AXIE INFINITY, the price went down because it was overvalued?
Play-to-earn is the next pquidity Mining. Is Axie Infinity overrated?
Fengxiao Bai and Yuanqi Li are partner and analyst at Fresight Ventures, respectively
In our July 5 release,Axie Infinity drive NFT plate contrarian up | Foresight Ventures Weekly BriefWith Axiie's NFT sales skyrocketing, Axiie Infinity caught fire on the Metaverse track in the following week, generating a bit of "Defi Summer" in the crypto market's ongoing slump in July.
We explain the model of "Play to Earn", its rationality, the new industry it brings, and its model is established for a long time. P2e games are not even disrupting the traditional gaming industry, but the jobs that underprivileged people like Uber drivers are most likely to do.
Finally, through the analysis of the actual data of AXIE Infinity, we believe that even if there is some overheating in the current coin price, its business fundamentals are still very strong, which will disturb the crypto ecological pattern including the DEFI mining in the long term.
What is a play-to-earn?
The business model of Plan to Earn has a long history in traditional games, such as World of Warcraft and Onmyoji, where a group of players make money by selling equipment or equipment. In Blockchain games, this model has been upgraded so that players can earn real money by playing games with cryptocurrency-based assets (NFTs). By actively participating in these virtual economies, players can earn rewards, such as in-game assets and tokens, which can then be traded or sold on the open market.
This is an important shift in the gaming world, as in-game asset trading has traditionally been confined to the gaming ecosystem, making it difficult for players to trade or sell their digital assets outside the platform.
In developing countries, where most people have limited income sources, they can now earn more through digital devices and the Internet. Filipino players of blockchain game Axie Infinity can earn $500 a month from the game, which is 2-3 times the local minimum wage.
From Free - to - to play to play - to - Earn
From the beginning, players had to pay for a license to play the game, and since the Internet age, the free-to-play model has evolved, where you can get a basic game experience at zero cost, and you can get an advanced game experience or a personalized item for an additional fee. The top grossing games in the world right now are mostly these so-called free-to-play games. In June 2021, Tencent's Honour of Kings mobile game raked in nearly $277 million (1.79 billion yuan) in App Store and Google Play worldwide, up 21% from June 2020. The fact that these free-to-play games are making billions of dollars a year shows that the free-to-play business model has matured and developers have learned the art of free-to-play monetization.
Source: sensortower.com
We see P2E as an evolution of free-to-play. Blockchain technology, which gives players ownership of in-game assets and allows them to increase their value by actively playing the game, is a key component of gaming versus P2E. Most of the revenue from P2e games no longer goes to the big, centralised game companies, but to the best players. By participating in the in-game economy, players are creating value for other players and developers. In turn, they are rewarded with assets in the game. These digital assets can be any crypto asset whose rights are validated on the blockchain. This is why the P2E model is associated withBlockchain GamesIt's a perfect match.
In fact, P2e's games are not necessarily free. In the case of Axie Infinity, players need to buy at least three Axies's to start the game, which can cost hundreds of dollars at the moment. We think this is reasonable. First, the matching of inputs and outputs is a healthy economic model in the long run. Second, game development costs. Since players can ultimately gain value by selling crypto assets, it is acceptable for players to pay some start-up costs. On the other hand, if the game is completely free, we think that the economic model is not sustainable.
P2E has inspired whole new industries
The P2E model, powered by blockchain technology, is opening up digital native economic opportunities to a whole new segment of the population. Playing games is no longer just a spending activity to pass the time. By playing games day in and day out, players are more like working, giving time and labor to earn income for their family. Axie Infinity is a good example. Crucially, especially during the COVID-19 pandemic, poor groups in need of ancillary income tend to benefit the most. Since part of the mission of cryptocurrencies has been financial inclusion and the open source of the digital economy from the start, it's critical to bring those who need it most -- and P2E 2.0 finally does that. AXIE's economic model illustrates the concept of cryptocurrencies from provable scarcity to how monetary policy can be applied in the context of play and earn.
P2e's business model has inspired game developers, players, and guilds alike.
