Axie Infinity Mechanism Design: Before and After
An analysis of the difference in mechanisms designs between two versions of Axie Infinity’s main game.
Welcome, premium subscribers! Thank you for subscribing. What will be shared today and the days ahead are alpha from our Economics Design's researchers.
Please keep these mails secret and do not share them with any one because these alphas are confidential. Enjoy your reading.
Executive Summary
What we’ve been noticing:
The article looks at how Axie Infinity, the blockchain game that popularized Web3 gaming, has transitioned from its original Play To Earn game, Axie Infinity: Classic, to the current Play And Own version, Axie Infinity: Origins. The analysis compares the differences in mechanism design between the two versions of the game, how these relate to government policies, and the risks that are still present in the economy despite the mechanism changes.
Key Topics this Article will Cover:
Introduction
Axie Infinity: Classic
Axie Infinity: Origins
Policy Analysis
Risks In Lunacia
Lessons Learned
An Introduction
The backdrop:
Axie Infinity was the game that put the blockchain gaming industry on the map. It was arguably the first successful gaming project that allowed gamers to make money by interacting with their ecosystem. Players were able to earn a cryptocurrency called Smooth Love Potion ($SLP), which is mainly used for breeding new Axies, after every win in both the Player vs Player (PvP) and Player vs Environment (PvE) game modes.
At the peak of its success, the price of its governance token, Axie Infinity Shards ($AXS) hit an all-time high of $164.9, and the game had roughly 2.7 million users. The numbers have taken a turn for the worse since then as the economic model proved to be unsustainable. The economy crashed as demand for assets couldn’t keep up with the overwhelming increase in supply, which ultimately led to the start of the project’s misfortunes.
Fast forward to today, much of the Axie Infinity game that took the project to astounding heights last year underwent a makeover. The core premise still remains, where a team of three Axie NFTs is needed in order to interact and battle in their ecosystem. However, certain mechanisms have been introduced or changed in an effort to bring stability to their economy moving forward.
This article looks to break down these updated mechanisms and policies by comparing them to how the original Axie game looked like. It includes looking at how the changes affected the game and identifying risks to the economy.
Axie Infinity: Classic
The Starting Point
It’s no secret that the majority of those who entered the early Axie Infinity ecosystem did so with a financial motive in mind. A Twitter poll done by one of the CoFounders back in May 2021 had the community choosing “Economy” over “Gameplay” and “Community”. Having the majority of your player base financially motivated puts a strain on your economy as these agents are often value extractors. Sky Mavis, creators of Axie Infinity, even promoted the game by coining the term “Play To Earn”. As a result, a lot of sell pressure was created across different assets within the economy because players were looking to make a profit from the different interactions inside.
SLP 0.00%↑ was the main reward token for interacting with the protocol. This reward mechanism was distributed at a player level, making its supply increase proportionally with the increase in the player base. $SLP’s main utility is to breed more Axies, but players mainly use it to cash out value from the ecosystem because the majority of the players are miners. Eventually, the supply of $SLP overtook the demand from the limited number of breeders and prices took a hit.
For those who did breed, it was easy for them to breed certain Axies that were considered the “meta”. Breeders needed to focus on getting four specific body parts on their Axies in the old version of the game, making it easy to replicate meta Axies from breeding. Because players needed Axies in order to interact with the ecosystem, the supply of Axies increased along with the player base as well. Unfortunately, the ease of breeding meta axies means that the prices of these Axies have dipped because of a surplus of Axies.
Miners eventually left the economy when their financial motivation was not satisfied by playing the game anymore. This caused a big chunk of demand coming from the player base to exit the economy, while supply remained on an increasing trajectory.
Eventually, the economy crashed as tokens and NFT supply inflated to a point where prices crashed.
Axie Infinity: Origins
Key Revamps Observed
Throughout the second and third quarters of 2022, the team has switched to a revamped version of their card game. The end of their AxieCon gathering in Spain also meant the end of Axie Infinity: Classic as the team looked to completely transition to Axie Infinity: Origins.
The first major difference is the introduction of seasonal off-chain currencies called Moonshards. Moonshards are not tradeable, making them a reliable measure of in-game interaction because the only way to obtain them is by playing the game. Their main utility is crafting runes and charms, which will be explained later. Axie Infinity revived its PvE adventure mode with Moonshards as the primary reward currency. The seasonality of this currency is its main attribute. Players cannot carry over the currency from season to season as they expire at the beginning of the next season, forcing players to use them up for crafting.
Another significant currency mechanism is the tight issuance of $SLPs via Axie Infinity: Origin. Players get one $SLP per win once they reach the Boar rank, while a challenger rank with over 2000 stars gets 12 $SLP per win. The issuance is in complete contrast to that of Axie Infinity: Classic as there are still a lot of tokens in circulation.
Runes and charms are equipable items for your Axies that add various status effects to aid them in battle. Moonshards are needed in order to craft runes and charms, and a gacha mechanic applies to the type of rune or charm that a player gets after spending Moonshards. There are a total of 130 craftable items across the nine Axie classes, with some neutral items that can be equipped by any Axie class. Adding $SLP to the crafting recipe makes the crafted item on-chain, making it extractable from the game, tradeable through the network or purchasable from the marketplace. To extract on-chain runes and charms, $3 worth of $AXS needs to be paid as a transaction cost of the withdrawal. On-chain runes and charms are other markets created within the economy.
