What Is Axie Infinity (AXS), and Should You Buy It?

Everybody's talking about Axie Infinity, but how does it work?

Many cryptocurrencies have seen significant price drops since May. But it seems as if every couple of weeks, there's an exception. From Keep Network to Baby Doge Coin, a lesser-known crypto will grab the headlines with a massive price jump.

Axie Infinity (AXS) is the latest. Its price shot up almost 550% in just a month. On June 15, it was trading at $4.45 and by July 15 it had hit an all-time high of $28.61. According to CoinMarketCap data, it's fallen since then and is at $15.03 at the time of writing.

Let's take a look at why Axie Infinity suddenly rose to fame and whether it's still a good deal.

What is Axie Infinity?

Axie Infinity is where cryptocurrency meets gaming. Axie's mission is to bring blockchain technology to the masses in a fun way. It's a play-to-earn crypto built on the Ethereum (ETH) network.

Users can earn the Axie Infinity Shard token (AXS) and the other in-game token, Smooth Love Potion (SLP) in several ways. To earn tokens, players breed, raise, and battle Axies in this Pokemon-inspired universe. Investors who don't want to play the game can buy both tokens on decentralized exchanges.

Like CryptoKitties (collectible digital kittens which led the NFT craze), Axies are cute digital pets -- and each one is unique. They are also non-fungible tokens (NFTs) that can be bought and sold. The lowest-priced Axies available today cost around $200 and the most expensive one sold for 300 ETH (almost $550,000). You need to buy three Axies to be able to participate in the game.

The earning potential is what's made the game so popular, especially in developing countries. And the high participation is what's driving Axie's impressive revenue streams. According to CoinDesk, Axie generated more revenue in June than major decentralized exchanges like Uniswap and Aave.

Should you buy?

There are a few questions to consider before you buy Axie Infinity.

1. Are you interested in crypto gaming?

As with any investment, it isn't a great idea to buy something you don't understand in the hopes that the price will go up. As such, it is important to understand crypto gaming if you want to buy this coin.

It is certainly an interesting segment of the cryptocurrency industry, especially as NFTs have revolutionized the concept of in-game assets. As blockchain technology develops, crypto platforms may be able to host more complex games and we'll likely see more pay-to-earn coins like Axie.

But there are still several hurdles for the technology to jump. Chief among them is scalability. The majority of applications are built on Ethereum's network, and until it can upgrade, the platform is congested and transactions are costly.

For Axie, its huge growth has given rise to a few technical troubles. This includes a three-day outage earlier this month.

2. Do you want to participate in Axie?

When you buy crypto, you're often buying into a community as well as a coin. Several coins are based around the active participation of token owners. If you buy the coin as an investment -- without intending to join in -- you may not reap the full rewards.

For example, Axie will soon introduce staking. This allows token owners to tie up their coins for a set amount of time and earn interest. However, staking Axie tokens will be linked to your participation -- either by playing the game or voting in governance decisions.

Investors earn money from Axie if the value of the coin increases. But Axie gamers are earning money from Axie by actively participating in the game. I would argue that if you are considering buying Axie, at the very least you should understand crypto gaming. And ideally, you should want to play the game.

3. Do you see strong long-term potential?

When a coin soars 550% in a month, you have to wonder how much further it can go. There's a common pattern of people piling into a coin simply because the price is going up. Not only does this push the price up further, but it also increases the risk that those investors will buy at a high. That's why it is important to do your own research and think long term.

On paper, Axie has a lot going for it:

• It's one of the top gaming cryptos by market capitalization.
• Its senior team has experience in both blockchain and gaming.
• It has a whitepaper with a clearly defined roadmap and goals.
• It is making money. According to Token Terminal, which measures the revenue of various protocols, Axie Infinity made $40.2 million in the past seven days alone.
• Billionaire and crypto enthusiast Mark Cuban joined Axie's latest funding round in which it raised $7.5 million.

But that big jump in price makes it feel more of a flash in the pan than a long-term investment. Here are some of the biggest Axie-specific risks:

• Axie may experience more server issues or face different technical problems.
• If the value of Axie falls, participating in the game will not be so lucrative and the community may move on.
• Given the speed of technical development, there's always the chance a newer game will knock it off the top spot.

4. Are you comfortable buying from a non-U.S. exchange?

Axie is not available from the major U.S. cryptocurrency exchanges. This may change in time, but it means it is difficult for U.S. residents to buy the token.

Buying from exchanges that aren't licensed to operate in the U.S. carries additional risks. Investors could find themselves unable to sell certain coins or have their accounts frozen altogether.

We may see another price jump if Axie can get listed in the U.S. But for now, it looks like an interesting cryptocurrency to have on your watchlist. Take time to understand the gaming industry and see whether the price stabilizes after that big leap.

Leave it to the gamers

Axie looks fun, and I have added it to my watchlist. But I'm a board gamer, not an online gamer -- and I'm not a collector. Personally, I wouldn't want to buy Axie Infinity until I'd played the game, bred my own Axies, and immersed myself in that world.