Ronin: The engine powering Axie Infinity’s growth

Ronin: The engine powering Axie Infinity’s growth

The birth of Ronin ushered in the rise of Axie Infinity and the GameFi/Play-to-earn wave. Will Ronin become the go-to blockchain for gaming? Only time will tell.

Introduction

Ethereum’s Layer-1 was not built for gaming. Games require fast and cheap transactions in order to scale and facilitate the thousands if not millions of micro-transactions that happen daily. The user experience has to be seamless and enjoyable. With transactions costing $50-100 and transaction speeds that are measured in minutes instead of seconds, Ethereum’s Layer-1 blockchain is simply too expensive and too slow. 

The downsides of Ethereum were limiting Axie Infinity’s ability to attract new players and retain existing ones. Spikes in gas fees and network congestion would slow the game’s economy to a halt and undo any traction that the game was getting. Things had to change if Axie Infinity was going to grow and cater to millions of players. The team decided to take matters into their own hands and Ronin’s mainnet was launched in February of 2021 to meet that need.

What is Ronin?

Ronin is an Ethereum sidechain that was created with Axie Infinity’s community in mind. Sky Mavis, the team behind Axie Infinity, needed a reliable, fast and cheap network that could cater to the demands of the game. They needed a scaling solution that put gaming first, was built to withstand the test of time and the ever increasing demands of a fast growing game. Ronin was their answer. 

What are sidechains?

Sidechains are Ethereum compatible, independent blockchains which have their own consensus model, block parameters and run in parallel to the Ethereum mainnet. They are one of the main Layer-2 scaling solutions on Ethereum that allow for more efficient processing of transactions - Polygon network is another example of a sidechain. Other popular Layer-2 scaling solutions include Optimistic Rollups such as Arbitrum

Ronin currently adopts a Proof-of-Authority (PoA) consensus model which is a reputation-based system that allows for fast transactions due to its limited number of validators and relatively centralized nature. Validators are handpicked by the team based on their credibility and unlike Proof-of-Stake blockchains, validators are “staking” their reputation instead of tokens. Validators risk losing their reputation if they become bad actors or negatively affect the network. Some examples of validators for the Ronin network include Binance, Ubisoft and Animoca Brands.

Why create their own chain?

Before Ronin was built, the team partnered with Loom network, an alternative Layer-2 scaling solution. After about a year, the Loom team decided to optimize their network for enterprise solutions instead of user-facing applications. This created a misalignment of goals between the two teams and Sky Mavis decided to end the partnership. Building their own blockchain would prevent a similar situation from occurring in the future.

Most existing Layer-2 solutions today are built with DeFi and payments in mind, not gaming. By creating their own blockchain, Sky Mavis is able to design and decide on the characteristics of the chain. The chain can be fully optimized for the needs of the Axie community, reducing potential future scaling issues that might arise by using existing blockchains. Other potential solutions, such as zkSync which uses a ZK-rollup consensus model, were too new and did not have the proper infrastructure to cater for the needs of Axie Infinity. 

Ronin Wallet

A good crypto wallet is vital in creating a seamless user experience when interacting with a blockchain. Instead of leveraging existing wallets, Sky Mavis created their own Ronin wallet. The team partnered with Ramp to allow users to purchase Axie ecosystem tokens directly using fiat. The wallet allows users to have custody over their Axie related assets and is available on both desktop as a chrome extension and on mobile devices as an app. The wallet enables over 300k daily active addresses to interact with the network, peaking at 1.1m in November 2021. 

Daily Active Addresses on Ronin

Source: https://pro.nansen.ai/multichain/ronin as at 11 Jan 2022

Transactions & Gas

Ronin was built to be an industry leading blockchain for gaming. It optimizes for near instant transactions and negligible fees that allows for millions of in-game micro-transactions to occur seamlessly. The network is the backbone of Axie Infinity, powers all its transactions and holds its assets - Axies, Land, SLP, AXS, Wrapped ETH (WETH). 

At its peak in November, Ronin processed over 560% of the total number of transactions on Ethereum. While there is no official documentation on the max TPS of the Ronin network, it has a block time of ~3s (ETH averages ~13s). Executing trades on the Axie marketplace and sending assets over the network are completed within seconds.

Number of transactions on Ronin vs Ethereum

Source: https://pro.nansen.ai/multichain/ronin as at 11 Jan 2022


Gas fees on Ethereum hovers between 50-100 gwei making micro transactions uneconomical. Ronin, on the other hand, offers 100 free transactions per wallet per day. In the future, there will be a small fee once the $RON token is released, but it will likely cost less than $1. 


Ethereum average gas fees

Source: https://pro.nansen.ai/gas-tracker

What is Katana? (The Ronin Dex)

Every blockchain has its own flagship decentralized exchange (DEX), a place where users are able to swap tokens freely within the ecosystem. Ethereum has Uniswap, Matic has Quickswap and Ronin has Katana. Better known as “Ronin DEX”, Katana allows users to easily swap between tokens within the Axie Infinity ecosystem without leaving the Ronin blockchain. This reduces the need to bridge assets out of the ecosystem and reduces friction when swapping between Axie’s tokens.

The DEX has 2 staking pools (SLP/ETH, AXS/ETH) where users can opt to become liquidity providers (LPs) by staking the relevant pairing. Liquidity providers receive 0.25% of each trade that taps into the pool, proportionate to their pool share. 10% of RON’s supply will be issued out to LPs over a 90 day period to incentivise LPs while doubling up as a way to distribute RON tokens to the Axie community. Being a LP is currently the only way to obtain RON tokens and that benefit has been enough to attract $900m in liquidity across the 2 pools. 

