Odd Lots - Axie Infinity, the Crypto Game That’s Grown Over 200x This Year Alone

Episode Date: October 21, 2021

Bitcoin just hit an all-time high and crypto mania is in full swing. One of this year's big winners has to be Axie Infinity, a blockchain-based game, whose token AXS has surged over 200x just since the start of the year. Axie is a pioneer of what's come to be known as a "play to earn" model, whereby participants who play the game can actually make money. Its popularity, for example, has exploded in the Philippines, where numerous people are making a living from it. But how does it work? And is it sustainable? On this episode we speak to the game’s co-founder Aleksander Leonard Larsen about how it all works.See omnystudio.com/listener for privacy information.

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Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio. and wherever you get your podcasts. And welcome to another episode of the Odd Lots podcast. I'm Tracy Allaway.

And I'm Joe Wisenthal. Joe, I feel like we may have had this conversation before, but did you ever play Magic The Gathering growing up? No, I never did. And I kind of think it's weird because maybe I'm like the type of person who would have. You were right. You did, right? Yeah, I did.

But so I can see you sort of being interested in it from a like poker or slash math's perspective. Yeah, yeah. No, it should have been. I should have been. Yeah, I was more into it from a collecting perspective. I mean, I did play, but for me, like, I just liked collecting all the cards. But the reason I bring it up is because one of the interesting things about Magic the Gathering was there was this whole ecosystem built around this card collecting, card playing game. And the company that ran it was called Wizards of the Coast. And every once in a while, they would encounter major problems where,

you know, the price of cards would suddenly get out of whack or the game wasn't as much fun to play because they'd released a bunch of cards that had like special powers and things like that. And then they had to figure out ways to fix the entire system. And it was really interesting to sort of see them do it and manage to, I guess, they sort of managed to avoid the fate that has overtaken so many fads over the years. Like think about beanie babies, right? Those are the classic example. Oh, yeah. But like, magic the gathering has been going for years,

and they managed to, like, keep the system going. Totally. And people are still really into it. And somehow, you know, even in the year 2021, people are still playing it. And I think you make a really good point, which is that they've kept it successful, despite the fact that there is clearly a lot of speculation in cards.

Totally. Like, one could imagine a scenario in which people are just in the cards for, like, the monetary aspect, and then the gameplay sort of falls off because maybe they get too expensive or whatever. But somehow they seem to have struck a fine balance where, yes, people pay a lot for cards. And in fact, I think like recently there are like some record card scenes,

even like just in the last like several weeks or months. But the game itself is still played enthusiastically by a lot of people. Yeah, exactly. That's a really good way of putting it. So the reason I bring it up is not because we were going to be talking about Magic the Gathering specifically. Though we should at some point. Yeah, I was going to say,

I would love to do that episode, but because we're going to talk about a sort of brand new game that gives me a lot of flashbacks to magic. But it's very much a new game in the sense that it is, it sort of brings together everything in the world of crypto, like cryptocurrencies, NFTs, non-fundable tokens, a blockchain. It brings them all together into. Metaverse. Yeah, exactly. Into one ecosystem.

And it's just exploded. in popularity in recent years. Right. And, you know, I'll let you do the proper intro. But one thing, just going back to Magic real quickly before we move on is like, you know, one of the things with Magic is like, you own your cards, right? You own your deck. And with typical games online, you don't, you know, you think about some, I don't know,

a game that people play. I don't want to sound boomer. So I like, you know, it's like World of Warcraft. I don't know if anyone still plays it, whatever. like you don't really own your character in the traditional sense. Like you log into your character, but it's not yours. And so with this idea of like crypto gaming, and really it's crypto in general and NFTs in general, et cetera, is this bridging of the notion of ownership that this is a thing, whether

it's a character, whether it's a token or whatever, it's yours and you can move it from one environment to the next. Totally. And so kind of like magic, you own your card in this world of crypto gaming. there is this sense of ownership that hasn't existed in online or video gaming previously. Right. And of course, you can make money from that ownership as well. So if you earn, you know, cryptocurrency in this gaming system, you can take it to a crypto exchange and convert it into something else. So maybe we should just get on with it because we do have tons to talk about.

We're going to be talking about AXE Infinity. You might have heard of it already. We have Alexander Leonard. He's the CEO and co-founder. of Sky Mavis and Axi. And he's been kind enough to come on the show. So Alex, welcome to Alba. Thanks, Chrissy. I'm excited to be here. I love the intro, by the way.

As a magic, the gathering player for over 20 years myself, can definitely relate to what's happening here. Oh, great. Definitely love that ecosystem and how it evolved. Well, so maybe just as an intro, you can kind of describe Axi for anyone who isn't, familiar with it. I mean, we sort of touched on it, but it is kind of unique in the sense that it brings together all these different aspects of the crypto world. But it also brings together

some things we've seen before, but, you know, social networks and this idea of like creating an ecosystem that very much looks like a kind of contained economy. Yeah, sure. I mean, there is so much to unpack here. I think a lot of what you guys mentioned, I mean, the buzzwords are what drives attention to the product, but at a very high level, what we're making here is just a fun game using your AXI digital pet characters that then can be used in many, many different games.

Now, some of those games are the ones that we as a team create, so the one that's most popular right now, it's the battle game, where you have your team of three AXI game characters, and you play against other players who also have a team of AXE game characters. And then there are many other kind of sub-games or different things that you can use them for, such as breeding of axes, which is another game.

