Axie Infinity Has Beaten Even Ethereum in Network Fees Thanks to its Sidechain

Facebook may be grabbing headlines with its talk about the metaverse as the basis for the company’s future, but blockchain game Axie Infinity already has a metaverse up and running and it’s grabbing something longer-lasting: revenue. Protocol revenue on Axie Infinity yielded $305 million over the last 30 days, compared with $91.4 million for Ethereum,…

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Axie Infinity Has Beaten Even Ethereum in Network Fees Thanks to its Sidechain

Facebook may be grabbing headlines with its talk about the metaverse as the basis for the company’s future, but blockchain game Axie Infinity already has a metaverse up and running and it’s grabbing something longer-lasting: revenue.

Protocol revenue on Axie Infinity yielded $305 million over the last 30 days, compared with $91.4 million for Ethereum, according to Token Terminal. That beats dominating a news cycle.

Axie Infinity is a blockchain-enabled play-to-earn game run by the company Sky Mavis. At first glance, it looks a lot like Pokemon, but it also has a deckbuilding element reminiscent of Blizzard’s Hearthstone or Wizards of the Coast’s Magic: the Gathering.

“User growth and revenues are exploding,” Jeff Dorman, of the investment management firm Arca said over Twitter DM. He said the fundamentals indicate investors are betting on much higher growth ahead for the ecosystem as well.

While the team behind it prioritizes making a high-quality game, really the feature that means the most to its users seems to be the fact that wealth generated by the game and its platform is driven back to them. Specifically, it’s provided a way for many players to earn a living for themselves in the form of crypto.

Right now, Axie is bringing in far more revenue than other more widely discussed projects, such as the stablecoin engine MakerDAO, the Binance Smart Chain automated market-maker PancakeSwap and even, the Ethereum blockchain itself.

Axie Infinity went from $100,000 in platform revenue in January 2021 to $196 million in July, Aleksander Leonard Larsen, Sky Mavis’ chief operating officer, told the Defiant.

“In the end it’s just kind of numbers on a screen,” he said. “It’s not like we take that money anyway. We put it in the treasury.”

Axie Infinity will eventually become a decentralized autonomous organization, or DAO. It took the first step in that direction this year with the release of Axie Infinity Shards (AXS), the governance token that controls the aforementioned treasury.

Ronin: The Custom Sidechain

The Axie Infinity project has been around since 2018, so why is it experiencing this jump now?

Sources The Defiant spoke to all attribute this success to one shift in particular: the launch of Sky Mavis’s Ronin sidechain. Once the company moved players’ characters over to Ronin, the game became appreciably less expensive. In particular, players weren’t forking over expensive Ethereum gas fees to breed new Axies, the in-game characters users need to play.

“The fetters were removed. Then the word could spread and spark a fire,” Baronar, a community member who runs the Axie Chat podcast told The Defiant over Discord.

A sidechain is a separate blockchain built to interact with a main chain, such as Ethereum in Axie’s case, but with its own security model. Ronin was built specifically for the game. It first went live early this year, but Axies and their breeding were only able to run on it in late April. That’s when things started to change.

“Axie is a combination of not only the game but also the community aspect of it that surrounds it, and it’s also the economy,” Larsen said.

No Transaction Fees

Once Axies lived on Ronin, players no longer lost a large portion of value to miners for logging breeding activity on chain. For now, Ronin has no transaction fees. That has lowered the barrier for so many players that the overall economy has grown dramatically.

AK is a community member who pioneered Axie sharing (called scholarships) to the ecosystem. He said when Axies moved to Ronin in April, they saw a brief slump in Axie prices as a breeding uptick brought more Axies onto the market, but then once pent-up demand kicked in it started moving the value of the whole ecosystem back up.

There are two kinds of revenue for the protocol right now: breeding fees (creating new Axie by pairing existing ones) and marketplace fees. Breeding fees in AXS all go to the treasury but the marketplace fees are in flux. Some of those may go to Sky Mavis at some point. Marketplace fees are just accumulating in a wallet right now.

More Play

By lowering the price to participate with Ronin, the team was making a key adjustment to the economy that unlocked a lot of activity, and at a certain point, that increased activity became a virtuous cycle.

After Ronin, players felt compelled to tell others about the game and drive even more activity, which made all the underlying Axie assets more valuable. There are several assets — a utility token called Smooth Love Potion (SLP), AXS, game real estate and in-game items, as well as the Axie NFTs.

Both of the tokens have been trending up lately. SLP hit a new all-time high on July 13 (at $0.3997) and AXS hit a new one yesterday, on August 11 (at $75.73).

Both are way up from mid-April, just before Ronin onboarded Axies, with SLP trading then at about $0.05 and AXS at generally just under $8.

The game is still in beta, so while its vision as a metaverse is much larger, now there are really two things players can do in the game: engage in battles with other players and go on solo quests to earn SLP.

The latest release of the game actually lowered the amount of rewards that players could accrue playing solo and increased rewards for playing against others, as a way to encourage everyone to focus on becoming better players rather than just gathering SLP.

Bot Play

Solo play can be run by bot accounts, and Sky Mavis wants to eliminate as much bot-play as possible. Playing matches is a high skill activity, and at least for now, no one has built a machine that can do that well.

“There had been some issue with bots, and we’ve always been banning them,” Larsen said. With this latest change, he said it was like “moving from unskilled labor — that can be bots — to skilled labor.”

A Serious Living

The play-to-earn model may be more serious than many Westerners realize. It’s actually feasible for people in many parts of the world to make a living playing Axie Infinity. The more skill they build up at the game, the more they are able to earn.

“The goal was always to make a living playing the game and to own your own characters,” OhhShiny, an Axie community member told The Defiant. “It took a long time for people to understand.”

OhhShiny describes himself as a community manager for the metaverse, helping to onboard as many users as he can across the whole Axie ecosystem. He has the distinction of owning Galadriel, potentially the single most valuable Axie.

Making meaningful income has become much easier for more players around the world as the value of SLP has gone up. The biggest roadblock is getting the in-game assets that allow a person to play, the Axies themselves.

Lending Axies

AK, the community member who created scholarships, has a large stable of Axies. For now, this is a fairly high-touch system that requires trust on both sides of a given loan. But it has proved lucrative enough that AK has gone full-time running scholarships, describing himself as a digital pet store operator.

Many of his earliest players have gone on to build their own guild of Axies and run scholarships of their own. Players using loaner Axies typically get to keep 60 to 65% of their earnings, while owners are able to put Axies to work that would have otherwise sat idle in their wallets.

To OhhShiny, it is difficult for those in the West to appreciate how significant it is in other parts of the world to be able to generate meaningful income by participating in an online ecosystem. If someone finds a way to earn money as readily as they can with Axie Infinity, he argued you basically have a responsibility to spread the word or you are a bad family member or neighbor.

“It has the highest co-efficiency of virality of anything that’s been invented on the internet before,” OhhShiny said. “I believe it has the potential to transform global labor markets.”

While Facebook is doing its press junkets, Axie Infinity looks like it could break a billion dollars in revenue this year.