P2e games have created some very powerful guilds, and these guilds will play a significant role in the future of the game industry. Take Yield Guild Games (YGG) in Southeast Asia as an example. They have four main goals:
Invest in the best yielding NFT in the meta-universe;
Building a global gamer economy;
Generate revenue from operating and leasing NFT;
Encourage community participation in the guild.
YGG set up a guild-community manager-scholar structure to foster and rent in-game NFTs, lowering the barriers to entry for players. The community manager is responsible for recruiting, training, and mentoring new players, which is key to Yield Guild's replication, expansion, and success in Southeast Asia.
Through community managers, Yield Guild doesn't have to directly manage any scholars, it just has to find the right community managers to work with. The scholar's income is split, with the scholar only getting 70% of the game's revenue, the guild getting 10%, and the community manager getting 20%.
This is actually a very traditional business model, where the capitalist provides the proletarians with the means of production, the proletarians earn the income from their labor, and the capitalist gets the value of the surplus labor. As long as the economy of the game is large enough, guilds will get a lot of economic value.
Amy Wu says P2E created Guild 2.0, an income-generating organization that, in addition to communities, also buys, develops and leases assets and provides jobs. They can solve the cold start challenge of new NFT games and are also the dominant new asset buyers (e.g. Axies). Most of Axie Infinity's 500, 000 DAUs are scholarship earners. For these players, their replacement is not Forenite, Axie is Uber or Grab.
Is play-to-earn a false proposition
In fact, when I first came into contact with AXIE Infinity mode, I first thought of Quntiao.com. As one of the three giants in China's sinking market, Quntiao.com actually adopts the subsidy mode of "Read to Earn". Users of QouToutiao can get cash rewards through registration, reading, sharing, and attracting new users. This mode once brought rapid user growth to QouToutiao, which enabled QouToutiao to be listed on NASDAQ in only two years. But judging by QouToutiao's share price and financial numbers, the model has almost failed. Qutiao's share price has fallen from a high of $18 to less than $2 now.
The main criticism of Qoutiao is that its low-quality user base makes it difficult to attract high-quality advertisers. Almost all of its users are woolsters, who have low requirements on news content, leading to a flood of junk information on the platform. And such users are not loyal to the platform, and it is difficult to achieve the conversion goal of advertising. So it's hard for the news business to have a healthy balance of revenue and spending.
At first glance, P2E's model looks very similar to Fun Toutiao's model, but we think P2E's model can work. It is the advertiser who pays the bill to the user of Qutiao, but because of the low conversion rate, the advertiser's pay enthusiasm is not high. In P2E, the economic model is endogenous, essentially sharing the benefits of the game's ecological growth. As the number of gamers grew, the demand for in-game crypto assets grew, and players sold off their assets to each other, creating a rudimentary Metaverse economy of farmers, merchants and consumers. The key is that these players' profit goals are close to each other, not like the users and advertisers in the fun headlines are extracting value from each other.
Why do we say play-to-earn is the next pquidity Mining?
Defi Summer 2020 ignited the Defi industry, with Defi's lockup volume growing more than 100 times in a year, and currently UNI, PNK, and AAVE are among the top 30 cryptocurrencies by market capitalization. The development of DEFI is absolutely inseparable from the creation of Pquidity Mining. It can be said that Pquidity Mining is the biggest contributor to the security of DEFI industry.
In the early days of the launch of Pquidity Mining, we heard a lot of skepticism because it was very similar to the previous ICOs. At the beginning, users were rewarded with platform coins by providing their own ETH and stabilecoin, which was regarded by the skepticists as a new Ponzi scheme and a bubble. But a year later, the model of pquidity Mining has been proven by the market. The main reason for its success is the fact that these DeFi protocols actually create value. The revenue from the pquidity Provider is actually a share of the revenue generated by the protocol growth.
As mentioned above, the mode of P2E is also for players to share the benefits of the ecological growth of the game. As long as the ecological growth of the game continues, this economic flywheel can continue to rotate, even if the project appears asset overissue, price drop and other bubble removing phenomena in the process, we believe that this mode is established.