And then more games are coming, such as, you know, the land or kingdom-based game, which is more on the metaverse side. What we see is that, or the way that we've structured is that all these games are connected. So the main characters that you have, they travel across all of these different games, and that again gives them more value, a higher collectability and also more utility. And it's been, you know, almost four years since we started now. So it's interesting to see that the world has kind of caught up to our vision. And now, of course, we're probably a product cycle ahead of pretty much all of our competitors.

So very unique. And that's also why we have all of these players who are coming in, you know, right now over two million daily active players, even though they can't get the application on any app stores. Like they have to side load it. They have to, you go get their wallet, buy crypto stuff. It's a very high barrier to entry still, but what we see is that the benefit that we're enabling for these users in terms of true ownership and in terms of what they can actually use the game characters for is so unique that it has never really existed in the same way

before because we're combining all of the facets of new technology with some, you know, a nice game design from the past and then again making a quite a large ecosystem. So let's talk a little bit more about the economics. There's seem there's multiple assets, right? So the axes that one owns, the three characters that you buy for battles, etc. Those, I guess, are like NFTs. I think people like buy potion and that's its own token. Why don't you talk to us a little bit about this? And it's all gone up like crazy. Like I think this year, like if you were, if you were playing Axi last year, everything's up like 200 full or some incredible amount due to the rush of in game. But why do you talk to us a little bit more about the

sort of like the ownable assets that exist in. game and how they interact. Sure, Joe. I mean, so when we look at, when we look at AXI, the first step that, you know, people see is the Axi Q'd game character. Each of those characters are unique. So they are defined as NFTs and they can be used across different games and you need three to play the game, as I said.

And when you are playing the game, you can earn another token or win a token, which is called a smooth love potion or SLP. And that SLP token is then required. to play the other game, which is the breeding game. And it gives that value. So to say that whenever you want to create a new Axi, you need to have this SLP token. If you don't have it, then no new axes can't ever be created.

So each Axi that's in existence right now is actually the result of some other human being that has played the Axi game, generated the SOP token, and then use that to create a new Axi through breeding. So that's how that part of the economy works. And then we've also got the AXS token, which is kind of a governance token for the Axi Infinity Game universe.

And that's, you know, highly limited, about 270 million of those in existence. And it started out at a price of, you know, 10 cents last year. And now it's, it's over $125 per token. So, I mean, the appreciation has been quite heavy. And that's because it's kind of tied to some of the revenue streams that are going into the Axi Infinity game. Can you talk a little bit about the revenue streams? Because this is like both one of the strengths and I guess the criticisms of the entire thing.

So one of the reasons Axi is getting a lot of attention is because people are making quite a bit of money from playing the game. And this is how I first came across it. My Bloomberg colleague Christine Servando, she wrote a really great piece about how lots of people in the Philippines are basically quitting their jobs and just playing Axie full-time and making enough money to live on. But at the same time, there's been some criticism of the business model from people who say, well, this is just sort of unsustainable. There's this really high entry cost. You know, people have to pay, well, you can maybe update me on this, but I think

it's like a minimum of $600 to $800 in order to get the axes that you need in order to start playing. And so it feels like you're sort of making money from the stream of new players who are coming into this. So maybe you can just break down where the revenues are actually coming from for us. Yeah, sure. So when you look at how the SLP token, you know, is coming into existence, that's related to whenever people are playing the game. And that's, well, the farming of SOP, when you're when you're a player, you can farm, you know, small love potions or smooth love potions for between $12 to $15 per day. That's the current value.

And that has been fluctuating quite heavily over the past, and I would say three to four months. So at one point, maybe a player could earn even $30 to $40 per day. And that was, of course, very attractive for a lot of people. Now it's more normalized to what it was before, you know, a massive run-up in users. When we are thinking about the long-term sustainability of AXI, where we consider ourselves right now is that,

okay, we have two million daily active players. all of those players, they will need, they need three axes, right? So that's at least six million axes that are required for those two million players. And in existence, we have about eight million axes or a little bit less than that that have been bred so far. And if we then look at, you know, what is the total addressable market for something like Axi? Well, the way we've defined it is that we don't, we actually don't compete against traditional games in the same way. we might actually compete against work, against those players, those people in the world who are unemployed

or who are earning less than, let's say, $15 per day. So that might be, and I mean, the game is fun, it's enjoyable. We have a large community, but at the same time, we can tap into a brand new user base who has never even, you know, considered a game in the same way, like a job in the Metaverse. So that, you know, for us leads those to believe that maybe we can reach even one billion or two billion people. And that means that there's still a lot of axes that need to,

to be produced. For the foreseeable future, it's totally fine that SOP is being so that other players can breed for that and sell, which then again is the criticism that many people come with. But for us, that's totally fine because we need these axes in existence. Now, the question comes, what happens when we reach the total addressable market when we have, you know, let's say one billion or two billion players? Well, that's exactly when Axi Infinity has to kind of evolve a little bit from being this place where there's a gold rush of people who want to breed axes into more of a network, I would say social network, where people are actually hanging around in the game, they're having fun, they're going on

different adventures, they're playing many, many different games that we and also the community can create. So I think that is already a very proven model in terms of, you know, let's say Roblox, for example, how many players do they have and nobody is, you know, earning anything. So I think everything is about getting that early user base involved into your game so that they can fall in love with the game, falling in love with the art, and, you know, stay inside this ecosystem, and then eventually we can evolve from there. But I think actually the Roblox comparison is interesting because you said the operative thing, which is that people love playing Roblox despite the fact that there's, you know,

there's no money involved, or maybe some people are making money, but by and large, that is not the motivation. And throughout years, people have loved all kinds of games that don't involve money. people love chess or people like, you know, first person shooter games. Maybe there are some tournaments or whatever you can win money. But money is not essential to the enjoyability of those games. And so I think like still what maybe bothers people about AXE or what is like, is the game fun now? Do people have fun now playing the game?

