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On March 23, the world’s hottest crypto game suffered one of the largest crypto heists of all time. A hacker breached the blockchain that powers Axie Infinity, a so-called play-to-earn video game in which players can exchange virtual winnings for real money, and stole $620 million worth of cryptocurrencies from users’ accounts.

The hack, which went undiscovered for nearly a week, exposed the security vulnerabilities of Axie Infinity and walloped the reputation of its developer, Sky Mavis, Vietnam’s most valuable unicorn, which vowed to recover the lost funds and find the culprit. But the breach could also devastate Axie Infinity’s hundreds of thousands of users—the majority of whom live in one of the world’s poorest countries—whose earnings were already under pressure as the game’s booming popularity made it harder to earn meaningful payouts.

One of those players was Pablo, who turned to the game during a low point in his life. Last year, a COVID lockdown in the Philippines had confined the 26-year-old to the two-bedroom house he shared with his parents near Manila, and the pandemic had eliminated his job as a teacher. A bout of COVID that hospitalized his father had saddled Pablo’s family with hundreds of dollars in medical debt.

“I spent all my time at home searching for hustles so I could get a little money, but I couldn’t find any,” he says.

Then, in June 2021, Pablo received a lifeline that at first seemed like a joke. A friend sent Pablo an image of three cartoon characters that looked like a cross between a puffer fish and a cat. The friend said he had just paid 40,000 Philippine pesos, or $767, for non-fungible tokens, or NFTs, of the creatures.

Pablo texted back: “Are you insane? You could start a business with that.”

In essence, that’s what the friend had done. The NFTs were avatars, or “Axies” in Axie Infinity.

“You can make money off of these,” the friend told Pablo. “Just try it.”

That suggestion catapulted Pablo into the Axie Infinity world, a digital postapocalyptic realm where pudgy, monster-like Axies battle one another for a cryptocurrency called Smooth Love Potion, or SLP, that players can swap for other digital tokens like Ether or fiat currency. Pablo couldn’t afford to buy Axies, so he borrowed some from another player in exchange for 40% of his winnings.

Axie Infinity players attack one another’s Axies with playing cards; it’s part Pokémon, part card game. The victor wins SLP. Pablo watched tutorials on YouTube and Twitch and spent weeks competing in single-player mode on his phone and desktop computer.

Within two months, Pablo, who is using a pseudonym to mask his identity from his employer, was earning up to 4,000 pesos or $80 a week, double his pay as a teacher. He paid off his father’s bills and his sister’s school tuition. “Three little creatures” changed his life. “I found financial freedom,” he says.

The story of Pablo and others like him are what the founders of Vietnam-based video game developer Sky Mavis dreamed of when they launched Axie Infinity in 2018. They believed the play-to-earn game could generate real money for real people, especially users in poor nations like the Philippines, where SLP winnings could compete with wages and where marginalized citizens otherwise had little hope of securing a stake in new blockchain technologies.

“[It’s] putting food on the tables for millions,” says Aleksander Larsen, cofounder and chief operating officer of Sky Mavis.

For players like Pablo, Axie Infinity was a godsend.

Investors saw a potential gold mine. Some of Silicon Valley’s wealthiest venture capital heavyweights poured $160 million into Sky Mavis in 2021, making the developer Vietnam’s most valuable startup, worth $3 billion. With 2.5 million users at its peak, Axie Infinity leads a blockchain game market that now accounts for nearly 50% of blockchain activity. Blockchain games drew $4 billion in VC investment in 2021, up from $88 million in 2020. Such games generate money in their own right—Axies are the bestselling NFT series ever, with $4 billion in sales compared with Bored Ape Yacht Club’s $1.5 billion. Fees on NFT trades and the breeding of new NFTs within Axie Infinity earned Sky Mavis $1.3 billion in revenue in 2021.

Axie Infinity and its peers also funnel crypto novices like Pablo into the faddish world of Web3, a new iteration of the internet founded on blockchain and cryptocurrency technologies, which—advocates say—lets users own their online identities rather than concentrating that power among a few giants.

