Axie Infinity Part 2: Sustainability

Vader Research
7 min readAug 16, 2021


Is Axie Infinity a Ponzi Scheme?

If you’re not familiar with the economics of Axie Infinity, I recommend reading part 1 of this article series. There are 2 apparent risks to Axie Infinity’s long-term sustainability: underbreeding and overbreeding.


Underbreeding occurs when DAU growth exceeds breeding growth which can be caused by 1)high DAU growth and/or 2)low breeding growth.

1. High DAU Growth

Axie Infinity has been attracting thousands of new players every day as the play-to-earn model allows players to earn tokens that can be converted into fiat currency. DAU hit 30k in April, 350k in June, 1m in August.

High DAU growth leads to high SLP inflation as daily minted SLP supply is driven by DAU. High SLP inflation eventually leads to lower SLP price. High DAU growth also leads to higher Axie prices as there will be more demand for Axies from new players.

Due to high DAU growth in July and August, minted SLP supply exceeded burned SLP supply.

2. Low Breeding Growth

Since breeding is a function of AXS and SLP, high AXS and/or SLP required to breed results in fewer breedings as it becomes unprofitable to breed (Axie prices < breeding cost). Low breeding growth can also be caused by low Axie prices.

High AXS and/or SLP prices create the same effect although Sky Mavis can’t directly control their prices whereas AXS and SLP required to breed are determined by Sky Mavis.

AXS required to breed was reduced from 4 AXS to 2 AXS on August 10th, after AXS price was up 80% in a day.

Policies to tackle Underbreeding

Underbreeding results in high Axie prices and low SLP prices. High Axie prices can be simply solved by decreasing the breeding cost whereas SLP hyperinflation is more difficult to deal with. Some options to deal with SLP hyperinflation:

The most apparent option is to decrease the AXS required to breed and increase the SLP required to breed to enourage breeding, as it becomes profitable (Axie prices > breeding cost), while burning more SLP simultaneously. This solution increases the total SLP burned and decreases Axie prices.

Sky Mavis hinted that they might increase the SLP required to breed on August 9th.

The second option, although unfavourable, is to decrease the daily SLP earnings per player. This is an effective solution to lower the daily SLP minted but on the flip side, lower earnings per player may cause slower DAU growth and frustration among players who recently bought Axies.

Daily SLP rewards were halved for singleplayer wins from 150 SLP to 75 SLP on August 9th.

Another option is to get rid of SLP and to distribute daily earnings in AXS but this may lead to lower daily earnings per player. The daily distributed AXS tokens will be a fixed figure and won’t be affected by the DAU whereas the daily minted SLP supply is driven by DAU.

54m AXS will be allocated to incentivize players over the next 5 years, equalling roughly 30k AXS per day. At a price of $70 per AXS, that is equal to $2.1m per day. On August 12th alone, 100m SLP was minted, at a price of $0.20 per SLP, which is equal to $20m per day. Thus, daily earnings per player will be 10 times lower based on current prices if SLP is fully replaced by AXS to incentivize players. This option also brings the future problem of how to incentivize players once AXS is fully distributed by 2026.

Co-founder Jiho tweeted about AXS incentives that will be distributed among players.

One other option is to find alternative ways to burn SLP such as burning SLPs in exchange for loot boxes that contain rare digital cosmetics for Axies. Cosmetics are popular in traditional games like Fortnite but Axie cosmetics may not have much demand as Axie players are mainly profit-driven rather than social signalling driven.


Overbreeding occurs when breeding growth exceeds DAU growth which can be caused by 1)low DAU growth and/or 2)high breeding growth.

1. Low DAU Growth

DAU growth can slow down if daily earnings are not attractive anymore due to lower daily SLP rewards or lower SLP price. Axie Infinity’s success may inspire the emergence of competing blockchain games that offer similar daily earnings and can cause Axie players to shift to other blockchain games where they can earn more. DAU growth can also slow down due to Axie’s target player market reaching full capacity which can theoretically make Axie a trillion-dollar company by then.

