Ronin: Axie Infinity’s Flywheel Ambition

Ronin is an Ethereum sidechain that was originally designed for the Axie ecosystem. It is an important infrastructure support for the Axie Infinity game. Why is RON important, and of course his position in the entire ecosystem.

Ronin: Axie Infinity's Flywheel Ambition

For a detailed explanation of the flywheel, please see the end of the article

Before I start this article, Wei Wei reminds me that I finished this article inspired by Sumanth Neppalli, if you are interested in the topic of GameFi, please pay attention to him.

In February 2021, I once wrote an article about Axie Infinity, but unfortunately there is no unity of knowledge and action, and I did not open a position at the price of $0.7 when I wrote him – AXS later rose by 200 in the secondary market times, once above $140.

A year has passed in this way, and of course, millions more users, Axie has also launched another token ─ ─ $RON, and I have also done a lot of research on him in the past two months. In today’s article, I want to dive into why RON matters and of course its place in the ecosystem as a whole. Of course, for readers who don’t know what happened, here is a brief introduction – Ronin is a general-purpose blockchain released by Sky Mavis, the parent company of AXS. In the past few months, he has been a settlement in the Axie Infinity ecosystem. infrastructure.

Understanding Ronin

Ronin is an Ethereum sidechain that was originally designed specifically for the Axie ecosystem. His transaction time and transaction fees are almost negligible, making millions of on-chain game transactions possible. Ronin is an important infrastructure support for Axie Infinity games, including all transactions and all assets – Axie Pokemon, Land, SLP, AXS, WETH, and more. The consensus mechanism of PoA (Proof of Authority) currently used by this network. In other words, he uses fewer validating nodes (currently 7) and gets faster transfers. Current Ronin network validators include: Binance, Ubisoft and Animoca.

Note: Binance already supported the deposit and withdrawal of AXS, SLP, and WETH on the Ronin network before November last year

Ronin: Axie Infinity's Flywheel Ambition

Ronin is ostensibly a side chain specially designed for games, while its operations focus on introducing game studios to help them design the token economy and acquire users. In terms of functionality, play style, and positioning, the difference from BSC and Solana does not seem to be that big. So the question is, the game project party can go to BSC or Solana for development and deployment. Why choose a separate network like Ronin when there is already such a plan? I gave the following answers:

Historically, gamers have been quite price-sensitive, and transfer fees on the Ethereum network have continued to be $30-$50 per transaction over the past year, which is naturally prohibitive for new users

Most of the application scenarios of ChainGame do not require the degree of decentralization of Ethereum L1

After launching Ronin, Sky Mavis has transformed from the parent company behind Axie Infinity to an infrastructure provider for all types of games. If you are familiar with USV’s classic fat protocol theory, of course you know the meaning of this, the value of Ronin – in theory, the value of the underlying network should be greater than the value of all apps that rely on him.

The way Sky Mavis plays on Ronin seems to be the exact opposite of how most projects at the protocol layer play. Historically, the way of playing is generally to raise a large amount of money, develop an L1 in a few years, and at the same time make an ecological fund, spend millions of dollars or more to attract developers for companies that do not have real users. Chain construction ecology. Intentionally or not, Sky Mavis is playing the exact opposite of most L1s today – they did Axie Infinity first and got millions of users, in other words, they solved the most important things before Ronin started. Challenge – acquire users. Once developers start seeing millions of users on the web, it’s only a matter of time before they migrate to developing on Ronin. It’s a scenario very similar to the mobile OS battles of the mid-2000s — BlackBerry’s final defeat to Android and iOS wasn’t just its crude product itself. At that point in time, BlackBerry users couldn’t communicate with iPhone users, and vice versa. When such alternatives emerged, BlackBerry’s user base dropped dramatically, and subsequently its appeal to developers quickly diminished. In the long run, as you might guess, this means there is even less reason for users to buy BlackBerrys, and the downward spiral continues to evolve. The L1 war is very similar now. Most public chains, even those with the top market value, are still zombie public chains that lack users. They set up huge ecological funds to subsidize developers when there is no user base. And Ronin is completely different, he directly cleared the entire game and told the world: I have 3.75 million monthly active users, here are all users, come here to develop!

