Fundamental analysis of Ronin

Ronin, an Ethereum-compatible blockchain, is specifically designed for gaming applications. Sky Mavis developed it, the company behind Axie Infinity, a well-known play-to-earn game from the previous bull run.

Ronin demonstrated its capabilities by supporting Axie Infinity with millions of daily active users and facilitating more than $4 billion in NFT transactions.

This blockchain delivers almost instantaneous transactions with minimal fees, allowing millions of in-game transactions to be executed smoothly, establishing it as a top choice for Web3 gaming platforms.

Here's a table comparing Ronin, Ethereum, and Solana, giving you some perspective:

Ronin is in the same realm as Solana in terms of scalability, finality and fees, which is a must if it's supposed to support games like Axie Infinity.

However, to reach such levels of scalability and low fees, Ronin sacrifices some decentralization:

Ronin's blockchain initially used a Proof of Authority (PoA) consensus, relying on "trusted validators" chosen for their reputation to maintain the network. This is a highly (but not completely) centralized model, but PoA enables faster transactions and lower fees.

To improve decentralization, Ronin integrated Delegated Proof of Stake (DPoS), allowing any RON token holder to become a validator or delegate their tokens to others for validation duties.

This shift helps enhance community participation and network security, balancing efficiency with increased decentralization.

Why not just use Solana...?

As a developer building a blockchain-based game, Ethereum is out of the question due to its slowness and high fees.

But why not just launch on Solana instead of Ronin, since Solana is so much bigger and more adopted?

Well, there are a few reasons, here are some of them:

1. Integration with Ethereum: Being EVM-compatible, Ronin allows developers to easily integrate their projects with the broader Ethereum ecosystem, facilitating access to a wider range of tools, wallets, and services. Remember, 70% of all value in DeFi is in Ethereum-based protocols. Almost everything is built on Ethereum, so having access to this is a huge win for Ronin.
2. Direct Developer Support/Funding: Ronin’s backing by Sky Mavis provides direct support channels and potential funding opportunities, which can be crucial for game developers, particularly those new to blockchain.
3. Robust Infrastructure with Less Overhead: The infrastructure and tools provided by Ronin are designed to minimize the technical overhead for developers, allowing them to focus more on game development rather than blockchain complexities.
4. Gaming first approach: Ronin is built for games, as seen in their fee structure and tokenomics (more on this later). Solana is a general-purpose blockchain. This is a big advantage for Ronin in this specific niche.

Another competitor of Ronin is Immutable X - a layer 2 solution on Ethereum focused on games.

Here's a comparison of the two:

Although Immutable X has two times higher total value locked (TVL) and 7x the number of dApps, Ronin has many more unique active users and a significantly higher volume on those dApps.

This gets us into the adoption of Ronin...

Adoption of Ronin

Ronin Network currently hosts several games, with some notable recent additions being Pixels and Apeiron. The daily active users (DAU) for these games have shown substantial growth, with Pixels experiencing an increase to 175,000 DAUs within 90 days of its migration to Ronin.

Other games on Ronin are Apeiron, The Machine’s Arena, Wild Forest, ZOIDS Wild Arena, Axie Champions, Tribesters World, and Battle Bear Heroes.

Upcoming games include Bowled.io and Axie Homeland.

Ronin ranks #3 in all-time NFT sales, almost beating Solana:

Here are some of the most popular dApps on Ronin,

Ronin Wallet — As of January 2024, Ronin Wallet has done 11M in downloads.

Ronin Name Service (RNS) — RNS went live in mid-November 2023 allowing the community to replace long Ronin addresses with expressive gamertags. 20k RNS tags were created within the first month of the public sale. The sale generated 160k RON in revenue.

Mavis Marketplace — Launched in May 2023, Mavis Market allows new NFT creators to launch or existing creators to migrate their collections. Genkai NFTs minted out on Mavis Market within an hour and collected $1.4M in revenue.

Launchpad — Ronin has partnered up with Impossible Finance to build a launchpad infrastructure on the network for future games. Staking RON or $AXS through the launchpad may be an outlet for acquiring these new game tokens.

Katana DEX — Katana is the native DEX for tokens in the Ronin ecosystem. On Katana, users are able to swap, provide liquidity, and farm RON using their LP tokens. Katana DEX saw a TVL increase of ~3x from November 2023 to February 2024, reaching a TVL of $210M. As of October 2024, the TVL is down to $122M. This is in line with similar projects as the market has been trending down for roughly 6 months. 

Ronin is quickly becoming a favorite in the world of Web3 gaming. With a growing number of users and dApps, it's carving out a significant niche for itself and standing out as a leading choice for gamers and developers in the blockchain space.

