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Axie Infinity Part 1: Thesis
I am going to be spending more time doing deep dives on Web3 companies, starting with Axie Infinity.

Unlike traditional investment research, there are no resources that centralize relevant information (no SEC website search, Bloomberg, YCharts, or Capital IQ). A lot depends on doing primary research, and own data collection. Therefore, this analysis is a blend of traditional research and data science. I'll share a dashboard with the underlying data in a future post.

Axie Infinity Investment Thesis

Axie Infinity ($AXS.X) is the leading blockchain game in Web3. It has a high probability of being part of a future Metaverse because of 1) a growing network community (+2M current daily active users (DAUs) and 2) vibrant token economics underpinned by NFTs generating income for players and fees for Axie Infinity.

Sky Mavis is executing well on the Axie Infinity roadmap. The recent release of Ronin's Katana decentralized exchange (DEX with over $1B TVL) suggests that the team wants to position Ronin as the leading blockchain layer for crypto gaming, not just for Axie Infinity.

AXS's market capitalization increased from $500M to $10B in the last ten months, driven by exponential user growth. New players fueled demand for Axies that led to an Axie breeding egg boom. As a result, Axie Infinity's revenues surpassed $1B over this timeframe (mostly from breeding fees.) AXS' treasury, from which tokenholders will benefit in distributions, recently reached $3B.

The game offers three kinds of NFTs: Axies, Lands, and Items. The land is more desirable because supply is limited and is a central piece of future gameplay.

Axie Infinity's bear case is that value creation depends on adding new players constrained by high entry costs (~$900 for 3 Axies.) However, Axie's P2E model mainly attracts players from Emerging Markets, where Axie's income is higher than domestic salaries. In addition, sponsoring programs overcome the requirement for an initial capital outlay to onboard new players.

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