What is Axie Infinity?
Over 450,000 people a day play Axie Infinity, a virtual game where players raise and collect digital pets— or Axies— battle their Axies, buy land, exchange goods in a marketplace, and explore digital nations. Axie is designed to distribute the profits and assets earned in the game to its players and allow them to exchange those assets for other stores of value, a more equitable approach than other online games where any assets earned are trapped within the game world. Combined with the functionality of “play-to-earn”—e.g. players can earn useful tokens such as SLP (Smooth Love Potion) or AXS (Axie Infinity Shards) by winning battles— players can create real value by playing Axie and exchange their rewards into assets that can be used outside of the Axie world.
Axies are non-fungible tokens (NFTs) themselves and can be sold or exchanged with other players, as well as “bred” up to seven times if the player pays enough SLP and AXS. Currently, the Axie Marketplace deals in ETH, not Axie’s own tokens, but the project’s intention is to evolve to deal in their own currencies as well. When users spend AXS to breed Axies, those tokens are sent to the Axie Treasury, but when SLP is spent on breeding Axies, that SLP is burnt (i.e. removed from the ecosystem.)
Axie Infinity was created by Sky Mavis, a game development company whose team is primarily based in Vietnam. Sky Mavis not only leads the development of Axie, but also complementary infrastructure such as the Ronin network, an Ethereum sidechain built by Sky Mavis specifically for Axie Infinity. In October 2021, the Sky Mavis team raised $152 million in a Series B venture round led by Andreessen Horowitz to fund further development of Axie Infinity.
What is AXS?
Axie Infinity’s virtual economics involve two ERC-20 tokens, Smooth Love Potion (SLP) and Axie Infinity Shards (AXS). AXS has, and will continue to add, more functionality and uses than SLP, which is simply used to pay for breeding Axies and burned after spent. AXS will eventually be a means by which Axie community members and players can participate in Axie governance and earn staking rewards (roadmap here.)
AXS tokens were created in November 2020 to help deliver on the team’s mission to more equitably distribute the potential financial opportunity of Axie Infinity to its community of players. The value of AXS is closely tied to the popularity of Axie Infinity but AXS can also be traded on public exchanges independent of the game. There is a max supply of 270 million AXS tokens, with a multi-year distribution schedule involving staking rewards, play-to-earn rewards, and spending from the ecosystem fund, with more governance of the treasury being slowly delegated to AXS holders.
How does AXS compare to Bitcoin?
First, Bitcoin is a “coin” and AXS is a “token.” Bitcoin powers the Bitcoin blockchain and it is mined by a decentralized network of computers that solve complicated puzzles to verify transactions. By contrast, AXS is a token that runs on the Ethereum blockchain. On Ethereum, ETH is the only coin that can be mined. And miners mine ETH to process AXS transactions. It is what is known as an ERC-20 token, the name applied to the generic token standard for the Ethereum blockchain.
Second, Bitcoin is far larger than Axie Infinity, and far older, too. While Bitcoin, the largest cryptocurrency by market capitalization, has a market cap of roughly $1.4 trillion, AXS has a market cap of around $10 billion (as of November 2021.) And while AXS was created in November 2020, and its development is still in progress, Bitcoin has been around for over a decade.
However, it should be noted that although AXS is different from Bitcoin, it is far from independent from it. Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that AXS will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) It is not clear, but unlikely, that a significant drop in AXS’s value would have a material impact on Bitcoin.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Axie Infinity, including an opinion that AXS is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of AXS prior to making it available on Wealthsimple Crypto and has concluded that AXS is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated AXS based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of AXS, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Axie Infinity;
- The supply, demand, maturity, utility and liquidity of AXS;
- Material technical risks associated with AXS, including any code defects, security breaches and other threats concerning AXS and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with AXS, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of AXS.
Like all other crypto assets, there are some general risks to investing in AXS. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. As the founding team, Sky Mavis, continues to play an important role in ongoing development of Axie Infinity, fixes to any issues or bugs with the game’s operations may be dependent on the Sky Mavis team. AXS also presents higher short history risk because it has only been operational since November 2020, and its value is tied to the popularity of Axie Infinity which could unexpectedly see a drop in active players.
Sky Mavis and the Axie Infinity community are not under any legal or regulatory obligation to disclose material information to the public regarding their activities. Holders of AXS have no recourse to Sky Mavis or Wealthsimple if AXS declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading AXS. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.