Axie Infinity: Business Breakdowns Research

By: Anastasia Solonitsyna

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Primary Research Sources
 • Axie Infinity White Paper

 • Axie marketplace data - the main channel for players trade Axies

 • Axie economy statistics for volume, revenue, etc.: 1st source, 2nd source, 3rd source

Company History & Key People

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Axie infinity is a NFT game powered by the Ethereum blockchain and described as a cross between
CryptoKitties and Pokemon. It was launched in early 2018 by 3 people who met in 2017 because of
CryptoKitties. The team now consists of 50 full-time employees and has its headquarters in Ho Chi Minh City,
Vietnam.
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 • The founders came up with the idea for Axie Infinity after realizing how unsustainable crypto kitties and other
blockchain games were at the time. None of these games had economic incentives that aligned with long-term
growth.

 • The founding team now consists of 5 people, all of whom have been on the front lines of gaming economics
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since they were kids:

 ○ Trung Nguyen (CEO) - co-founded a multimillion-dollar Vietnamese ecommerce startup when he was 19
years old (Lozi.vn)
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 ○ Aleksander Leonard Larsen (COO) - a competitive Warcraft3, Dota and Dota 2 player and is the founder of
some of the largest gaming communities in Norway
 ○ Jeffrey Zirlin (Growth Lead) - has a history degree from Yale and was once one of the best WoW players in
the United States
 ○ Andy Ho (CTO) - worked as a software engineer at Anduin Transactions and interned at Google and Paypal

 ○ Tu Doan (Art Director and Game Designer) - he designed the original Axies. He co-founded and formerly
worked as the Head of Design at Lozi.vn

Milestones
 • Early 2018: The team founded Sky Mavis, a for-profit software company based in Vietnam that develops Axie
Infinity and a suite of other blockchain gaming products and services
 ○ Sky Mavis to date has secured $9mn in VC funding (see breakdown below)

® 2021 Colossus, LLC. All rights reserved.

  □ $1.5 million raised in two seed rounds in 2019 with some notable investors: Hashed, Animoca Brands
(also an investor in Cryptokitties and Binance), Consensys (a NY blockchain-based company developing
infrastructure and dapps for Ethereum and founded by Ethereum co-founder Joseph Lubin), etc.
 □ $7.5m Series A round in May 2021 with investors including: Libertus Capital (also invested in Ledger and
Zapper), Collab+Currency (also invested in Coinbase, Kickstarter, Lyft), etc.

 • 2018-20 product timeline

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Source: Axie Infinity Whitepaper

 • April 2021: Axie Infinity migrated from the Ethereum blockchain to Ronin Side Chain. (Side note: Ronin is a
Japanese word for “samurai without a master”)

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 ○ Created by Sky Mavis, for the sole purpose of hosting Axie Infinity.
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Source: Axie Infinity Whitepaper

 ○ Axie's native token did not see much price action from its 2018 launch until Ronin was introduced. Axie’s
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single-day trading volume began to skyrocket after the migration.

 ○ Through this migration, Ethereum’s high gas fees were removed for users and the transaction settlement
times were reduced to seconds.
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 ○ To secure Ronin’s security Sky Mavis is planning on making Ronin a public blockchain, meaning it will have
its own token that can be staked by validators.

 • 2021: Axie is the fastest growing game in the world; the top decentralized application (dApps) on Ethereum;
and the #1 NFT product by daily volume (see 'Key metrics')

Business Model & Secret Sauce

 • Axie Infinity is a community-driven digital pet game which allows players to earn money while battling,
breeding, raising, and trading digital pets called Axies.

 • Axies fall into one of nine categories that are similar to Pokémons. Each Axie has six of >500 possible body
parts. Each of the body parts has three genes: dominant, recessive, and minor recessive. The combination of
Axie's features determines its win rates and, eventually, return on investment.

 • 'Play-to-earn' (P2E) appeal

 ○ Axie Infinity is a first-mover in the new play-to-earn space. P2E allows for an open economy within a game
that provides financial benefits to the players.

® 2021 Colossus, LLC. All rights reserved.

