Blockchain technology opens up many new possibilities in Web3. It enables dApps, smart contracts and has even taken gaming with play-to-earn to a whole new level.

However, these games are frowned upon in the Web2 world, whether due to poor game mechanics, terrible graphics or because they have a reputation for being pure rip-offs. But play-to-earn games are nowhere near as bad as their reputation suggests. The graphics have been improved, as have the game mechanics. Many games now also have a free-to-play version. Axie Infinity has certainly taken on a pioneering role in play-to-earn gaming. The game wasn’t even the first P2E game. That was Cryptokitties.

The beginning of Play-to-Earn Gaming: Cryptokitties

Cryptokitties was developed in November 2017 by Axiom Zen (later Dapper Labs) and runs on the Ethereum platform. In the game, players can collect, breed and trade digital cats. Each cat is a unique non-fungible token (NFT), which means that the digital one really belongs to its owner and thanks to the blockchain, ownership can also be proven.

ScarKitty creates value – Stitches @CryptoKitties https://t.co/eHhARCKMOO pic.twitter.com/lfSKzASz7I

— Nice Kitties (@KittiesNice) June 21, 2024

Cryptokitties was one of the first games to popularize the concept of owning digital assets via the blockchain. Players could earn quite a bit of money by breeding and selling rare kitties, effectively introducing the play-to-earn model. The most expensive Cryptokitty was sold for around 600 ETH in 2018, which was equivalent to around $170,000 at the time.

2021 – the year of all-time highs and the triumph of Axie Infinity

The year 2021 was mainly marked by the Corona pandemic and the global lockdowns. But it was also the year in which some cryptos reached an all-time high. In 2021, several cryptocurrencies reached their all-time highs (ATHs). Here are some of the most prominent cryptocurrencies and their highs in 2021:

Bitcoin (BTC), approximately $68,789 in November 2021
Ethereum (ETH), around USD 4,891, also in November 2021
Binance Coin (BNB), around 690 USD in May 2021
Cardano (ADA), approx. 3.10 USD in September 2021
Solana (SOL), around $260, in November 2021
XRP (Ripple), approx. 1.96 USD in April 2021
Polkadot (DOT), around $55 in November 2021
Dogecoin (DOGE), approx. 0.74 USD in May 2021
Avalanche (AVAX), around $146 in November 2021
Terra (LUNA), about 103 US in December 2021 (Yes, Terra Luna was once at the top.

The year 2021 was also the year in which Axie Infinity really took off. In October, the game had 2 million active users, mainly in Southeast Asia. However, with the great success came great criticism. Among other things, Axie Infinity was accused of being a classic Ponzi scheme and of exploiting people’s poverty. But more on that later.

Axie Infinity: Game mechanics, in-game currency and governance token

Axie Infinity has several game mechanics, one of which is particularly reminiscent of another game with monsters: Pokémon. The main characters in Axie Infinity are the Axies, cute fish monsters that can fight against each other. There are two options, either PvE (Player vs. Environment), where players fight against computer-controlled opponents to earn rewards, or PvP (Player vs. Player), where players compete against each other in arena battles. Strategic skills and the right combination of Axies are used to win and receive rewards in the form of SLP and other resources.

Train for the fight ahead ⚔️ pic.twitter.com/4mVHCvEnb7

— Axie Infinity (@AxieInfinity) July 20, 2024

You also have the option to collect and breed Axies. The Axies are NFTs that are stored on the Ethereum blockchain. Each Axie has unique characteristics and abilities that are determined by their genes. The Axies can also be bred to create new Axies. In addition, gamers have the option to buy land in Lunacia, the world of Axie Infinity. Here they can mine resources, create items and earn additional SLP. The purchased land can also be improved and personalized. There are also daily quests where you can earn additional rewards, including in the form of SLP (Smooth Love Potion). The SLP is the in-game currency of Axie Infinity, which you need for breeding, for example. The token can, however, be exchanged for other cryptocurrencies or FIAT money. The main currency, however, is the AXS (Axie Infinity Shard). This coin also serves as the platform’s governance token, among other things. However, gamers have another way to earn money: the marketplace.

Players can buy and sell Axies, land, and other in-game items on the marketplace. The most expensive Axie was sold for 300 ETH in 2021, which was equivalent to about $1.5 million at the time. This Axie is one of the very rare “Mystic Axies,” which have unique traits and abilities not found in other Axies. The $1.5 million Axie is known as “Angel.” Mystic Axies have special body parts that were only available in limited numbers during the game’s early development phase.

The big Axie Infinity hack

But the big hype was followed by the big crash. In March 2022, the game was hacked. In this attack, approximately $620 million in cryptocurrencies were stolen. The attack affected the Ronin Network, an Ethereum sidechain used by Axie Infinity. The hackers compromised several validator nodes, which allowed them to withdraw large amounts of ETH and USDC. This was possible through a fake job offer. The notorious North Korean hacker group Lazarus is most likely behind the attack. In 2023, Norwegian authorities seized around $5.9 million that came from the hack.

Ponzi Scheme Allegations

Axie Infinity has been called a Ponzi scheme by critics because the game generates revenue by having new players invest money to buy and play Axies. This was quite expensive, especially in 2021. A “standard” Axie cost around $30 back then. However, prices have since dropped several times. A significant portion of existing players’ profits come from new players’ investments. The game’s success and profitability rely heavily on a constant stream of new players joining. If new player growth stagnates or declines, rewards and income opportunities for existing players could also decline, which could threaten the stability of the entire system. There are also concerns about the long-term sustainability of the model. Critics argue that the current reward structures and mechanisms are not sustainable because they rely heavily on continuous growth.

Axie Infinity today

Due to the successful hacker attack, the gaming platform understandably lost the trust of its users. Axie has now fought its way back, but is miles away from its previous successes. As of 2024, Axie Infinity has around 92,435 monthly active users and around 3,082 daily active players. The AXS is currently trading at around 6 US dollars (all-time high November 2021 around 165 US dollars) and the SLP at 0.003162 US dollars (all-time high November 2021 0.4191 US dollars).