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Hi friends 👋 ,

Sometimes, I discover a company that makes me so giddy I can’t shut up about it. I ask everyone, “Have you heard of this company?!”

Often, they’ll say, “Yeah, duh.” Occasionally, they’ll say, “Nope, never heard of it.”

Today’s company falls into the latter camp. That’s my favorite kind to tell you about.

Let’s get to it.

Infinity Revenue, Infinity Possibility

It looks easy because there's a cute Axie, an innocent-looking Axie. But when you're in the game, it's like playing chess. It's a strategic game.

-- Howard, Filipino Axie Infinity Player, Play-to Earn

From an internet cafe in Cabanatuan City, Philippines, a 22-year-old named Howard described the game he plays to make a living as innocent-looking but strategic. That game, Axie Infinity is a Pokémon-like game built on the Ethereum blockchain in which people buy digital pets, called Axies, as NFTs, and breed, battle, and trade them. It’s cute. It’s unassuming. This is what it looks like: 

But Howard’s quote could just as easily describe Axie Infinity as a business and an economic force. It’s cute. It’s a game. There’s blockchain stuff. It’s fun! But there’s a lot going on under all that cuteness.

That’s the whole idea behind Axie Infinity. Axie co-founder and growth lead, Jeff “Jiho” Zirlin, told me: 

The idea is to introduce something that’s new and a little scary [crypto] through something fun, familiar, and nostalgic. Then, adding property rights and economic freedom make it really special.

Axie’s cuteness obfuscates an absurdly fast-growing business, one counterintuitively trying to vertically integrate in a web3 ecosystem known for composing modularly. Beyond the business, it has a wildly bold master plan to reshape economic policy and local governance by showing what’s possible when people work in the Metaverse. In its whitepaper, Axie developer Sky Mavis explicitly says, “You can think of Axie as a nation with a real economy.” 

That’s the grand plan. Right now, most of the focus on Axie centers around its eye-popping growth... Axie Infinity is picking up players and revenue at a nearly-unprecedented clip. This is its monthly revenue chart: 

In April, Axie did about $670k in revenue. 

In May, it did $3.0 million. 

In June, $12.2 million. 

In July, just 18 days into the month, it’s already at $79 million. 

Delphi Digital projects that it will close this month at $153 million. 

The Axie protocol generates revenue by taking a 4.25% fee when players buy and sell Axie NFTs in its marketplace, and by charging fees for breeding Axies to create new ones in the form of its tokens, Axie Infinity Shards (AXS) and Smooth Love Potion (SLP). AXS and SLP are denominated in ETH, which has been cut by more than half since May; Axie has grown USD revenue even in the face of falling ETH prices. 

If those were annual revenue growth numbers for any business, investors would be salivating. 200x revenue growth in three years would be nearly unheard of… 200x in three months?! 

Delphi projects that Axie will end the year having generated $1.1 billion in revenue, mostly from fees generated through its NFT marketplace and from breeding Axies to meet the demand from hundreds of thousands of new players each month. There are more than 600k players currently, around the world, as many as 60% of whom are in the Philippines. 

But while those numbers are mouth-watering, they’re actually not the biggest or fastest ever in gaming. The rare gaming mega-hit gets really big, really fast. Many fade away just as quickly.

What makes Axie Infinity unique is that this wild growth is just the first step in a much larger plan that includes vertical integration, aggregation, decentralization, and literal worldbuilding.

Even in the very first innings of its master plan (the product is still in “alpha”), Axie is doing that kind of growth as a game built on the blockchain while pioneering a new model at the intersection of work and play: Play-to-Earn. 

Scores of people in the Philippines and Vietnam have quit their jobs and make a better living playing Axie for hours every day. They earn Smooth Love Potion (SLP), a token earned through Axie gameplay that can be exchanged for fiat, which in turn can be used to pay for food, shelter, medical bills, and all of the other things needed to survive. Some people who were previously making $5 per day now make $20. 

Axie is already proving out a lot of things important to crypto’s long-term success:

• NFTs are alive and well, and their success does not depend on high-ticket art sales. Quite the opposite. This is a glimpse at the true promise of NFTs!

• Non-crypto people are being onboarded to crypto through a video game.

• Crypto can create new economic opportunities for all types of people globally, not just whales, DeFi degens, and bitcoin maxis, delivering on the promise of a more level playing field while also capturing economic value.

• Crypto’s network effects can create unbelievably fast-growing businesses with moats.

