Axie's Growth & The Potential of Gaming Tokens

APR 27, 2021 • 3 Min Read

Paul Burlage

Disclosure: Delphi Ventures and members of our team have invested in AXS, ILV and YGG. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token. This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice

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It’s no secret that we at Delphi love gaming tokens. Axie Infinity, Illuvium and Yield Guild Games are all great examples of this in our portfolio. While not every game is created equal, when led by a strong team and combined with the right design mechanics, gaming projects and their respective tokens offer an appealing value proposition. In this Daily, I’ll reiterate why and give an update on the recent growth we’ve seen in Axie Infinity’s ecosystem. 

Axie Growth Update 

AXS is entitled to the various revenue streams of the Axie ecosystem, which are derived from NFT sales and game-based activity. Up until recently, AXS’ value has primarily centered around both primary and secondary NFT sales (i.e. marketplace fees). Notably though, we’ve seen an uptick in breeding fee revenue, a reassuring signal as Axie’s game economy continues to diversify. With AXS staking set to come online in the following months, the AXS community can benefit from these value flows, as well as from inflationary rewards. 

Axie has shown signs of progress heading into Ronin’s launch (Axie’s scaling solution) and Project K (land-based gameplay), which is evident across both Axie holder and active user numbers. Recent numbers point to an impressive ~32k daily active users. Since March, Axie holders have grown by almost 40%. We should note, however, that we did see less volume for Axies and land in April relative to March. Despite this, overall numbers remain healthy and cumulative volume recently hit $30 Million. 

 

Axie Near-Term Developments:

  1. Ronin (layer-2) – native scaling solution for Axie, Ronin DEX, Ronin Wallet
  2. Battle v2 – expansion and upgrade to the current battle system
  3. Project K – Land gameplay

 

Gaming Token Thesis

Ever since consulting for Axie Infinity back in 2019, myself, and others at Delphi, have seen tokens as a paradigm shift for the gaming business model. Gaming NFTs aside, we strongly believe this to be the case for their native governance tokens as well. For an expansive thesis on the intersection of crypto, NFTs,  and gaming, you should check out Piers Kicks’ salient Metaverse piece

While the benefits that a token can provide to a game and its community are similar to that found in other crypto verticals, they have the potential to be particularly impactful in gaming. Players devote serious time and effort to the games they love, not simply their capital. There’s a competitive aspect that influences the behavior of the individuals involved. Thus, the relationship between gamers and their games, strikes at a far more emotional, and perhaps at times irrational, level than other crypto verticals where liquidity and loyalty are transient, chasing dollars from one opportunity to the next. 

Token incentives can bootstrap liquidity and users for both DeFi and gaming projects. However, it’s still unclear how these incentives will effectively translate into sustained capital/user lock-in. Ultimately, the most important factor for any game, tokens or not, is whether it is fun. 

Through play-to-earn dynamics, holder revenue share, and an open community, gaming tokens can increase the effective lifetime of the average game. Allowing community members to play a more involved role in a game’s life-cycle, while capturing financial upside, can lead to higher engagement levels, lower acquisition costs (play-to-earn + grass-roots marketing), and higher user-retention (play-to earn + revenue share + community development) for crypto game studios. We fully believe community-owned games are here to stay and we are incredibly excited to play what comes out of this growing ecosystem. 

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