  ○ P2E has been done in traditional games: some players in World of Warcraft, Onmyoji, etc. make money by
selling equipment. But traditionally, in-game asset transactions exist only in the game ecosystem, and it is
difficult to trade those digital assets outside.
 ○ In blockchain games, by actively participating in virtual economies, players can earn rewards, such as in-
game assets and tokens, which can then be traded or sold on the open market for other cryptocurrencies or
fiat money.
 ○ The benefit of the new play-to-earn business model is that a gamer always creates some value that they
can sell. Even when a gamer needs to pay to start playing, these acquired items can be sold again. All
obtained items represent a certain value.

How the Axie Economy works (Players, Token holders, Sky Mavis)

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Source: Axie Pulse

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Players
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Getting started isn’t straightforward (which brings to mind Gabe Leydon’s broken but growing idea)...it requires
acquiring ETH → signing up for a MetaMask wallet → transferring ETH → downloading another wallet (Axie’s
own Ronin wallet) → transferring ETH again → acquiring NFTs on Axie’s own NFT marketplace (see below),
logging in with MetaMask → downloading the application itself, on desktop or mobile.
And, it costs money to start:

 • You need to buy 3 Axies from the Axie Infinity marketplace to start playing. The cheapest Axie w/o abilities
currently costs ~$200 which implies a minimum $600 investment

 • Users can opt to borrow Axies from managers and pay them a portion of their earnings (passive income for
managers). It is currently done peer-to-peer.
By participating in the game, players earn AXS and SLP tokens (See ‘Tokenomics’) by:

 • Winning battles and challenges (earn SLP)

 ○ SLP tokens are earned when a three-Axie team successfully defeats a foe in PVP (player-vs-player) or PVE
(player-vs-environment) challenges.

 • Breeding and selling Axies (earn ETH / fiat / AXS)

® 2021 Colossus, LLC. All rights reserved.

  ○ To meet the demand from new players, who each need three Axies to play, existing Axie holders breed new
Axies from a pair of existing ones.
 ○ Total breeding cost = fixed cost (not related to the number of reproductions, pay in AXS) + variable cost
(related to the number of reproductions, pay in SLP).
 ○ To ensure that the Axie population remains stable and sustainable, there is a limit on the number of times an
Axie can be bred. This number is currently seven with each additional reproduction requiring more SLP
tokens.
 ○ ETH / $ are earned when new players buy current players’ Axies through the marketplace, but can be paid in
AXS too.

 • AXS Staking (earn AXS)

 ○ Players receive newly created AXS (see ‘Ownership economy’ section) if they lock up their tokens in the
game and actively participate in the game by voting and playing regularly.
Users playing Axie Infinity can earn ~$10-20 (recently closer to $50-60 due to the AXS and SLP tokens’ price
increase) a day.

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Axie token holders
 • Earn by speculating. SLP holders might want to hold on to their SLP to speculate on the price.

 • Exchange for Fiat. Both AXS and SLP are currently tradable on major decentralized exchanges (DEX) like

for money to pay their real-world bills.

Axie Infinity team (Sky Mavis)

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Uniswap. In the near future, they may be able to do so on Axie’s own DEX. Many players earn SLP, exchange it
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Sources of income:

 • Collecting fees. Sky Mavis takes a 4.25% cut of revenue when players trade in the marketplace (e.g. breeding
axies and selling axies) and they earn 2 AXS whenever an Axie is bred. This goes to Community Treasury
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where they hold stake, see ‘Ownership Economy’.

 • (n.b. primary sales: i.e. selling Axies and land directly could be a future revenue stream but has not been done
for a long time. They prefer to let the players generate most of the revenue initially. Once the network is large
enough they can potentially increase the take-rate.)
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Demand/Supply dynamics in the economy

 • If the quantity of new players declines → the purchase of new Axies decline → excess supply of Axies →
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breeding activity decreases → reducing SLP/AXS demand and price

 • If the quantity of new players grows → the purchase of new Axies grows → Axie prices go up → breeding
profitability goes up → SLP/AXS demand for breeding increases → SLP/AXS prices go up

Tokenomics
1. Axie Infinity Shards (AXS)

 • Launched in November 2020 and acts as the default currency for the Axie Infinity ecosystem. The interplay
between Axie Infinity's rising popularity among gamers and its booming revenue has helped AXS to become
one of the top-performing digital assets in 2021.

