Nansen Analyzes Ronin: The Engine Driving Axie Infinity's Growth
Although the Ronin network still has flaws and is more centralized than the community expects, Sky Mavis has also taken consistent measures to decentralize the network.Author: Nansen
Introduction
Ethereum's Layer-1 is not dedicated solely to gaming. Game transactions demand speed and low costs to scale and facilitate the thousands or even millions of microtransactions that occur daily. The user experience must be seamless and enjoyable. However, Ethereum's Layer-1 blockchain transaction costs can reach $50-100, and transaction speeds are measured in minutes rather than seconds, making it prohibitively expensive and inefficient.
These shortcomings of Ethereum limit Axie Infinity in attracting new players and retaining existing ones. High gas fees and network congestion can stall the economic effects of the game, thereby diminishing its inherent appeal.
For Axie Infinity to continue growing and meet the needs of millions of players, changes must be made. The team decided to take matters into their own hands and launched the Ronin mainnet in February 2021 to meet this demand.
What is Ronin?
Ronin is an Ethereum sidechain created based on the Axie Infinity community. The Sky Mavis team behind Axie Infinity needed a reliable, fast, and inexpensive network to meet gaming demands. The scaling solution they required had to prioritize gaming, withstand the test of time, and adapt to the growing demands of rapid game development. Ronin was their ideal answer.
What is a Sidechain?
A sidechain is an independent blockchain that is compatible with Ethereum, having its own consensus model and block parameters, and running in parallel with the Ethereum mainnet. Sidechains are one of the main Layer-2 scaling solutions on Ethereum, capable of processing transactions more efficiently. Another example of a sidechain is the Polygon network. Other popular Layer-2 scaling solutions include Optimistic Rollup (such as Arbitrum).
Ronin currently uses a Proof-of-Authority (PoA) consensus model, which is a reputation-based system that allows for fast transactions due to its limited and relatively centralized number of validators. Validators are carefully selected by the team based on their credibility, and unlike Proof-of-Stake blockchains, validators "stake" their reputation rather than tokens.
If validators behave improperly or negatively impact the network, they may lose their reputation. Examples of Ronin network validators include Binance, Ubisoft, and Animoca Brands.
Why Create Their Own Blockchain?
Before building Ronin, the team collaborated with another Layer-2 scaling solution, Loom Network. About a year later, the Loom team decided to optimize their network, but focused on enterprise solutions rather than user-facing applications.
This led to a divergence in goals between the two teams, prompting Sky Mavis to terminate the partnership and build their own blockchain to avoid similar situations in the future.
Today, most existing Layer-2 solutions are built around DeFi and payments rather than gaming. By creating their own blockchain, Sky Mavis could design and determine the chain's features. This chain can be fully optimized for the needs of the Axie community, reducing potential issues that may arise from using existing blockchains for future scaling.
Other potential solutions, such as zkSync which uses a ZK-rollup consensus model, are still too immature and lack the proper infrastructure to meet the needs of Axie Infinity.
Ronin Wallet
A robust cryptocurrency wallet is crucial for creating a seamless user experience when interacting with the blockchain. Sky Mavis did not utilize existing wallets but instead created their own Ronin Wallet. The team partnered with Ramp to allow users to purchase Axie ecosystem tokens directly with fiat currency.
With the Ronin Wallet, users can manage their Axie-related assets, available as a Chrome browser extension on computers and as an app on mobile devices. The Ronin Wallet supports over 300,000 active addresses interacting with the network daily, peaking at 1.1 million in November 2021.
Daily Active Addresses on Ronin
Source: Nansen.ai as of January 11, 2022
Transactions and Gas Fees
Ronin aims to grow into a leading gaming blockchain, optimized to process transactions almost instantly for negligible fees, allowing seamless millions of in-game microtransactions. The Ronin network serves as the backbone for Axie Infinity, supporting all its transactions and holding its assets, including Axies, Land, SLP, AXS, and wrapped ETH (WETH).
During the peak in November, Ronin's throughput exceeded 560% of Ethereum's total transaction count. There is no official documentation on Ronin's maximum TPS, but the network's block time is approximately 3 seconds (compared to Ethereum's average of about 13 seconds). Executing transactions on the Axie marketplace and sending assets through the network can be completed in seconds.
Comparison of Transactions on Ronin and Ethereum
Source: Nansen.ai as of January 11, 2022
Ethereum's gas fees fluctuate between 50-100 gwei, making microtransactions very unprofitable. In contrast, Ronin offers each wallet 100 free transactions daily. In the future, after the $RON token is launched, a small gas fee will be charged, likely less than $1.
Average Gas Fees on Ethereum
Source: etherscan.io as of January 6, 2022
What is Katana? (i.e., Ronin Dex)
Every blockchain has its flagship decentralized exchange (DEX) where users can freely swap tokens within the ecosystem. Ethereum corresponds to Uniswap, Matic is Quickswap, and for Ronin, it is Katana.
Katana is more commonly known as "Ronin DEX," allowing users to easily swap tokens within the Axie Infinity ecosystem without leaving the Ronin blockchain. This reduces the need to bridge assets outside the ecosystem and minimizes friction when exchanging Axie tokens.
The DEX has two liquidity pools (SLP/ETH, AXS/ETH), where users can choose to become liquidity providers (LP) by staking related token pairs. Each transaction entering the staking pool earns 0.25% for liquidity providers, distributed proportionally based on their share in the pool.