In terms of market participation roles, participants in Pquidity Mining include "institutions - users - farmers", and participants in P2E include "guilds - players - fleecers". The circular logic of the whole economy is consistent.
Optimistically, the market for P2E is much larger than that for Pquidity Mining. In terms of revenue, Axie Infinity earned 8.8 million dollars in a single day on July 16, while King of Glory's average daily revenue in June was 9.2 million dollars.
Source: tokenterminal.com
In terms of the number of users, the DAU of Axie Infinity has exceeded 500,000. On July 17th, the total number of the top ten 24-hour users in the Dex agreement was less than 300,000. What is shocking is that the DAU of Axie Infinity was less than 30,000 three months ago. At the same time, most of the players at Axie Infinity had no knowledge of blockchain technology before, or even to this day. Compared with Defi, blockchain games have a very low threshold, especially after breaking through the channel of fiat money into gold and using the low-cost side chain, the game experience is almost the same as that of traditional Internet games. That's why Axie Infinity's players are growing so fast. It is also foreseeable that blockchain games will come out faster and reach a much larger user base than Defi, which is a much larger market than Defi.
Source: debank.com
NFT Play a Core Role
NFT plays a vital role in the economic ecology of a game, and NTF affects the gameplay and revenue of a game. They all employ a different class of rarity, ensuring a limited supply of some rare NFTs, rather than a disorderly increase in NFTs (excessive inflation) as the game progresses. The growth rate algorithm of NFT was pioneered by Crypto Kitties, and developed more mature in Axie Infinity and Zed Run.
Games generate revenue for NFT
Players can earn money from battles in Axie Infinity and racing in Zed Run, both of which are generated by interacting with NFT. These cash-flow-generating NFTs can be used for leasing or loans, as YGG has done. In contrast to the NFT of art and collectibles, games create usage scenarios and utility for the NFT, increasing its fundamental value (use value).
Credit: Outper Ventures
The application of NFT is more important to make virtual goods real property. In a centralized game, the ownership of objects is actually controlled by the platform, whereas in a blockchain game, due to the transparency and immutability of smart contracts, the ownership of crypto assets is controlled by the player, and the assets you reproduce from your own assets are also owned by you.
"The democratization of property, not by the abolition of property, but by the popularization of property, so that every citizen, without exception, may become its owner, is much easier than people think: in two words, learn to create wealth, learn to distribute it, and you ought to combine material grandeur with moral grandeur.
-- Victor Hugo, Les Miserables, 1862
Let's take Axie Infinity as an example to analyze the current performance of the first big P2E blockchain game.
Admission costs are rising
Axie Infinity Marketplace is the primary channel for players to enter Axies. The game mechanism is designed to buy three Axies to form a team to participate in the game and start making money.
The current market price changes very fast. The price of Axies around July 8th is about $250 a piece, about $350 a piece on July 12th, and basically rises to $450 a piece on July 14th. According to the sharp increase in the number of players and the impact of SLP rise, Axies This cycle will decrease rapidly, which in turn affects the prices. The current cost of admission is about $1,300.
Credit: Axie Infinity
Reproduction costs are rising
Observers Axies one-day trading volume, in this year around May 1 began to skyrocket. This is due to the technical upgrade to the platform that was officially completed around April 28th and the whole game was migrated from ETH to the self-developed side chain Ronin. (With this change, there is no additional Gas charge to play the game and any revenue will be paid in seconds.)
Total reproduction cost = Fixed cost (unrelated to reproduction times, paid ETH or AXS) + Variable cost (unrelated to reproduction times, paid SLP)
From April to date, fixed reproduction costs have gone through three stages.
Phase 1: April Axie Infinity running on the ETH network only requires payment of Gas Fee, not AXS.
Based on the ETH price at the end of April and the gas fee, the gas fee cost of reproduction is:
2500 * 0.005 = $12.5
Phase 2: After the transfer to the Ronin chain in early May, there is no GAS fee to be paid, but 2 AXs to be paid:
10 * 2 = $20
Stage 3: At the beginning of July, the breeding cost is changed to 4AXS, and the AXS price is increased:
20 * 4 = $80
From the player level, the migration of the ETH backbone to the Ronin chain does not actually reduce the cost of reproduction, but as the price of AXS increases, it further increases the cost of reproduction, but as the price of Axies increases, the proportion of reproduction costs decreases gradually.
