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Binance led the round, and it will be used to reimburse user funds affected by the attack against Sky Mavis’ blockchain network Ronin Network.
Raising part of the total amount stolen can’t make up for the larger loss, but it can certainly address the company’s working capital needs in the short term. And Sky Mavis said its current balance sheet includes funds that will ensure all users are able to withdraw and deposit freely into their game accounts. Sky Mavis hopes to recover the funds and is working with law enforcement to do that.
Binance led the round. The Ronin Network bridge, which was shut after the hacker attack, will open once it has undergone a security upgrade and several audits, which can take several weeks. In the meantime, Binance is supporting the Ronin Network by providing ETH (Ethereum cryptocurrency) withdrawals and deposits for Axie Infinity users.
Axie’s large scale
Sky Mavis noted that, despite this recent setback, Axie and Ronin maintain a dominant position in the non-fungible token (NFT) gaming space. It said that Axie Infinity has processed 10 times more all-time volume than the second largest NFT game.
Axie Infinity became popular in places like the Philippines, where the pandemic took a toll on the job market, and people turned to Axie Infinity to earn a living. In the early days of the pandemic, players learned they could earn multiple times the minimum wage to play. And once they started playing, they could level up their characters and sell them for a profit to other players in what was called “play-to-earn” (and now “play-and-earn”) games.
Players can buy and sell their Axie characters as a right that proves their ownership, in contrast to games where players aren’t allowed to resell anything. Sky Mavis charges a 4.25% fee to players when they trade Axies on its marketplace.
These games used non-fungible tokens (NFTs) to uniquely identify each Axie character so that the scarcity could be authenticated. In that way, Axie Infinity has been the flagship game of play-to-earn blockchain games, and it enable Sky Mavis to raise $152 million at a $3 billion valuation in October 2021. Even after the hack, AXS tokens are still worth billions of dollars.
Ronin has processed three times more NFT trading volume than all other chains, barring Ethereum, the company said. Sky Mavis also said there are 2.6 M people that own Axies. This is four times more than the next largest NFT project (NBA Top Shot) by holders. The Ronin wallet has been downloaded three million times, serving as a boarding pass and on-boarding portal into web 3 for millions of people.
In addition to the funding, Sky Mavis and Binance will work together closely on projects that include future exclusive Land sales and enable Binance login via The Mavis Hub.
Binance is the world’s largest crypto exchange. Other investors include Animoca Brands, a16z, Dialectic, Paradigm and Accel.
Axie Infinity’s underlying infrastructure includes the Mavis Hub, the distribution platform; Ronin, the proprietary Ethereum sidechain; and Katana, a decentralized exchange for Ronin.
Overcoming gamer criticism
Some hardcore gamers in the West, as well as game developers, have expressed their opposition to NFT games as crappy, scammy, or exploitative. They compared the NFT structure to a Ponzi scheme, where the main source of new revenue was new players coming into the game. Hardcore players criticized the axolotyl inspired 2D art work of the cute characters.
But Sky Mavis has noted that it has undertaken efforts like creating a free-to-play version of Axie Infinity to address those concerns and enable a wider community of players to understand Axie Infinity and start playing it for fun. The company believes that will help grow the community and help it reach a larger mainstream audience.
While many hardcore gamers have looked down on Axie Infinity, those in emerging markets embraced it. About 20% to 25% of the players never had a bank account, Zirlin said. And with the new game, players won’t be playing just so they can make a quick buck by selling their Axies to players who join later.
Jeff Zirlin, head of growth at Sky Mavis, said in an interview the free-to-play version of the game will help the company draw in more players and enable new kinds of item sales that will reduce any dependence on monetizing only through new players. The free-to-play game will provide three free non-NFT starter Axies to new players. Those players of Axie Infinity: Origin will be able to battle each other without spending money and learn how to play through gameplay tutorials. That is making Axie Infinity: Origin much more accessible, and Zirlin hopes that players will stick with it because it’s fun.
“We wanted to provide a way for anyone to fall in love with the game,” said Zirlin. “Players experience the universe for free, without having to go down the crypto onboarding. And so our thesis is that Axie is beautiful, it’s fun. And not enough people know that because there’s a huge an entry barrier. So if we can front load the experience and make the blockchain onboarding something that happens post activation and post interest, then we’re going to be able to convert and bring a different type of audience into the technology.”
Hacker attack update
Meanwhile, regarding the attack, Sky Mavis said that on March 23, Sky Mavis’ Ronin validator nodes and Axie DAO validator nodes were compromised resulting in 173,600 Ethereum and $25.5 million (in U.S. dollars) being drained from the Ronin bridge.
The attack was socially engineered, and a thorough investigation is ongoing, the company said. The root cause of the breach was the small validator set which made it much easier to compromise the network. Sky Mavis will increase the validator group to 21 validators within the next three months, which will be a split between various stakeholders in the Axie community, and will together manage an open-source codebase. The new funding round, combined with Sky Mavis and Axie Infinity balance sheet funds, will ensure that all users are able to withdraw and deposit freely, the company said.
The Ronin Network bridge will open after it has undergone a security upgrade and several audits, which could take several weeks. In the meantime, Binance is supporting the Ronin Network by providing ETH withdrawals and deposits for Axie Infinity users, enabling most of them to operate freely. Once the Ronin Network bridge is open, all individual users will be able to withdraw their funds. The 56,000 ETH compromised from the Axie DAO treasury will remain undercollateralized as Sky Mavis works with law enforcement to recover the funds. If the stolen funds are not fully recovered within two years, the Axie DAO will vote on next steps for the treasury.
“In order for the global ecosystem to continue thriving and maturing, it is imperative that we work together, especially when it comes to security, which is our strong suit,” said Binance CEO Changpeng “CZ” Zhao, in a statement. “We have seen the tremendous work and growth of the Sky Mavis team since working together on the Axie Infinity project on Binance Launchpad. We strongly believe Sky Mavis will bring a lot of value and growth for the larger industry and we believe it’s necessary to support them as they work hard to resolve the recent incident.”
“Sky Mavis is committed to reimbursing all of our users’ lost funds and implementing rigorous internal security measures to prevent future attacks,” said Trung Nguyen, Sky Mavis CEO, in a statement. “With the support of Binance and other industry leaders, we will be able to quickly expand the validator set from five to 21 validators to ensure the security of the Ronin network. While we address this issue, we are also focusing on the future, starting with tomorrow’s launch of Axie Infinity: Origin. We are also thrilled to collaborate with Binance NFT on future projects.”
Founded in 2018, Sky Mavis is on a mission to create freedom for gamers by building games that are owned and governed by the communities that play them. Sky Mavis’ first game, Axie Infinity, is a “play and earn” title, where players can resell what they own in digital items from a game — in this case, the Axie characters.
Based in Vietnam and Singapore, Sky Mavis has raised about $311 million to date from investors including Andreessen Horowitz, Accel, Paradigm, Libertus, and Mark Cuban. Sky Mavis has more than 130 employees, and it is also working on Land, a game that will enable players to buy and sell virtual lands.
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