achievements so far

Before we start, it may be more helpful to state what Axie has accomplished over the last year through the Ronin network. A total of 1.5 million users completed NFT transactions worth more than $4 billion across the Ronin network last year. Over $1 billion in AXS is staked on Axie. There are twice as many NFT buyers as ETH on the Ronin network (Translator’s Note: The data may be larger, the number of historical NFT buyers on the ETH network does not exceed 500,000 in our Research statistics) and 20% of the transaction volume. This is quite large, since most NFT transactions on Ronin are worth only the gas fee of NFT transactions on ETH. I think Ethereum will still be the storage network for high-value NFTs, and big players prefer to store high-value NFTs such as Bored Ape and Cryptopunk in Ethereum—because Ethereum is more secure. But there is still a market space for consumer-grade application NFTs. They trade more frequently and with smaller amounts per transaction, which is exactly what Ronin is doing.

Ronin: Axie Infinity's Flywheel Ambition

It is worth mentioning that, so far, users on the Ronin chain are still more oriented towards the Axie Infinity game itself. Therefore, so far, most of the transactions on the Ronin network are still in this single game, while Ethereum, Solana, and Flow all have multiple game ecosystems. So in the end, the real innovation of Sky Mavis is not to deliver L1 itself, but to dig deep into the methodology of game economic design, so that asset velocity (Asset Velocity, token and NFT turnover rate) is consistent with other head L1-this is It has been done, as can be verified by comparing the number of NFT buyers on Ronin and Solana.

Ronin: Axie Infinity's Flywheel Ambition

Another example of measuring users migrating to Ronin is to compare the weekly active user data of Ronin and other public chains over the past week. In theory, as an emerging network with not so many DApps, Ronin’s weekly activity should be much less than that of Fantom or Polygon. Like I mentioned earlier — Ronin’s achievements are now even dependent on just one game, and as more games are deployed on Ronin, we’ll see these numbers get higher overall. So let’s look at the current real data: as of January 27, 2022, Ronin has 1.4 million weekly active wallet addresses – almost double Polygon’s, of course, this may be related to Polygon’s network upgrade last week. The gap opened by Ronin may also explain the reason Polygon wants to actively invest in game studios, just yesterday, Polygon announced the news that the former YouTube game director has joined.

Ronin: Axie Infinity's Flywheel Ambition

The last metric to measure activity on the Ronin chain is to observe the average number of transactions per day. To date, more than 289 million transactions have been made across 9.6 million wallets on the Ronin network. The average number of transactions per day for BSC and Polygon is around 7 million and 5 million respectively. At its peak, Ronin processed five times the daily transaction volume of ETH L1, according to Nansen data. One thing we found interesting is that the average number of transactions per user on the Ronin network is very similar to the average number of transactions on ETH. Since Ronin has lower transaction fees, I would have expected this number to be higher, but this number is similar to ETH and reasonable as users use Ronin more for gaming than just transactions.

Ronin: Axie Infinity's Flywheel Ambition

Valuing Ronin

There are many ways to value the Ronin network, I’ve taken two below and gave some other ideas. The total amount of $RON tokens is 1 billion, of which 100 million will be allocated to Katana (native AMM DEX on Ronin) users. The only way to get $RON is to provide liquidity on Katana in the past quarter. The current trading price of $RON is around $3, which is about $300 million in circulating market capitalization. But let’s put these aside first and use the fat protocol idea to make a valuation.

Above, I’ve hinted that Ronin’s value lies in capturing value as an infrastructure layer. One way of valuing it is to measure the application layers on top of it and value them based on their performance. Remember – I’m not counting Axie Infinity’s revenue but just Katana DEX. First, I collected DEX trading data from DappRadar for the past 30 days. Katana ranks second with approximately 375,000 users, and these data will not allow us to give a conclusion of a valuation, but a general ranking of Katana. You can also find that Katana has a much lower transaction volume than Sushi or 1inch, partly because other exchanges serve more native DeFi customers, and usually they have a larger transaction value per transaction.

