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Are Axie Infinity Shards a Buy?

By Zhiyuan Sun – Updated Oct 8, 2021 at 3:09AM

Key Points

  • Axie Infinity is an innovative monster battle video game incorporating blockchain technology and non-fungible token economics.
  • But its native tokens aren't really connected to the game's spectacular financial results.

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Axie Infinity is a great game backed by severely overvalued tokens.

Lucky investors who bought $1,000 worth of Axie Infinity Shards (AXS) last November now have an investment valued at a stunning $1,102,707. You might be surprised to learn that this millionaire-making crypto is the native token of a namesake blockchain video game.

Axie Infinity was created by developer Sky Mavis, which launched in 2018. Like the Pokémon games, it contains creatures (called Axies) that players collect and use to battle with other players and enemies. So what exactly is so fascinating about the game that AXS tokens have a market cap of $7.8 billion?

Different breeds of Axies surrounding game logo.

Image source: Axie Infinity.

An innovative blockchain video game 

To put it simply, the game is unique because each Axie is a non-fungible token (NFT) traded on the Ethereum (CRYPTO: ETH) blockchain. Users need to connect a wallet, such as a MetaMask or Trust Wallet, to the platform and deposit crypto to start playing.

Axies have different rarity types, strengths, and attributes, and players can buy and sell them freely on the marketplace. Most Axies have very weak statistics, but a select few are very strong, created through trial-and-error breeding. These are the most sought after. Each Axie can be bred only a set number of times for population control, creating scarcity. In the past 30 days, 1,841,376 Axies were bought and sold on the Axie Infinity Marketplace.

Their total volume over the past month? It may surprise you -- 155,983.4 ETH or $536.7 million ($6.44 billion annualized). The most expensive Axie so far sold for 300 ETH, or around $1.5 million. Last month, the game brought its developers $220.3 million in revenue, which is second only to Ethereum's $833.3 million in revenue among blockchain applications. On a side note, the former figure represents 3,100% year-over-year growth. Sales even surpassed those of platforms operating decentralized finance services like crypto borrowing and lending.

The game has taken the world by storm and is extremely popular in parts of Latin America and Southeast Asia. There are more than 250,000 players on Axie Infinity each day. Of course, that's nothing compared to social media gaming platforms like Zynga, which has a daily active user count of around 42 million.

But again, Axie Infinity's secret sauce is that its video game content is comprised of NFTs. For those who don't know, as with physical art, investors can donate their NFTs to charity and claim generous tax deductions. So their value isn't only tied to the game but extends to the outside world. 

What's more, the game has created an entire blockchain economy of its own. New players (called Scholars) have a lot of time on their hands but insufficient capital. Meanwhile, investors (called Managers) have a lot of capital but probably want to make money and not spend too much time on the game. So Managers breed Axies, and either lend or sell them to Scholars for profit, enabling the latter to enjoy all the game has to offer.

Can you count on AXS? 

Unfortunately, there's a major disconnect between the game and AXS tokens. AXS doesn't play a big role in Axie breeding, especially for the most coveted ones. It costs a mix of one AXS and a variable amount of ETH (for transaction fees) along with Smooth Love Potion (CRYPTO: SLP) to breed Axies. The latter two are far more important. For example, it takes 1 AXS ($123.16), 10,200 SLPs ($870), and 0.2774 ETH ($1,002) worth of transaction fees to "incubate" a top tier breed.  

In the future, Axie Infinity developers plan to introduce staking -- depositing AXS into special addresses to validate transactions for income. However, stakers must also play the game if they want to earn money this way. In the end, because of this detachment, it's better to invest in ETH or even Smooth Love Potion if you want to capitalize on the success of Axie Infinity. 

Zhiyuan Sun owns shares of Ethereum. The Motley Fool owns shares of and recommends Ethereum and Zynga. The Motley Fool has a disclosure policy.

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