Following the most successful play to earn game Axie Infinity, many GameFi projects have started to adopt its economic model and apply the dual-token model.
The dual-token model will see a primary token and a secondary in-game token. The primary token is usually the governance token and the secondary token will be used for in-game mechanics.
But this begs the question of why there is a need for two different tokens in a single game. It all boils down to single vs multi-token economics.
Single vs. dual-token economics
A single-token economy is the use of a single token for every function of the project, it ranges from governance to the whole in-game economy.
The advantage of using a single token is its simplicity. It is easy to onboard new players as the tokenomic is straightforward and easy to understand. Furthermore, it also helps to increase the token price and profitability of the game as the flow of funds is concentrated into a single token.
However, this economic model is prone to failure. The profitability of the game is tied to the token price and when a large quantity of the tokens is sold, players would lose motivation as the income starts to drop.
This essentially creates FUD among the community and cause the game to fall into a death spiral as players start selling token in fear that the price would drop even further.
Dual-token economics on the other hand fixes the weakness of the single-token economy. By separating the single token into a governance token and an in-game token, it helps to reduce the impact of the secondary market on the game.
The price fluctuation of the governance token would not affect the economic mechanism of the in-game token and if things go south, it would not cause the whole in-game economy to crash.
Axie Infinity Shards ($AXS)
AXS is the primary token of Axie Infinity. It is an ERC20 governance token with a max cap of 270 million tokens.
Players are able to stake $AXS within the governance platform to earn yield. The yield paid out is generated from fees paid by players that made transactions on the Axie Infinity marketplace.
$AXS also allows the holders to participate in governance and vote on proposals, it is how Axie involve the community and allow them to influence and shape the future of the project.
Smooth Love Potion ($SLP)
$SLP is the native in-game currency of Axie Infinity and players are rewarded with $SLP whenever they win a battle.
As there is an unlimited supply of $SLP tokens, some in-game mechanisms are introduced to curb inflation. $SLP tokens are burned and taken out of the circulating supply whenever an Axie is minted. Furthermore, more $SLP is needed each time an Axie breed.
The value of $SLP is tied closely to the in-game sentiment. This burning mechanism would form a positive feedback loop as more Axies are minted and bred, more $SLP would be burned and the price of the token would skyrocket which result in an increase in the profitability of the game and hence promote the breeding of Axie.
Both $AXS and $SLP can be purchased and sold in many centralised and decentralised exchanges. This includes crypto giant Binance and top decentralised exchange Uniswap.
In the second half of 2021, the number of $SLP minted consistently outpaced the number of $SLP burned. This is detrimental to the ecosystem as the net issuance of $SLP into the economy negatively impacted the price. The team have yet to decide how to balance the economy.
This issue can be solved by tweaking the economic model to dampen the supply while increasing the demand of $SLP. One notable recommendation is to reduce the in-game $SLP rewards. This would effectively reduce the $SLP emission and significantly reduce the net issuance of $SLP.
Another recommendation is to increase the demand of $SLP by increasing the number of $SLP needed to mint and breed Axie. This would increase the number of $SLP burned and it will reduce the net issuance of $SLP.
A combination of reduction in supply and increase in demand would theoretically help maintain price stability.
All in all, there are many factors to take into account when implementing changes to the existing economic model. One wrong move might see the game fall into a death spiral. Making positive adjustments while maintaining economic stability is key to increasing the longevity of Axie Infinity.
Featured Image Credit: Quartz