The Axie Infinity team has officially launched its long awaited DEX (decentralized exchange) on the Ronin blockchain. The DEX, named Katana, is a major milestone in the Axie Infinity roadmap, laying the foundational infrastructure that will help facilitate future gameplay. Before we get into the implications of Katana and why it plays an important part in the future of Axie, and the role of $RON, it is important to know what a DEX is and how users can utilize it.
Per Gemini, “DEXs facilitate peer-to-peer trading by relying on automated smart contracts to execute trades without an intermediary. ” Katana enables users to trade peer-to-peer through automatic swaps with liquidity supplied by users. Users supply equal amounts of both assets, in this case AXS-ETH or SLP-AXS, on both sides of the liquidity pool. For example, $500 of AXS and $500 of ETH to both sides of the pool. By supplying liquidity, users can receive both fees generated from the transactions, which according to documents is 0.25% of each swap, and utilize the liquidity pool tokens to farm $RON (more on this later). The deeper the liquidity provided, the more, and larger, transactions users will be able to make. Further, instead of users bridging from the platform to a centralized exchange, like Binance, users can swap directly on the ronin sidechain for their desired pair. As you can see the liquidity provided is pretty DEEP
Why would users provide liquidity?
There are several reasons for why users would want to provide liquidity:
- Fees
- Farming
For now, as previously stated, 0.25% of each transaction goes to the liquidity providers, or people who own the LP tokens, in return for their liquidity that they provided. This is a sufficient method of generating fees, however you can suffer from potential impermanent loss (more on that here). To incentivize LPs to provide liquidity, even with the risk of IL, you provide a token as a reward. In this case, users ‘farm’ $RON, the native token for the Axie sidechain, Ronin.
Before I get into how we can assess the value of $RON, I want to touch on why Katana is an essential part of the future of Axie Infinity. The first aspect is that Katana facilitates a better user experience. Users can now play Axie and earn SLP to swap directly for AXS/ETH, or stake AXS to earn more AXS and swap that for ETH or SLP (you can start to see the game theory develop here). These swaps are all done on the Ronin blockchain, without having to leverage the Ronin bridge and pay for gas fees to bridge back and forth, or use Binance. This further enhances user experience within the Axie Infinity ecosystem. From first hand experience, Katana is clean, easy-to-use and the team provided great resources for how users can use it.
Beyond the current, basic Axie Infinity resources (AXS, SLP, ETH, and now RON), there will be various other in-game resources that will need deep liquidity pools for future land experiences. Think back to the land gameplay demo that we got to experience previously, the time to gather resources such as wood or stone could be seen as tedious and time consuming for some (which was the feedback that I provided in my review here). What if I wanted to swap AXS or SLP for these resources instead? Save myself the time of farming and just buy the amount I needed to build the structures that I wanted to build. The DEX provides the infrastructure for these liquidity pools so that I don’t have to bridge, swap on Uniswap or Sushi, and then bridge back. It can all be done on Ronin. I imagine a future where Katana is seamlessly integrated into land gameplay and I only have to open my inventory and click ‘buy more stone’ and it automatically provides me with a quote on my swap, in game.
Thinking outside of the Axie Infinity gaming ecosystem, Katana provides the infrastructure for future NFT games that want to build on the Ronin sidechain. The resources that belong to these games can also be pooled on Katana and be traded instantly. Say you had some crystal from one game and wanted to swap for SLP in Axie, Katana now allows for the potential swap of resources across every game on Ronin. The market will set the value of the resources, and the pairs will be constantly updated to provide accurate quotes on resource to resource swaps. Further increasing user experience across every Ronin-based game.
This leads us to ask, what is $RON and how much is it worth?
Ron is to Ronin as Eth is to Ethereum. I am sure many of you already know this, but for those that are not crypto-native, according to Axie, RON is the “ecosystem token that powers the Ronin blockchain”. Users will pay gas-fees in RON and use it to secure the network against potential bad actors. In the current state of Ronin, users get 100 free transactions per day, transactions which don’t require RON. In the coming months/years (or whatever timeframe the team deems fit), there will be a shift away from 100 free txs to transactions with RON used as gas.