The amount of SLP you pay varies depending on the number of spares you have in the game. With the SLP priced at $0.30, the SLP costs per spawn range from $30 to $510.
Credit: Axie Infinity
Returns have remained extremely high
There are three sources of in-game revenue, of which daily earning SLP (love potion) and Axies propagation sales are the main revenue sources, and the other is monthly ranking earning AXS tokens (platform management tokens).
50 SLPs for daily missions, 80 SLPs for daily battles based on 50% win rate, and up to 100 SLPs for daily battles through story mode. If you are familiar with pets and skills, you can play the game for about 2 hours a day, or maybe 3 hours if you are slow. You get about 130-230 SLPs (floats).
Set up a season system, through a season each month, season awards AXS to encourage players to invest more. The corresponding game reward is (1000 WAXs =1 AXs) :
Credit: Axie Infinity
A total of 9,350 AXs are released each season, which is equivalent to $187,000. Since only the first 300 players earn AXS during the season, most players will not earn that amount.
Credit: Axie Infinity
According to an analysis of the trading behavior in the Marketplace, Axies, the majority of players are breeding for sale, and the number of sellers is relatively small due to the high cost of reproduction for a bunch with more than four spawn times. So we can assume that most players choose to reproduce no more than four times. So let's say the player chooses to reproduce every 5 days and stops after 3. After that, SLP revenue is earned only through combat and missions, assuming 150 SLPs per day. Calculate the player's profitability from this.
Source: Delphi Digital, Axie Infinity
First profit from breeding: 450-100*0.3-4*20= $340
Second Produce Revenue: 450-200*0.3-4*20= $310
Produce the third time: 450-300*0.3-4*20= $280
SLP revenue in 15 days: 150*15*0.3= $675
Within 15 days, the accumulated revenue was $1605, which basically exceeded the input cost.
No more breeding by default after 15 days and only generate revenue through SLP.
Integrating Axies sales and SLP revenue, we can get the annualized income:
(((340+310+280) + (365-15) *150*0.3)/1400-1) 100%=1091%
The yield rate will fluctuate significantly with the price fluctuation of SLP and Axies. However, according to the current annualized yield of 11 times, whether compared to the entity mining machine and DEFI liquidity mining, are significantly attractive. Therefore, we believe that the Play to Earn model will attract some of the original mining capital.
Vault economy (ways to protect AXS prices)
4.25% of all market transactions and all breeding costs go into the community coffers, to be shared among the AXS holders.
Based on the current rate of growth in the community coffers, the future holders of AXS would have the right to distribute huge amounts of money, plus Staking more AXS once the incentive is in place would support the price of AXS, even if the future DAU reached a certain threshold and the SLP was overextended. AXS will also get some buffer space.
Land economy (future potential of the game)
In addition to Axies, the game also has another land NFT, a total of 90,601 pieces, the same as the NFT, players can directly in the Marketplace for the ETH transaction, the owner of the land can also get the existing land awards, such as AXS tokens, etc. In addition, future players can build their own homes on their own plots using the SDK (map editor), and purchase material upgrades and decorations in the Marketplace. This is how Axie Infinty will be able to become part of the Metaverse in the future.
Credit: Axie Infinity
Axies Whether supply exceeds demand
The relationship between supply and demand at Axies is highly related to the robustness of the overall game economy. If Axies overpropagates and no new players buy it, it will lead to a drop in the price, which in turn will affect the demand for SLP and the demand for AXS. However, due to the unlimited nature of SLP, and the lack of a corresponding deflationary mechanism in addition to propagation, SLP will be severely inflated. This will eventually lead to a collapse in SLP prices.
Since each person has three Axies mechanics for the game, the overall play-to-DAU ratio should be somewhere between 4 and 5. Here's a look back at the data from the last two weeks.
