Axie Infinity And Ponzi Scheme – Play More, Earn More?

Play to Earn (P2E), also known as GameFi, is an NFT game in which you can earn rewards and money just by playing games. Not surprisingly, the number of users continues to increase in Japan as well as overseas, as interest in the Metaverse rapidly increases. Therefore, in this blog, taking Axie Infinity, the game that made blockchain games become famous, as an example, we will specifically explain the business model of Play to Earn. Besides, some people still believe that Axie Infinity is a Ponzi Scheme, but is it really so? Let’s find out in the blog!

How to Earn Money with Axie Infinity

Axie Infinity is a pioneer and one of the most popular blockchain games in the world. The number of daily users reaches 3 million, and the feature is that you can use 3 monsters called Axie that you purchase yourself at the start, and get rewards such as battles. This is Play to Earn (P2E). There are mainly 4 ways of getting money:

• Get rewards by playing the game 
• Earn money by selling owned or bred Axies as NFTs on the marketplace
• After purchasing Axies, rent them out to players and receive a certain percentage of the earnings as a reward. (Scholarship)
• Buy, sell, and rent land in the virtual space to earn real estate income

Axie Infinity has been updated many times, and in February 2022, season 20 was officially launched. Season 20 has made a big change in the playing rules for how you earn in Axie Infinity. So, for the sake of clarity, let’s explain the Play to Earn business model in comparison to Season 19.

Business Model in Season 19

The play stage is divided into two types: Adventure mode and Arena mode. Adventure mode is positioned as a trial version for beginners, where they will play and battle against the computer. By playing here, in Season 19, players may be able to earn 50 SLP in crypto a day. SLP is one of Axie Infinity’s two unique currencies, the other being AXS, a governance token. By the way, the price of SLP fluctuated between 0.06 and 0.4 JPY throughout 2021. Therefore, in adventure mode, even if you could earn it, it was just about a few JPY a day. In Arena mode, it is called PVP (person vs. person), where users battle each other online and earn money. This is the main battlefield of Axie Infinity. All users’ battle results in arena mode were ranked at any time, and rewards of 3,000 AXS were distributed to the top 1,000. In the case of the first place, there was a time when the reward was as high as several million JPY. Furthermore, when using scholarships, the mainstream distribution includes 70% of the earned rewards being invested, and 30% is distributed to players. In this case, if the player earns 1 million JPY, 700,000 JPY is the share of the investor. In addition, the world of Luciana, where Axie inhabits, is divided into 301 x 301 squares called Terra, and players can obtain this tokenized land and sell it freely. Land that can be traded as real estate has a rank, and in November 2021, the parcel classified as Genesis, which is the highest rank, was sold for 550 ETH (about 286 million JPY).

Business Model Changes in Season 20

In Season 20, which was launched in February 2022, major changes were made to the above-mentioned earning methods. One of the reasons for this is that the number of SLPs issued in its own currency has become so large that its price has fallen considerably. If the original cryptocurrency declines, the value of Axie Infinity itself as GameFi will decrease, and the existence of Axie Infinity itself may be threatened. Therefore, in season 20, the SLP provided by the operator in adventure mode was reduced to 0 at once. By suppressing the number of SLPs, the aim was to make the price of SLPs rise again due to market forces. In other words, the 50 SLP you could get in a day by playing in adventure mode became 0, and the 25 SLP you could get by clearing 3 daily quests also became 0. Instead, AXS payouts in Arena mode have increased by an order of magnitude. Specifically, the top 1,000 was only available, but it was increased to 300,000 and 300 times, and the distribution amount increased from 3,000 AXS to over 110,000 AXS. In adventure mode for beginners and light users, there is no real reward, and by that amount, introducing a generous reward system for heavy users in arena mode, it can be said that GameFi’s characteristics have become even stronger. Until Season 19, only 1,000 AXS can be obtained, so the company switched to a strategy that gives users who had given up on high rankings a sense of hope that they might be able to reach the top 300,000. In the blockchain game market, new popular content is appearing one after another, as if to catch up and overtake Axie Infinity. In order not to lose users to these forces, it can be said that the above-mentioned drastic incentives have been set.

Axie Infinity is a Ponzi Scheme?

These days, especially since the middle of 2021, Axie Infinity has been attracting worldwide attention as a representative of P2E, but there are people who criticize its business model as a Ponzi scheme.

What is A Ponzi Scheme?

A “Ponzi scheme” is a fraudulent scheme in which investors are solicited for investment by making a profitable investment story, but the scheme does not actually manage the investment. Investors believe that part of the profit generated by the investment is being paid as dividends, but in reality, no investment is being made. Therefore, when the number of new investors disappears or decreases, this mechanism will reach its limit and will surely fail. This type of fraud has been practiced for a long time in both the East and the West, and even in Japan, major fraud cases have come to light repeatedly at a pace of once every few years.

