Axie Infinity’s design of population growth and economic models is unsustainable

Axie Infinity ushered in explosive growth this year, and it also brought a brand new business model-Play-to-earn.

But it seems that many people are only attracted by “NFT becoming mainstream”, but they rarely pay attention to how Axie Infinity really works.

How does it achieve sustainable distribution of incentives (instead of swarming and then quickly cooling down)? Who is paying for these incentives? And where is the value creation of the game?

Basic gameplay

Axie Infinity is composed of digital monster Axie, all monsters are NFT, and then players have at least 3 Axie to fight with other players or play adventure mode.

If the player wins the battle, he will receive a reward called SLP (Smooth Love Potion), and the supply of SLP will inflate as the scale of the game grows.

There are two ways to own initial Axies. You can buy existing Axies with ETH on the market, or you can pair two Axies and then breed a new Axie.

When discussing the gameplay of Axie Infinity, many people obviously overestimated its relevance to economic benefits.

Because what the player can decide in this game is the number of battles won, not the number of SLPs to be issued as a reward.

In addition, the monster Axie has different gene types (dominant, recessive, and minor recessive), and then has different probabilities that can be inherited to the next generation, but in the long run, these genetic probabilities are also average (just like the natural world The evolution of the species here is the same).

The above two points determine the entertainment of the game, and cannot change the economic principle of the game.

So we must pay attention to how the game can effectively motivate players under the premise of exponential growth in Axie’s population?

Population growth model

To cultivate a new Axie, players need to destroy a certain amount of SLP tokens. In addition to SLP, 4 AXS tokens are required (official future governance tokens, which can only be obtained on exchanges).

A pair of Axies can have up to 7 offspring and become sterile. The number of SLPs consumed for breeding is determined by the number of offspring of the pair of Axies-the more the number, the higher the cost.

Axie Infinity’s design of population growth and economic models is unsustainable

In addition to breeding fees, there is also a restriction-close relatives cannot breed (siblings, parent-child).

If we assume that more and more people want to join the game, then the number of Axies must be expanded and therefore must be multiplied.

We can use human population growth as a simple analogy of Axie’s growth rate.

If everyone in the world finds a partner, and each couple has two children, then the population will remain roughly the same over time. Because people will die eventually, everyone is essentially creating another person.

In the Axie world, the old Axies will not disappear, so the total population of Axies continues to increase. This essentially means that the population is increasing linearly in absolute value, and the growth rate is relatively decreasing.

If analyzed from the perspective of the currency standard, the long-term incentives for players are higher than the cost of breeding, then Axie will continue to grow, but we have to consider cash prices (such as the rise and fall of SLP).

If a pair of Axie breeds the 7th child, the cost is 6300 SLP besides themselves and 4 AXS.

If the price of SLP stays the same or rises, then it is reasonable to have 7 children. But if the price of SLP continues to fall, then players are obviously losing money.

If it is still profitable to breed 7 children, then the total number of Axie will increase 3.5 times every 5 days. If it is profitable to breed three, then the growth rate of Axie is 1.5 times every 5 days.

In other words, the growth rate of the system depends on the profitability of breeding.

The short-term and long-term contradiction

Axie’s economic system largely depends on the prices of SLP and AXS.

In order to make the discussion clearer, I will discuss the impact of the above two tokens in the economic system starting from the value of SLP and AXS tokens being zero.

Suppose that at the beginning of the game, SLP and AXS have no value, and only 2 users are playing against each other.

If there are new people who want to join at this time, then you need to buy monster Axie from these two users.

In addition to selling their own Axie, these two members have another way to use their own Axie, and then spend money to buy SLP and AXS, and then they can cultivate a new Axie in 5 days.

At this time, the total cost (SLP+AXS) is profitable as long as it is lower than the selling price of Axie.

This is equivalent to assigning prices to SLP and AXS whose original value is equal to 0, and then stimulating latecomers to form price expectations, to increase capital exponentially to make profits, thus forming a positive cycle.

So the motivation for the influx of players into the game is to generate more SLPs in the future (and the price increases or stays the same), and players will get exponential profits.

But Axie’s economic system has a fatal flaw, that is, although the supply of SLP will eventually grow to infinity, it will swallow up the existing supply of SLP due to the rapid growth in the short term.

Axie Infinity’s design of population growth and economic models is unsustainable

Of course, as long as the growth rate of new players is high enough, it can offset the increase in SLP supply, and even the price will hit a new high.

In theory, all people in the world can bring all the funds in the world to propagate Axie, but the reality is that there is always a peak, that is, when more and more investors begin to question whether this game can bring such a high When paying back (like all Ponzi schemes).

Without so many new players entering the arena, there will not be enough SLP destruction to absorb the increase in supply, and then the SLP will be worthless. Further, reproduction will lose its incentive effect (assuming some transaction costs), and the growth rate of Axie will also become zero.

Axie Infinity’s design of population growth and economic models is unsustainable

Supply of Axie & SLP

So how quickly will this happen? It will happen soon. You can imagine the bursting speed of all other cryptocurrency bubbles like Ponzi schemes.

You have to realize that if SLP costs and incentives make it profitable to breed 7 offspring, then basically it will increase by 3.5 times every 5 days.

The delaying effect of AXS

Of course, Axie’s economic system is more flexible because of the existence of AXS.

The player’s revenue is settled in SLP, but the player’s total cost not only requires SLP, but also another independent token-AXS.

Therefore, if the price growth rate of AXS is higher than the growth rate of SLP, then people’s motivation to breed new Axie will become smaller and smaller until it disappears.

Therefore, the introduction of AXS will undoubtedly slow down the supply growth of SLP, make the economic system more stable, and have more time to spread in the real world.

Theoretically, AXS can appreciate faster than SLP (without dilution) until the reproduction stops. Both AXS and SLP will fall at this time, but we don’t know which one falls faster.

If AXS drops more, then reproduction will be profitable again, and then the system will start to grow again.

But if the SLP falls more, then reproduction will completely lose its meaning, the entire economic system will fall into a death spiral, and eventually both tokens will lose value.

The biggest uncertainty here is that AXS is not yet a real governance token in nature, so the subsequent economic policies cannot be determined.

in conclusion

Axie Infinity’s economy is quite fragile and unsustainable.

Although the Axie team and its supporters believe that Axie Infinity can meet this challenge in the future.

For example, more services will be built on top of the game, allowing Axie to have other application scenarios (equivalent to leaving the game), so as to stabilize the value of SLP. For example, repurchase existing Axies.

But don’t forget that Axie Infinity is a de facto paid game, and its “scholarship program” allows most people who have no purchasing power to also play the game-which means that the game is actually difficult to obtain revenue through the provision of services. Not to count on future repurchases.

In my opinion, the only solution is to stop issuing SLP rewards, thus ending unsustainable incentives without real value creation support.


Posted by:CoinYuppie,Reprinted with attribution to:
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