Pessimism can be a good thing


During the Covid-19 lockdowns in the latter half of 2020, thousands of Filipinos found themselves making more money than their day jobs by playing a video game. The game was Axie Infinity (Axie), an online play-to-earn game that offered a glimmer of hope during tough economic times. In Axie, players collect, breed, and battle creatures called Axies—similar to the Pokémon franchise. What makes Axie special is the in-game currency called Smooth Love Potion (SLP). Players collect SLP by winning Axie battles, and SLP can be traded for regular money like Philippine pesos.

But there was a catch. To assemble a decent team, you had to buy Axies, costing new players thousands of pesos.

By mid-2020, the price of SLP surged, making it expensive for new players to have strong teams. This led to the "managers and scholars" model, where “managers” bought Axies and lent them out to “scholars.” Scholars then played the game and split the earnings with their managers. For many Filipinos, this system was life-changing. Some scholars were making as much as 60,000 pesos a month—far more than what many earned from their day jobs. From secretaries to Grab delivery riders on break, everyone was glued to their screens playing Axie every second they could get.

It was the perfect money-making opportunity. For these players, nothing could possibly go wrong!

One of those players was a friend of mine—let's call him Alex. Alex, an avid gamer, was skeptical at first. The idea of making money by playing a video game seemed too good to be true. So he tested the waters by becoming a scholar first, playing using Axies lent to him by a manager.

Then he received his first paycheck: around P40,000 for a month of gaming. For Alex, this was a revelation. That was two months' wages at his day job. Suddenly, what had seemed like a dubious idea became a golden opportunity.

Convinced that he had found a sure way to make money, Alex took things to the next level. He rigged his PC so he could play multiple games of Axie simultaneously. He then used his life savings to buy his own team of Axies, but it was only enough to purchase a single team. So he borrowed a hundred thousand pesos from his brother to buy even more Axies.

For a while, it seemed like Alex's gamble had paid off. He played so much Axie that he got fired from his day job, but he didn’t care. He was making so much more in Axie. This was a sure thing—nothing could possibly go wrong!

But then, during the latter half of 2021, things started to go south.

As Axie grew in popularity, more players entered the game, creating more SLP currency. This led to an oversupply of SLP, causing its price to plummet.

Then, in March 2022, disaster struck. Hackers stole over $600 million from Axie’s network. This breach shattered confidence in the game and accelerated the decline of SLP's price. By July 2022, SLP had fallen by around 99% from its peak.

Alex had sadly reinvested most of his earnings back into the game, confident that the good times would continue. When the value of SLP crashed, he found himself jobless, burdened with debt, and holding worthless digital assets. His dream of easy money had turned into a nightmare.

Whenever we invest in anything, we do so under the assumption that we will make money because of a profitable narrative. In Alex's case, the narrative was straightforward: play the game, earn SLP, then convert SLP to pesos.

The problem arises when we develop too much confidence in a single narrative. This leads to the flawed assumption that nothing could possibly go wrong.

The inherent reality of investing is that risk is always present. Markets change, new risks emerge, and assumptions that once seemed ironclad can quickly fall apart. If you ever find yourself looking at an opportunity that feels like it has zero downside, your confidence may be a sign that you don’t fully understand what you’re looking at. You should do more research.

In the case of Axie Infinity, there were several potential downsides that players like Alex overlooked: the SLP currency’s supply/demand dynamics, the possibility of cyber attacks, the dilution of rewards as Axie got more popular, and so on.

Alex’s story serves as a reminder that no investment is without risk. When investing, always ask yourself, "How could this possibly go wrong?"

By thinking through potential downsides, you can avoid being blindsided by unexpected events and protect yourself from making costly mistakes.

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Keith Lim writes about personal finance and making money through the stock market. He blogs at keithblim.com.