One of the main criticisms of crypto so far is that it has no real-world value or application, but Axie makes you reconsider what real-world value is. In Axie’s case, the value comes from providing meaning, income, and opportunity to the players directly. A typical game would spend millions of dollars on marketing and keep the majority of profits to itself; Axie spends nothing on marketing, but lets players keep most of the value created. That should lead to a stickier game and more opportunities for expansion.

And that’s just its first act. It wants to reshape work and build the most valuable IP in history, all owned by the players themselves. My favorite web3 projects adhere to Chris Dixon’s idea that “the next big thing will start out looking like a toy.” Axie certainly fits the bill. 

You may have started hearing about Axie Infinity over the past couple of weeks, catching tweets or reading coverage in crypto-focused publications like Coindesk, Delphi, and Bankless. You may have never heard the word “Axie” until two minutes ago. But there is no doubt that you’ll be hearing about it everywhere soon. Today, we’ll go deep on Axie, covering: 

• Axie’s Origins 

• A Recent History of Gaming Business Models

• Play-to-Earn

• Axie by the Numbers: Infinity Revenue 

• Vertical Integration in a World of Lego Blocks

• Decentralizing the Axie Universe

• Infinity Possibility

Axie’s Origins

In November 2017, CryptoKitties came roaring out of the gate as the first digital asset to use the now-omnipresent ERC721 standard for Non-Fungible Tokens (NFTs). Less than a month later, in Vietnam, Sky Mavis founder and CEO Trung Thanh Nguyen came up with the idea for Axie Infinity: what if you could combine the gameplay of Pokémon with the NFT ownership and breeding of CryptoKitties? 

It would look like Axie Infinity, “a Pokémon-inspired universe where anyone can earn tokens through skilled gameplay and contributions to the ecosystem. Players can battle, collect, raise, and build a land-based kingdom for their pets.” When Trung bred the ideas and mechanics behind Pokémon and CryptoKitties, it generated a couple key differences: 

• Instead of owning Pokémon cards, players buy their Axies as NFTs.

• Instead of just owning cards or NFTs for appreciation, players can make a living playing the game by earning ERC20 tokens that they can exchange for local currency.

Trung started building in December 2017. By January 2018, when ETH hit then-all-time-highs over $1,300, he’d recruited Masamune as Art Director and Game Designer. Meanwhile, Trung kept playing CryptoKitties, where he met two more co-founders and fellow CryptoKitties enthusiasts: in March, Jiho joined to lead Growth and in May, Aleksander Leonard Larsen came on as COO. In July, Andy Ho joined as CTO, finalizing the five-headed co-founding team. 

The team dropped the Origin Axie presale -- selling the first Axie characters as NFTs -- in February 2018, raising 900 ETH, just as the price of ETH was beginning to crash off all-time-highs. As ETH fell, they shipped: 

• In March, they launched their own NFT Marketplace where Axie collectors could trade.

• In May, they released Breeding, allowing players to combine Axies to make new ones.

• In October, players could battle their Axies.

• In January 2019, they raised 3,200 ETH by selling land in Lunacia, “an open world owned, operated, and controlled by players.”

What started as an idea in the peak of the bull market became a labor of love in a deep and depressing bear market known as Crypto Winter. When I spoke to Jiho and asked him what catalyzed Axie’s recent ascent, he said that it all started with, “building throughout the bear market, when no one fucking cared.” 

What seems like cursed timing actually turned out to be an advantage. It let the Axie team build and improve the product carefully, and in relative obscurity, while attracting a small core of true believers. That’s important. One of the challenges that both games and new crypto projects jointly face is that they can attract a lot of hype and fanfare, generate a ton of revenue quickly, and then die off just as fast. Jiho pointed out the paradox in building communities at scale: 

The community needs to be small first to work when it gets really big. That’s what makes Axie hard to copy -- if you build a competitor now, you’re going to attract the kind of people who want to find the next Axie, not the kind of people who are actually interested in moving gaming forward. 

From small beginnings, Axie has gotten really big. On Friday, it passed 600k daily active players. Its Discord server, the heart of the community, has over 540k members. When I hopped into the Discord yesterday, a new member joined every five seconds. 

We’re just getting started! To learn more about why growth with a challenging UX is a great thing, a recent history of gaming business models, Play-to-Earn, Axie’s own Ronin sidechain, Axie’s ridiculous numbers, vertical integration and decentralization, and where all of this is heading…

Continue Reading Online

Disclosure: I own a small amount of AXS, which I bought after researching this piece.

Thanks to Dan and Henry for editing, to Jeff for talking to me about Axie, and Gabriel for gaming input!

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Thanks for reading and see you on Monday!

Packy