Or is it this sort of like digital treasury where it's like, okay, yes, you can make money. But if there was no money by clicking over and over, or by earning this potion, or by breeding your axes, or by borrowing an axi to then breed it and then have your own, or by borrowing, you know, et cetera. If all of the monetary appeal just sort of went away is the game. I think that's a very common question that we see from people who maybe, you know, aren't as deep in the ecosystem as we are. And that's me. So that's what I admit I'm not deep. So there's why I'm so. Yeah.

Yeah. Yeah. So, I mean, the very simple counter argument to that is, well, what happens if you remove all the bells and whistles for, let's say, all mobile games? Like, there is no battle pass. There is no, you know, nothing extra, nothing gamified that, that, you know, attracts players to it. So I think, you know, you can't actually remove every aspect from Axi because that's not how it was designed. It was decided in a way that all of the game characters are NFTs, that they should be able to generate tokens. And that's a big part of, you know, the entire appeal of the game. So of course, it's the same thing as saying, you know, if you remove the ability to play, like, play the magic game, would it be fun to just collect magic cards? I think this is a different way of looking at it, but kind of answering the question more specifically,

if people are enjoying Axi Infinity right now, yes, a lot of people are. It's actually about when we see, look at the motivation for players, right? We have Twitter polls where we can see that, you know, less than 50% of the entire player base are only in it for the money. So where we see that maybe 30% is in it for the community, so that would be all the social aspect around it. That would be they find friends.

They learn about new technology. And then 20% they actually love the game at its current state, which to us is, of course, amazing. And what it tells us is that when people come into the game, they might be, you know, extrinsically motivated. So let's say, hey, I can make, you know, ROI and I can make maybe my ROI back in, let's say two months. Now, that's an incredibly powerful driver of growth. So when we then see that they come into the game, they fall in love with, you know, the ecosystem, they fall in love with

everything that's around it, and then eventually some of them are collectors. And now this is where the kind of intrinsic motivation part come in. Because when we see that players, for example, in Axi Infinity, are spending over $400,000 for an Axi, which has no way to gain like any money. They can only buy it, they can hold onto it, and then they can collect it, it's actually more tight, intrinsic motivation that they are, that they see what's happening in this community, that they want to belong to it, they want to show off their status because they're buying something that's exceedingly rare. And for us, that's also kind of the direction that we want to take Axie in that, you know, people find that this is more real oftentimes, these digital assets,

which are provably scarce, compared to when you look at something like in real life in terms of luxury objects like Louis Vuitton bags or, or let's say, Rolex watches, because nobody knows how many of them are in existence. And the same actually goes for, you know, traditional digital assets in normal games. Like, you have no idea how many of these are in existence or if the game company just, they can simply dilute you. So I think that's, you know, one of the major differences. And also, when we look at, you know, how much money is flowing into this ecosystem and how many people are, you know, interested in the game itself, you know, the economy aspect of it, right now over $2.45 billion worth of Axi NFT assets have been traded on our NFT marketplace.

So, you know, simply saying that, hey, you know, the game isn't fun, I think is very unfair. And then also it doesn't, it actually disrespects everything that we are trying to build. And also the players in our game who are spending, you know, 10 hours not only on the game like playing the game, but also playing the marketplace, playing the social game. So I think, you know, these are, it's a very complex part of it. And you guys touched on it also early on when you look at the ecosystem in Magic the Gathering, right? They had Friday night magic. They had all of these Magic Grand Prix tournaments.

Like people who are collecting, they're starting up their own, you know, magic the gathering shops. The same thing is happening in Axi. People are making their own, you know, scholarships or teams or even businesses, right? I've seen a contract, a work contract between players, right? I think that's very unique. This is Tom Keane inviting you to join us for the Bloomberg's surveillance podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information

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Bloomberg Surveillance, Essential Listening, each and every business day. So I do want to get into how you're sort of managing the whole economy of AXE. But just one more question on this point. I mean, one of the criticisms is the high cost of entry and this idea that maybe existing players are making money from the influx of new players. So what would happen to the game if you were to lower the entry costs? And I think I read somewhere that you were planning or thinking about doing like a free-to-play version of AXE. So I'm just curious, like, what would happen to the existing product if prices for entry got lowered?

