Investing in Axie Infinity: Tokens

Welcome back to the second part of Investing in Axie Infinity. In the first part I talked about investing in Axies themselves, in this part I will discuss investing in Axie Infinity via tokens.

There are a lot of different tokens that surround the Axie Infinity ecosystem. I want to cover all of them in full detail so that everyone is aware of the different opportunities. I will add some of my thoughts on the different assets, but as a disclaimer: what I say isn’t investment advice, just my opinion. I encourage everyone to do their own research into each of these assets and find what is best for them.

**To make it formal before getting into it: none of the below is financial advice, just my opinions on the Axie Infinity market****

Now let’s start with the most important token: AXS. 

What is AXS?

If we look at the Axie Infinity White Paper, “Axie Infinity Shards (AXS) are an ERC-20 governance token for the Axie Universe. AXS holders will be able to claim rewards if they stake their tokens, play the game, and participate in key governance votes. Players will also be able to earn $AXS when they play various games within the Axie Infinity Universe and through user-generated content initiatives.”

There are several things to break down for AXS. First, you will be able to claim rewards if you stake your tokens. For those that are not blockchain native and are not familiar with this concept, as an owner of AXS, you can lock your tokens (taking them out of circulation) by staking them through Axie Infinity. As a reward for this, you will earn both AXS and ETH and/or stablecoins. How? See the Delphi Digital Staking Report:

As a staker, you will receive AXS through staking yield and ETH/stablecoins from the treasury yield. Staking yield comes from the designed staking issuance. Treasury yield comes from the treasury funds, which consists of fees derived from the Axie Infinity marketplace (breeding/buying/selling). This is why it could be either ETH or stablecoins, whichever currency is used in the marketplace transaction and accumulated in the treasury.

There are a total of 78,300,000 AXS tokens that are allocated for Staking issuance that are unlocked over 5.5 years.

In the first year, Delphi reports that the annual total yield, staking plus treasury, will be about 41.5%. That is not the extreme 100+% DeFi yield that we have been seeing recently, but it is still very, very good returns. With the way that Delphi designed AXS, they reduce the staking yield by 5% each year over the duration of 5 years. However, even with the reduction in staking issuance, Delphi expects that the increase in marketplace activity from user growth will make up the rest of the percentage. This is why they expect over the course of the first 5 years the annual total yield should be roughly 35-40%. 

It is important to note that the value of AXS and ETH can very well continue to increase over the duration of these 5 years. So as you are roughly getting 40% APY, you are getting value accrual in the AXS token and ETH. 

Analysis:

As you can see in the tweet above, I don’t think people are fully aware of the potential here. The potential for this is massive. As I said before, there are many, many ways in which players can benefit. You get: AXS value accrual, AXS staking issuance, community treasure yield, and if the treasury distributes ETH then ETH value accrual. Also, the more community members there are -> the more transactions there are on the network -> the more fees the treasury accumulates -> the higher the treasury value that gets distributed. While that may seem complicated, it is very simple: 1) stake AXS, 2) play Axie, 3) get rewarded. Positive feedback loop.

I did not even mention the Axie Score, which is essentially a score that you can increase based on your gameplay. The more/better you play, the higher your Axie Score, the better your yield can be and better your opportunities for rare in-game NFT drops.

Again, not financial advice, do your own research..

Full disclosure, I own AXS and Axies. But needless to say, I am very bullish on Axie Infinity and AXS. The team has continued to build for years and they never disappoint when a new product is released. The partnerships are there: Ubisoft, Binance, Nonfungibles, and Delphi Digital are just some of the names that have a vested interest in Axie Infinity. These investors are going to be essential to the success of Axie and will help support growth along the way. The users are there, we see that even while gas is so high and players can’t breed,16,000+ people are playing the desktop and mobile app.

I think that once Ronin and staking are released, which will most likely be within the next 6-9 months, we will see more exponential growth for Axie Infinity. The onboarding of users will be easier, which means more transactions will be made. The transactions will be significantly cheaper and faster, which means a better user experience. AXS will be staked, which means a lot will be taken out of the circulating supply. Axie is not only play to earn, but also it is play to own, and AXS gives players the ability to take part in that. By owning AXS you have a direct line into the Axie Infinity revenue sources. With all that is coming out, I think it is safe to say the future is bright. 

