Is Axie Infinity too big to fail?

The backers of Sky Mavis, developer of popular crypto game Axie Infinity, have offered the company a US$150 million lifeline, helping it reimburse players for the funds stolen in one of the biggest-ever crypto hacks.

On March 23, hackers linked to North Korea stole over US$620 million from Sky Mavis’ blockchain system, the Ronin Network.

It took six days for Sky Mavis to discover that the hack had taken place, leaving the company and its investors scrambling for immediate solutions. 

The involvement of existing investors – including Andreessen Horowitz (a16z), Animoca Brands, Paradigm, and Accel – to help bail out Sky Mavis was expected, given the firms’ financial stake in the success of Axie Infinity. 

In October 2021, a16z led a US$152 million round in Sky Mavis, bumping up its valuation to nearly US$3 billion. That was a significant milestone for a company that raised a total of US$7.5 million only five months before that.

However, Binance’s contribution to the US$150 million funding round came as a surprise, as it is the first time it has invested in the company. It also comes at a time when Sky Mavis risks taking a reputational hit from the financial loss, which stemmed from the company’s own security weaknesses.

While Binance did not respond to questions sent by Tech in Asia, it said in a blog post that it expects Sky Mavis to bring growth to the larger industry and that it’s necessary to support the firm as it works to resolve the hack.

As one of the highest-profile names in the play-to-earn gaming space, some believe Axie Infinity‘s success is critical to the broader crypto industry – which would be beneficial to Binance as well. 

Sky Mavis could potentially see its market value drop after the rescue round, giving Binance a chance to capitalize on the company’s growth potential at a discount. 

The Axie Infinity developer refused to disclose its valuation in response to a query by Tech in Asia.

While it was the first time Binance invested in Sky Mavis, the firm was the first major crypto exchange to directly integrate with Axie Infinity to offer its AXS token to investors. The Binance Launchpad platform helped the game sell tokens and marketed Sky Mavis’ fundraise in October 2020. Other exchanges like Coinbase and FTX followed suit only a year later. 

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