Blockchain games groom players to be “very comfortable with dealing with crypto when they don’t even have a credit card,” says Yat Siu, founder of Hong Kong–based Animoca Brands, an early backer of Sky Mavis.

Until late last year, Axie Infinity mostly lived up to the Web3 hype. Nearly 3 million users were playing the game every day, more than half of them in the Philippines. The average cost of an Axie tripled in the first seven months of 2021 to nearly $500. At one point, the value of SLP rose over 1,000% in a single week in April to surpass 30 cents per token.

The boom spawned success stories like Pablo’s. Players who owned a piece of the Axie Infinity world were, in fact, controlling their own destiny. “We were witnessing the rise of this nation, this economy, in real time,” says Jeffrey Zirlin, a Sky Mavis cofounder who’s now its growth lead.

But in any economy—even one in which a “plant tank” can defeat an “aqua midliner” with a “poo fling”—there’s always the risk of a crash.

That risk loomed large earlier this year when Sky Mavis made radical changes to its game to avert the digital equivalent of a currency crisis. Axie Infinity’s developers discovered that the sort of fiscal and monetary problems that bedevil real economies—inflation, wild swings in currency valuation, and boom-and-bust business cycles—also plague the virtual world. The platform’s creators assumed the role of a central bank, making complex policy choices that dictate who wins and loses in the digital world—and whether players like Pablo can afford groceries and rent in the real one.

That’s a lot of responsibility for a project born out of a 280-square-foot office in Ho Chi Minh City—and that burden only got bigger when Sky Mavis confronted its mammoth hack.

Sky Mavis’s founders first connected over a shared interest in CryptoKitties, a platform founded in 2017 on the Ethereum blockchain that lets users swap NFTs of cartoon cats.

Software engineer Trung Nguyen, now Sky Mavis’s CEO, recruited cofounders Larsen, Zirlin, Tu Doan, and Andy Ho to help him build a new blockchain game called Axie Infinity that would be like CryptoKitties—but better.

In 2018, the team raised $100,000 by selling NFT Axies before the game was even functional. In 2020, they raised another $860,000 by minting a token linked to the game.

But when Axie Infinity launched in October 2018, it hardly changed the video game world overnight. In fact, the game attracted only a few thousand players in its first year, which the founders attribute to rudimentary gameplay and basic graphics.

The game is still bare-bones conceptually, but its player base is now massive. Axie Infinity’s daily active users increased from 38,000 in April 2021 to 1.9 million in September 2021 to a peak of 2.5 million by the year’s end. In July 2021, Binance, the world’s largest crypto exchange, stopped SLP trading briefly because volume was so high. Larsen attributes the growth largely to pandemic lockdowns forcing people inside and the power of social networks. “Everything has been spread through word of mouth,” he says.

Fifty-five percent of Axie Infinity users are in the Philippines, where game earnings can outpace real wages. In May 2021, Axie Infinity awarded players 150 SLP a day for playing its single-player mode and daily quests—equivalent to $55, more than five times Manila’s minimum daily wage.

Player guilds were one reason Axie Infinity’s user numbers shot up so quickly. They covered the high cost of entry for players who couldn’t afford it in exchange for a share of players’ future earnings.

The largest is Yield Guild Games (YGG), founded by Gabby Dizon in October 2020. Dizon, a mobile game executive in Manila, was one of Axie Infinity’s first 500 players.

“We discovered that we could basically breed a lot of Axies and then lend them out to people,” Dizon said. YGG has lent NFTs to 20,000 Axie Infinity players in Asia, Africa, and South America, and takes a 30% cut.

As players piled into Axie Infinity, so did VC dollars. In May 2021, a group of investors, including Mark Cuban and Reddit founder Alexis Ohanian, poured $7.5 million into Sky Mavis, giving the firm an estimated valuation of $2 billion. Five months later, one of Andreessen Horowitz’s crypto funds led a $152 million fundraising round that shot Sky Mavis’s valuation up to $3 billion.