Runes and charms add other dynamic elements that players should consider when creating their strategy for the arena. But another major change to Axie Infinity's strategies is the two additional body parts that now have usable cards. Axies now have all six of their body parts directly impacting and having utility in the game. This opens the possibility of more strategies being formed given the combination of body parts and classes that Axies can have. Breeding the exact six body parts of an Axie now seems more challenging, which can limit the inflation of meta Axies in the marketplace.
Another shift that Sky Mavis has done with Axie Infinity: Origins is in terms of marketing the game. Understanding that value extractors previously made up the majority of their ecosystem, the team looks to attract a more value-generating user base.
Origins are marketed as an E-Sports game, especially after allocating a portion of $AXS for tournament rewards through the Axie E-Sports grant. Another subset of economic agents the team is developing in their economy is their creators. Axie Infinity has partnered with Nas Academy in order to develop future creators within the ecosystem in the hopes of creating more organic content around the platform. For both instances, competitive E-Sports players or creative content creators would create demand for Axie Infinity assets.
Policy Analysis
Various monetary and fiscal policies have been added by the Axie Infinity team as they implement some key learnings from their original game to Axie Infinity: Origins. New policies have also been drafted by the team to help stabilize the economy. This section looks at how these policies impact the economy as a whole.
In terms of monetary policies, the introduction of seasonal currencies is a major policy change implemented by Sky Mavis. The seasonality of the currency forces players to begin from the same place at the beginning of the season. This rewards those who are willing to grind it out in order to progress. It is a reliable measure of in-game interaction within a specific season.
A second monetary policy implemented by Sky Mavis is the tightening of the $SLP distribution. With a lot of $SLP still left in circulation due to the hyperinflation that happened during Axie Infinity: Classic, the team has decided to reduce the emissions of the utility token so that the existing supply is used up first. Additionally, they have added new $SLP sinks related to gameplay to increase the consumption of the token.
Runes and Charms are a major fiscal policy for Sky Mavis because it essentially created a new taxable market in the ecosystem. Like Moonshards, Runes and Charms are also seasonal, forcing markets to reset at the end of each season because these items cannot be used in the next. Sky Mavis also added a withdrawal fee for these items equivalent to $3 worth of $AXS. By doing this, Sky Mavis was able to capture value from competitive guilds looking to swap items with each other. Additionally, merchants want to sell off their runes on the secondary market.
The shift in marketing can also be considered a fiscal policy for the Axie Infinity economy. This is because this is a use of funds by the governing body of the ecosystem. The newly developed strategy of marketing the game as an E-Sports discipline, and developing “local” content creators are initiatives by Sky Mavis to target the correct gamer personas in their ecosystem.
Think of it as a country looking to attract immigrants or tourists to its economy. Attracting the right people can help shape the country.
Risks In Lunacia
A lot of changes have been made as Sky Mavis transitioned Axie Infinity from their classic gameplay over to origins. But there are still risks present within the economy that can have an impact on the economy in the future.
One risk that is still present in the Axie Infinity: Classic ecosystem is that the distribution of rewards still happens at the player level. This was the main problem that the ecosystem had to deal with when mass adoption happened. At the moment, SLP faucets are tightened, so the token is being burned at a rate that exceeds its minting rate.
However, the underlying problem is when more people start entering the economy again. Even with tight faucets, the risk of overinflating SLP is present when more users start interacting with the ecosystem. A leaderboard-based distribution of SLP can be used instead of a rank-based distribution. This will somewhat mitigate this risk and control the population of players that can earn the utility token.
On the other hand, Runes, Charms, and Moonshards might affect player churn of frustrated players. The seasonality of the feature prevents them from carrying over the same items, forcing them to acquire brand-new ones the following season in order to stay competitive. This adds a pay-to-win aspect to the game, which can be seen negatively by the community. Furthermore, the seasonal nature of the ecosystem also allows them to leave the ecosystem at the end of the season if they don't want to spend to remain competitive.
Lessons Learned
The big takeaway:
In conclusion, the team’s gameplay transition from Axie Infinity: Classic to Axie Infinity: Origins is an acknowledgement that the original game model was not sustainable and had to be tweaked. Miner personas dominated the economy, extracting value from the game at a greater pace than the value that was coming in. The initial mechanism design helped promote this behaviour in the economy.
This is the importance of mechanism design. The development team needs to think a few steps ahead and look for ways an average player can exploit the system. Sometimes, this comes in the form of agents finding other use cases outside the original design of a token or feature. Developers need to put themselves in a position where they can easily adjust game mechanics to balance the economy.
Axie Infinity: Origin used the learnings gathered from the original game and addressed them in the form of updated game mechanics. The redesigned mechanism design in Origins establishes an ecosystem where those who seek to compete at a high level would add value to the ecosystem. In addition, it modifies the reward structure to incentivise those who interact with the protocol.
These changes come in the form of monetary and fiscal policies implemented by the development team. In spite of this, there are still risks in the economy because of the high pay-to-win nature of the game, and that reward distribution remains at a player level without any economy-wide restrictions. Overall, the changes are a step in the right direction towards economic balance and sustainability.
Got a question for our author regarding his article? Contact him at:
Lorenzo Martin | Junior Associate
E: Lorenzo.M@EconomicsDesign.com | W: EconomicsDesign.com
Ps: Check out our Academy if you're interested to read more about the GameFi space!