Axie Infinity (AXS) was one of the hottest cryptos of 2021. It gained over 17,500% in the year, according to CoinGecko, and put the concept of play-to-earn gaming on the map. However, things can change quickly in crypto land and Axie Infinity could now be losing its shine.
Axie is currently trading at over 75% less than its all-time high. It’s lost over 40% in the past 30 days and 19% in the past week. In part, that’s because many cryptocurrencies are struggling. The economic and geopolitical climate is very different from the one in which cryptos soared. But it’s also due to some serious Axie-related issues that may not have easy solutions.
- Investors are still wary after Axie’s $600 million hack
On March 23, hackers made off with over 173,600 ETH — worth over $600 million — from Axie Infinity’s Ronin bridge. The breach wasn’t noticed for almost a week, at which point the Ronin bridge was immediately closed. These types of blockchain bridges are designed to improve the performance of the Ethereum (or other) networks, but they also bring additional security risks.
Sky Mavis, the company behind Axie, promised to recover or reimburse all the stolen funds. It also announced a $150 million fundraising round to help cover some of those costs. However, the attack is still fresh in people’s minds. All the more so as headlines continue to pop up about the hackers’ efforts to launder the money and law enforcements’ efforts to stop them.
- Less people want to play Axie
Even before the hack, cracks in Axie’s gaming model were starting to show. In February, Axie implemented changes in the rewards ratio designed to make the in-game economy more sustainable. The result? Less players. The number of active wallets connecting each day declined, according to data from DappRadar.
There are two cryptocurrency tokens in Axie land, Axie Infinity and Smooth Love Potion (SLP). Players use teams of Axie NFTs to generate SLP in the game by fighting or completing various quests and challenges. That SLP can then be used to breed more Axie NFTs. But generating huge amounts of SLP wasn’t sustainable — it is a bit like printing increasing amounts of money to keep an economy afloat. Eventually that serves to dilute the value of the tokens in circulation.
Axie said it needed to act to avoid economic collapse. But that action caused users to move away from the platform. If player numbers continue to decline, the platform will face a different kind of economic collapse. Axie may find it has solved one problem but created another.
Axie Infinity’s woes reflect several challenges that face the whole cryptocurrency market. This is a new and relatively untested technology that people are attempting to use for all kinds of purposes. Some projects will succeed, but many will not.
Axie promised a revolutionary new blockchain gaming concept that worked while it was popular. Investors and speculators piled in, hoping for extraordinary profits in the short term. But it couldn’t sustain that momentum and it didn’t pay enough attention to potential security problems. As the price fell, the in-game economy started to show its flaws, and the cracks in the model grew. The hack only exacerbated its problems.