The dynamics of supply and demand are given utmost importance by the foundation team when they are planning to introduce a cryptocurrency. This has been evident since the inception of Bitcoin when its total supply was capped at 21 million; just to maintain the economic scarcity. There have been several other methods introduced apart from capping the total supply of a token. Defining the vesting period for a particular cryptocurrency is one of them.
Most of the cryptocurrencies introduced in recent years have a vesting schedule. The ultimate motive of a vesting schedule is to linearly release a percentage of the total token supply into circulation over a span of 5-10 years. Now, how does that help a crypto token to maintain economic scarcity? Well, the intention is to create demand for the token’s utility meanwhile the circulation supply is less in its initial phase. This might result in upward price pressure for the token with the given circulating supply.
But this mechanism certainly comes with a word for caution. If the project is not able to maintain the required level of user engagement and transactions for the token, token unlocking can play the opposite dynamic also. Meaning that without sufficient demand and more tokens unlocking, the demand for the token may reduce, hence, can have a negative impact on the token price.
Unpacking Axie Infinity Token Unlock
The latest token unlocking of Axie Infinity took place on January 23, 2023. About 4.8 million AXS tokens were released valued at approximately $54 million (at the recorded price of $11.24 per token).
The chart highlights the price performance of Axie Infinity (AXS) in the past couple of days amid the token unlocking. It could be clearly noticed that before the token unlocking actually took place, there was positive sentiment for the AXS token. However, after the unlocking, there has been significant selling pressure which brought the price level down from its current year ATH of approximately $14.00 to the current recorded price of $11.20.
This might indicate that Axie Infinity is currently facing the second and unwanted case of token unlocking explained earlier. This means there is less demand for the token as compared to its circulating supply in the market.
The practical reason behind less demand for AXS tokens is the stagnant growth of average monthly players. As per the chart, the average number of monthly players in the past 30 days is 432,000, roughly the same as in November 2020. Moreover, the P2E game had a peak of 2.7 million average monthly players in January 2022. This downfall suggests that there are much less number of users who can contribute towards token velocity for AXS.
Axie Infinity in Do-or-Die Mode
What if we told you the next unlock for Axie Infinity is scheduled for April 23 and that too with a bigger unlock size? In the upcoming token lock, the circulating supply for AXS tokens will shoot from 66.15% to 73.28%. Therefore, Axie Infinity might be in a do-or-die situation in which it needs to ensure that the average monthly user count increases to a level at which the tokens which will be unlocked in April can generate velocity within the game’s ecosystem. Otherwise, Axie Infinity will face more selling pressure on its governance token.