The team stated that the main purpose of RON is so that Ronin will always be a blockchain owned by the community. They don’t want centralized control over the chain, the ownership is distributed across active users and the upside is shared amongst the community. This is why 10% of the total $RON supply is rewarded to those who are providing liquidity to the AXS and SLP pools over the initial 90 days–with no allocation going to VCs or investors. The community-first focus has always been this teams calling card, and it is further represented with how RON is distributed. There was no initial sale, reinforcing how they want the community to own it. Now everyone has skin in the game, everyone has the opportunity to own part of the network upside.
So what is the potential upside?
I think its good to analyze some tweet threads on the subject which I liked on Twitter, break them down a little, and then give my take on where I see the value. Here are my favorites so far:
Take aways:
- Trading fees from Katana accrue to the Ronin treasury (0.05% for every trade)
- Ronin TVL is over 7B, which is larger than all other L2s combined, -> higher TVL leads to more eyes/higher valuations
- RON + Axies 2.5 million DAUs incentivizes other games to build on top of it
- Secure network via staking and earn yield
- Community + Staking issuance + ecosystem fund -> incentivize games and users to join
- At the time of Puff’s tweet: Flow Market Cap: 6B , Solana 69B, Matic (polygon) 18B
Lets dive deeper into what these points mean…
Katana Fees:
If we look at Ethereum, Uniswap or Sushi are the two main DEXs that people use for trading between pairs. Both of these DEXs have their own tokens, with no direct value accrual to ETH. The way that Axie is different, is that each swap has a 0.05% fee that goes to the RON treasury. There is no token specific to Katana, the trading fees accrue value directly to RON and RON holders via the treasury. This incentivizes people to buy RON as they presumably will be the beneficiary of the RON treasury. Looking into the future, when new games are developed, new assets are pooled, and new users are onboarded onto Ronin, billions of dollars in volume will be swapped via Katana with fees constantly accruing to the RON treasury. Probably something.
TVL:
TVL, total value locked, is the sum of all the tokens deposited onto a specific chain. In this context, it is the sum of all the tokens on the Ronin chain. From the tweet below, we can see how quickly the TVL is growing.
According to this article on Nasdaq, we can “deduce whether or not these tokens are undervalued or overvalued by using the TVL as a gauge of fundamental value and then taking its market cap and dividing it by the TVL, similar to the price-to-book (P/B) ratio for stocks.” Higher TVLs infer sound fundamentals and higher valuations for RON.
This leads me into the next set of points, RON from the ecosystem fund + Ronin’s DAUs are the perfect incentives for new games to be developed on Ronin. Distributing RON to lure high-potential games to build on top of Ronin will further drive more users and growth. Which leads us back to the same pattern we saw before, as more games and users are incentivized to use Ronin, the higher the TVL (as they bring their assets with them) and the higher the valuation for RON. Not bad.
Staking Issuance:
As we already are seeing with $AXS, I think it is safe to assume that $RON will have its own version of staking issuance, with a certain % of the total RON supply allocated to incentivize users to stake their RON and further secure Ronin. This directly drives more demand for RON as degens search and pay top dollar for juicy staking yields.
Comparisons:
Let’s take the info from Puff’s tweet and look at competitors in the space and their market caps (at the time of the tweet):
Flow: Market Cap 4.2B
Solana: Market Cap 69B
Matic: 18B
As completely not financial advice, I agree with Puff’s sentiment that based on users, adoption, etc., we can conservatively place Ronin between the 4B and 18B range, whatever value that may be for $RON. You can see from the data below how Axie and Ronin stack up against top NFT competitors.
The important thing to note, is that Ronin goes beyond just Axie Infinity and its ecosystem tokens. This opens the opportunity for immense value to be driven to the network as Ronin is opened up to more games and more users. The potential to onboard millions and millions of more users is only further facilitated with the launch of the Ronin mobile wallet. As many users are mobile only, this option provides a safe and secure way to interact with Ronin without relying on a laptop. We are just getting started.
Data and Information found from below sources:
https://www.nasdaq.com/articles/what-is-total-value-locked-2021-09-29
https://www.gemini.com/cryptopedia/decentralized-exchange-dex-crypto
https://academy.binance.com/en/articles/impermanent-loss-explained
https://katana-analytics.roninchain.com/home
YCB 