Considering the events of 2022 thus far, it’s understandable that Aleksander Leonard Larsen feels hard done by.
Just six months ago, Sky Mavis co-founder and CEO saw more than half a billion dollars worth of crypto drained from Ronin, the blockchain the company built for gaming developers.
The criticisms have dogged Vietnamese studio Sky Mavis and its marquee title Axie Infinity, perhaps the world’s most popular crypto-based game, he believes as well. Workers in Southeast Asia — many of whom lost their day jobs as a result of the pandemic — have been exploited by Axie’s “play-to-earn” model, according to detractors.
“It’s unfair, but I guess that’s just the way it is when you’re getting the world’s attention,” he said in an interview at Token 2049, a crypto conference in Singapore on Sept. 29.
Taking advantage of a re-built Ronin and a brand-new game, Leonard Larsen is determined to prove that Axie “is more than just a play-to-earn company.”
It’s been a whirlwind year
Sky Mavis has had a whirlwind 12 months, even by crypto market standards.
In Axie, teams of Pokémon-like creatures (known as Axies) fight each other in a turn-based game. These critters take the form of NFTs, and through Axie’s gameplay loop, players can earn two kinds of tokens — AXS and SLP. In addition to breeding new Axies, players can also cash out their tokens.
Sky Mavis, which had 2.7 million daily active users at the time, raised $152 million in a fundraise led by Andreessen Horowitz last October, valuing the firm at around $3 billion. In the beginning, playing Axie was so expensive that guilds began to form to lend out Axies and provide advice.
Leonard Larsen said, “We didn’t anticipate that it would become so big, so fast, and if you’re not careful, you lose control of your own narrative.” In Axie, middlemen are selling this to their friends as a way to get rich quick… It’s a common issue within crypto.
As a result of the guilds sprouting up independently, Sky Mavis considered shutting them down, but ultimately decided against it.
By May this year, daily active users had dropped to fewer than one million. According to CoinGecko data, the value of the game’s tokens has also declined sharply. In June, Sky Mavis announced it would close the classic version of Axie to focus on the launch of a new game, Axie Origins.
Leonard Larsen commented that the Axie Classic game, launched in early 2020, was a kind of experiment to them and its popularity took Sky Mavis aback. The team had no “live operations” meaning no regular updates with new features or events, as they were focused on developing Origins at the time. The development of the game had gone as far as it could and he stated that nothing more could be done for it.
As a result of building community over the last two years, there was a lot of pent-up demand. “It wasn’t just the game that people were there for — it was everything that went along with it.”
Siege on Ronin
In March, about $540 million in funds belonging to Axie Infinity players were drained from Ronin, Sky Mavis’ Ethereum-linked sidechain. A fake job ad was used by the hackers to take control of Ronin’s validators, according to The Block, and the U.S. government linked the exploit to North Korean cybercriminal group Lazarus.
This highly sophisticated “spear-phishing” attack gave the hackers access to four out of Ronin’s nine validators, which perform various functions in blockchains, including creating transaction blocks and signing transactions. Using the Axie DAO, a group created to support the gaming ecosystem, the hackers then took control of the crucial fifth node. Sky Mavis had requested help in November 2021 with a heavy transaction load from the DAO.
Sky Mavis concentrated power in the hands of so few validators after those details became public in July.
At one point, Ronin had more than $1 billion of ether in total value locked (TVL). “These are huge numbers for a young chain,” Leonard Larsen said.
In retrospect, he stated, “I wish we had focused more on security. It was a hard lesson to learn.”
It announced in April that Sky Mavis had raised $150 million in a round led by Binance. The proceeds, Sky Mavis said at the time, were intended to be used to reimburse users affected by the exploit along with its own funds. In late June, after Ronin’s Ethereum bridge came to a sudden halt at the time of the hack, all user funds had been restored.
According to The Block, Binance had reduced its investment in Sky Mavis in July. According to a Binance spokesperson at the time, Sky Mavis was able to stabilize and recover funds after the hack, so it could make users whole without the exchange operator’s help.
Leonard Larsen explained the puzzling sequence of events by saying, “The raise is still happening, but it’s a different type of… vehicle than was originally intended, so there’s a little back and forth there.” Sky Mavis was able to get some time only because of the commitments she made at the time.”
However, he confirmed, as announced in April, that the round did not close. He declined to elaborate further on why Binance scaled back its investment, simply saying, “It was very critical when the commitments were made.” The conversations, and Binance’s support, were extremely important at the time.
For a company that is still so young, Sky Mavis has a financial runway of around 10 years, according to Leonard Larsen. This, he explained, takes into account all the tokens on Axie Infinity’s balance sheet, which represent a significant cache. Leonard Larsen estimates that Axie Infinity will generate $1.3 billion in revenue in 2021.
With so much dry powder behind him, does he feel at ease?
Leonard Larsen said, seemingly alluding to the suppressed token prices, “It’s obviously different from what it was, because we had the freedom to do almost anything at one point.”
I think we need to be more careful about how we view the space now, but I don’t feel relaxed. I want to win more.”
Axie’s future: what lies ahead?
When it comes to reinventing itself, how will Axie – which has racked up one million downloads for Origins in pre-release mode – do it?
Axie Origins has unveiled a new runes and charms system, to provide players with an incentive to invest money during each six to eight week-long season. SLP can now be used to acquire runes and charms of normal, rare or mystic grade, which can then be equipped onto Axies for an increase in stats. Once the season is over however, they disappear, leaving players obliged to burn more SLP if they wish to keep their Axies well-equipped.
“We designed it so that the economy is more sustainable and able to handle these users, especially since we are burning a large number of SLPs,” Leonard Larsen said. “There are things inside the game that are circulating out of production, let’s say, six to eight times a week.” To compete, one must commit more capital by the end of the season, and then spend money to earn something.”
Later this year, Sky Mavis plans to launch a virtual land-based game, similar to 4X games but incorporating NFTs.
Sky Mavis has also restored the Ronin chain to business. By mid-August, Sky Mavis had added 17 Ronin validators to the chain, and Google Cloud added an 18th in September. Besides its own Axie games, Sky Mavis also plans to bring third-party game studios on board the chain. Mobile games that have yet to release tokens.
Ronin’s first batch of external studios will be announced before Christmas, and Leonard Larsen said he wants to position it as a “layer 1” for gaming projects.
In the coming months, he hopes to once again seize control of the Axie narrative.
‘I feel a little bit like an underdog story, which historically has been very good for us,’ he said.