Is This the End for Axie Infinity? The Rise and Fall of the P2E Blockchain Game

Axie Infinity ($AXS) is a well-known play-to-earn NFT blockchain-based game in which users may earn money through gameplay and contributing to the ecosystem. Inspired in part by the successful Pokémon video game series, the game allows users to pit creatures called Axies against one another in combat. Gamers may also capture and raise monster pets, as well as construct land-based kingdoms for them as they progress through the game.

Axie Infinity is undoubtedly one of the most popular games in the blockchain industry. Founded by Vietnamese game developer Sky Mavis, the game completed a $7.5 million investment round in May 2021, with Reddit co-founder Alexis Ohanian and billionaire Mark Cuban as investors. According to Bloomberg, between April and August 2021, the number of daily active users on Axie Infinity increased from 30,000 to 1 million. Furthermore, from April 2018 to July 1st, 2021, Sky Mavis earned $21 million through Axie Infinity; by the end of August that year, that figure had increased by more than 2,200 percent to $485 million.

Despite its spectacular ascent to global recognition, Axie Infinity has suffered a severe drop in daily revenue and public interest since its all-time high of $165 USD in November 2021. Let's take a look at some challenges faced by Axie in the last months to better comprehend the unraveling of one of the most popular blockchain games.

Accusations of Digital Exploitation

One of the major difficulties in Axie Infinity is the unreasonably high barrier to entry. Although Axie Infinity is free to download, players must start with at least three Axies, each of which costs at least US$29. For some, this might be an incredibly expensive initial expenditure, deterring them from ever beginning the game in the first place.

Because of the high initial investment, there are active Discord and Telegram groups where potential players are always looking for sponsors to help them get their foot in the door. Unfortunately, before aiding players, sponsors occasionally make unacceptable requirements. For example, Axie Infinity was forced to respond to claims of sponsors asking nude images from gamers in order to be offered an Axie.

Other contentious practices emerged, such as the "Scholarship" practice, in which players lacking initial capital (identified as "Scholars") borrowed Axies from "Managers" in exchange for a considerable amount of in-game revenue. In certain circumstances, the ratio between Scholar and Manager was as high as 50:50. The practice was highly common in the Philippines, where it was well-known that individuals quit their jobs to play Axie professionally with its high returns. Many scholarship "guilds" were founded during Axie's peak in 2021, with some having over 3,000 participants playing numerous games for their Managers. These Managers have even gone so far as to threaten to revoke people's scholarships if they do not perform to their expectations. Given that the average income for a Filipino worker is only US$3,218, critics have compared Axie Infinity's business model to "digital serfdom," or modern exploitation in the digital domain.

Sky Mavis Co-founder and Chief Operating Officer Aleksander Leonard Larsen compared Axie Infinity to a digital nation, implying that criminals exist in any civilization, in reaction to charges of questionable activities by some Axie Infinity players. The COO acknowledged that the problem is an internal concern for the company and that the platform has so far banned "several thousand" accounts.

Decrease in Revenue

Since its peak in November 2021, Axie Infinity's income has been declining. According to a Token Terminal graphic, Axie Infinity started October with $6 million in daily earnings. Revenue increased over $10 million between October 4th and early December, but that has also decreased to about $2 million. In fact, Axie hasn't surpassed $2 million since mid-December, with the number reaching as low as $21,000 on March 30th. According to a recent report, Axie Infinity’s revenue fell 40% in September alone.

Ronin Network Hack

The most significant challenge Axie has experienced in its four-year lifetime is a US$625 million hack that occurred on March 23, 2022. Hackers attacked Sky Mavis' Ronin Network validator nodes and Axie DAO validators, which are used to power the game, according to an official Substack article. As a consequence, the hackers were able to escape with 25.5 million USDC and 173,600 Ether (ETH). In two transactions, the unknown hackers emptied cash from the Ronin bridge.

Ronin added that the chain now has nine validator nodes to prevent illegitimate transactions and that any withdrawals or deposits require five validatory signatures to be recognized. Ronin allowed Sky Mavis to sign transactions in November to assist with the strong demand from new Axie players. Although this only lasted until December, and the attacker was able to access Sky Mavis systems and get a signature from the Axie DAO validator using Ronin's gas-free RPC node. By doing so, the hacker gained validation access to this highly centralized network, gaining control of the majority of nodes and consequently decision-making authority.

Chainalysis, a blockchain analytics firm, is presently assisting Sky Mavis in tracking down the stolen funds, which are still in the hacker's wallet. Ronin further stated that all partners are currently working to guarantee that users do not lose any money.

Other steps are also being taken to prevent additional loss. For example, withdrawal or deposit recognition now takes eight signatures rather than five. In addition to Binance deactivating their bridge to and from Ronin, there is a temporary halt on the Ronin Bridge. The Katana DEX was also suspended immediately. Unfortunately, none of this has prevented the price of their AXS token from plummeting by 25% since the attack.

Is this the end for Axie Infinity?

Despite these inherent difficulties, numerous members of the gaming world feel Axie Infinity has a promising future. Some experts believe that the platform's large and growing population can only mean long-term success. Axie Infinity has grown in popularity and boosted AXS token values to the point where many people feel there is no suitable rival. The current hack, on the other hand, has the potential to quickly change public opinion.

Although Axie's income has been steadily declining since late last year, the decrease has been considerably more precipitous in March 2022. According to Token Terminal statistics, Axie earned $184,500 on March 1st, down from $2.1 million on January 19th. On March 25th, revenue was less than $10,000.

Several competitors, like Crypto Kitties and Decentraland, had failed to compete with Axie Infinity initially. However, now is the opportunity for these alternative play-to-earn ecosystems to take advantage of Axie's unsatisfied users. Popular options can take advantage of Axie Infinity's current downtime to remodel or launch new products, making the features appealing enough for Axie users to switch. In fact, players may be content with the idea of keeping and utilizing accounts across most of these popular play-to-earn games.

With all of the commotion in the GameFi world right now, it could be a good moment for new games to be released, or at the very least to quench gamers' appetites. Security improvements, more gaming possibilities, more accessible play-to-earn solutions, and immersive games that can compete with Axie Infinity are all possible options. If rivals provide little to no financial barriers to entry, Axie Infinity may have a difficult time getting back on its feet once the Ronin bridge is opened.