The anti-bear case for Axie Infinity

What could go wrong now?

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To be filed under Not Investment Advice, the travails of the past three months have only reinforced my view on Axie Infinity.

Let’s consider the bear case first.

• Despite being 67% off its November 2021 ATH, the AXS governance token still has a market cap of $4 billion (the most of any game).

• Despite the utility SLP token being 95% off its July 2021 ATH, the game’s still attracting 1.7 million daily players. That’s 38% off its DAU ATH.

• Over $4 billion-worth of Axie NFTs have been traded on the game’s own Ronin blockchain, which places Ronin second in terms of all NFT trading on all blockchains. Ethereum is #1 at $18 billion, while Axie Infinity has accumulated more NFT trading volume than all NFT trading on Solana, Polygon, Flow, WAX and Avalanche combined.

• (DYOR — the market cap of the RON token is a mere $325 million.)

• The value of the rarest Origin and Mystic Axie NFTs has remained steady with a floor of around 3.5 ETH and 25 ETH respectively, even while the floor for entry level Axies has reduced from $300 to $25.

These are the stats of the bear side of the equation, which feels pretty bullish to me.

What could go wrong?

My general thesis in blockchain is everything either goes to one or zero. Axie Infinity has gone through a really rough time in terms of its liquid token valuations but that hasn’t significantly impacted actual usage or illiquid asset prices.

At this point in time, it’s becoming difficult for me think up realistic scenarios that could drive it to zero, especially given the Axie Infinity treasury — reserved for product development, marketing, ecosystem growth etc — is untouched and contains $1.4 billion of assets.

(Even if AXS goes to zero, the treasury includes $160 million of ETH, which would rank Axie Infinity within the top 10 most valuable blockchain games. )

And this is before we move to the bull case for a game that’s preparing to launch a new F2P mobile version through the Apple App Store and Google Play Store for the first time, and start building out its longer term Land meta features.

(The floor price of Axie land is 2.5 ETH.)

As for the bull case for Ronin, a blockchain already used by millions of active wallets, with billions of dollars locked in AXS staking and yield farming RON tokens, I’m continually surprised more traditional developers aren’t considering it alongside the likes of Polygon, Flow, Solana, Immutable X — blockchains that may make a sexy tech case but which are currently pitiful in terms of generating any meaningful user activity.

(Of course, we know plenty of startups are building products that will launch on Ronin in the coming 12 months, using Axie NFTs and/or existing tokens.)

Finally, there’s the lack of any blockchain game to get close to Axie Infinity in terms of sustaining a large audience that can extract value through play (even if the USD value of extraction has been massively reduced).

As previously mentioned, games such as Thetan Arena, Zed Run, Pegaxy and now CyBall have been cited as the ‘next Axie Infinity’, only to demonstrate how quickly most blockchain game economies do converge to zero when people actually start playing them.

Not that this is an argument to convince you to ape in. I’m certainly not trying to convince you any of these assets are going to 10x. As ever, my best investment decisions were the ones I made unthinkingly a couple of years ago.

But I do think it’s worth revisiting the general thesis.

We are all prone to chase the potential of shiny news things at the expense of products and companies that have dealt with — and overcome — a lot of the uncertainty that makes shiny new things exciting but which also makes them prone to go to zero.

And when you find something it’s hard to consider how it could go to zero, then that — in my book at least — is a winner.