The decline of Axie Infinity

Axie Infinity has been the poster child of play-to-earn gaming. The game grew massively popular in 2021, and there were even mainstream news reports that people around the world were playing it as a way to earn a living.  

But now what was once the dominant blockchain-based game has fallen far from its peak.

The game features bulbous creatures called Axies, which battle to earn Smooth Love Potions (SLP), the game’s currency. SLP can then be swapped for currency used in the real world. Players own their Axies as non-fungible tokens (NFTs).

Over the course of the late summer and fall of last year, Axie peaked across three key statistics — the average cost of an Axie NFT in US dollars, total NFT sales and daily active users. Each of those numbers has since plummeted.

In July of 2021, the average cost of an Axie NFT hit its highest point: $494.15. As of April, the average cost of an Axie NFT was around $37.38 USD — 92% lower than the all-time high.

In August of 2021, total NFT sales peaked at more than $848 million. In April, Axie saw $19.4 million in sales, a 98% decrease.

Finally, the number of daily active users on Axie Infinity has fallen from 2.5 million in November 2021 to 1.2 million in April.

What happened?

It’s hard to separate the decline in the popularity of Axie from the decline in the value of its in-game token, SLP. After all, the reason the game became so popular in the first place was that it was possible to profit from winning battles to accumulate SLP and then trade it for fiat currency. If SLP’s price drops, there’s less real money to be made.

As shown in the chart above, the price of SLP began to decline in the late summer of 2021. Since then, the game’s creator, Sky Mavis, has been unable to prevent SLP from steadily dropping in value. 

The trend stems from an oversupply of SLP due to an “unbalanced mint-burn ratio,” according to The Block Research’s Thomas Bialek. 

Besides doling out SLP as a reward for winning battles, Axie also has a mechanism for “burning” SLP and removing it from circulation: players must spend SLP (along with a second token, called AXS) to “breed” new Axies. One motivation for this is to create offspring that may have better traits — and to increase the number of Axies on their team, which allows the player to engage in more battles and potentially win more SLP. 

In April of 2021, Axie, which had been running on Ethereum, switched to a new blockchain called Ronin. The move made it more lucrative to play the game by reducing transaction fees, which led to a rush of new players. This led to rapid inflation of the SLP supply. For a few months, the SLP burning kept up with issuance. But eventually the latter began outpacing the former.

Sky Mavis attempted to curb SLP’s inflation by enticing users to stake their SLP for RON, the native token of the Ronin network. The team also removed daily quests and adventure mode battles, from which players could once earn up to 75 SLP daily. Unfortunately for Sky Mavis and the Axie community, however, the measures have not had their desired effect.