Axie Infinity as a Mechanism for Wealth Transfers
Over the past few months, I’ve become more and more convinced that Axie Infinity is a wealth transfer from people in richer countries to players in poorer countries.
Hear me out.
Because each Axie is an NFT with prices denominated in crypto-native tokens, the price appears the same to everyone buying an Axie (regardless of where they are physically located). But purchasing power differs.
The current floor for buying the requisite three Axies to begin gameplay is ~$450 ($150/Axie).
This is expensive regardless of where you live. But consider the differences in purchasing power for someone in the US vs. someone in the Philippines (where many Axie players are located). In the US, the average monthly minimum wage is ~$1250. In the Philippines, it’s ~$225 (under 1/5 the minimum wage in the US). Yet the price of an Axie doesn’t change based on where you’re located. So, even though Axies are expensive in both countries, they’re a lot more expensive (on a relative basis) in the Philippines than in the US.
That also means that the earnings from playing Axie Infinity are higher on a relative basis in the Philippines than in the US. The average earnings from playing Axie Infinity are ~$600/month. But that $600 goes a lot further in the Philippines (where it’s 2.6x the minimum wage) than it does in the US (at 0.5x the minimum wage). In the Philippines, you can make a living playing Axie Infinity (and some people definitely do). But in the US, people play Axie for fun/entertainment - and while they can maybe make a few extra bucks, it’s nowhere near enough to be someone’s main source of income.
So why is this a wealth transfer?
Well, whenever I see people making money online, I always wonder where the money comes from. Essentially, who is the customer (i.e. the one paying for these goods/services)? On YouTube, the companies paying for advertisements are the customer. With Airbnb, there’s a similarly clear customer-seller relationship. The same is true for subscription writers on Substack, people selling online courses, and more. Even in Minecraft, users can build server networks, charge people for access, and make money. Customer dynamics are pretty clear.
But in Axie Infinity, who’s the customer? Sure, people have to front the buy-in costs (the cost of purchasing the initial three Axies), and you could argue that that makes anyone playing the game technically a customer. But once a player is in the Axie ecosystem, they start making money. It’s pay-to-play and play-to-earn. Players are both customers and sellers, which makes it difficult to figure out where the money is coming from.
My thesis is that the players in richer countries are the true customers. For them, the game is entertainment. But for others, like the many Filipinos making a living off of Axie, the game is an important source of income. There’s a flow of money: one person’s entertainment dollars indirectly go towards paying for someone’s rent or dinner halfway across the world. It’s a transfer of disposable income.
In this way, Axie Infinity creates a mechanism for international wealth transfers. It’s in part possible because the in-game currency (and thus the in-game winnings) is benchmarked against the richer’s country currency. There’s an important arbitrage. People in the Philipines are getting paid USD-benchmarked wages while living in a country with a significantly lower cost of living. Money/purchasing power is all relative to the marketplaces in which we interact.
The notion of purchasing power parity highlights this well. Consider the cost of a McDonald’s big mac in the US vs in the Philippines — it’s $5.65 in the US vs 142 Philippine pesos in the Philippines. But if you were to take that $5.65 and convert it into Philippine pesos, you’d have ~280 pesos.
Yet a big mac in the Philippines only costs 142 pesos. In other words, a big mac is about half as expensive in the Philippines as it is in the US. Similarly, when an Axie player earns from playing the game, those earnings should go twice as far for what people can buy in the Philippines compared to the US. US players see it as giving up a big mac. Filipino players see it as receiving two big macs, or a big mac + something else. There’s arbitrage there, which in turn helps facilitate the wealth transfer.
Finally, it’s important to note that the majority of early Axie players were in developing nations. As more people onboard, they tend to be located in richer countries — countries with more expensive big macs. The entrance of players from richer countries drives up the amount of wealth being transferred: it brings in more money, shifts the weighting of in-game currencies towards the more valuable external national currency (e.g., more USD entering than Philippine peso), and lifts the prices of in-game assets (demand growing against limited supply).
Throughout the pandemic, play-to-earn games have originated and grown primarily in developing countries. Axie Infinity is one the first that’s really started to spread globally. It’s interesting to consider what will happen when play-to-earn games start originating and gaining broader adoption in more developed countries. Will people in poorer countries be priced out of the market? Can scholarship guilds/DAOs, such as Yield Guild, help level the playing field by fronting the buy-in costs for everyday players? That dynamic remains to be seen.
What is clear, however, is that we’re likely still in the very early innings of the play-to-earn phenomenon. Overall, I’m optimistic about the trend. Not only is it great that people can now make an income doing what they love to do (playing video games and contributing to powerful communities), but it provides a mechanism for international wealth transfer. Global inequality has been a topic of discussion for decades. And I’m not saying that the play-to-earn model solves issues of inequality. Not even close. But I do think play-to-earn games present an interesting opportunity to slowly (very, very slowly) bridge some of those wealth gaps, citizen-to-citizen. I find that incredibly exciting.