Overbreeding caused by low DAU growth may have a domino effect and lead to the end of Axie Infinity. Low DAU growth can lead to less demand for Axies, resulting in lower Axie prices which can slow down breeding growth as it won’t be profitable to breed anymore (Axie prices < breeding cost). Fewer breedings can lead to less SLP being burned and thus, lower SLP price.

Lower SLP price can result in even lower daily earnings for Axie players and can lead to slower or even negative DAU growth as players who are solely incentivized by earnings may churn. This vicious circle can repeat over and over, causing significant value erosion for SLP, Axies and AXS.

This is the doom case scenario for Axie Infininty

To sum up; players churn as there are lower earnings, Axie prices go down as there are less new players to buy them, SLP goes down as there are fewer breedings to burn them and AXS goes down as there are lower marketplace and breeding volume.

2. High Breeding Growth

Since breeding is a function of AXS and SLP, lower AXS and/or SLP required to breed results in more breedings as it becomes profitable to breed (Axie prices > breeding cost). This can also be caused by high Axie prices. Low AXS and/or SLP prices create the same effect although Sky Mavis can’t directly control their prices.

Policies to tackle overbreeding

Overbreeding caused by high breeding growth results in Axie hyperinflation. Low Axie prices can simply be solved by increasing the AXS and/or SLP required to breed to make it unprofitable to breed (Axie prices < breeding cost). Other solutions are allowing Axies to be burned to upgrade existing Axies to minimize Axie hyperinflation or decreasing the number of times an Axie can be bred.

Required AXS to breed was increased from 2 AXS to 4 AXS on June 30 to slow down breeding growth.

Overbreeding caused by slowing DAU growth is a very difficult problem to deal with as previously mentioned. Increasing the daily SLP or AXS earnings per player can cause other problems mentioned in this article and is not sustainable. The only sustainable solution is to organically engage players without incentivising them with earnings. What % of Axie players would continue playing Axie Infinity if they were earning nothing? How many prospective players would be willing to pay $1–2k to play Axie Infinity knowing that they wouldn’t earn anything from playing it?

There is currently no organic engagement that retains players in the game — unlike traditional games like Fortnite, GTA, Candy Crush where players are willing to pay to keep playing the game. Sky Mavis is aware of this and they’re introducing the user-generated content model similar to Roblox to allow users and 3rd party developers to build hundreds of games on top of Axie Infinity where players can use their Axies. If one or a few of those games create organic engagement, then DAU growth may stop being mostly dependent on daily earnings.

Is Axie Infinity a Ponzi Scheme?

The source of $15–20 per day that existing Axie players earn currently indirectly come from new Axie players who are willing to make the upfront $1–2k investment. Those new players will be indirectly paid by newer players who join afterwards. The current model is unsustainable and is similar to a Ponzi scheme BUT it is too early to label Axie Infinity as a Ponzi scheme due to future user-generated games and other features that will be developed.

Sky Mavis as the Central Bank

Sky Mavis acts as the regulator of the Axie Economy and keeps player earnings, Axie prices, SLP price in balance through its tool of policies similar to a central bank using policies such as interest rates and money printing to keep inflation, unemployment, GDP growth in balance.

Sky Mavis holds 21% stake in AXS and doesn’t hold any SLP which creates an incentive for Sky Mavis to make policy decisions that prioritize maximizing marketplace and breeding fees that go to the AXS treasury.


The Axie economy can only be sustainable in the long-term by engaging players organically. In part 3, I’ll be covering the valuation of AXS. If you want to learn more about DeFi and blockchain games, you can follow me on Twitter.

Disclosure: I hold a small portion of AXS tokens.



Vader Research

Web3 Game Economy & Token Design Consultancy dedicated to the long-term development of Blockchain Gaming.