Liquidity on Katana

Source: https://katana-analytics.roninchain.com/home as of 11 Jan 2022


The USD value of the pools have gradually declined after the initial run up. However, taking a deeper look at the on-chain data paints a more accurate story. Looking at the AXS-WETH pool, we can see that the token balances have been increasing over time. This implies that there’s been a net inflow of LPs into the pool and the decline in USD value is due to price fluctuations of the tokens and not a drop in number of tokens staked.

AXS balance over time in the AXS-WETH pool

Source: Nansen.ai as at 11 Jan 2022


WETH balance over time in the AXS-WETH pool

Source: Nansen.ai as at 11 Jan 2022

Want to keep track of on-chain data about Axie Infinity and Ronin? Sign up for free to view those dashboards!

AXS staking

Beside the liquidity pools on Katana, there is a separate AXS staking pool, where users can stake their AXS to generate yield. This pool differs from the LP pool on Katana and does not require the user to stake an equivalent amount of WETH alongside their AXS.

The estimated yield for staking is at 87% APR, which does not account for compounding. Rewards get paid out daily and users have the option to claim the rewards, taking it out of the pool or restaking which stakes the rewarded AXS into the pool, increasing their expected APY.


AXS staking dashboard

Source: https://stake.axieinfinity.com/ as at 11 Jan 2022


Currently, there’s over 20.7m AXS being staked, ~30% of the circulating supply. The USD amount has been increasing steadily since the pool was launched in October despite the price of AXS generally trending downwards and sideways during the period. The number of unique wallets holding AXS has been steadily increasing since May, with 90% of the tokens being held for at least 90 days. 


Cumulative USD value of AXS staked

Source: https://pro.nansen.ai/axie as at 11 Jan 2022


AXS holders token distribution

Source: https://pro.nansen.ai/token-god-mode/ as at 11 Jan 2022


Unique addresses holding AXS

Source: https://pro.nansen.ai/token-god-mode/ as at 11 Jan 2022

Transferring assets on to Ronin

There are two main ways to get Axie Infinity ecosystem tokens onto the Ronin network: bridging ERC-20 ETH, AXS and SLP from an Ethereum wallet or transferring Ronin AXS and SLP from Binance.

Ronin bridge

As Ronin is a sidechain, bridging is required to get ERC-20 tokens onto the network. Users will need to have an Ethereum wallet such as MetaMask set up in order to interface with the Ronin bridge. The Ronin bridge is currently the third largest bridge by total volume transferred, right behind Polygon and Avalanche. The bridge facilitates two way transfers, is easy to use and transactions typically take no longer than 10-15 minutes to complete. Video guide made by the Sky Mavis team can be viewed here.

Top EVM bridges by total volume

Source: https://pro.nansen.ai/bridges as at 11 Jan 2022


However, bridging will incur Ethereum network fees on top of the fees to send the tokens over to an Ethereum wallet. This makes smaller transactions uneconomical and is a huge hurdle for most users. If possible, it is recommended to use Binance to send Ronin AXS and SLP directly to and from the Ronin wallet.

Binance

Users who have a Binance account are able to send Ronin AXS and SLP directly to and from their Ronin wallets. As transactions go through the Ronin network instead of Ethereum, fees are much lower, typically costing less than $1. In the case of SLP, sending it over to a Ronin wallet costs 1 SLP ($0.03) or 1/1116 of the price when compared to using the Ethereum network.


SLP binance withdrawal and deposit fees

Source: Binance.com as at 4 Jan 2022

The withdrawal process is similar to that of other tokens, users key in their Ronin address, select the amount and send the tokens over. Binance has a written guide on exactly how to do it here.

Current criticisms and future plans

The PoA consensus model means that the network is relatively centralized due to its limited number of validators and the inability of the common man to run a node. This allows the team to push out upgrades quickly and to fix any issues that might arise but goes against the ethos of a player owned game that Axie Infinity is striving towards. To alleviate that concern, Sky Mavis plans to progressively decentralize the network once Ronin is more developed and stable. They’ve recently launched their first community-run validator node managed by 50 members of the AxieChat community and is the first of many steps towards decentralization.

On top of that, the team is actively looking at developments in the blockchain space and are open to changing the consensus model to a more decentralized model once such solutions mature. One example would be zkSync which uses a ZK-rollup consensus model.

Once Ronin is more mature and stable, other games developers can start to build their games on Ronin.  This will allow the network to expand beyond Axie Infinity and potentially become the go-to blockchain for future blockchain games.

Conclusion

Despite launching less than one year ago, the Ronin network has proven itself to be a capable scaling solution for gaming. The birth of Ronin ushered in the rise of Axie Infinity and the GameFi/Play-to-earn wave. New users were more willing to try the game due to the improved user experience. The speed and non-existent gas fees enables a vibrant in-game economy that clocked in more transactions than Ethereum per day.

Although the network has its flaws and is more centralized than the community would like it to be, Sky Mavis has made consistent steps to decentralize it. Adding in community validators and distributing RON tokens to LPs on the Katana DEX are just the first steps towards decentralization. It’s still early days for Ronin and it will be interesting to see how the blockchain develops and grows over time. Will Ronin become the go-to blockchain for gaming? Only time will tell.

Disclaimer

The authors of this content and members of Nansen may be participating or invested in some of the protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Nansen does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Nansen at any time without notice. Nansen accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.

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