Ronin: Axie Infinity's Flywheel Ambition

Based on the above data – we can extrapolate a growth curve for Katana for the next year. From my point of view, I take the last 30 days of 2 billion transactions and forecast the next year. We assume that Katana will grow at 60% month-on-month, and the growth rate will decrease by 10% every month. So we can calculate that the annual transaction volume will be about 280 billion US dollars. This is still a conservative estimate, with ETH alone trading around $1.5 trillion over the past year. A conservative estimate is that the DEX transaction volume on all chains may be around 3 times that of ETH—about 4.5 trillion US dollars, and we assume that Ronin can capture 280 billion US dollars of transaction volume, which is about 5% of the total network transaction volume. Katana’s fee model is 0.25% back to LP and 0.05% into Ronin’s treasury. For the convenience of calculation, we take this 0.3% as the agreement revenue. In this way, we make a revenue statistic for Katana so that we can estimate it with the following assumptions:

Ronin: Axie Infinity's Flywheel Ambition

The $840 million total revenue figure might seem odd, but keep in mind that most of it went back to the LP. According to data from TokenTerminal, Uniswap’s protocol revenue was about $1.6 billion last year, and based on this $840 million figure, multiple scenarios for the final valuation of $RON can be calculated if Katana is the only application. In order to get the estimated valuation of this number, we again considered the price-earnings ratio given on TokenTerminal, which is calculated by dividing FDV by the annual protocol revenue, ranging from as high as 655 times for Kyber to as low as 1.74 times for LooksRare . There are no clear benchmarks here. According to their data, Axie Infinity has a multiple of 55 times. I think the multiple will decrease over time, but if the asset is hot when it goes public, it could skyrocket and hit 100x. One way to measure the PE multiple is to compare it to traditional stocks, as of right now Activision’s PE multiple is 23, Ubisoft’s 65, and Take Two Software’s 32. Given the differences in how governance tokens work compared to traditional stocks, the multiple comparisons here aren’t entirely fair, but they do give a comparative perspective.

Ronin: Axie Infinity's Flywheel Ambition

Keep in mind that the valuation here only takes into account the Katana DEX. Revenues from Axie Infinity or any third-party apps are not counted. Also, since we don’t yet know what external game studios or indie applications are deployed on Ronin, the revenue figures above can still be more optimistic. Fat protocol theory generally holds that the value of the base layer should be higher than that of all applications running on it. If this is the case, and the optimistic scenario for Katana’s valuation is around $40 billion, a $RON of $40 is not out of the question. But the problem is that fat protocols don’t always play out from the textbook, for example during a bear market, the value of stablecoins on Ethereum is higher than the valuation of the Ethereum network. It should only be used as a guide to the potential pricing of the network.

Note: One reason for not adding Axie Infinity revenue to the revenue calculation here is that the value there is captured in AXS tokens.

Another way to value $RON is to calculate the opportunity cost of farming $RON tokens in the last quarter. As said before, the only way to get $RON tokens is to provide AXS or SLP and ETH liquidity to Katana. The prices of all three of these tokens have declined in the last quarter. And, from the perspective of opportunity cost, although individual traders can consider countless opportunities, the consideration here is that Power Users who are willing to invest a lot of liquidity in Katana have a high probability of knowing other mines. So here we value $RON using (i) the average TVL of the last quarter (ii) the expected return of individuals using these assets in the last quarter, and (iii) the number of tokens entering the market.

Ronin: Axie Infinity's Flywheel Ambition

The assumption here is that the potential rate of return on these users’ idle assets is 10%, and they won’t sell unless they get a high return multiple (because otherwise why do high-risk operations like LP mining). We assume that potential selling is unlikely to happen until the token reaches a price that recovers the opportunity cost and fundamental gain, including when the token goes live, which is not to say that retail investors who farm $RON over the past few months will not sell. Because both SLP and AXS prices have fallen sharply over the past few months, retail investors may sell, but the $RON paper profits of the big players cannot make up for the losses. Part of the reason I’m assuming this is data from the Ronin bridge. According to Nansen data, about $320 million entered Ronin in the last week alone, but about 390 addresses accounted for the vast majority, so that the average cross-chain amount per wallet for these whales was $820,000, which allowed the I don’t think they will sell $RON for very low farming yields.

