Sky Mavis has officially launched the long-awaited AXS Staking feature of Axie Infinity. Basically, staking allows users to lock up the AXS they moved to the Ronin sidechain in order to earn AXS rewards.
Sky Mavis simultaneously airdropped 800,000 AXS ($60M) to roughly 10,000 players who were active before Oct 26, 2020. Without the staking tools, this much new AXS entering the economy would’ve caused a sharp price decline, but instead, the price has stayed strong above $70 and just hit $150 as of press time.
$AXS Staking Pool
According to the announcement, the AXS Staking program is an “important step towards our long term goal of genuine co-ownership of Axie Infinity with community members.” Based on the AXS Staking Dashboard, the community has voluntarily locked up 12.4 Million AXS valued at $1.88 Billion.
In just four days, the AXS in the staking pool already represents 15% of the circulating supply. So what exactly is the benefit to the users that made this feature a massive hit?
Well, if you choose to lock up your AXS, you will earn more AXIS. The AXS rewards will be coming from the AXS tokens that are currently held in reserve, following the White Paper. Basically, the total supply of AXS is not all circulating yet, and they are releasing it in stages so as not to flood the market. Thus, the staking pool is a way to trickle the AXS into the economy and reward the “founding community members.”
As with all staking programs, the AXS Staking feature is meant to take tokens off the market, inducing scarcity and keeping the price moving in the right direction.
Let’s talk about the Numbers
As of press time, the estimated Annual Reward is 200%. The metric used by the team is APR or Annual Percentage Rate. This is re-calculated in real-time following the market’s move in terms of the funds added and removed from the pool. To illustrate, a 200% APR means that your money essentially grows by 1% every two days.
Based on the model, it is quite clear that this is a passive investment that you can back out of at any time. However, it is essential to note that the proportionate rewards go down as more people add more AXS to the pool. Conversely, if people remove their AXS from the pool, the rewards go up because the pool will reward less users. This might happen if users lose confidence in the game, or there are just better opportunities outside of the AXS Staking Pool. So if you are counting on Axie Infinity to continue its Play-to-Earn dominance, then the Staking Pool is an excellent option for you.
How about the risks?
$AXS has nearly doubled in value since Thursday, from $75 to $150 this Monday afternoon. Clearly, users are on a mad dash to acquire $AXS the stake it. In principle, as more people pour in their $AXS, the lower the shares of rewards will be. Let’s quantify this in order to evaluate the risk.
The good news is that the low level of the yield is not that low. In fact, even if users lock up half of the entire circulating supply of AXS (30M), the pool rewards will still be about 80% APR. This means that everyone in the pool would still nearly double their AXS in 12 months, even in the doomsday scenario.
If you want to understand better how this feature works, check out Sky Mavis’ official announcement.
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This article is educational material.
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