And then also why the free-to-play idea if the financial incentives are part of the equation of AXI as it was originally conceived? Yeah, sure. So AXI Infinity was always actually designed to become free-to-play because that's how we, you know, see that we can act into the, get the AXY product into as many hands as possible, right? We know that people just want to, some of them just might want to play the game, it out before they actually take the prunge and, you know, buy their first game character. So what we can rather do is we can gate their ability to earn tokens if they, you know, if they, if they play the free type of game. And a big reason for, you know, why we don't have it is we actually had to solve a lot of different problems before, you know, we were ready to distribute

or even try to distribute the game on more, you know, traditional app stores. And that means that, let's say if we want to have as many millions of users or even billions of users that we're looking for the underlying, you know, infrastructure needs to be there. And the same also goes for, you know, how we are looking at the distribution channel. So when we are distributing AXI, let's say, if we want to distribute AXI on the iOS or the Apple Store or Google Play, like there is currently no way for people to just simply click and then buy and get there. And if he very easily, right, so we needed to make our own distribution channel for that. The goal is to distribute the new game on Google Play or the Apple Store,

and eventually kind of onboard them from there to become blockchain type of players where they can actually own their digital assets and, you know, by extension there, and also their identity. Before we go on a little bit further, Tracy, you both kind of mentioned it, but it has gotten incredible success in the Philippines

where there are a lot of people playing Axi and as you mentioned are these so-called scholarships because the price of the three NFTs that one is required to buy has gotten high. And so can you explain this sort of like this sub phenomenon that's going on, what are the so-called scholarships, and how is it enabling people who might otherwise not have much cash to upfront to get onto the game to get into the game?

Yeah, so the interesting thing about the scholarship is that it was actually made by our players first. Like that feature, I mean, we always had an idea that we wanted to make, you know, let players lend out their axes to other players, because we had such an early, you know, active player base who were breeding axes before they were very expensive. So some players might have several thousands of axes, and they wanted to use them, but not a lot of people they couldn't afford these axi characters. So that feature was actually coming internally as well. But then the way that our account setup is work is that it allows people to actually separate the thing of the assets by the playing of the game. So that means that if you own a team of axes on your account, you can actually let another player log into that, play the game,

and then the rewards will go to the main account, which then again can be split between the player and the owner of the character. Players actually saw that and they did it themselves. And then we just decided to let them run with it. So from the SkyMavis perspective, we don't promote any of that lending over yet because we haven't had that feature internally. but, you know, people are still spreading it, of course, and it's very interesting to see how that has developed. Wait, so this actually reminds me of one sort of technical thing that I wanted to ask you, but you have rules that no one can have more than one account at a time.

Can you explain why those rules are in place? Yeah, sure, choice. I think that's one of the most important things of an ecosystem such as Axin. So the way that when we look at Axi Infinity, we think of it as a network. And the way that a network grows is, of course, you know, new human beings. They come into the network and they tell their friends and they might add value to it. And that value could be, let's say, create content or, you know, they might stream. They might even play the game. All of these things, they add value to the game side of Axi Infinity.

And in return, we can actually give them some tokens. And that token, for example, is tied into the breeding aspect of the game. But when you look at, for example, a person who is playing several accounts at the same time, or the worst cases they might be using robots, like they're trying to bot the ecosystem, that again, it doesn't add any more value to the network. So then if they are then exploiting it by getting more tokens than they should, that's actually net loss for everyone else who's playing Axi. So that's why we have that rule into place.

So one of the most important things or one of the most difficult things about creating something like Axi is that, you know, proof of human being. How do we make sure that they're actually humans on the other side and they're not robots trying to exploit this system? And a part of that is, a part of why that's possible is, you know, actually the fact that it's quite expensive to get started. So the stake that these abusers have in the game is actually quite high. If they were abusing and we catch them, you know, we restrict their access to the game.

And so that costs about $600. That's also about a pretty heavy deterrent to not break the rules. So this gets into like sort of a really interesting philosophical question about blockchains because, you know, you think back to like the sort of like the core chains. There's nobody at Bitcoin, you know, there's nobody in Bitcoin who even knows who you are. You can have infinite number of wallets if you want and different private keys on different hardware wallets and so forth. The Ethereum chain is roughly the same. But then as these new applications develop and I actually do. want to get into how you use Ethereum because you've also sort of built your own side chain.

I think that's interesting. But as new applications develop, some of these sort of like core principle ideas that we might associate with blockchains, anonymity, pseudo anonymity, no rules, trustlessness, et cetera. Certain of those get sacrificed such that there is, in your case, humans making rules, humans who could kick other humans off, some of the sort of trustlessness, core basic ideas of blockchain does not necessarily apply

once it gets down to the game application level. Well, for us, this is a very natural, actually, how the game evolved. So if we look back into 2018, we came into the space having very, I would say we were naive, but also very hopeful in the way that, you know, the economy and like everything in the ecosystem,

in the blockchain ecosystem, would evolve. So when we created Axi, pretty much everything was on-chain. And by that, I mean, you needed to send a transaction whenever you wanted to battle. And then again, you know, that combined into an on-chain result, which anyone can prove, anyone can see. And, you know, we were following that decentralized ethos. Over time, what we realized is that, you know, building a product based on these very, like very heavy constraints, it's almost impossible, especially if you want to reach, you know, the masses if you want to teach them about this new technology. So that basically means that we had to take, you know, we had to sacrifice parts the centralization. And the beginning was actually the game

side. So right now, a lot of the game logic is off-chain. So that means that we already, as a game studio, can make many, many changes, right? We can also, you know, let's say if we want to buff, like certain skills, make them stronger, weaker, we can do that, of course. And we're very transparent about it. And I think, you know, that is one of the core, you know, core things that we think is important when you're building using this technology. So what are the most important things for the players or for the end user? In our experience, what the users want right now is they want to have the ability to freely trade the assets that they have.

