Axie Infinity’s Floor Under $30 as In-Game Currency Plummets

Non-fungible tokens (NFTs) proved to be an outlier to the general cryptocurrency market dip in January. These digital collectibles have largely held their values through the slump, with some of the top projects even seeing an increase in several metrics. 

Amidst this generally good performance, a curious case has emerged—Axie Infinity, arguably the biggest NFT game, has bucked the trend, losing almost half its value in January 2022. The slump may be attributed to the general market crash, but issues with the gameplay and its economy may have aggravated it.

Axie Infinity’s Economy Problems

The issues with Axie Infinity can be attributed to the play-to-earn model employed within the game. This model has become an industry staple and led to increased crypto adoption. Many gaming guilds have also emerged, with many VC firms investing heavily in them.

The value of Axie Infinity’s in-game currency, Smooth Love Potion (SLP), crashed from last summer’s ATH. The price peaked near $0.4 and has slowly plummeted to about $0.1, lower than before the game’s mainstream adoption last year.

The crash is closely linked with SLP’s hyperinflation, caused by the play-to-earn objective of the game. The rapid growth of players of the game has created a situation where SLP is minted at a high rate and burnt slowly. Between April and November 2021, the game’s Daily active users grew from 38,000 to 2.1 million. 

Consequently, the resulting hyperinflation has created an immense sell pressure which axie breeding—the economy’s burning mechanism—cannot keep up with. This has caused the P2E objective to be defeated as players cannot earn as much they did a few months back. Whereas a player might have made $35 per day on July 21 at peak prices, he would earn a miserly $1 today. This is with the assumption they both get rewarded 100 SLP.

Many players have since abandoned the game due to reduced earnings and started dumping their assets. The volume of transactions on the game has plummeted by 70% from its peak. Also, floor prices of Axie characters fell to around $30, while its governance token has lost 40% of its value since Christmas.

The Axie development team is aware of these challenges and is tackling them. Firstly, they created several SLP sinks like the SLP/ETH farm on Katana, which rewards users with RON tokens. Secondly, they offered limited edition items to players who burn their Axies. Finally, the developers hope to introduce more utility for the SLP in the game. They intend to update the battle system while introducing body part upgrades and land gameplay, which will increase demand for SLP. 

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Axie Infinity’s Fall Reveals Difference Between P2E NFTs And Other NFTs

P2E NFTs and other digital arts differ significantly in their use case and utility, though both are primarily images. For example, the Bored Ape Yacht Club (BAYC NFT collection) offers its holders exclusive rights and access to celebrities and influencers. The owners are also airdropped new NFT collections while attending some of the most exclusive parties. These rights the owners received are believed to justify the high cost of getting one. Just recently, the floor price of a BAYC crossed 100ETH.

On the other hand, P2E NFTs somewhat pales in comparison. They offer none of the access, rights, and exclusivity that BAYC gives. Their value depends on their ability to earn their holders money within the context of the particular game. They do not offer the bragging rights that other NFT collections offer their holders.

Without reservation, the P2E ecosystem faces a colossal task in overcoming its current challenge. No current NFT developer has yet presented a way to solve these fundamental issues. Although possible, developers will find it difficult to create a play-to-earn model that rewards players without generating economic incentives, which depreciates the reward currency’s value. 

Some of the biggest game publishers have previously attempted to introduce real money into games with minimal success. Despite its numerous benefits, the blockchain does not solve the problem faced by these developers in their initial attempt.

Finally, P2E developers must devise a plan to prevent SLP challenges from happening to reward tokens in their games. The real success of the model is dependent on this, or else it goes bust. For the time being, Axie Infinity would use its vast resources and tweaks to its game economy to help out. But until a lasting solution is provided, they would only postpone the inevitable demise of an emerging sub-sector within the crypto space.

Do you think the game publishers will find a lasting solution to the current P2E issues? Let us know your thoughts in the comments below.