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Axie Infinity, play-to-earn, and the future of work in Africa

Oct 26, 2021 | Unpacking the Box

By Timothy Asiimwe

In this Spotlight article, you’ll learn about a new phenomenon that ‘could’ become a big part of the jobtech space in Africa: play-to-earn. Is it the future of work in Africa, or just a big ponzi scheme? We probably don’t know yet, but here are some thoughts.

Kids often get asked, “What do you want to be when you grow up?”. Though some respond with lots of conviction, their answers tend to have little predictive value. In fact, according to a study done by the World Economic Forum, 65% of students entering primary school today will end up working jobs that do not exist yet.

Technological advancements have not only broadened the spectrum of possible jobs but are challenging the very idea of a nine-to-five. As legendary investor Bill Gurley says, “Driving with Uber reverses the way we have been trained to think about labor. Instead of making labor conform to management’s notion of a ‘job’, Uber hands control to the worker”.

Beyond offering workers greater flexibility and control of their schedules, the internet is increasingly blurring the line between work and play. Twitch is the quintessential example of this phenomenon: gamers can earn up to 7 figures by simply broadcasting themselves playing video games.

The more recent and perhaps more fascinating instance of this phenomenon is the hit play-to-earn game, Axie Infinity.

Axie Infinity is a blockchain-based game, in which players purchase cute monsters, called Axies, and then battle them against each other. Players who win these battles or complete daily quests earn an in-game currency, called Smooth Love Portion (SLP), which can be exchanged for fiat money (actual cash).

According to Coindesk, as of July 2021, the average Axie Infinity player could earn about 4,500 SLP per month, which was equivalent to roughly $800 USD at the time. The game has seen a massive explosion in growth from 30,000 daily active users in April 2021 to more than 1 million in August, with most players coming from emerging markets such as the Philippines, Venezuela and Brazil. In fact, scores of Filipinos quit their jobs to play Axie Infinity for hours each day because it paid a better living, with some earning 3x what they made at their ‘real’ jobs.

You must be wondering, “Where does the money come from? Who pays the players?”. To understand this, you need to first understand the economics of the game.

New players have to purchase three Axies from a seller in order to play the game; sellers are people who either previously bought Axies or who bred new Axies. “What? People can breed new Axies?” you may ask. Yes, the game allows anyone with two Axies to breed new ones. However, in order to do that, they have to pay some SLP, the currency players earn whenever they win battles against other players, or complete quests within the game.

As more players join the game, sellers are forced to breed new Axies to fill the demand. As of last month, it now costs between 600 SLP and 10,200 SLP to breed a new Axie. Since the only way to get SLP is to either earn it during gameplay or to buy it from someone who earned it while playing, the breeders have no choice but to purchase some SLP from other players. This is what ultimately drives demand for SLP and makes it exchangeable for fiat money (actual cash). The net result of this system of rewards and incentives is something that resembles work but is still a game.

Axie Infinity represents a new blockchain-enabled business model where game creators share their revenues with players. Every dollar that players earn is one that could have gone straight to the pockets of the game developers. Rather than charging for access, displaying ads or selling in-app purchases and keeping all the profits to themselves, the Axie developers decided to share the profits with players with the hope that it will drive adoption. Though some may argue that the game economics are not sustainable, the strategy so far seems to be working: 60% of players found out about Axie from a friend or a family member and the game is on track to generate over $1 billion in revenue in 2021.

In his 2016 white paper titled “Players for Hire: Gaming and the Future of Low-Skill Work”, Edward Castronova made two remarkably prescient predictions:

  1. Within five years, some game companies will be paying players in some way to play their games. This will be in the form of small points-based incentives that can be liquidated in the form of purchasing power.
  2. Within ten years, paying for players will become a standard revenue model in the game industry. Payments will either be in the form of liquid virtual money or real cash.

Play-to-earn gaming represents a new kind of internet-enabled job that is worth examining closer given the massive youth unemployment and underemployment in Africa.

By the end of the century, almost half the young people in the world will be in sub-saharan Africa. Today, young people make up 60% of all the unemployed people in sub-saharan Africa. What’s more, 82% of those that are working are still in vulnerable employment situations.

It goes without saying that the ability to earn money by playing video games is an attractive proposition for many on the continent. For the youth, this is one of the few areas where they have a comparative advantage over older people thanks to their digital literacy and relative abundance of time.

What makes play-to-earn games particularly interesting is that unlike other jobs, wages are not dependent on one’s location. Axie Infinity players all earn the same amount of SLP per win, no matter where in the world they live. While $400 may not mean much to a player in the U.S, it is 2x the minimum wage in the Philippines. It is therefore no surprise that the game has gained most of its traction from emerging markets.

Furthermore, play-to-earn gaming allows people to convert their underused time to income in a relatively frictionless way. Time spent waiting for a bus or waiting in line at the bank can now be spent earning a little money. Instead of scrolling through TikTok or WhatsApp, people now have the opportunity to put their unoccupied time to more productive use.

The play-to-earn space is still nascent and rapidly evolving. Despite reaching a million users, Axie Infinity is still in alpha state and constantly being tweaked. Some critics have rightly pointed out that the current economics of the game resemble those of a pyramid scheme that relies on a constant stream of new participants to keep the payouts going. Sky Mavis, the developers of Axie Infinity, acknowledged this in their white paper and outlined their plans to transition the Axie economy to more sustainable sources of external capital. 

To be fair, we are still at the outset of this new technological paradigm and the playbook for long-term success has not yet been written. We are also likely to see many more play-to-games released in the coming months, as more publishers attempt to emulate Axie Infinity’s success, each with their own adaptations.  Emmett Shear, the co-founder and CEO of Twitch put it aptly on his recent appearance on Justin Kan’s Youtube channel: “I don’t think what Axie Infinity is doing right now is sustainable but they have a solid base to pivot into something that is meaningful”.

It remains to be seen to what extent Edward Castanova’s predictions will be correct. However, the success of Axie Infinity has made it clear that blockchain-based platforms have immense potential to unlock new earning opportunities that did not exist before.

The author is the co-founder and CTO of Ugandan jobtech start-up Sellio.


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