But as Axie Infinity’s user numbers climbed, so did the supply of SLP, which decreased its value. SLP fell from a peak of $0.3645 on May 2, 2021, to a low of $0.0094 on Feb. 3, 2022. Suddenly, the 150 SLP that was worth $55 to players in Manila translated to $1.41.

Axie Infinity’s economy is “fundamentally inflationary,” says Lars Doucet, an independent game developer and research consultant for Naavik.

On Feb. 4, Sky Mavis said the inflation was “not sustainable.” It eliminated SLP rewards from single-player mode and slashed SLP rewards for beating an opponent by as much as a third.

“We know that this is painful medicine,” Sky Mavis said at the time. “The Axie economy requires drastic and decisive action now or we risk total and permanent economic collapse.”

Players fumed.

“I began this journey with the outlook of an investor, and now, I feel quite scammed,” one player wrote on the official Axie Infinity subreddit. Disgruntled players started to quit the game. Sky Mavis data show that Axie Infinity had 1.7 million daily active users in February, down 33% from the beginning of the year. Sky Mavis pegged Axie Infinity’s 2022 revenue at $27.2 million through March, putting the game on pace to earn this year only a tenth of the revenue it collected in 2021.

Too much growth caused Axie Infinity’s fiscal crisis, but too little growth also could be catastrophic by casting the economy into the equivalent of a deflationary spiral with lower earnings, lower transactions, and lower player counts.

“When tokens are required as the price of entry and their supply is constrained, the result can be enormous volatility in prices of these tokens as their value is not anchored in anything other than demand,” says Eswar Prasad, author of The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.

Sky Mavis’s drastic move helped arrest the fall of SLP, but now the developer faces a tricky economic pivot. Players who invested time and money in the game hoping to earn steady income may go elsewhere and must be replaced by those who want to enjoy the game without expecting any kind of monetary reward.

On Feb. 12, the company revealed plans to let new players try the game for free. In the new mode, players won’t earn SLP, but they can play the game—and, perhaps, enjoy it enough to shell out for NFTs in the future.

Sky Mavis hopes that the gameplay itself holds intrinsic value, and that any windfall is “a bonus,” Sky Mavis game product lead Philip La wrote in a newsletter on Feb. 18.

Shifting Axie Infinity from “play-to-earn” to “play-and-earn”—Sky Mavis’s new preferred language—got even harder with the hack. After learning of the breach, Sky Mavis temporarily halted all transactions on its blockchain, essentially freezing funds stored on the network. Players still grappling with the monetary policy changes felt burned a second time. After stabilizing near $0.0208, news of the hack caused SLP to plunge back below two cents.

Investors, for now, understand that Axie Infinity is a work in progress.

Siu said investors like Animoca Brands were “prepared to assist” Sky Mavis, yet warned the “traumatic” hack demonstrates “the need to be ever vigilant in this space.”

The hack is so large that it could “destroy all the companies involved,” says David Hsiao, CEO of crypto magazine Block Journal. But if Sky Mavis can recover the stolen funds, it could bounce back like Binance and other crypto firms have after breaches. “Time will tell,” he says.

“Nobody’s going to emerge with a perfect model on day one,” Arianna Simpson, general partner at Andreessen Horowitz, said prior to the hack. Blockchain games are “quite similar to real economies, which are certainly no joke to manage.”

Dizon notes that YGG players are now earning less, but he sees Axie Infinity’s monetary changes as aiding the game’s “sustainability.” If Axie’s economy does collapse, YGG has other options. It’s “invested in assets of over 30 games now,” he said in February.

But the recent crises are forcing players who bought into Axie Infinity’s early promises of real income to reconsider. The hack “[makes] me question how much money I have in the ecosystem,” one Redditor wrote.

SLP’s plunge pushed Pablo back into teaching, but he’d earned enough SLP to buy his own Axies, which he now lends to other players. And even after the hack, he’s committed to Axie Infinity, despite it no longer being his main income source. “As long as the game is there,” he says, “I’ll play it.”?

This article appears in the international edition of the April/May 2022 issue of Fortune with the headline, "A game too popular for its own good."