Since this article is about all the types of tokens in Axie, I have to cut the AXS section shorter than I want to. I will go more in-depth about the tokenomics of AXS in another article!

The next token is known for “making cents” with players in the Philippines: Small Love Potions (SLP).

First, let’s go over what SLP is on a fundamental level. SLP is/are potions that players use to breed their Axies. Players earn SLP as a reward for winning battles in PvP and PvE, which means that there is no supply cap for SLP. SLP gets minted each time someone wins a match. If players do not want to breed or take the time to battle, they can buy/sell SLP for ETH on UniSwap. I talk about SLP in my breeding debate article here.

The demand for SLP comes from players buying out of either speculation that the price will go up or a desire to breed Axies. The reason a lot of people are mistaken about SLP is that it had a major pump over the recent summer, so high it reached $0.20!

Chart taken from CoinGecko

As you can see from the chart, there are many ebbs and flows in the demand for SLP. 

SLP Analysis:

In my opinion, the only purpose of SLP is to breed, not to speculate or invest into. I stay away from buying it and expecting a pump, and make sure to only use it to breed. The true value accrual token in Axie Infinity is AXS.

The next token, Wrapped Origin Axie (WOA), is a community driven and developed token by Owl and Coco. 

What is WOA? 

WOA is a Wrapped Origin Axie. The Axies are wrapped in a smart contract and treated as an ERC20. So, 1 WOA is the ERC20 equivalent of an Origin in the pool. The purpose is to allow players to either mint or redeem Origin Axies easily. If you want to insta-sell your Origin, you can mint it and sell the WOA. If you want to buy a portion of an Origin, or just exposure to the Origin market, you can buy a fraction of a WOA, or multiple WOA.

However, not just any Origin Axie can be minted, there are some parameters that must be met. The Origin must be either a plant, aquatic, or beast Origin — without any Mystic parts — and the breed count must be between 0–2. By maintaining these parameters (they are coded in the WOA smart contract), they can ensure that each Origin that is either minted or redeemed is of roughly the same value. Otherwise, if there were not set standards, any user could hypothetically mint an Origin worth 1 ETH and redeem for a different Origin that is worth 0.5 ETH. Further, like any other pool, when you mint your Origin for a WOA you give up your right to that specific Origin. There is no guarantee that when you redeem your WOA that you get the same Origin back. It is randomly selected from the pool.

The beauty of wrapping the Axie allows users to treat Axies as ERC20s and create a pool where users can mint a WOA token for their Origin Axies, or buy WOA tokens for exposure to Origin Axies. The initial pool on UniSwap was setup by Coco Bear with the initial Origin supply and ETH matching.

WOA Chart taken from CoinGecko

WOA Analysis:

I think WOA is one of the best community driven creations in Axie because it does several things. First, it provides liquidity for the Origin market. NFTs are notorious for being a rather illiquid market. WOA helps solve that in Axie. If a player has an Origin that they do not want to list on the marketplace but would rather quickly liquidate, they can wrap it and swap the WOA for ETH. They may have to take a price cut if the marketplace floor is higher than the WOA price (which can happen and can create arbitrage opportunity), but that is the “price” they pay for instant liquidation.

Second, WOA gives investors exposure to Origins without having to do much research into the Axie marketplace. If an investor wants to invest in some of the foundational Axies without taking time to research, they can buy WOA and know that they can redeem for an Origin at any time.

This is why my opinion on WOA is the same as Origin Axies*. If someone wants to invest in foundational Axies that were the first release and tag ever, then Origins or WOA are the way to do it. They are not as expensive as Mystics and do not gather the same amount of hype, but they are rare (only about 4000 ever) and, I suspect, will have some sort of utility down the line.

*If this is your first time reading and you do not know what an Origin Axie is, check out the first article on investing in Axies.

