Why Axie Infinity’s SLP is Tanking

Last year, Axie Infinity made headlines as the biggest NFT game in the market. The Pokémon-themed play-to-earn game continues to be one of the top games in terms of trading volume. Yet, Axie Infinity is facing a major problem—its in-game currency, Smooth Love Potions (SLP) is tanking. Its trading volume, while higher than most games, has also plummeted. 

In a detailed report, Reason explained why Axie Infinity’s SLP is crashing.

Axie’s tokenomics explained

First, let’s understand how Axie Infinity’s play-to-earn ecosystem works. Basically, players purchase little NFT monsters called Axies to play the game. There are two other tokens: SLP and Axie Infinity Shards (AXS). While AXS works as a governance token, players earn SLPs as rewards. It is SLP that brings forth the earning element in the game as players can trade SLP for cash. 

Now, SLP does not have a capped supply. The only way SLP is removed from circulation is when the players breed their Axies. To breed Axies, however, players have to pay around $30 to $80 in AXS, along with some SLP. Furthermore, the rewards earned depend on the player’s ranking and Axie’s power. Meaning, the more powerful (and expensive) your Axie and the higher your ranking, the more SLP you’ll earn. 

“So, if SLP is worthless, then so are the NFT assets which are valued because of their SLP-earning ability,” the report said.

So, why’s Axie Infinity’s SLP crashing?

The value of Axie Infinity’s SLP fell from $0.40 last summer to around $0.01 last month. As a result, the volume of transactions of the game’s assets is falling. So has the floor prices of Axie characters, implying that users are dumping their tokens. Similarly, AXS too has been crashing since December.

Actually, the majority of Axie Infinity players are in the Philippines and Venezuela, both of which are developing economies. So, how do players acquire Axies worth hundreds of dollars to play the game? This is where scholarship programs come into the picture. Basically, players with many Axies, known as Managers, lend their Axies to others (called Scholars) for a portion of their SLP earnings. The important point to note here is that the Scholars are playing the game solely for earning money, and not because they love the game. In other words, they quickly trade whatever SLP they earn in exchanges and do not spend any on breeding Axies.

Scholarships are a lucrative arrangement when SLPs have a high value. However, SLP does not have a finite supply. In addition, way more SLP is being produced than spent on breeding. The end result is “a monthly surplus of 6 billion SLP”, which can cause “massive inflation”. As more and more players in developing countries started playing the game, more SLP was being produced, ultimately resulting in the currency’s value going down. Further, as the value of SLP rewards in daily tasks went down, many players stopped playing the game. 

The game developers are now planning to make major changes to their game to address the current issues. Axie Infinity’s plight is a wake-up call to all play to earn NFT games. Without a major revamp, the games’ survival has come under question.