Axie Infinity (AXS)

What Is Axie Infinity?

In mid-2021, tens of thousands of people in the Philippines paid rent by playing a cartoon monster game. That game was Axie Infinity, and at its peak in November 2021 it counted about 2.7 million daily active players. It became the flagship of play-to-earn gaming, a model in which players receive tokens with real market value for the time they spend in the game.

Sky Mavis launched the game in 2018. Players build a team of three Axies, each with body parts that determine its abilities, and fight other teams or computer opponents. Because every Axie is a non-fungible token, the player owns it outright and can sell it on the Axie marketplace to anyone.

Ownership created the model that made Axie famous. A team of three Axies cost several hundred dollars at the 2021 peak, more than many new players could afford. Wealthy owners began lending teams to “scholars”, who played daily and split the SLP they earned with the owner, often 60/40 or 70/30. To see why that arrangement worked for a while and then broke, you need to look at the two tokens that power the economy.

How Does Axie Infinity Work?

The economy runs on a loop between earning and spending. Players earn SLP by winning battles and completing daily quests. Breeders spend SLP, plus a smaller amount of AXS, to combine two Axies into a new one, and the protocol burns the tokens they spend. New Axies are sold to incoming players, who then start earning SLP themselves.

All of this happens on Ronin, a sidechain Sky Mavis launched in 2021 because Ethereum fees made small in-game trades uneconomic. Ronin processes transactions for fractions of a cent, and a cross-chain bridge lets users move ETH, stablecoins and tokens between Ronin and Ethereum.

The loop only balances if new players keep arriving, because breeders burn tokens only when someone wants to buy the Axies they produce.

Consider a simplified example. Suppose players collectively earn 100 million SLP a day, while breeders burn 60 million SLP a day to produce Axies for newcomers. Net supply grows by 40 million SLP daily. If the flow of new buyers slows, fewer breeders find customers, burning drops to 20 million SLP, and net issuance doubles to 80 million SLP a day.

Every scholar then sells more SLP into a shrinking market, the price falls, and the daily reward is worth less. Lower rewards push players to quit, which cuts demand for new Axies further and reduces burning again. This is exactly what happened: SLP fell more than 95% from its July 2021 high within a year, and hundreds of thousands of players left the game.

AXS vs. SLP

AXS holders can stake their tokens to earn more AXS and vote on how the Community Treasury spends its funds. The treasury collects a 4.25% fee on marketplace trades plus the AXS paid for breeding, which gives AXS a link to real activity that SLP lacks. That link cuts both ways: when trading and breeding fell in 2022, treasury inflows fell with them.

What Was the Ronin Bridge Hack?

On 23 March 2022, attackers stole 173,600 ETH and 25.5 million USDC from the Ronin bridge, worth about $625 million at the time. The bridge required five of nine validator signatures to approve a withdrawal. Sky Mavis controlled four of those keys, and a fifth belonged to the Axie DAO, which had earlier allowed Sky Mavis to sign on its behalf. Once attackers compromised Sky Mavis systems, they held all five.

Nobody noticed for six days. The theft came to light only when a user failed to withdraw 5,000 ETH. The US Treasury later attributed the attack to North Korea’s Lazarus Group. Sky Mavis raised $150 million in a round led by Binance to repay users, increased the validator set and reopened the bridge in June 2022.

Why Is Axie Infinity Important for Traders?

Axie Infinity is the clearest case study of what happens when a token’s value depends on a growing user base. Rewards in a play-to-earn game are paid out of new players’ purchases, so the economy behaves like a growth stock with no earnings floor: rising adoption pushes the token up, and any slowdown feeds on itself. Traders who watch player counts, breeding volume and SLP issuance can see the loop weakening before it shows up in the price.

The main risk is structural. Axie’s own team concluded in 2022 that the game had to become fun to play without rewards, and later versions such as Axie Origins cut SLP emissions sharply. Those changes help the economy survive but reduce the income that attracted millions of players in the first place.

Security is the second lesson. The Ronin hack showed that a sidechain secured by a small validator set is only as safe as the few organisations holding the keys. Compared with a metaverse like The Sandbox, which settles on Ethereum directly, Axie traded some security for low fees, and in 2022 the market priced that trade-off in a single day.

Key Takeaways

• Axie Infinity is an NFT battle and breeding game on the Ronin sidechain that popularised the play-to-earn model.
• AXS is a capped governance and staking token that captures marketplace and breeding fees, while SLP is an uncapped reward token minted by gameplay.
• The economy depended on new players buying Axies; when inflows slowed, SLP issuance outran burning and rewards lost most of their value.
• The 2022 Ronin bridge hack showed how a small validator set concentrates security risk on sidechains.
• Play-to-earn tokens behave like bets on user growth, so player counts and token issuance data matter as much as price charts.