They want to be able to monetize their time inside the game. And they want to be able to see how many of these things are in existence, right? And I don't mean, you know, the level of trustlessness that you might have in Bitcoin, for example, because the values there are very, very heavy. so you might need a very decentralized chain where nothing can be censored, all that stuff. But on our side, we actually disregard that and go in a little bit of a different direction.

And that's a big part of why we managed to get where we are today. Well, can we talk about the blockchain then? So Axi runs on Ethereum. And of course, one of the big criticisms of Ethereum is always that it doesn't work so well at a very, very large scale. So I'd be curious to get your impression of, like, working with Ethereum and, like, how you're sort of coping with that scaling problem as Axi continues to grow.

Because, again, like, Axi is probably one of the fastest growing Ethereum-related projects at the moment. So I imagine you have some experience with this. Yeah. So Axi has for many, many years, been very, very closely tied to Ethereum. I mean, we deployed our first initial versions on Ethereum. Our NFTs are where even, you know, deployed on Ethereum before the NFT standard was set. That was like March or, if I recall, April in 2018. So what we figured out is that if you are all of your main assets on Ethereum and you are dependent on, you know, sharing the block space with everyone else who is using the Ethereum blockchain,

that's a very, like, tall order if you want to scale to the level that we wanted. or if you want, let's say, million, several millions of users. So over time, over 2018, 2019, 2020, we were exploring different scaling options. And in the end, we decided to build our own side chain to Ethereum. Now, that is much more energy efficient. It is free for players to actually make transactions.

But it's going to be very, very cheap once we actually upgrade the chain a little bit. So it's an ongoing type of situation. We see that we need to be more effective. we need our own infrastructure. So I would say, to explain this in a very, you know, simple way is we believe that we are in the server era of blockchains. And when I say that, I mean, when we look at how the internet scales early on is that, well, you couldn't really trust the clouds or you couldn't trust to have your servers

or your homepage on another, you know, server. You needed to have that, you know, backbone in the basement so that you could actually make sure that your server or that your homepage was always up. The same thing is actually happening right now where we see that if we're going to, we were going to trust Ethereum or, you know, the very decentralized web, we would be competing for, you know, space with every other application. So we just decided to make our own, you know, server in the basement where, which is basically rolling in for now, where we can control some of the parameters and make sure that we're not sharing book space with too many of other, you know, successful application.

I want to get into this a little bit more because I think it's really important for people to think about the evolution of blockchain in general. So it's called the Ronan Ethereum side chain. It's not completely disconnected from Ethereum. And there are other sidechains as well. There's the finance chain, which is done very well. And that's also a side chain. I think there's one called Maddoch, which is also a side chain. Explain how a side chain still works and relies on to.

to some extent, the security and trustlessness of the core Ethereum chain while offering sort of scalable and cheap transaction. Sure. So when we look at both Binance, the smart chain and polygon or matthick, as we said, and also Roman, what we see is that these chains are built using the Ethereum virtual machine, which is the code base that is running Ethereum. So that's generally where you start out. And then you change certain things in the configuration of it.

And that might be, you know, for Ethereum, right, you're using proof of work when it comes to mining. So, you know, you're dependent on all of these other machines that are helping out to validate transactions. And then you're giving a reward, which is, you know, the mining reward. For something like Roland, right, we are using, right now we are in a proof of authority type of situation where, you know, people are not staking any of their tokens, but they're staking their reputation, basically the different type of validators. So that's one way of doing it. And eventually we're going to be moving over to a proof of stake or delegated proof of stake, where you need to have your own tokens that you are then staking, which is then your, we'll then, you know, get slash in case you are a malicious actor in the ecosystem. So let's say that you are. Just to be clear for a second, does your side chain interact with the main Ethereum chain at all anymore?

Or is it merely that it uses the same EVM language? Yeah. So there are, there's a, there is a connection there. Whenever you want to, let's say if you want to move your assets from Ronan to Ethereum, you can definitely do that. But there is no level of security that directly, like we are not dependent on Ethereum to that extent. But of course, like if Ethereum got compromised, you know, our chain would also be very affected by that. But if our chain got compromised, all the assets that are on Roland would then, you know, be affected on Ethereum as well. Because there's a bridge that is connecting the two.

So whenever you're depositing your assets to Roland, which I think is there's about, you know, 2.5, to $3 billion dollars worth of assets secured on Roland. Well, you know, that's the risk for everyone who is depositing their assets there. So actually, this reminds me of something else I wanted to ask you, but I think you recently announced that you're launching your own decentralized exchange, which is going to be built on Ronan. Can you walk us through like the thinking there? Like, why do your own one and then why launch it on your own side chain versus something else? Sure. So when we are looking at it.