Actually, Axie Infinity is not a Ponzi Scheme

The issue that determines whether Axie Infinity is a Ponzi scheme is whether or not the investor’s investment is managed in some way. In other words, in the case of Axie Infinity, is the external money when the player purchases the three Axies required for the game, or the commission when the player sells Axie as an NFT? The point is whether it is used only for distribution as a reward or not. One point worth noting here is that if a player wants to win high prizes in Arena mode, he or she should not just use the same Axie, but rather introduce Axies with high fighting power from time to time and update the strategy, one method that can be used to do this is breeding, where two Axies are used to mate to create a new Axie. There is no guarantee that a strong Axie will be born, but if you succeed, you can get a new Axie with high combat power, and you can expect to rank higher. During this bleed, players will have to pay SLP in their own currency, which will burn their crypto assets. In other words, if the number of SLPs themselves decreases, the price will increase. In this way, Axie Infinity has a mechanism where the operator side adjusts the price, and it can be said that the element of operation is included here. Looking at the flow of external money, such as Axie purchase funds as player rewards, it can be interpreted as a Ponzi scheme. However, as long as the operator of Axie Infinity issues its own crypto assets, AXS and SLP, which are actively traded in the market, and has additional operational elements such as price adjustment by burning as described above, it cannot be called a Ponzi scheme because it can be judged that a mechanism that is difficult to fail is intentionally constructed. In addition, Axie Infinity constantly distributes useful information on social media and dedicated sites, values ​​dialogue with the community, and otherwise makes every effort to earn the trust of many users and investors. In fact, Season 20 was also redesigned after carefully listening to the voices of the community and emphasizing their content. Considering these management stances, it is clearly unreasonable to conclude that it is equivalent to a Ponzi scheme, which is based on deceiving investors through fraud.

Axie Infinity – Future Potential

On March 29, 2022, Sky Mavis, the operator of Axie Infinity, announced that the Ronin Network, which is the base of the game, was hacked, and about $625 million (about 77 billion JPY) was lost.  The outflowed funds were ETH (Ethereum) and UNDC, not including AXS and SLP. However, it was said that it included the funds of players and investors, as well as the earnings of the game, which caused a great shock to those involved. The next day, Skye Mavis announced a full refund, after which the attackers were blamed on the infamous North Korean hacking group Lazarus. This amount of damage is said to be the largest in the history of cryptocurrencies, and Skye Mavis, who was aiming for even higher heights in season 20, was greatly disappointed. As evidence of this, AXS, which was around 9,000 JPY in March of the same year, plummeted to the 2,400 JPY level in June. It can be said that we are now at a critical stage where the true value of Sky Mavis will be put to the test as to whether the full amount of damage can be compensated, and how much Sky Mavis can regain trust, including the establishment of measures to prevent recurrence. No one can honestly predict what the future holds for Axie Infinity. However, from September 2021, Axie Infinity will support staking, and like many cryptocurrency projects, a mechanism has been established to receive rewards simply by depositing AXS. In addition, it is worth noting how far the P2E rule change due to Season 20 and the real estate transaction market in the virtual space will grow together with the Metaverse boom. A notable feature of Axie Infinity, as already mentioned, is the strong tendency to pick up the voices of users and communities and reflect them in the system. That’s exactly what happened with Season 20. There is no doubt that the community-first mindset of providing an easier-to-use and more attractive environment without neglecting player dissatisfaction has won the hearts of many users and has gained strong support. Now that we are on the brink of a crisis, we must keep an eye on this critical moment to see if the management attitude of the past will speak for itself, and whether it will succeed in overcoming hardships and leading to a revival.

In conclusion

The P2E business model at Axie Infinity is never static. Sometimes, like this Season 20, there are major rule changes. It can be said that this is a situation unique to blockchain games that are based on crypto assets and NFTs. In particular, due to the interest rate hike policy originating in the United States from the end of last year and Russia’s invasion of Ukraine, the cryptocurrency market in 2022 has caused considerable turmoil. Even the most popular Bitcoin and Ethereum have fallen nearly half of last year’s all-time highs. Furthermore, we cannot predict or be optimistic about the trends of other altcoins such as AXS and SLP. Therefore, even if you make money with Axie Infinity, you will need to calmly collect information, including the status of the hacking case and further rule changes, and be involved carefully. At Relipa, we help our customers with their blockchain business. If you are thinking of DX with a safe and competitive blockchain service, please let us know. Our experienced engineers look forward to working with you.