What is Axie Infinity, and what’s behind its price surge?

What is Axie Infinity, and what’s behind its price surge?
Image: Axie Infinity
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Blockchain gaming is the latest crypto frenzy.

Blockchain-based game Axie Infinity has seen its native crypto token rally by 2,100% since the beginning of July and now boasts a market cap of $7.5 billion as of October.

Last week, it airdropped 800,000 Axis Infinity Shard (AXS) tokens to its early adopters and opened up staking capabilities, allowing users to lock in their tokens and earn new ones in return, sending the value of its token soaring. (Staking is often compared to earning interest; right now the company behind Axis Infinity advertises a 161% annual percentage rate of return.) AXS holders can receive rewards for playing, voting, and staking the token and will get paid dividends from Axie Infinity’s community treasury, which is now valued at nearly $2.3 billion.

The play-to-earn business model

In Axie Infinity, players buy, breed, and pit monsters called Axies against each other to win in-game currency—called small love potions—that can be exchanged for fiat cash. This business model is known as play-to-earn, where players earn crypto rewards for playing a game.

Each Axie is a non-fungible token (NFT), a unique collectible that can be bought or sold across exchanges outside of the game. To initiate battles, players must own at least three Axies, the cheapest of which are selling for around $200. The most expensive monster was sold in 2020 for 300 ether, then worth about $130,000.

A picture of battling monsters from blockchain game Axie Infinity
Image: Axie Infinity

Sky Mavis, the company behind Axie Infinity

The game’s explosive popularity has helped its developer, Sky Mavis, reap millions. It’s garnered $700 million in revenue this year from in-game transactions—17% of which the developer pockets—and is set to collect $1 billion by year-end. The three-year-old startup, which is headquartered in Vietnam, says it now counts more than 2 million daily active users, up from 38,000 in April.

The game developer recently raised a $152 million Series B led by Andreessen Horowitz, valuing it at a reported $3 billion. Because the company does not own all the Axie Infinity tokens, its valuation is less than the market cap of its currency. Sky Mavis says it will use the fresh capital to launch an improved battle system, a decentralized exchange, and a new game.