at the products that we need, right? So we're always thinking about it from the player perspective. So what do the players in Axi Infinity actually want and how do they want it? So let's say when you're playing the game, you get your, we get your SOP tokens, right? The next natural step, it's okay, am I going to breed for a new Axi? Okay, well, if I can do that, then I can do that on Roland. But if you want to trade it into something else, right now you actually have to bridge that to Ethereum or move that to Binance or some other exchange, right? That is. is a very bad user experience. That's not really how it is in any other normal game. So if you are comparing it to, let's say, World of Warcraft, when you are finding, let's say, gold there or any other,

let's say, woods, you would be able to trade that immediately on the marketplace. So that's it. That's it, you know, it's just going to be an expanded marketplace, which now suddenly has access to these fungible tokens like, you know, SLP, AXS and in the future maybe wood inside axes, stone. I think you guys understand my drift here. It's just about the underlying infrastructure. is a decentralized exchange. So for normal people, like, the only thing they would see is the marketplace. Are you going to offer, like, some form of defy on the new exchange as well? So one of the interesting things about AXI now is that you can take the tokens that are in existence,

like AXS or SLP or whatever, and do lots of defy things to them, like staking or lending them out or whatever you want to do. Is that, like, also an activity that you would aim to capture for your use? users? That touches on some of the, you know, the future that we see for SkyMavis and Axi. So when we are looking at our users, right, what we see is that 50% of the user base, they have never used any sort of crypto before. And 25% of them have never even had a bank account before. So these players, they're very new to the financial system. And if they can start playing a game like Axi, where they actually end up owning their tokens and their, you know, assets and by extension,

and digital identity, that means that eventually they might be able to do something more with them, because they have their wallet automatically created when they set up a game account, and they will get money there too. And that means that they can maybe even spend that in the real world eventually, and of course be able to lend on it. It just depends on features do we want to add to Ronan, and that's going to take a little bit of time to figure out how effective will the chain be as we are scaling. So let's say we might take 10 million users, 100 million,

how many things can actually be on chain before, even we are struggling to scale. But I'm super excited about the potential to, you know, onboard millions of people who have never used financial tools at all into the connected world, I should say. Hello, I'm Michelle Hussein. And for more than 20 years, I was at the BBC. But all the time I was delivering the headlines, I wanted to go further than the news of the day. To spend more time with the people shaping our world.

And that's what I'm doing here on this podcast. Speaking to people from Nigel Farage, Russia needs to be taught a lesson, to tech journalist Karaswisher. And the tech industry is running wild. You know, they've gotten what they wanted and they've seen a huge run-up in their stock prices. This will be a place where every weekend

you can count on one essential conversation to help make sense of the world. So please join me, listen and subscribe. to the Michelle Hussein show from Bloomberg weekend, wherever you get your podcast. It certainly asks interesting questions. So I had another question, but I want to ask this first, because you have a problem that very few crypto applications

have had to deal with, which is mass popularity. So even if you don't look at like the top applications that are built on top of Ethereum, like Uniswap, who's the founder we talked to, or the lending protocol, AVE, or some of these others, they may have a lot of money locked in them, but they don't exactly have, like, mass popularity by any stretch on the scale that actually were, we're talking like millions of people.

I'm pretty sure there's not, like, there are not many sort of crypto apps that have, like, millions of people like you have. So you have this problem, and one of the ways you solved it was creating the Ronan side chain. Do you ultimately see, like, let's say, you know, just looking at the broad, expanse of things that happen on crypto and various NFT projects.

Do you ultimately see that as things get popular that it'll look like a, you know, maybe some lending protocol becomes really huge and like, why are we paying huge fees to ETH whales? Why are we accepting such variable gas fees every time there's like a new token launch of some like derivative of a puppy coin or something like that? And we'll then make the decision that why don't we have our own Ethereum side chain where we can have stable prices, cheap prices, high scalable throughput and not have to worry about some new NFT drop that's going to cause gas fees while we're trying to do like

our staking on uniswap. That has nothing to do with it. Like is this, do you see what you've done as a likely part of the roadmap for other popular apps, even if they don't see it yet? Yeah, I mean, definitely. I think the great thing about about building on the EVM is that, you know, we can tap into the interior ecosystem and then we can basically fork off if we see that there are things that we might find valuable. But at the same time, it also adds value to Ethereum because any innovation that happens on the Roland side chain will also benefit Ethereum. So I'm incredibly bullish on Ethereum as, you know, the center of, or the, how can I call it, the settlement layer for the new internet. And I think, you know,

as Ethereum scales, that's just going to be more and more apparent. So for me, I think it actually benefits everyone, but I'm not sure that all of the, all of the transactions should be on Ethereum right now as they are. Of course, I'm an FD NFT collector. I love, you know, trying to get some tokens, but, you know, when there's a thing going on, but, you know, there's a very heavy gas worse. So it's pretty hard to, even for me, even for me to justify it. Of course, as, as a, like a crypto person who's been in the space for years now, I think he's getting a little bit ridiculous. And of course, it can't really be like that. So, but I think, you know, it's just the start. But as I said, I am bullish on the only theory in capturing it all the value.

So this gets back to another question that I was wondering about. And I guess it has to do with the openness and the degree of like, okay, as you go down this sort of like, I guess maybe as you go up the sort of application layers, you sacrifice certain elements of sort of core blockchain trustlessness. Can someone else on the Ronan side chain build an Axi game? If Tracy and I came up with the game, could we develop one that people could use their X-E characters and play? That's the plan in the future, but for now, it's still a little bit early. So what we need is to make sure that it first works for our use case. That's, I mean, that's where we made it, right?

It would be too early for us to share the access with the world. First of all, like we don't have, let's say the APIs aren't, you know, solid enough to ensure that, you know, not enough people are hammering them. And so, you know, that might mean that there would be, you know, less stable, that the servers are less stable than they should be. So we are actually waiting a little bit on that until we open it up. But in the future, you know, not only Axi Infinity games, but also other games, other game studios, that's what we plan to work with. Because, you know, if you're a game studio wanting to make something like Axi infinity or another type of game and you see Axi, okay, they're successful, they have a nice economy. and they even have the scalable infrastructure

of the distribution channels. Why would they not work with us? So that's exactly why we kind of made this entire ecosystem. And so we needed to solve our problems first. And that means that we probably understand anyone else in the world. And we can also solve them for other game studios in the future as well.