Let's finish by looking into the tokenomics.

Tokenomics

The native coin of Ronin is RON. It is mainly used for transaction fees, as a governance token and to secure the network, by staking (DPoS).

Other notable use cases for the token include:

• Fee Reimbursement: A portion of the RON tokens is used to reimburse gas fees for specific transactions within popular games on Ronin. This is part of an effort to reduce the cost burden on players and enhance the user experience.
• Development Fund: RON tokens are also allocated to a development fund, which is used to finance ongoing maintenance and the development of new features and capabilities on the Ronin blockchain.

As for supply and inflation, things are a bit worrying.

Here's the planned distribution of RON tokens:

I do NOT like that Sky Mavis kept 30% of the tokens, although they have not sold any RON tokens to date and no RON was ever discounted for funding rounds. The unlock schedule will be a linear distribution over 9 years and released according to a program budget by the team.

Their supply increase will be high initially, which makes sense (to incentivize growth and staking). Here is the official timeline:

Their stated inflation rate is 15% for 2024. That's in the high-but-acceptable range. It is not enough to kill price action, but high enough to stimulate growth and reward staking.

In fact, roughly 65% of the circulating supply is staked. Increasing the staked amount effectively decreases inflation, which is good for price action.

Future of Ronin

Ronin is a great project, and their future seems bright. They operate in a well-defined niche and are carving out market share effectively.

Sky Mavis is a well-known player in this niche, giving them leverage against other competitors, especially when onboarding established game developers trying to get into Web3 games.

To speculate on the future value we need to define a new metric. This metric should be "valuation" divided by "adoption".

The best metric is therefore "Market Cap" divided by "Active addresses".

When this metric is low, it means that Ronin has lots of adoption and a low market cap, indicating that it's undervalued.

When this metric is high, it means that Ronin is overvalued, as the market cap has outgrown the adoption (active addresses).

This is the market cap for Ronin in 2023 - 2024:

 

It peaked at about $1.25B in March 2024.

At this time, the average daily active addresses was 1.1M.

Let’s see the ratio between MC / Active addresses for the past seven months:

 

The ratio ranges from 1107 to 335, which is pretty low compared to similar chains.

Polygon, on the other hand, is roughly 10X that, ranging from 12500 to 3500:

 

In other words, Polygon is priced approximately 10x higher than Ronin in terms of MC / active addresses.

Now, let's use these numbers to say something about the future of Ronin.

I will stipulate that the relationship between market cap and active addresses remains the same, ranging from 1107 to 335.

At the same time, I will assume that the number of active users on Ronin will increase in the next year.

This assumption is grounded in the general growth of the gaming sector from 2023 to 2024.

For example, the number of unique active wallets in the gaming sector went 7x in this period:

 

We will make three scenarios, assuming that the growth in users will take three different directions the next year:

• Scenario 1: Number of gamers increase by 5x in 2025. Active addresses on Ronin increase from 2M to 10M
• Scenario 2: Number of gamers increase by 8x in 2025. Active addresses on Ronin increase from 2M to 16M
• Scenario 3: Number of gamers increase by 10x in 2025. Active addresses on Ronin increase from 2M to 20M

For each scenario, we assume two cases: one high where the relationship between MC / Active addresses is 1107 (as it was in February) and a low where the relationship is 335 (as it was in July).

Hypothetical market cap scenarios:

I'll calculate the market cap in the different scenarios, and list the different prices of RON at the end.

Scenario 1:

HIGH: $10M x 1107 = $11,07B

LOW: $10M x 335 = $3,35B

Scenario 2:

HIGH: $16M x 1107 = $17,71B

LOW: $16M x 335 = $5,36B

Scenario 3:

HIGH: $20M x 1107 = $22,14B

LOW: $20M x 335 = $6,700B

If 50% of the Ronin tokens are released throughout 2025, this gives us six price targets:

1. $6.7
2. $22.14
3. $35.4
4. $10.72
5. $44.28
6. $13.4

These are high targets leaving an ROI of up to 30X from the current price of $1.5.

Bear in mind that Ronin is a high-risk, high-reward project and that this is a highly speculative thought experiment.

It has experienced some setbacks, including a hack a few years ago, but the project still looks like it can succeed.

For me, Ronin seems like the go-to blockchain for big players wanting to get into Web3 gaming and gain adoption quickly.

For the native crypto projects, something like Immutable X might be better since they are more decentralized and align better with the crypto ethos. But I don't think AAA game developers care that much about decentralization.

I think the large game developers care about one thing - money. And the quickest path to $$$ seems to be Ronin.

Furthermore, they'd probably prefer to communicate with Sky Mavis (a company) instead of a DAO or non-profit foundation like in Immutable's case.