Axie Infinity Economy Proposal

Lunacia Strikes Back

Imagine a fictitious village called Vampire Land where all the residents are vampires that live infinitely. Vampires don’t work or die. Whenever a vampire couple wants to have a baby, they have to make a $67 “baby tax” payment to the government who use that capital to pay an annual salary of $1 to each of its vampire residents.

Even though a baby vampire generates $67 revenue to the government treasury, he/she costs $300k+ to the treasury over the next 1000+ years. The baby tax has been the only revenue source for the government. What should the Vampire Land government do?

Make SLP Great Again

SLP is very crucial to the Axie economy. Low SLP price results in a)lower DAU growth and b)fewer breedings; resulting in i)higher daily net minted SLP and ii)lower breeding & marketplace revenues. Sky Mavis who is the central bank and government of the Axie Nation should give the right signals to existing and upcoming Axie holders (guilds, managers, players, funds) that there are solid plans to sustain SLP inflation and price in the long-term as perception/reputation management is as important for an economy as execution.

Data Source: AxieWorld and CoinGecko

Daily minted SLP is a function of a)circulating Axies, b)average daily SLP earned per player. Every team of 3 Axies currently represents a claim to earn SLP every day infinitely. Let’s look at the SLP unit economics of 3 Axies:

Breeding a team of 3 Axies wins approximately 67 days for the Axie economy, after the 67th day, the player becomes a liability for the Axie economy as the economy now needs to finance that player infinitely. For every new player (every 3 newly minted/bred Axies), 5.4k SLP is burnt immediately but 30k SLP will be minted in the next 1 year and 150k SLP in the next 5 years.

Going back to the Vampire Land example, here are the actions the Vampire Land government can take;

DeFi Vader Core Proposal #1

A team of 3 Axies currently have a daily energy limit of 20 which allow them to play up to 20 PVP battles per day. I propose that Axies should have a maximum energy limit of 3.6k energy (equivalent to 180 days of battles) which will result in the annual net SLP minted (minted-burnt) per player to drop more than 70%.

The proposal also includes gradually eliminating distributing SLP rewards through PVE and daily quests and increasing SLP rewards through PVP. AXS should be distributed to the top 1m players rather than only the top 1k.

SLP portion of the breeding cost (for the first breed), should be increased to 80% and dynamically kept at a minimum of 80%. This will ensure that the net SLP mint per player is more sustainable.

Source: DeFi Vader Model

At current rates, the net SLP minted per player per year is ~46k and per 5 years is ~250k. This is obviously unsustainable and as breeding growth slows down, it puts selling pressure on SLP as can be seen in recent months.

Source: DeFi Vader Model

The proposal state model assumes that each team of 3 Axies have a maximum energy limit of 3.6k and SLP required to breed of 2.8k per Axie. This results in the net SLP minted per player per year to be ~13k and per 5 years to be 66k. This is a large decrease in the net SLP minted per player. To achieve such a large reduction in the net minted SLP per player, all stakeholders of the Axie nations should be ready to make sacrifices. The proposal state results in lower AXS revenue per breeding for the AXS treasury and lower ROI for the average player/guild.

Source: DeFi Vader Model

Not all players will be making a positive return on their invested capital. The model assumes 50% win rate for the average player in each MMR bucket. Players in the 800–999 and 1000–1099 MMR buckets actually make losses on their invested capital. Whereas players in the 1100+ MMR buckets make a positive ROI. There is no free lunch and it is unrealistic to assume that every Axie player would continue earning 50 SLP a day and +100% IRR infinitely regardless of their skill, risk appetite or value add.

SLP portion of the breeding cost has been below 75% since mid-July 2021. As AXS price rallied from $4 to $80 throughout summer, the SLP portion breeding cost declined accordingly. Every new Axie is a burden on the Axie economy and thus we should try to burn as much as SLP possible during each breeding activity. Since Axie Infinity is a hypergrowing early-stage blockchain gaming nation, rather than prioritizing accumulating AXS earnings in the treasury, we should prioritize sustaining SLP price.

Data Source: The Lunacian and CoinGecko

Thus, I propose that SLP portion of the breeding fees should dynamically stay at a minimum of 80%. Whenever it drops below 80% due to a drop in SLP price or an increase in AXS price, the SLP portion of the breeding cost should be dynamically adjusted. As AXS price rallied from $10 to $75 throughout the summer, SLP % of the breeding cost gradually dropped below 25% as can be seen in the chart.

DeFi Vader Core Proposal #2

The Axie economy can only be sustainable in the long-term by engaging players organically, in other words, by attracting players who play the game for fun not for earnings. “Fun” in this context is an objective term that can be measured by a)spending on non-monetary items such as cosmetics or b)game entry fees.

Sky Mavis can potentially run a game developer program that incentivizes third party game developers to build multiplayer casual PC or mobile games on top of Ronin by using existing Axie NFTs. To make things easier for game developers, Sky Mavis can share the necessary tooling around Axies so game developers can easily add them to the 2D or 3D games they’re building. This program can be supported by hackathons and physical events as casual game development cycle is relatively shorter (1 day to 3 months).

All games should use SLP as their in-game currency and should have a paid battle mode with SLP entry fees. The end goal here is to find new mechanisms to burn SLP. None of these games would be SLP inflationary and the most popular ones will in fact be SLP deflationary. (E.g. 10 people pay 1 SLP entry cost per battle, top 3 are rewarded 5, 3, 1 SLP consecutively, the remaining 1 SLP is burnt). Games with the highest SLP spending or player retention would be rewarded with additional AXS rewards and potential funding from the AXS treasury.

Other Proposals

Short-Term

Growth should ideally slow down during this period as new Axies will put more liability on the treasury in the future. No need to incentivize high breeding growth pre-Origin in my opinion. Origin will bring in growth via F2P to P2E conversion and this can be boosted with medium-term solutions such as spending on marketing, running a referral program for influencers, ecosystem funding support for guilds.

Medium-Term

Long-Term

Conclusion

The Axie economy can be sustainable in the long-term by engaging players organically but there are short to medium-term fixes that can be made to sustain growth and to manage SLP inflation. Jiho and the Sky Mavis team shouldn’t be underestimated as they’re well aware of the problems and are working hard to fix them. If you want to learn more about blockchain games, you can follow me on Twitter.

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Web3 Game Economy & Token Design Consultancy dedicated to the long-term development of Blockchain Gaming. Follow us on Twitter @VaderResearch

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Vader Research

Web3 Game Economy & Token Design Consultancy dedicated to the long-term development of Blockchain Gaming. Follow us on Twitter @VaderResearch