So why don't we talk a little bit more about the sort of in-game economy? Because one of the interesting things in all of this, as we mentioned in the intro, was not only are you making all these technical decisions about, you know, how to manage the blockchain, whether or not to launch a decentralized platform, that sort of thing, or a decentralized exchange, but you're also managing that ecosystem. You're managing an actual economy. So you're sort of like acting like a central bank. So could you maybe give us an instance of, or an example

of the kind of problems that you will encounter in managing the Axi system? So I imagine there is, well, volatility in some of the axes, the actual NFTs. And then you mentioned, of course, the currencies or the tokens AXS and SLP, they've been going up quite a lot recently. What kind of challenges does that pose? And what's your vision for how this economy should ultimately be working and heading to? Sure, Trace. I mean, I think that's one of the real interesting things here that, you know, not only are we

doing a very heavy technological, you know, innovation, but there also. business model innovation here and economic innovation in terms of, you know, how do we see the world working in the future? So we see action infinity as a digital nation. And of course, we are functioning as the state in a sense that we are tax ecosystem, a smaller amount, rather than us, you know, from a marketplace fee perspective, right? Whenever a person is trading on our marketplace, we take a 4.25% fee. And that's, you know, enables a lot of economic activity between players because it becomes a little bit like, let's say the US, whenever people are doing commerce against each other,

you know, the state might take a small tax on that. But in traditional games, the state would, you know, take 100% of every economic activity that's happening. Like, that's their goal. So if we were a traditional game, we would take all of the money. But that's kind of one part of look at, you know, one of the more challenging things is actually balancing out the, or, you know, making sure that the SOP,

price is not too reflexive. When new people come into the game, they might have, you know, oh, super high expectations. SOP is going to stay at 40 cents forever. But in reality, three months before that, it was at, you know, two cents. So that is a problem from that, you know, level of expectation that these players have. So we are trying to, you know, make sure that the price is somewhat stable. And there are different ways that we can do that. So when we see Axi, as I mentioned, we function as the state and that when we are balancing out, let's say, how much SLP is required per breed of Axi, we might reduce that or we might increase that. And then there's another portion of the breeding fee, which is required to pay as a developer fee, which is also a part of how

we make money. So we might increase that or decrease that so that, you know, it balances out a little bit more. You know, I was thinking back, you know, Tracy started the discussion talking about magic the gathering. And I admit, I really should learn more about the game and its history. But my impression is the company Wizards of the Coast has taken its responsibility as the steward of the magic economy very seriously and they've never like flood the market with lots of different cards just because they might be expensive at any at any point and sort of like made these decisions and tried to get things out of whack can you can it all be done as you say eventually algorithmically such that no one needs to trust you or do you always think there's going to be like some entities

that feels a sense of responsibility towards the game, towards the ecosystem. Actually, let's begin with Magic the Gathering. So I still follow that scene lately. I mean, Wizards of the Coast are now trying to extract as much money as they can from the player base. So they are dumping up all of these different, you know, super rare cars. We got to do a Wizards of the Coast episode.

It's like after 20 years. Yeah, all right, we got to do it. Yeah, definitely ask them, like, how much money are they earning? because it must be insane. Okay. But in any case, the way that we see it is that,

you know, Axi Infinity is, should be governed by the AXS token holders. But Sky Mavis, which is, you know, the company that we have, needs to be very deeply involved

with setting their direction and especially as we move towards decentralization. Because, you know, if a game or any kind of protocol is supposed to be governed by, you know, the token holders, that's kind of a role to decentralization.

But we need to be progressive in that sense. We need to walk before we can run. So by saying that, I need to, we actually need to make sure that it's stable first. So that would be one of the foundational things that we need to ship. How long will that take? I guess we'll see. We don't know because it has never been created before. So it might take five years.

It might take 10 years. I think, you know, we have to be honest about these things that, you know, sure, we're making something brand new here. There are some problems. But there are massive opportunities here as well. And I think the whole world will be watching exactly what's happening in Axi Infinity because maybe not only can we, you know, improve the, game side of it, but maybe also improve, you know, how the world works. But I'm incredibly excited

about the future here. Not to belabor the Wizards of the Coast analogy, but I mean, one of the things that they did do in order to sort of rebalance out the magic, the gathering experience or ecosystem was they set up, was it called the Pro League, right? When like, when there were so many powerful cards that were out and the game like wasn't becoming that much fun to play because if someone, you know, had a Black Lotus or whatever, they could just like whip out a bunch of those and win the game really easily, so no one wanted to play anymore. They created a pro league that had different rules, and the whole idea was to actually make the game fun and interesting again. And my understanding is that AXE does have some people who sort of live stream gaming on Twitch or Discord or whatever,

but like, is that something that you could see like you guys really pushing for, like this idea of sort of like a professional league or maybe like more creative solutions to solving imbalances that may emerge in the AXE economy? Yeah, I mean, so my background is, you know, as a game person, I loved, I was even trying to get into the pro tour at one point, Magic the Gathering, but I have played competitive, you know, both Warcraft 3, Dota and Dota 2. So I mean, I'm always pushing for that side of, you know, Axi Infinity. And I think C-Axie Infinity working is that, you know, the people, who have the best axes, they can't always win all of the time.

