Play to lose: Axie Infinity blamed for using Ponzi-styled business scheme

The business model of the non-fungible token-based online video game Axie Infinity is a Ponzi scheme, believes investor Liron Shapira. He is not alone in his statements: this P2E (play-to-earn) style game has also been criticized by other users. However, as a rule, if there are haters, there are supporters.

What is a Ponzi scheme?

The Ponzi scheme is named after Charles Ponzi, an Italian scammer who moved to North America and became famous for his fraudulent system of making money. In the early 1920s, Ponzi managed to defraud hundreds of victims, and his scheme lasted more than a year. The Ponzi scheme is a fraudulent investment scam that pays off senior investors with money collected from new investors. The problem with such a scheme is that not all investors will get paid.

How it works:

• Fraudsters register the platform and convince the first customers to invest in the company.
• The scammers continue to find new victims, convincing them to invest in the company, promising very high returns. From the funds raised, they pay out profits to customers who supported earlier.
• The managers then persuade the investors to reinvest the income. Most victims agree because they believe the company is legitimate since it pays out the promised profits.
• Once the influx of new money stops, the scammers have nothing to pay. The Ponzi scheme companies then cease to exist.

Among examples of Ponzi schemes are fictitious investment funds, fictitious money management companies, and new tokens that promise extra growth.

Ponzi schemes in blockchain

Cryptocurrency

In the history of cryptocurrencies, there have been three of the most significant Ponzi cases in the blockchain industry:

• OneCoin (2014–2017). Working by the type of network marketing, “Cryptocurrency queen” Ruja Ignatova attracted $3 million people to the pyramid in three years. After disintegrating, the participants incurred losses of more than $15 million.
• Bitconnect (2016–2018). Investors reportedly bought Bitconnect tokens and blocked them on the platform, expecting profits. After the fraudulent scheme was uncovered, investors suffered about $3.5 billion in losses.
• PlusToken (2018–2019). Pyramid scheme in which participants exchange bitcoin and other cryptocurrencies for PLUS, the scammers’ cryptocurrency, for which they were supposedly promised a reward.

NFT

Researchers have identified the following fraud schemes with NFT:

• NFT replicas;
• counterfeit NFT stores;
• fake or fraudulent NFT;
• NFT fake airdrops marketing strategy used by startups to give tokens to existing cryptocurrency traders for free or in exchange for minimal promotional work;
• social media scams.

Some collections, such as the Bored Ape Yacht Club, are valued at more than $100k per token, making them an attractive vehicle for attackers, according to a study by three scientists from Coventry University in the UK. The main problem is that NFTs have no strict regulations. For this reason, many companies unite to fight speculation on NFTs marketplaces.

Play-to-earn

In games with elements of a Ponzi scheme, developers invite players, promising them future profits. But there are two conditions: players must contribute funds and attract new participants. The latter is given a similar task. And so on — down the chain. Given this, all the profits that early players make are formed by the investments of later players. As a rule, pyramid organizers get most of the money, and other participants are left with nothing.

The most striking example of using the Ponzi pyramid in the game is FOMO3D. The point of the game is that participants had to buy so-called “keys,” which can be seen as a kind of token. Each key purchased added 30 seconds to the time bank, which was limited to 24 hours. At some point, the timer froze at its maximum value. Part of the money paid by users for the keys went into the general prize fund, the bank, and detail was paid out as dividends to earlier participants.

What’s wrong with Axie Infinity?

Axie Infinity is a game where you battle digital pets: 

• You must buy or rent Axie from another player to play the game.
• You earn Smooth Love Potion (SLP) tokens as you win battles.
• You can reinvest your SLP tokens to breed new Axie or cash them out for another cryptocurrency. You can also rent or sell your Axie to another player.

Last year, Axie Infinity became a phenomenon in the NFT game market. By August 2021, the game’s trading volume reached $848.18 million. Later the project was hit by a wave of crises, so the developers had to reconsider the original concept.

But the fact that Axie Infinity is a Ponzi scheme has been written about more than once. Here is a quote from analyst Matt Levine from July 2022.

“Axie Infinity is a Ponzi scheme wrapped in a video game. New users had to spend money to buy stuff in it, which allowed early users to sell their video-game staff at a profit as long as new users kept showing up to buy it,” he said.

Critics of Axie Infinity say the system takes advantage of poorer players from developing countries such as the Philippines, where more than 40% of active daily players come from. The platform’s business model relies heavily on this army of low-wage workers. Developers create value at the lowest level of the system (the game itself), most of which flows out of their hands. It reflects an explicit power hierarchy: Those who start with the most money will always make the most.

But is Axie Infinity really a Ponzi scheme?

Axie Infinity has some supporters who argue strongly that it’s not a Ponzi scheme and that it’s still possible to make money from the game. You can see one of the arguments in favor of Axie Infinity below.

The opinion of supporters of the game comes down to the fact that in the Ponzi scheme, the first investors are paid by new investors, so only the first participants are profitable, and at some point, the pyramid collapses. Axie’s story may be called different because it has a stable ecosystem, where the company makes money on the sales of NFTs.

Users also notice the following advantages of the game:

• stable internal economy and ecosystem;
• intelligent distribution of rarity items;
• great online sessions;
• tutorials;
• registration on the platform in two clicks;
• decentralized management.

How to play and how to earn?

There are several ways to make money in Axie Infinity. The most obvious of these is playing. However, starting playing as a player is not easy, as you need at least three axie to make your debut.

You get Smooth Love Potions ($SLP) tokens for winning battles and completing quests. At the time of writing, the token is trading at $0.0043. The $SLP is needed to breed axie. And here’s how users can earn it.

#1 Play the game

Yes, users can earn money just by playing Axie Infinity. There are three modes available for this:

• quests;
• adventure mode;
• arena matches.

Depending on each, the player earns a certain amount of money. That’s all.

#2 Breeding and selling axie

Users can breed axie to sell or “leasing” allow other players to use your axie in exchange for 20-30% of the $SLP they earn.

The process is straightforward. Select two axie, click Let’s Breed!, confirm the transaction, and get the egg. After five days, click on the egg, click on Morph to Adult, and voila, you have an Axie ready to fight (or sell).

#3 Providing liquidity for $AXS and $SLP tokens

One way to make money on Axie Infinity is to act as a liquidity provider (LP) on decentralized exchanges. Players must exchange the $AXS and $SLP earned in the game for other currencies. If you have these tokens, you can provide them to the exchange. You will earn income from the commissions that traders pay for exchanging the tokens

#4 Speculation on the price of rare axie

If you believe in the game’s long-term success, you can try to make money on the rising price of exclusive axie. Instead of running to the bank for a loan to buy these psychedelic creatures, you can buy a stake in a rare Axie for any amount. Such an Axie is split into many ERC20 tokens, which trade like any other cryptocurrency.

Shares in the entire axie collections are also for sale. You can buy a $uAXIE token, a share in a group of 24 rare axie. The collection’s market value at the time of writing is $4,757,000.

#5 Steaking $AXS

Stacking replaces mining and allows mining to mine new blocks without enormous computing power. The point of stacking is to ensure all transactions on the blockchain and keep the network running. For this, holders of digital coins are rewarded: with a portion of tokens from the game’s coffers. You can find more information about that here.

According to Producthunt, there were cases Axie Infinity has helped thousands of players make a living. By the way, 40% of players were from the Philippines. However, according to the experts, the game is just like any other new crypto project, and we do not know how sustainable in the long term. Anyway, before you play anything and spend your money, do your research.

Yes, we never tire of reminding you of that. Recently we also experimented and tried to make some money playing in Walken.