The last way to compare Ronin is from the perspective of valuing L2, Ronin is by default an L2 network comparable to Boba Network, Polygon, Avax, Fantom. I’m not analyzing it here, because Arca’s good brother has already analyzed it from this perspective. But I still highly recommend reading Arca’s analysis of long-term price estimates for the Ronin token.

What’s next?

When I wrote about Sky Mavis last year, I didn’t expect their valuation to grow 100x in a year. I missed two things when I was researching them –

  1. Consumer-oriented apps will grow exponentially in 2021 compared to the typical DeFi-native app I was more familiar with at the time
  2. Axie Infinity’s mobile-first strategy partly facilitates mass adoption

We need to clearly recognize that the Crypto world is still a blue ocean market, and the Crypto world can still grow 5 to 10 times from consumer-oriented apps in the traditional world. Nor is this anything new. In 2008, Zynga’s Farmville was the leading reason teens log on to Facebook. Games can make more people resonate with new technological paradigms that discussions of fully decentralized or sovereign currencies in the native crypto community cannot. One of the interesting things I’ve seen from several consumer-oriented apps is that about 70% of their traffic comes from mobile apps. With Axie Infinity and Sky Mavis, Ronin has the unique advantage of channel distribution through a mobile app. It will be very interesting to see the results of the next year – and soon everyone will know that Sky Mavis is building a flywheel! (Let’s take a look at the title image now)

Ronin: Axie Infinity's Flywheel Ambition

Game developers may migrate to Ronin to provide a better experience for gamers:

  • This will also facilitate more liquidity and transactions on the network
  • Economies of scale make it cheaper to serve every new user on the network
  • This in turn reduces Sky Mavis’ customer acquisition costs for its own games like Axie Infinity
  • Revenue from these users is then reinvested in game developers looking to build on Ronin

In the end, Ronin represents a shift in thinking about the history of games. The developers who contributed to the evolution of AWS in the early 2000s saw it as bringing no value to themselves, and certainly the users at the time felt the same way. But AWS finally enabled Jeff Bezos to work on his rocket, but I think we can do better. Ronin’s distribution model philosophically puts users with AXS or SLP first. Anyone can earn SLP tokens in the last year (albeit subject to price changes), which means gamers will be holding a lot of Ronin tokens. That’s not to say VCs, hedge funds, and Sky Mavis aren’t optimized for network ownership. But in percentage terms, gamers own more Ronin than they own in Activision, Blizzard or Electronic Arts. So it will be interesting to see how the economics of ownership change gaming behavior in the coming quarters, the falling price of SLP is currently worrying a large portion of Axie Infinity’s users. There’s definitely room for more in-depth discussions about how guilds and the gaming revenue ecosystem will impact the future labor market. I’ll write something about that next week, but we’re back to Ronin for now.

In my opinion, next year Sky Mavis (parent company of Axie Infinity) will transform from an app developer to an infrastructure provider. Of course, anyone can pile up a bunch of servers and claim they’ve created a new L1. However, that’s not where the value is. The real value of this company lies in the experience accumulated over the past 3 years building the token economy, interacting with the community, and massive game data. Backed by giants like Ubisoft, Binance, and others, Sky Mavis has a better chance than most other L1s to attract developers to foster the natural growth of the network. If we start seeing a ton of games and DeFi-native apps built on Ronin, Katana will be a huge liquidity taker. That’s the optimistic picture for Ronin right now. If I were building something from scratch today, I would probably build a lending marketplace on Ronin. If you also have such a business idea, please write to me.


I and my affiliated financial entities may hold positions in the assets mentioned in the article.

Not financial advice. Digital assets are currently very volatile. Don’t invest that you can’t afford to lose.

I hadn’t discussed this article with anyone at Sky Mavis prior to publication.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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