There has to be skill involved as well. And that's, you know, the metagame aspect of it. That's also why we are, you know, doubling down on e-sports in various areas of the world. So we might, and we even have, you know, a seasonable, a season inside the game itself. So if you're ranking among the top thousand players, you actually get a higher reward. So we want to reward good players. And I think that's a part of what gives certain aspects of axes value. Alex, it was great to have you on and hear about like how Axi is working currently and all the things that you have planned for it.

I mean, I think this is definitely one of the more or most ambitious projects that I've heard in the crypto space. So really interesting to hear from you. Thank you so much. Yeah, thanks, Tracy. Thanks, Joe. I mean, I'm happy to be here, I think. Incredibly exciting to inside the days ahead. Yeah, that was great. Thank you so much.

So Joe, I thought that conversation was like very, very fascinating, mostly for the point that you kind of made about how this is one of the few blockchain projects that is actually like scaling at an enormous rate and actually having a lot of people who are playing it. Yeah, there's a lot of crypto stuff that has a ton of money in it. Like there's a ton of like money. But there are not a lot of crypto things that have a ton of people and or. apps. And I think like if you actually looked at like the daily number of people like, say, using Uniswap, a wildly successful DFI platform, I don't think there's like still like that many. It's certainly not dealing with like millions of people by any stretch. So it also gets back to a point that I think we've discussed in some of our defy episodes, which is about the,

the educational process in all of this. So like I, you know, it's tricky enough for me to open a Metamask account from like Hong Kong using a Hong Kong credit card. But then like trying to figure out how to state coins or do actual defy things. Like it just seems incredibly complex to me. But if you start having these games where everything is sort of built in and that's why I think the decentralized exchange is quite interesting. And you start sort of teaching, I mean literally millions of people about crypto and blockchain and NFTs and defy.

Like, that is very interesting to me. It actually, like, kind of blows my mind, the hoops that people have to jump through, and then they do jump through them. Like, you know, I, like, to me, you know, like, like we both said, like, you know, you set up a Metamask account, et cetera. It seems pretty complicated. Buying coins is complicated. Staking coins. And then it's like, you know, and that's just like on like the big blockchain. So that's just like Ethereum.

And then you're like, oh, now I'm going to, like, bridge my tokens over to. Maddo or the Binance chain or something like that. But like people are doing it and figuring it out. And then it's like, okay, Sky Mavis or Axi, I have to buy three axes and I need some SLP because that's what's necessary in order to. Yeah, it's like, yeah, yeah.

I saw a thing once. It's like a nine step process. And yet to have that nine step process and to have that success, you know, it's still like gets to this fundamental question though that's like almost impossible to answer. It's like, is it really fun? Or is it like, yeah, I'm going to do nine steps because I can make more money in a day than I can working minimum wage in the Philippines, which is where they're very popular.

So that's still like kind of this unanswered thing. But then on the flip side, it's like, this has been the criticism of crypto from day one. It's like, well, aren't you just in this for the speculation? And it's like seems like the answer to a lot of these things is yes, but crypto keeps growing. I don't know. It's very like, it's chicken and eggy. So here's what I think is changing. Like this idea that crypto is a viable alternative to normal jobs or traditional jobs or the idea that like crypto is a viable way of making money.

And you weren't here for this episode, but Joseph Wang about a week or two ago was talking about this idea that like maybe one of the factors in persistent like shortages of labor supply in the U.S. might be because people are sat there saying loads of people making money off of Bitcoin or whatever or game stock or whatever. And so that kind of becomes a viable alternative. I think that is what's changing. Like if you would have told people 10 or 20 years ago, you don't have to work your day job. You can just sit and play like this Axi infinity game and make a living wage. I think like no one would have believed you. Yeah. Yeah. But that's true. But to push back and to your point that you brought up, it's like how much of these jobs are only viable because they're premised on the existence of new people coming into the space. So it's like you could make a living

selling paint. It's not premised on the existence of more people entering the paint industry. It's premised on the existence of people wanting to paint their own, right? Like at some point. Yeah, I think that's a very valid criticism. At some point, crypto may be the kind of thing where it's like, okay, it's providing financial services that people then use in the real economy. into some meaning, and that could be in a metaverse. So when I say a real economy, I don't necessarily mean a physical economy. But I do wonder, like, how much of crypto profits are still simply premised on the idea

of more people getting into crypto? Totally. And again, like, I think AXE is sort of like a great example of all these big themes and questions all in, like, one concentrated game. So it's going to be really interesting to see what happens as they continue to grow. you know, they were talking about getting to billions of people. And as even Alex said, like, at some point, okay, he's like, when we hit our two billion, Tam, or when we really got to make sure the game is, like,

super fun to play. Yeah, exactly. Okay. Well, should we leave it there? Yeah, there's so much more to talk about that there, as you say, there's like no stopping point with any of this. But, yeah, let's leave it there. All right.

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. And you should follow our guest on Twitter, Alexander Leonard Larsen. He's the co-founder and C.O. of Sky Mavis, the company behind Axie Infinity. His handle is at Psychout 86. Follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening. I'm Matt Miller. And I'm Hannah Elliott, inviting you to join us for the Bloomberg Hot Pursuit podcast. Every week we bring you news and industry insight on everything cars. And we do a whole lot more than just talk about cars, Matt.

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