Source: twitter.com/Maxbrand99
We take the last two weeks of the average data to calculate the growth of Axies in the future period of time, the number of June 28 is 1.15 million, to July 5 is 1.5 million, the growth rate is 30.4%; To July 12, 1.96 million, an increase of 30.6 percent; If we take 30.5% as the recent growth rate, then the number of Axies on July 19 (one week later) is about 2.55 million, and the number of negative on July 26 (two weeks later) is about 3.338 million.
Source: twitter.com/Delphi_Digital
According to the DAU data, we can conclude that on June 28th, DAU was 250,000, and on July 5th, DAU was 350,000, an increase of 40%. On July 12, it was 500,000 DAU, up 42.8%. If we take 41% as our recent growth rate, we have about 705,000 DAU on July 19 (a week later) and about 994,000 DAU on July 26.
According to the above data, we can draw the following conclusions:
If we maintain the recent growth of Axies quantity and DAU, in the future for a period of time, the ratio of PI to DAU will continue to decrease, leading to a further rise in the price of Nu, forming a positive cycle with the AXS currency price and the SLP currency price, further pushing up the overall price. Judging from the current data, the supply and demand relationship of Axies is still relatively healthy.
However, we believe that as the barriers to entry rise, DAU growth is unlikely to continue at such a high rate, and players will be looking for games in the same genre but with lower barriers to entry. These factors will have a negative effect on DAU growth, but the proliferation of Axies will continue to maintain a certain inertia, and will continue to grow exponentially, resulting in oversupply. To maintain the robustness of the Axies economic system, the development team needs to continue to increase the number of users, create new demands, and maintain the economic system's absorption capacity.
Competitiveness Analysis:
According to Buffy's moat theory, the moat of an enterprise mainly comes from four aspects, we: intangible assets (brand, patent, team), network effect, switching cost (high cost to change products after users use them) and cost advantage.
Brand: Axie Infinity is a phenomenal product, and its backers Animoca and YGG have established certain brands among their competitors.
Team: The playability of the game, the design of the economic model, and the operation ability reflect the strong strength of the team.
Network Effects: Axie Infinity has 500,000 DAU and continues to grow very strongly thanks to the guild. The three-tier "guild, manager, player" structure adopted by the guild has the potential to expand virally, helping to enhance the network effect.
Conversion cost: The conversion cost of traditional online games is low. Considering that Axies has a certain development attribute, players may form a certain emotion to the game, so the conversion needs to pay a certain emotional cost. Guilds are a double-edged sword. Guilds have extremely strong social attributes, and the conversion cost of social networks is the highest. If they over-rely on guilds to bring in new players, the guilds themselves will face strong pressure of player loss when they move to other games. Axie Infinity can also increase the switching costs of players by expanding the economy.
Industry concentration:
By traditional industry, we forecast concentration: DEX> LEND> The game. The game industry will form a large number of projects co-exist in the industry pattern.
Summary: Whether the flywheel of Play-to-Earn can keep spinning forever
The P2E model has been around for a long time in the traditional game industry, and blockchain games have given it even more power. Take Axie Infinity as an example. Axie Infinity's currently high yield rate attracts a large number of Wool Party players. If the yield rate drops, they will lose this part of players, and reduce the appeal of Axies, AXS and SLP to secondary market buyers. The rapid growth and rising price of the currency have raised concerns about who will support the value of these virtual assets in the end. In fact, the answer is very simple. Of course, it is supported by the players who spend money in the game. In traditional games, it is usually the 5% of high spending players who support the development and operation cost of the game. Even if the bubble bursts in the short term due to game downtime, reduced revenue, overbreeding, etc., this is only a short term problem. If the game can attract enough spenders, it can sustain itself in the long run. We predict that as blockchain games grow, there will be a trend toward lower profitability and higher playability, leading to a healthy balance.
reference
What's the Play-to-Earn Business Model? - Play to Earn
2.0: Understanding P2E Axie Infinity Deep Dive | Outper Ventures
[Pubpc] YGG White Paper FINAL (yieldguild.io)
P2E 2.0 - A new economic model for gaming -based on crypto tokens | Outper Ventures
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