 • The AXS token’s main utilities are (+ more use cases to be added in the future):
 a. Payment: AXS is accepted as currency within the Axie NFT marketplace (for buying and selling Axies and
paying trading fees) and holding AXS may also be required for some protocol-initiated sales/auctions.
 b. Staking: players can lock-up their tokens in the crypto protocol. If they do so, they will receive weekly
rewards, subject to a 12-month unlocking period. Users who are staking AXS tokens can increase these

® 2021 Colossus, LLC. All rights reserved.

 reward amounts through participating in governance and playing the game. In the future, staking users may
also receive NFT rewards or vote for portions of the Community Treasury to be distributed to stakers (kind
of like equity holders voting for dividend distributions).
 c. [Future] Governance: the Community Treasury went live in early 2021 and is amassing revenue. In the
future, this treasury will be governed by AXS stakers once the network is more decentralized (see section
'Ownership Economy')

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Source: Axie Infinity Whitepaper
 ○ The maximum supply of AXS is limited at 270m which is being unlocked in a pre-determined schedule
lasting 65 months from the public sale in November 2020. The initial circulating supply was set to ~60m of
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AXS and currently there is ~88m in circulation. Sky Mavis (the team behind Axie) have ring-fenced the
majority of the allocated AXS supply - 56.7m (21%) which will be unlocked gradually over 4.5 years.
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Source: Axie Infinity

2. Smooth Love Potions (SLP)

® 2021 Colossus, LLC. All rights reserved.

 • Earned in-game, required to breed new pets and participate in Axie Infinity events and competitions.

 • Unlike AXS it has no initial allocation. It was minted from zero by Axie Infinity players, which technically means
it’s a fair launch cryptocurrency. 100% of SLP that exists is also in circulation and they are continually earned in
the game. They are also burned whenever an Axie is created. And each Axie needs more SLPs each time it
reproduces (until it reaches the limit of seven reproductions).

 • SLP value is tied to the amount of breeding that’s taking place in the game. The more breeding that happens →
the higher the value of SLP and vice versa.

Ownership Economy (via Community Treasury)

 • All the fees and revenue generated by Axie Infinity are placed in the Community Treasury which is governed by
AXS holders. The AXS token provides a stake in the Axie universe (alike to company shares). It will allow
players to share the economic success of the game.

 • The treasury’s total revenue has increased from >$1mn at the end of April to $15mn+ in June and to $530m+
now - see the data here.

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 • AXS staking (to be launched in Q3 ‘21) - another dimension of demand for the AXS token. A player is going to
stake their AXS for one year to earn rewards. AXS staking rewards will weigh on how much you’re playing the
game and how often you vote in governance proposals and community treasury spends

 • In order to progressively decentralize - as more AXS tokens are unlocked over a 65 month schedule, Sky Mavis
will slowly lose voting power, until it loses its majority some time in late 2023.

Future Vision
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The endgame is to create a Game-as-a-Service model with a single application to interact with the Axie Infinity
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universe which will include:

 • The team wants Axie to become the first game truly owned and operated by the community that plays it.

 • The team is dedicated to the core values of cryptocurrency. Their vision is to create a virtual economy where
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you can own and operate your own businesses, save, invest, and spend your money without ever having to
touch a bank.Progression of Axies, Breeding Game, PvP with ladder and tournaments, PvE/Adventure.

 • Future projects
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 ○ New gameplay and features: Sky Mavis now possesses a clear track record of impressive iteration in
response to community feedback. Over time, Axie can potentially earn revenue from selling Axies, Land,
cosmetics, and in-game consumables. Additionally, there will be fees when players want to level up their
game characters, play in tournaments, and craft new assets.
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 ○ Axie Land

 □ Land is an upcoming game mode that will unlock further utility for Axie game assets.

 □ Lunacia, the Axie homeland, is divided into tokenized plots of land which act as bases of operation for
their Axies. It consists of over 90,000 plots of customizable tokenized land called terra. Same as Axies,
players can directly trade in ETH in the Marketplace. The owner of the land can get rewards in the land,
such as AXS generation.

 □ Land features in Lunacia will be fully implemented by the end of 2022, and these include a Lunacia SDK
which will serve as a map editor to facilitate the creation of in-game content.
 □ Axie Infinity is still in the process of rolling out Lunacia even though the first-ever land sale took place in
January 2019. Lunacia land is scarce relative to the number of players. As a result, the cheapest plot of
land on the Axie Infinity marketplace is currently listed for $7k. The largest sale for $1.5m took place in
February 2021.
 ○ New sources of external capital into the ecosystem such as: advertising fees and sponsorships, Nonprofit
organizations, Government donations and grants

® 2021 Colossus, LLC. All rights reserved.

