The strange economy of Axie Infinity

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

Each Axie is in fact an NFT, a Non-Fungible Token, that is a digital certificate that certifies the 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 generated or traded with other users in exchange for cryptocurrencies. The first version of the video game dates back to 2018 but Axie Infinity has seen its popularity increase over the last year, following the growing interest in NFTs. Along with the popularity, controversy has also grown, especially concerning the controversial economic model of the video game.

– Read also: NFTs, explained

Today Axie Infinity is one of the best-known examples of the “play-to-earn” model. In this type of video game, users have to make an initial investment in order to start playing and potentially collect the rewards for their victories. In the case of Axie Infinity, these gains are expressed in an in-game cryptocurrency called the Smooth Love Potion (SLP).

The idea behind the “play-to-earn” model is to transform video games into a means of livelihood for those who use them. In an interview last October Arianna Simpson, executive of venture capital firm Andreessen Horowitz, which invested in Axie Infinity, he presented this type of product as a natural evolution of the sector: “If I can play a video game, have fun and also make money, well it is obvious that I will want to do it, right?”.

For a while, the system seemed to work. Last September, the tech news site Rest of World told how in some Southeast Asian countries, such as the Philippines, Axie Infinity was able to guarantee monthly income higher than the national minimum wage. The earnings guaranteed by the “play-to-earn”, however, are affected by the trend of cryptocurrencies, a highly unstable sector: after months of continuous growth, in the course of 2022 gaming revenues have decreased (even falling below the salary Filipino minimum).

Furthermore, on March 23, the video game was the victim of a hacker attack that caused one of the most serious cryptocurrency thefts in the history of the sector, in which assets and currencies for 625 million dollars were stolen.

Those responsible for the attack succeeded in their intent by hitting Ronin, a blockchain designed to act as an intermediary between the video game and the main blockchain, Ethereum. Through Ronin, has explained the site The Verge“Users could deposit Ethereum or US dollars, buy NFTs or in-game currency, or sell their digital assets and withdraw their money.”

Ronin is a particular type of blockchain, called a «sidechain», which bridges the main blockchain. Since cryptocurrencies are often isolated and cannot interact with each other, these “bridges” have become a fundamental point in the system. Unfortunately, however, they are often the weak link in the chain: according to Wired“Attacks on blockchain ‘bridges’ have become much more common in recent years”.

The news of the attack, confirmed on March 29 by the company itself, was a blow to the many players who had made the video game a means of livelihood. According to some, however, the problems of the product preceded the hacker attack and are based rather on the economic model on which the video game is based.

This week, US authorities said they could be responsible for the attack North Korean state hackers.

Crypto colonialism
In order to start playing Axie Infinity, each new user must buy at least three Axies: at the height of the game’s success, last fall, this expense could exceed a thousand dollars, while today it has dropped to around three hundred. This economic barrier to entry has favored the rise of a system in which some users – major owners of NFT in the video game – rent their Axies to other players, in exchange for a slice of their earnings (“between 30 and 75 percent ”, according to video game co-founder Aleksander Larse). Players who own and rent their NFTs are called “managers”, their customers “scholar”.

This division into classes is worsened by the particular spread of Axie Infinity users: 40 percent of players reside in the Philippines, while just over 6 percent in Venezuela; followed by Thailand and Brazil, which together account for just under 10 percent of total users. Among the top five countries where video games are used most, the United States is the only Western country, with 5 percent of the total.

These dynamics of centralization of assets and exploitation of areas of the developing world have led some observers to speak of “crypto colonialism”, a term used to indicate the «technologies based on the blockchain that allow new forms of exploitation of resources from the South of the world. These appropriations include land, labor, data and other resources needed to foster economic growth elsewhere. ” In the case of play-to-earn games, these assets are necessary to play and, above all, to be able to access an activity which, 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 Jutel, former journalist today researcher at the University of Otago in New Zealand, he noted how “the developing world has become the testing ground for technologies that challenge the independence of the countries in this area, perpetrate colonial value-mining legacies, and contribute to the media hype that is critical to inflating the value of cryptocurrencies “.

Also a recent editorial by Coin Deska news site specialized in the sector, has addressed the issue of crypto colonialism, especially in countries such as El Salvador, which under the leadership of the President of the Republic Nayib Bukele has pushed for the adoption of Bitcoin and other cryptocurrencies.

Growth required
Axie Infinity’s problems aren’t just related to cybersecurity. According to Bloombergin fact, users active every day on the video game they had dropped by 45 percent from the peak in November before the news of the theft, reaching 1.48 million. A decline that affects another criticality of the “play-to-earn” system, namely the need to have a continuous flow of new users – and therefore new investments in SLP – to keep the gaming economy on its feet.

Players, particularly “scholars,” are pushed to use their Axies to earn SLPs, which are then spent on making (or buying) new Axies, in a cycle that “is a guaranteed method of creating inflation,” as he has. explained an expert of internal economics to video games a The Verge. Such a system is only sustainable if the demand for SLP and Axie grows continuously – Axie Infinity users had stopped doing it well before the $ 625 million stolen.

So far Sky Mavis has responded to the hacker attack by receiving a new round of investments worth $ 150 million, with which to repay 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 profit, effectively eliminating the “profit” from the “play-to-earn” model. .

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