From Reason Magazine, February 1:
Some NFT assets held their value during January's crypto crash, but not the video game monsters in Axie Infinity.
The biggest NFT game currently in the marketplace is Axie Infinity, a game—similar to Pokémon—in which players collect and battle monsters which resemble axolotl salamanders.
The business model for Axie Infinity and nearly all other nonfungible token (NFT) games is called "play to earn." In these games, all players must start by purchasing NFT characters on a marketplace. In-game assets and currencies are traded on crypto exchanges, so everything in the game is worth money. The often-high upfront cost of buying into the game is theoretically justified by the opportunity to earn money by playing.
Web3 investors are really excited about the prospects of games like this. Reddit co-founder Alexis Ohanian, who is an investor in Axie Infinity, believes play-to-earn games will be 90 percent of the gaming market in five years. And Sky Mavis, the developer that makes Axie Infinity, had the good fortune to be years ahead of the competition. Their NFT game launched in 2018, and they were live and operational when NFTs exploded in popularity and investors decided to bet that the blockchain was the future of gaming.
As a result of being first movers in the space, this once-tiny independent studio was able to raise $150 million in financing in October 2021 at a valuation of $3 billion. Around the same time, Sky Mavis trumpeted its game's tremendous subscriber growth, which exploded in the third quarter of 2021 to over two million daily active users. In December, Axie Infinity Shards (ASX), the game's governance token, had a market capitalization larger than that of the French games publisher Ubisoft, which makes the Assassin's Creed, Far Cry, and Watch Dogs games. In July, a single rare Axie monster sold for 369 ether, worth over $800,000 at time of sale. A rare plot of land in the game sold for 550 ether ($2.5 million) despite the fact that the gameplay features using in-game land are not yet available.
However, some big problems have emerged in Axie Infinity: The value of an in-game currency called Smooth Love Potions (SLP) crashed from last summer's high, above $0.40, to a value of around $0.01 in January 2022, lower than its price a year earlier when few people had heard of NFTs and the game itself had only about 50,000 active players. This is a big problem for Axie Infinity, because the object of the game is "playing to earn" and SLP is the currency you earn by playing. As a result of plunging values, the volume of transactions for Axie assets may have fallen as much as 70 percent from its peak in just a couple of months. The floor price of the cheapest Axie characters fell to around $30 in January 2022, which signals that users are dumping their assets, since it often costs more than that to mint one of the characters. AXS, the governance token, has lost over 40 percent of its value since Christmas, a paper loss of billions of dollars.
By looking at what's going wrong with Axie Infinity, we can see how the play-to-earn business model has major problems with no clear solutions.
Gaming NFTs Aren't Like Other NFTs....
....MUCH MORE
note to self: double-check provenance of any proffered Smooth Love Potions.
