Anything But Smooth: Axie Infinity’s Love Potion Token Whipsaws Game Players

Axie Infinity is a blockchain-based game that’s become a smash hit with crypto users. It allows players to earn real money, and lots of it, surpassing the monthly salary for many in the world’s poorest countries. 

It’s a massive game, sporting 1.5M daily users, according to its most recent development update. That’s more than Bitcoin’s all-time high of 1.36M active wallets on Apr. 15, according to data provider Glassnode. Earlier this year, Axie grabbed a lot of headlines for its torrid growth.

But Axie Infinity is suddenly experiencing a crisis: Smooth Love Potion (SLP), one of its internal tokens and a key instrument in the tokenomics of the game, has been suffering extreme volatility, even by crypto standards. After peaking in May and again in July, it’s lost more than three-quarters of its value, though this week SLP has stabilized at around $0.081.

Axie Infinity’s Smooth Love Potion token has lost three-quarters of its value since July.

For Axie Infinity players who earn the SLP token in-game and sell it to pay real-world bills, the torque is wreaking havoc. It raises significant questions about the potential of games and NFTs to truly create sustainable economies, a rising hope this year as the DeFi community — and Facebook’s Mark Zuckerberg — prepare for the Metaverse.

Axie Infinity rotates around three-on-three battles between so-called Axies, which are NFTs. People can either breed Axies, by spending a combination of Axie Infinity’s Smooth Love Potion (SLP) and Axie Infinity Shards (AXS), or buy them. Axies are often prohibitively expensive to acquire for people in the developing world, leading to a need for “managers,” people who rent out the NFTs to their “scholars,” who play the game. 

Three-on-three battles on Axie

The model has produced a blockbuster — the game generated $244M in revenue in the last 30 days, according to Token Terminal, even leading Ethereum at one point last month. Now, with the SLP token whipsawing there’s a wrench in the machine — managers and players split winnings in SLP tokens.

With earnings dropping, players are freaking out. “Omg dev please do something about SLP price… we need [an] update,” said a user myomie, in the Axie Infinity Discord. “I hope that devs will do something with the SLP price,” said another. 

Managers are reportedly having trouble too. “I’ve lost 50 scholars this week because of SLP prices dropping,” said Theblender101 in Axie Infinity’s Discord. Others are wondering whether to sell their Axie NFTs as the SLP rewards aren’t adequate. 

Even so, some managers are rolling with the turbulence. “I’m not concerned at all,” Sam Withers, an Axie manager, told The Defiant. Withers said there are more burning mechanisms for SLP on the way. Burning mechanisms, like EIP-1559, which burns part of transaction fees on Ethereum, reduce token supply thereby increasing price.

Many gamers rely on SLP tokens to pay their bills.

Indeed, the game’s current mechanics may be to blame for the depressed SLP price — players continue to earn the token through battles, but the only way SLP is decreased is when people use the token to breed Axie NFTs (SLP is actually removed from circulation upon breeding, called burning).

With the SLP rewards dipping, there’s less incentive to battle. This reduces demand for Axie NFTs , so there’s less incentive to breed. This in turn dampens the only deflationary force on SLP. So people continue to inflate the token’s supply by playing the game with existing Axie NFTs, without adequate demand to support SLP’s value. 

Aleksander Larsen, Axie Infinity’s COO, referred The Defiant to his statements on Twitter when asked about SLP’s recent price action. 

“I think of SLP as a commodity,” Larsen said in his thread. “It will fluctuate a bit in price, but what we really need is deep liquidity to ensure a somewhat stable price.” 

Larsen said that the Ronin DEX, a decentralized exchange, will help achieve this  deep liquidity. The DEX will be built on Axie Infinity’s Ronin sidechain — a blockchain which runs parallel to Ethereum’s, but with much lower fees.

An Axie Infinity-specific DEX would have low fees, potentially reducing friction for users wanting to enter the ecosystem.

A marketplace for NFTs called Axies.

The Ronin sidechain’s low fees have been crucial to Axie’s success. But is it ready for more users? Not quite yet, according to Larsen. “Can the game in its current state handle another massive growth spike that generally follows a high SLP price?” tweeted Larsen. “Can Ronin?”

Some users are excited. “Axie Infinity is basically getting ready to onboard the next 10 to 15 million users,” said Withers, who added that SLP will be needed to breed Axie NFTs for the next wave.

More help may come in the form of an upcoming game-mode called Land, a customized homeland which may offer more utility for Axie Infinity tokens like SLP. There’s also an upcoming battle system, Battles V2, which may include mechanisms which prop up SLP’s ailing price. 

In the meantime, it’s a rough time to be a holder, and it’s hard to blame people playing to earn for selling their SLP when it could be less valuable tomorrow. For them another burning mechanism couldn’t come soon enough.

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