10% of the RON token supply will be distributed to LPs over 90 days to incentivize them while doubling down on distributing RON tokens to the Axie community. Becoming an LP is currently the only way to earn RON tokens, a benefit that has attracted $900 million in liquidity to these two pools.
Liquidity on Katana
Source: https://katana-analytics.roninchain.com/home as of January 11, 2022
The dollar value of these pools has gradually declined after initial operation. However, a more accurate result can be derived from a deeper analysis of on-chain data. Observing the AXS-WETH pool, we can see that the token balance has been increasing over time. This indicates that LPs have been net inflowing into the pool, and the decline in dollar value is due to price fluctuations of the tokens rather than a decrease in the number of staked tokens.
Changes in WETH balance in the AXS-WETH pool over time
Source: Nansen.ai as of January 11, 2022
AXS Staking
In addition to the liquidity pools in Katana, there is a separate AXS staking pool where users can stake AXS to earn rewards. This pool differs from the LP pools on Katana, as users do not need to stake an equivalent amount of WETH with their AXS.
The expected annual percentage rate (APR) for staking is 87%, not considering compounding. Rewards are distributed daily, and users can choose to claim rewards, withdraw them from the pool, or re-stake the earned AXS to increase their expected annual yield (APY).
AXS Staking Dashboard
Source: https://stake.axieinfinity.com/ as of January 11, 2022
Currently, over 20.7 million AXS have been staked, accounting for about 30% of the circulating supply. Since the launch of this staking pool in October, despite AXS's price primarily trending downward and consolidating, the dollar value in the pool has steadily increased. Since May, the number of unique wallets holding AXS has been steadily rising, with 90% of the tokens held for at least 90 days.
Cumulative Dollar Value of Staked AXS
Source: Nansen.ai as of January 11, 2022
Token Distribution Among AXS Holders
Source: Nansen.ai as of January 11, 2022
Number of Unique Addresses Holding AXS
Source: Nansen.ai as of January 11, 2022
Transferring Assets to Ronin
There are two main ways to transfer Axie Infinity ecosystem tokens to the Ronin network: one is to bridge ERC-20 ETH, AXS, and SLP from an Ethereum wallet, and the other is to transfer Ronin AXS and SLP from Binance.
Ronin Bridge
Since Ronin is a sidechain, bridging is required to transfer ERC-20 tokens to the Ronin network. Users need to have an Ethereum wallet, such as MetaMask, to interact with the Ronin Bridge. In terms of total transfer volume, Ronin Bridge currently ranks as the third-largest bridge, following Polygon and Avalanche.
Bridging facilitates bi-directional transfers, is user-friendly, and typically completes transactions within 10-15 minutes. Please watch the video guide produced by the Sky Mavis team here.
Top EVM Bridges by Total Volume
Source: Nansen.ai as of January 11, 2022
In addition to the fees for sending tokens to an Ethereum wallet, bridging will also incur Ethereum network fees. This makes small transactions very unprofitable, creating significant barriers for most users. If possible, it is recommended to send Ronin AXS and SLP directly through Binance to the Ronin wallet.
Binance
Users with a Binance account can directly send Ronin AXS and SLP to and from the Ronin wallet. Since transactions occur through the Ronin network rather than Ethereum, fees are significantly reduced, usually under $1. The cost to send SLP to the Ronin wallet is 1 SLP ($0.03), only 1/1116 of the fees required on the Ethereum network.
Withdrawal and Deposit Fees for SLP on Binance
Source: Binance.com as of January 4, 2022
The withdrawal process is similar to other tokens; users enter their Ronin address, select the amount, and can send the tokens. Please refer to this written guide from Binance for the operation process.
Current Status and Future Plans
The PoA consensus model means that due to the limited number of validators and the inability for ordinary people to run nodes, the network is relatively centralized. While this allows the team to quickly roll out upgrades and address any issues that may arise, it contradicts the "players own the game" spirit that Axie Infinity pursues.
To alleviate this situation, Sky Mavis plans to gradually decentralize the network after Ronin has further developed and stabilized. The team recently launched the first community-operated validator node, managed by 50 members of the AxieChat community, marking the first step in a complex decentralization process.
In addition, the team is actively monitoring developments in the blockchain space and is willing to change the consensus model to a more decentralized one once solutions mature. A typical example is zkSync, which uses a ZK-rollup consensus model.
As Ronin matures and stabilizes, other game developers can begin building games on Ronin. This way, the network can expand beyond Axie Infinity and potentially become the preferred blockchain for future blockchain games.
Conclusion
In less than a year since its launch, the Ronin network has already demonstrated its powerful capabilities as a gaming scaling solution. The birth of Ronin has sparked a wave of interest in Axie Infinity and GameFi/play-to-earn. With improvements in user experience, new users are more willing to engage in the game. The ultra-high speed and negligible gas fees invigorate the in-game economy, with daily transaction volumes far exceeding Ethereum.
Although the Ronin network still has flaws and is more centralized than the community expects, Sky Mavis has taken consistent measures to decentralize the network. Increasing community validators and distributing RON tokens to LPs on the Katana DEX is just the first step toward achieving decentralization.
Ronin is still in its infancy, but witnessing the blockchain grow over time is an exciting prospect. Will Ronin become the go-to blockchain in the gaming space? Let's wait and see.