  ○ Own blockchain & Ronin Blockchain Token: Sky Mavis plans to ultimately make Ronin its own public
blockchain complete with its own Ronin token. Co-founder Aleksander Larsen recently stated that the plan
is for the Ronin token to be distributed primarily to the community, not whales or VCs, i.e. Sky Mavis wants
this Ronin token to also be a “fair launch” token.
 ○ Native & Decentralized Exchange (DEX): Sky Mavis is building a decentralized exchange on Axie. In this
DEX, users will swap in-game resources. There is no timeline for this.

Key metrics
 • YTD, the number of Axie Infinity DAU has grown from 16,000 to 1.7 million.

 • DAU by country:

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Source: Similar Web

 • Axie Infinity is the most traded NFT collection, with a total trading volume of $1.7bn.
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Source: Dappradar

 • Axie NFT’s marketplace volume is second only to the internet’s most popular NFT digital art marketplace
OpenSea (which hosts a number of collections across different categories).

® 2021 Colossus, LLC. All rights reserved.

 Source: Dappradar

 • Market capitalisation: AXS - $3.9bn

 • Axie ERC721: Among one of the earliest NFTs ever created, even before the NFT standard was official. Among

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the top traded projects on Ethereum and it took off even further once we migrated to Ronin.

 • Holds the record as Ethereum’s first NFT game to generate $1 billion in sales.

 • One of the largest Discord servers across the world.

Revenue
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Axie’s protocol revenue currently stands at ~$530 million YTD, almost 2x that of Ethereum (click).

 ○ ~85% come from Axie breeding fees, paid in AXS to the Community Treasury.
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 ○ ~15% comes from a 4.25% trading fee taken from sales of Axie NFT assets: Axies, land, and land items.
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® 2021 Colossus, LLC. All rights reserved.

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Source: Axie World

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Competitive Position
Secret Sauce
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 • Network effects: Axie Infinity has 1m+ global DAU, and the availability of Managers (who fund player entry into
the game by lending in-game assets) helps to maintain a strong momentum of spread. The “Scholarship-
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manager-player” structure has the potential for viral expansion and enhances network effects. The adoption
rate is explosive despite a complicated UX experience and high cost to play. Simplifying onboarding experience
and a mobile app launch can further contribute to growth.

 • Property rights: Although not exclusive to Axie, property rights incentivize players to act more like founders
and employees rather than users. These rights include being able to sell your game assets to anyone in the
world, earning liquid tokens for playing/contributing, and being able to own a piece of the game you’re playing.
Traditional video games extract value from their players via centralized, in-game purchases. Axie players make
peer-to-peer purchases. “I think one of the things our players really like is that 95% of the value that flows
through the game is going to them".

 • Switching costs: For traditional online games is relatively low. For Axie players, switching to another game is
more expensive, both because of Axie’s high start-up costs and the emotional cost of the way the game is
structured.

Open-source, expanding and vertically integrated ecosystem

 • New routes. Axie’s native infrastructure currently includes wallets, gameplay, NFTs (including virtual land),
native currency (SLPs and AXS), and a decentralized exchange. Axie’s future plans include turning the

® 2021 Colossus, LLC. All rights reserved.

 sidechain into its own native blockchain, lending/scholarship programs, an open-source platform for further
game development, tax assistance, banking services etc.

 • Loyal existing players. Many feature ideas that can drive non-monetary value for players, such as Land
gameplay, Crafting, Soulbound Axies, Collection Goals, Cosmetics, Virtual Pet gameplay, etc.

 • This is the way Axie Infinty has the opportunity to become a metaverse in the future. Axie will have the critical
mass of users to support an ecosystem built within its universe.

Blockchain economy
 • Fast & affordable blockchain transactions: There are very few sidechains on Ethereum and none of them were
built to service a specific protocol. Axie’s foresight in building Ronin drove Axie’s explosive growth.

 • Native wallet: Users can store and transact their assets on the Ronin sidechain with Axie's native wallet. Jiho
recently mentioned that a traditional bank is looking to integrate with Ronin. This bank might help users track
their taxes through the native wallet. “[The next generation] is going to skip banks, they are going straight to
digital wallets”.

