Introduction
Axie Infinity is an iconic name in Web3 gaming. It was the first to introduce the Play-to-Earn (P2E) model, marking a new chapter on the gaming industry. Axie Infinity introduced a new paradigm of gaming where players can create real value and earn financial rewards. This is considered to have played an important role in expanding the potential of Web3 technology and broadening its application.
However, all has not been smooth sailing for Axie Infinity. External factors such as token deflation, massive hacking incidents, and crypto winters constrained its growth. The subsequent sharp decline in token prices gradually removed the project from public interest. Nevertheless, Axie Infinity has continued building. With the recent recovery of the cryptocurrency market, it has begun to regain traction. In this report, Tiger Research takes a look at the current state of the Axie Infinity to gauge its comeback potential.
Why did Axie Infinity struggle?
As a leader in P2E gaming, Axie Infinity has garnered a lot of attention from the public. It was popular in Southeast Asia, especially in the Philippines and Vietnam, as the money earned from playing the game far exceeded the average monthly salary in those countries.
At the peak of its popularity in 2021, Axie Infinity had 2.7 million daily active users (DAUs). The game's developer, Sky Mavis, was valued at around $3 billion. This is a huge valuation, comparable to that of South Korean gaming giant Kakao Games. Moreover, the token prices within the Axie Infinity ecosystem had risen significantly with the revitalization of the crypto market, which further accelerated the influx of users.
After 2022, the situation reversed sharply, with all of Axie Infinity's metrics plummeting sharply. DAUs dropped from 2.7 million to 350,000, a drop of about 90%. The price of AXS plummeted by about 99% from its peak.
Three major reasons can be attributed to why Axie Infinity experienced such a steep decline.
First, Axie Infinity operated on a tokenomics model that lacked sustainability over the long term. In Axie Infinity, players nurture a virtual life form, Axie, and earn SLP tokens as rewards for gameplay. These tokens are spent within the game ecosystem and can be used to purchase and breed Axies. The tokens can be easily cashed out through exchanges, which was a huge incentive for people to join in.
However, the situation began to reverse when a combination of factors led to an increasingly large number of players cashing out. This led to overselling and a sharp drop in token prices. With reduced profitability, which is the core of any healthy P2E model, this created a "death spiral" for Axie Infinity that led to a drastic decline in new player inflows.
The second reason is a massive hack affecting the overall trust in the ExInfinity ecosystem. In March 2022, Sky Mavis' Ethereum sidechain, the Ronin Network (Ronin), was attacked. In the process, $700 million in ETH and USDC was stolen. The root cause of the problem was that Ronin had limited the number of validator nodes to improve performance, without ensuring that they were secure enough.
At the time, Ronin consisted of nine validator nodes, and withdrawals could only be made if five or more nodes authorized them. This made it easy for hackers to steal the funds. The incident was a major blow to the network's reliability and hurt the ecosystem as a whole, causing the token price to plummet.
