Building an Axie Portfolio (Investigating the Axie Phenomenon, Part 3)

CRYPTODAY 019

1. Now that we’ve talked about the potential economic impact of Axie Infinity and debunked the concerns about it being a ponzi scheme, I’m going to describe the steps I took to build my personal Axie portfolio over the last few months. My interest in Axie Infinity has always been more as an investor than as a player, and I suspect that many of my readers are probably the same. I’m going to get this out of the way before anyone complains: I’m not a professional financial advisor, and I am presenting these ideas to all of you for informational purposes. Invest at your own risk!

2. There are a few basic ways that you can participate in the Axie ecosystem right now, but the simplest and most passive way to do it is to just buy $AXS, Axie Infinity’s governance token. If you’ve got a Binance account and a credit card, you can do this in a couple of minutes. If you’re one of the lucky early-access users with a BloomX account, you can fund your balance with GCash and exchange your pesos directly for AXS. I’m not a massive altcoin speculator so although I was lucky enough to buy $AXS a few months ago when it was $4, I don’t have a lot. The current price is over $20 though, so my tiny position is doing ok.

3. Why AXS, and not SLP? You can think about the difference between the two tokens this way: buying AXS is like buying shares in Jollibee, while buying SLP is like buying buckets of chickenjoy. Ok, ok, I know it’s not a great analogy. Just pretend the chickenjoy never expires. But basically: SLP is created for the consumption of the customers, while AXS represents the overall performance of the company itself. SLP’s supply fluctuates due to constant issuance and consumption, and its price is theoretically dragged down by massive selling pressure every two weeks, as players convert their profits to fiat. $SLP hit 20 pesos yesterday, but the liquidations have brought the price back down to 17 as of this morning. TLDR; Buying $AXS is the easiest way to take a position in the play-to-earn phenomenon without actually doing any work.

4. For the more active investors, you could buy an axie team and find someone to pilot that team. Or you could pilot it yourself, if you have the time to learn the game. We refer to the pilot as a “scholar,” because he/she is playing for free and being sponsored by the investor. The scholar and the investor share in the revenue generated by playing the game, and as the local ecosystem has matured, that revenue share has trended towards being 70% to the scholar and 30% to the investor. I have my doubts about the sustainability of this ratio — all the volatility risk is on the side of the investor, and as far as I can tell there are way more scholars out there than there is capital available to support them all. That being said, I’m supportive of the idea of bringing income to the disenfranchised population, so I’ve followed this ratio and will continue to do so until the market determines otherwise.

5. How much does an axie team cost? Here’s the part where it gets really messy. Axies are priced in $ETH, and their costs are a function of two things: the costs of breeding and the current exchange rate of Ether. Both of these factors are in a constant state of flux, but at least this week, the price range was equivalent to 70,000 pesos for a playable set of axies. And to give everyone an idea of how big the fluctuations are: the most recent team I acquired was only 42,000 pesos, and that was in late June/early July. So yes, we’ve seen a nearly 100% price jump in the time since I acquired my most recent set of teams about two weeks ago. On paper, I’ve already doubled the value of my portfolio, but these are unrealized gains that will only matter if I were to liquidate the team within this same timeframe.

6. Lastly, for the investors who have capital but don’t want to actually manage players themselves, the best path is to connect with a manager who can do that work for them. This includes screening the players, setting them up with their respective axie teams, harvesting the earned tokens at regular intervals, and disbursing them appropriately. This is all easy if you only have a handful of players, but it becomes increasingly tedious when you’re handling a couple hundred. With a manager in the picture, the earnings ratio becomes: 60% to the player, 10% to the manager, and 30% to the investor. Again, I believe that market dynamics will force a very different ratio as conditions change, but this is what it looks like today.

7. So what do the profits actually look like in practice? This is the part where most writers would be vague, but where I will instead be painfully specific. The six teams that I acquired in late June 2021 cost about 250,000 pesos in total, and they’re currently piloted by six scholars via a manager that I trust. The players started on July 1st, and this snapshot of SLP earnings that I’m sharing below was taken after TEN days of play.

   

   With a total earnings of 7,775 SLP and a current price of 16 pesos per SLP, our pool of scholars have grossed a little over 120,000 pesos equivalent. You can do the extrapolation in your head, but it’s looking like we’re on track to hit somewhere between 200,000 and 300,000 pesos in gross income in our first month. The reason why the precise amount is still to-be-determined is because the price of SLP only matters at the moment of liquidation. Although it’s currently 16 pesos, I’m not assuming that it stays that way for the rest of the month. We’re doing our first disbursement tomorrow though, so it seems likely that we’ll capture around 150,000 pesos or so after 15 days of play. Whatever that amount ends up being, only 30% will end up with the investor.

8. As a thought experiment, let’s say that instead of spending 250,000 pesos on axie teams, I bought $AXS instead. I could’ve easily done that in late June and it would’ve taken less than 2 minutes via BloomX. Here’s what the daily chart looks like for AXS/USDT over the last 6 months; I’ve highlighted the price during the last few days of June (it was less than $4, roughly 180 pesos).

   

   So if I had bought 250,000 PHP worth of AXS instead of buying axie teams, my investment would be worth 1,200,000 pesos about a week later, representing a 5x return. Do I regret not just buying AXS? Well, I don’t regret it, but I think we can objectively say that it would have been the more correct move. Not only would it have been the single fastest swing trade I’d ever pulled off, but with the gains on that I could’ve still funded six players without having spent any personal capital.

9. Hindsight is 20/20 of course, and that AXS investment could’ve stayed flat … although to be perfectly frank, the signals were all there on the Axie Twitter account, and I just didn’t act on them. (I had interpreted the increased activity as a signal to buy teams instead.) That was not necessarily a bad call: the investment in teams will continue to generate regular revenue for as long as the game exists. And of course there’s also the social impact of having provided metaversal employment to six young pinoys, all of whom will be making at least 60,000 pesos this month. When you combine that impact with the fact that I’m up 100% with the axie teams’ market value AND I’ve secured a personal revenue stream that will pessimistically amount to 50,000 pesos monthly, it’s still a pretty good outcome overall. Based on how the market is looking, I’d estimate that my annual return on the original 250,000 peso investment is likely going to be somewhere between 600k and 1M pesos.

10. Now before you start calling your bank about getting a personal loan, let me emphasize one thing: the Axie Infinity market is looking EXTREMELY bubbly right now, and it’s a very tricky time to try to get in because of how overbought and overpriced everything is. In my final essay on Axie Infinity this Friday, I’m going to go back to a macro view of the Philippine market: how it’s currently reacting to the Axie hype and what I think will happen in the next 2-3 months. My familiarity with the blockchain gaming industry is not as deep as other local founders, but I understand crypto markets pretty well, specifically how hype and FUD both play into pricing. So strap yourselves in for some hardcore prognosticating, pontificating, and crystal-ball-reading.

    See you all on Friday, cryptofam!