Shards:

Before I get into shards, it would be good to distinguish between what applications fall under Axie Infinity and what do not. The sharding process and marketplace does not fall under Axie Infinity. Niftex is a platform that essentially allows users to lock their NFT in a smart contract and create “shards”, or fractions, of that locked NFT. The owner of the sharded asset sets the price and the total amount of shards available. After this is finalized, the shards go on sale on the Niftex exchange, which is plugged into the UniSwap shard pool. Shards allow for users to buy exposure to more expensive assets. They laid out the process for creating shards on their website:

There are several Axies that are available on the shard marketplace. The main type of Axie are the Agamogenesis Axies, however, there is also a double Mystic Axie, Bugs, and a triple Mystic Axie, Candy, that are available to trade. I won’t go into them as they are Mystic Axies, which are examined in this article

Agamogenesis “are genetically engineered Axies researched and developed by MEO Corporation.” They were released in 2018 from the team in an auction style sale.

These Axies have a very special part, called a Bionic part, which only these Axies have. The Axie team created some allure around the Agamogenesis Axies, the original launch article states, 

“Bionic Parts are the newest project of MEO Corporation. These special custom-made parts are created with the purpose of replacing lost parts on Axies, and the feature similarity between artificial parts and normal parts are nearly 100%. Especially, Artificial Parts can also be inherited to children, and evolved like any normal part.

Moreover, the procedure has made these Axies possess abnormal body colors which natural Axies usually do not have.”

There are only 3 Agamogenesis Axies that exist, and 2 out of the 3 (Hauteclere and Almace) are sharded on Niftex. 

Hauteclere:

Hauteclere ($HAUT), an aquatic Axie, was sharded over the summer of 2020. There are a total of 50,000 HAUT shards at a current evaluation of 65 ETH (at the time of this writing). This does not paint the whole picture of HAUT, which, at the height of the shard hype, reached an all time high of 0.01 ETH per shard, or around a 500 ETH evaluation. You can see the ERC20 registry which contains the contract address here.

Almace:

Almace ($ALMX), a beast Axie, was also sharded over the summer of 2020. There are a total of 10,000 ALMX shards at a current evaluation of 54 ETH (at the time of this writing). ALMX also experienced a significant price increase after the initial launch and hit a charted ATH of about 0.02 ETH per shard. (I remember the price was higher than this, but I think there was something wrong with the Niftex chart at the time). The ERC20 registry for Almace can be found here.

The last Agamogenesis Axie, Durendal, is not sharded, and is for sale at a price of 4154 ETH.

Agamogenesis Analysis:

When evaluating these Axies I think the focus should be more on the rarity and art than the utility. There are only 3(!) Agamogenesis Axies and will only ever be 3. They have a custom color and a custom part, and a great story to go along with it. Because they do not have the utility of a Mystic Axie, we can treat these Axies more as a collectible to be held rather than used, a piece of NFT art. You do not want to get this Axie dirty, so to speak. Because of this, my opinion is that these Axies can have a higher price ceiling than the triple mystic Axies (cheapest is at 180 ETH), but not quite as high as the quad mystic Axies because of how rare those are, their potential use cases, and the improbability of rolling them.

Shard Analysis:

Shards are good exposure to more expensive assets. If you do not have the 100+ ETH to buy some of these Axies on hand, you can buy exposure to the Axie via shards. With the shards, you can allocate as much capital as you feel comfortable with and be able to own a fraction of the more expensive asset. Shards have had relatively low volume after the summer hype. I think this is mostly due to the lack of awareness in the crypto industry. The upcoming B.20 drop should drive some awareness to shards and the benefit of owning a fraction of a more expensive asset.

Something to watch for Axie shards is if there will be some added utility to shard owners, whether it be via the Axie team or someone in the community. There is the possibility of community run events which are only for shard owners in Lunacia. 

That sums up the tokens that surround the Axie Infinity ecosystem. As you can see there are plenty of ways to invest and be a part of the growth of this game and community! Make sure to follow and keep an eye out for the next article. I will be getting a Substack up and running soon so you can get these directly to your email!

Twitter: YCB

Thank you!

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