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Market opportunity
 • Gaming is the largest segment of the entertainment industry (click) with ~$180bn according to IDC (another
source: ~$160bn revenue in 2020 and ~2.3bn players according to Newzoo, see the chart).

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Source: newzoo

NFT gaming - the future of playing video games

 ○ The sales volume for NFTs hit $2.5 billion in the H121, up from a total of $250mn in FY20 (click). At the
moment, the most popular crypto application for NFTs is gaming.

® 2021 Colossus, LLC. All rights reserved.

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Source: Young Platform

Competitive landscape
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There are no direct competitors but similar players exist in a similar field. Sorare and Gods Unchained create
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the utility of their NFTs more indirectly, through paying out prizes in tournaments (rare NFTs and ETH). Axie
Infinity is the only game that introduces a governance token on top of an in-game currency.
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Source: Outlier Ventures

 • Unsurprisingly, perhaps, there are clear copy-cats being made, like https://monstainfinite.com/ which will be
interesting to follow.

 • Some other players: F1® Delta Time (collection and trading of unique Cars, Drivers, and Components); The
Sandbox Game (play, build, own, and monetize virtual experiences); League of Kingdoms (MMO strategy game.

® 2021 Colossus, LLC. All rights reserved.

 Gamers fight for dominion within the game); Illuvium (a fantasy battle game); Star Atlas (Gamers perform space
exploration, territorial conquest, political domination)

Risks
 • Demand driven by new players. If Axies reproduce excessively and/or new players' growth slows, it will cause
the price of Axies to fall, which in turn will affect the demand for SLP and the demand for AXS.

 • Gamers are fickle ("fad risk"): viral games are typically trendy and the preferences of the masses can shift.
Will players in the USA and Europe like Axie enough for it to reach mainstream adoption there as well?

 • No underlying storylines: Unlike PokemonGo, Axie appears to be missing a complete cultural universe of TV
shows, movies, trading cards, and memories. Axie’s narrow cultural band may increase its risk of becoming a
fad.

 • Axie isn’t fully decentralized: Currently, the gameplay and data storage of Axie infinity are not decentralized.

 • Regulatory: Recently, regulators in the Philippines shared their intent to tax the game's publishers and players.

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Useful Resources
Title Type Description Link

NFT Gold Mine... Axie Infinity

speaks out

How Axie Infinity Boosted

Video

Video
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Interview with Jeff Zirlin, a co-founder, on the
catalysts of Axie take-off in 2021 and the
team's future plans

Aleksander Larsen, co-founder and COO of

https://www.youtube.com/
watch?v=27ZHnbkDKWI

https://unchainedpodcast.c
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Revenue 400%+ in 30 Days Axie Infinity, discusses Axie Infinity’s recent om/how-axie-infinity-
growth boosted-revenue-400-in-
30-days/

Gabby Dizon - Mapping the Colossus Conversation with Gabby Dizon, co-founder of https://www.joincolossus.c
Metaverse Economy Yield Guild Games, that covers the om/episodes/45988185/diz
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player/manager relationship with games like on-mapping-the-

Axie Infinity. metaverse-economy?
tab=transcript

Is Axie sustainable? Article A look into Axie Ecosystem and the https://axiepulse.substack.c
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sustainability of its business model om/p/is-axie-infinity-

sustainable

Axie Infinity (AXS): The Article The numbers, economics and recipe for https://medium.com/genera
Craziest Crypto Game Ever! success of the biggest NFT and crypto related l_knowledge/axie-infinity-
Co

game in history axs-the-craziest-crypto-

game-ever-a28322b5601b

NFTs and Gaming Lead the Article The article maps out the basics of the NFT https://insights.glassnode.c
ETH Rally space, and assess the volume and demand om/nfts-and-gaming-lead-
metrics describing its meteoric growth the-eth-rally/

Thoughts on gaming Article A dive into the economics of the metaverse and https://threadreaderapp.co
economics, NFTs and the the challenges on the path to sustain its m/thread/14196675890018
Metaverse economic viability 50881.html

Infinity Revenue, Infinity Article Packy McCormick dives into Axie Infinity and https://www.notboring.co/p
Possibilities the play-to-earn gaming revolution. /infinity-revenue-infinity-
possibilities

® 2021 Colossus, LLC. All rights reserved.