The Tokenomics of Axie Infinity (AXS)

Axie Infinity (AXS) has exploded onto the crypto scene in recent years, becoming one of the standout blockchain-based games. With its addictive gameplay, NFT characters, and built-in cryptocurrency rewards, Axie has attracted a passionate user base of millions of players. 

This guide will explore the AXS token's complex tokenomics, delving into its supply, utility, trading volume, price history, and future outlook. 

Introduction to Axie Infinity

For those new to crypto gaming, Axie Infinity is a Pokémon-inspired universe where players can collect, breed, raise, battle, and trade token-based creatures known as Axies. 

Sky Mavis created the game, and it was first released in 2018. However, it only gained mainstream popularity in 2021, as interest in crypto gaming and NFTs skyrocketed. 

The game's mechanics require players to have a minimum of three Axies to create a team and start battling other players to earn rewards. These rewards come in Smooth Love Potion (SLP) and Axie Infinity Shards (AXS). 

SLP is an ERC-20 token that can be exchanged for fiat or to breed new Axies. Within a year, Axie Infinity became one of the most valuable NFT collections, with over 2.5 million daily active players at its peak.

AXS Token Supply

Unlike many other cryptocurrencies, AXS has a fixed maximum supply of 270 million tokens. This creates scarcity and provides a deflationary mechanism for the token.

Out of the 270 million AXS, the token distribution is as follows:

• Public Sale: 11%
• Private Sale: 4%
• Staking Rewards: 29%
• Play to Earn: 20%
• Advisors: 7%
• Sky Mavis: 21%
• Ecosystem Fund: 8%

As of January 2024, the circulating supply of AXS is around 136 million. With more than 60% of the total supply still locked, there is plenty of room for growth as more tokens enter circulation.

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Utility of AXS Tokens

The primary use case for AXS is governance over the Axie universe. AXS holders can stake their tokens to participate in governing decisions, with more voting power granted based on the amount staked.

AXS staking also provides holders with rewards from protocol fees generated by Axie Infinity. These staking rewards create an incentive to hold AXS for the long term.

In addition, AXS is required to breed new Axies. Users must burn a certain amount of AXS (which is removed from circulation) based on the rarity of their Axie to breed a new offspring. This breeding mechanism creates a continuous demand for AXS tokens.

Finally, AXS can be used as settlement currency within the Axie Infinity ecosystem. Players and liquidity providers can accept AXS for in-game assets and services. 

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6 Factors Influencing AXS Price

As with any cryptocurrency, the price of AXS is influenced by supply and demand dynamics. Here are some of the factors that affect AXS valuation:

1. User Growth

Axie Infinity gained immense popularity through the COVID-19 pandemic, attracting users from developing nations through its play-to-earn model. 

With more users comes more demand for AXS tokens, which increases their price. If user growth stagnates or declines, the opposite effect can occur.

2. Protocol Revenue

Axie Infinity generates revenue from exchange fees, marketplace fees, and other in-game transactions. 

Higher protocol revenue means more funds are distributed as staking rewards, incentivizing users to hold AXS. This positively impacts price.

3. Governance Developments

Major platform changes, such as the introduction of land gameplay or guild features, require AXS community votes.

Positive governance developments signal faith in the protocol, boosting user confidence and token demand.

4. Cryptocurrency Market Conditions

Like most altcoins, the AXS price depends heavily on broader crypto market conditions.

Increased trading activity lifts the AXS price when the crypto market is bullish. Bear markets usually cause declines across most crypto assets, including AXS.

5. Market Competitors

The success of competitors like The Sandbox and Decentraland could potentially lure users away from Axie Infinity, reducing its revenue and token demand. 

6. Speculation

Speculative trading activity and social media hype can also result in price volatility. AXS sees significant price swings around major announcements, exchange listings, and other speculative events.

AXS Token Price History and Future Outlook

AXS launched at an initial price of around $0.1 during its token sale in November 2020. It remained under the radar until the Axie Infinity game started gaining traction in early 2021.

The token price surged from $1 in April 2021 to an all-time high of $164.90 in November 2021 - delivering over 15,000% returns within eight months. This parabolic rise was fueled by explosive Axie user growth amid the COVID-19 pandemic.

However, the price retraced significantly in 2022, along with the broader crypto market sell-off. As of June 2022, AXS was trading at $10, almost 90% lower than its all-time high. By January 29, 2024, the AXS price reached around $7.3.

Going into 2024 and beyond, AXS has the potential to reclaim its all-time high if Axie Infinity continues innovating and expanding its ecosystem. 

Key developments like Axie Lands gameplay, breeding fee enhancements, and modular architecture upgrades could catalyze the next major price uptrend.

However, downside risks persist due to intense competition and reliance on high user growth. The token price could decline if Axie fails to retain its user base or keeps launching engaging content. 

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In summary

Axie Infinity's AXS token has experienced dramatic price swings since launching in 2020, surging to an all-time high of $164 in 2021 before plunging 90% in 2022. This extreme volatility highlights the high-risk, speculative nature of AXS trading. 

While the asset shows long-term upside potential due to its deflationary tokenomics and staking reward incentives, investors should be cautious before allocating funds to AXS. 

The token relies heavily on user growth and engagement within the Axie game universe. Demand could evaporate quickly if competitors steal market share or Axie fails to launch new content. 

Traders are strongly advised to thoroughly research AXS fundamentals, including user metrics, governance developments, protocol revenue, cryptocurrency market conditions, and other factors outlined in this report. 

Highly advised that you conduct extensive due diligence before trading AXS and other cryptos. 

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“When considering “CFDs” for trading and price predictions, remember that trading CFDs involves a significant risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be considered investment advice.”