth Love Potion’s circulating supply increased nearly 70% this year, its price took an 80% hit since the start of the year. AXS also dropped 78.5% YTD. At the same time, the number of listed Axies surged to nearly 703,500 between January 10 and May 30, representing a 14% NFT inflation.

Consequently, earnings have been significantly reduced, and Axies are selling at a much lower price than before due to decreased breeding costs ($11.16 in the last 24 hours compared to the all-time average of $187.38).

As a result, Axie Infinity’s player base has been decreasing rapidly, with the project losing more than 73% of its daily active users since January 2022. During the same period, monthly trading volume dropped from $170 million to $9.6 million.

Greater Focus on Earning Than Playing

While it is crucial for Play-to-Earn projects, a major flaw in tokenomics doesn’t necessarily have to hit the player base so hard, like in the case of Axie Infinity.

In the traditional video gaming space, many top Triple-A IPs feature broken in-game economies. However, gamers still keep playing the game if it excels at other areas, such as gameplay, graphics, and story.

Unfortunately, this wasn’t the case with Axie Infinity. Like many other P2E solutions, the project put too much focus on the earning mechanism, to the detriment of actual gameplay and user experience.

While many players have been enjoying Axie Infinity’s player-versus-player (PVP) battles, the entry barriers were too high for many to join. Before the launch of the Axie Infinity: Origin update this April that introduced free non-NFT starter Axies with no on-chain earning functionalities, new users had to purchase three Axies from the official marketplace to get started.

Considering the all-time average of $187, this would mean an initial cost of $561 for new players to even start playing the game. Many can’t afford this sum because this is about eight times higher than the recently raised price ($70) of some next-gen AAA games.

Alternatively, players could apply for scholarships in which they can become “scholars” and use the Axies of “managers” to play the game without any initial expenses.

In exchange, scholars often have to pay a hefty cut, usually between 30-60% of the profits. Besides that, new players must fill out application forms, become active in the community, and build a reputation in the P2E space to get selected for one of the programs.

Most importantly, most scholarships have minimum earning requirements. For that reason, scholars often have to dedicate much more time to playing the game than they would expect to meet these conditions and to avoid getting kicked out of the program.

As you can see, too much focus on the earning element of P2E has come with a significant sacrifice in Axie Infinity’s gameplay and overall players’ enjoyment.

Furthermore, as the game’s tokenomics require a steady increase of new players to keep inflation under control, failure to achieve this will result in a significant part of users moving to a competitor P2E platform where they can earn more coins.

At the same time, the scholarship element further increases this inflation as scholars and their managers tend to withdraw their revenue from the platform instead of reinvesting them.

Can Axie Infinity Recover?

In 2021, Axie Infinity became the most successful blockchain game to date, increasing its daily active player count from less than 40,000 in April to as high as 2.7 million throughout the year.

However, the project’s downfall started to occur even before the $625 million Ronin hack.

Due to flawed tokenomics that led to the massive inflation of SLP and NFT avatars, it only took Axie Infinity five months to lose the majority of its 2021 player count.

At the same time, the project has been focusing too much on the earning mechanism, which made alternative scholarship-based financing models increasingly popular, sacrificing a great portion of the gameplay.

As a result, the significant reduction in players’ profitability encouraged many of the community to move to other P2E platforms in search of better revenue.

At the same time, non-crypto gamers remain reluctant to join the ecosystem as many indie games in the traditional gaming industry with much lower entry prices offer similar or better gameplay than Axie Infinity.

However, it’s not impossible for the project to recover from this fall. In fact, developers have been on the right path lately by limiting SLP rewards and introducing a burning mechanism for the in-game currency to keep inflation under control.

Furthermore, the introduction of free non-NFT starter Axies could remove the barriers to entry for new players interested in Axie Infinity’s gameplay, which could minimize the reduction or even increase the growth of active users.

Choose a language