The Philippines is the surprising hotbed of Axie activity.
Blockchain technology has been around since the 1980s, but it has only recently gained widespread attention as a result of the rise in the popularity of cryptocurrency, such as Bitcoin and others. The latest use of blockchain technology is in video game development, what is referred to as blockchain gaming. Niko Partners sees this as a disruptor for game development and monetization design trends worldwide. As often is the case, the first notable instances of this trend emerged in Asia.
What is Blockchain gaming?
A blockchain is a system that stores blocks of data that are linked together in sequence using cryptography. Every data unit on the blockchain is unique and immutable as the modification in one block can affect the whole chain. What distinguishes blockchain games from traditional games is the fact that each digital asset in blockchain games is one of a kind. Each of these digital assets is called a non-fungible token (NFT), which is a unique data unit stored on the blockchain. The segment is referred to as blockchain gaming. One aspect of blockchain gaming is “play to earn” whereby a gamer earns their unique NFT(s) or cryptocurrency from merit-based advances in the game, and can convert it to real money. There is also “play to trade” whereby a gamer earns a token and then can trade it or sell it for real money.
Because each NFT is unique, blockchain technology has embodied the principle of ownership of a digital asset. Historically, a piece of digital art, let’s say an image, could be easily copied and used by thousands of people without credit to the original owner. But if the art is part of the blockchain as an NFT, the owner can claim his rights to keep or sell the art to anyone he wants. We would note this works a lot better for games than art. Blockchain gaming provides gamers with complete control over the digital assets they earn or acquire in the games. In traditional games, even though players pay real money for their digital assets, they will lose access to their own assets if the server is ever switched off, and both the money as well as the game assets remain the property of the publisher or developer. Meanwhile, blockchain games assure that players retain complete ownership of their digital assets, which means that they can freely trade their assets with other players, sell them for real money, and potentially use them across multiple game universes.
Blockchain games’ play-to-earn model makes them an attractive source of income and investment. The model allows players to earn money by playing, receiving rewards, and trading digital assets for cryptocurrencies, which they can then trade for fiat money and spend in real life. This opens up a new monetization model and it is one that must get integrated with the game design and development. Free to play games use several monetization models, this one will potentially be a big disruption to the traditional models.
Blockchain gamers are concerned about the threat of losing their virtual assets as a result of technical misunderstandings or becoming victims of blockchain gaming scams. Gaming operators are typically not required to comply with anti-money laundering (AML) and know-your-customer (KYC) regulations, which raises the risk of fraud.
Blockchain games are not as simple to play as traditional games, yet it hasn’t stopped blockchain games from exploding in popularity. Blockchain-powered game titles, such as CryptoKitties, The Sandbox, Decentraland, and, most recently, the wildly popular game from Vietnam called Axie Infinity, have proven to be popular.
What is Axie Infinity?
Built by Sky Mavis, a game studio based in Vietnam, Axie Infinity has achieved one million daily active users with monthly revenue skyrocketed from $103,000 in January to $364 million in August 2021. The company recently raised $150 million in a Series B funding round led by Andreessen Horowitz, valuing the firm at $3 billion. According to CryptoSlam, Axie Infinity has topped $2 billion in NFT sales. The game’s revenue is generated by charging a 4.25% transaction fee when players trading on its marketplace. Axie Infinity has been described as the Pokémon of NFT games due to its addicting monster collecting experience that allows players to collect, train and battle axies.
Axie Infinity is a complex gaming ecosystem with two tokens: an in-game currency Smooth Love Potion (SLP) with an unlimited supply and a governance token Axie Infinity Shards (AXS) with a maximum supply of 27 million. SLP is a system of incentives and rewards for playing the game which can also be used to breed axies – the in-game creatures. Players can sell their axies, which is the game NFT, for Axie Infinity Shards (AXS), a token that can be traded for fiat currencies. The price of one AXS has surpassed $60 in September and is predicted to keep growing in the future. Because of the profit from playing the blockchain game, many people have turned to Axie Infinity and AXS trading as a new source of income, especially those who have lost their employment due to the COVID-19 outbreak.
Axie Infinity, as one of the most popular blockchain games, has experienced Fear, Uncertainty, and Doubt (FUD) and negative opinions circulated within the community started when the value of SLP dropped dramatically. The all-time high price of SLP was recorded on July 13, 2021, at $0.39, and the price of SLP as of mid-August was $0.081. Such a significant dip in price has created varying reactions from the community. Members of social media apps like Facebook and Discord have even come to doubt the legitimacy of Axie itself. Some, on the other hand, have come to take advantage of the dip in the price of SLP and continue to patronize and take it as an investment instead.
This shows the challenges that blockchain games can face and how supply and demand plays a large role in determining the in game economy. Developers can solve this issue by expanding gameplay options that allow players to utilise SLP (in the case of Axie) in different ways. Ultimately, we are seeing how game design, planning and integration with the blockchain are equally important for games that go down the play to earn route. Sustainability will be key for developers that want to succeed in this space and it is an absolute requirement for players that are using the game to earn a regular income.
Axie Infinity requires players to make an initial investment in order to purchase assets. They must also be somewhat familiar with wallets, virtual currency, and blockchain technology. There are reports of hacked Axie Infinity’s accounts even if they have applied the necessary precautions in their accounts. Phishing sites surface on the web as the game trends as well. The lack of regulation in this space has also led to scams, known as ‘rug pulls’, where a developer has promised to build a game but then pulled out after players have made their initial investments.
Axie Infinity in the Philippines – the surprising hotbed of Axie activity
The Philippines, which remains constricted by varying levels of community quarantine in October 2021, accounted for 29,000 of the 70,000 downloads of the game as of April this year, according to Sky Mavis. As of this writing, Axie Capital assumes that there are now 300,000 Filipino players or Axie Infinity. The game recently crossed USD 25 Million daily trading volume and is already selling more than 50,000 NFT’s per day. Many likewise took a shot at this blooming trend. Because of the continued demand of the game in the Philippines, some merchants in the country are now accepting Smooth Love Potion (SLP) as mode of payment for their products and services and providing discounts for those people who will pay using SLP.
The increasing popularity of Axie Infinity in the Philippines and the potential income that a Filipino players can earn from it has not skipped the eyes of the country’s Bureau of Internal Revenue (BIR) and the Department of Finance (DOF). Both government agencies released statements on taxing cryptocurrencies. Cryptocurrencies can only be taxed if the income or gain is realized. When we say realized, it is when cryptocurrency is converted to fiat or something or measurable in fiat. The current tax laws to the three common revenue streams of cryptocurrency in the Philippines are “trading,” “mining,” and “play-to-earn.” People who are earning from the Axie Infinity play-to-earn game are subject to tax requirements.
Challenges may occur for the NFT-game, but the game’s popularity did not subside as Axie Infinity surpassed 1 million daily active users (DAU), of which 40% are Filipino users. The price of SLP (Smooth Love Potion) that can be earned as rewards by playing Axie Infinity through battle or adventure mode has gone down and the gaming community is a bit worried. However, it should be noted that with the digital transformation that is happening all over the place and in business and economy, including in gaming, blockchain games such as Axie Infinity are here to stay.