Word on the Block | Forkast.News

How can Web3 property rights change the future?

Episode Summary

Hong Kong based crypto unicorn Animoca Brands has invested in over 340 web3 projects and companies so far, and more are coming. We find out how they find the right ventures to back and what challenges and opportunities they are spotting in this age of the crypto chill. And why are they participating in the Open Metaverse Alliance, what exactly is it and why do we need it.

Episode Transcription

Angie Lau: There are dreamers and then there are doers. Well, Web3  is making it possible to turn all your dreams into reality, even if it is an augmented one. And one firm that has been doing this and working tirelessly since 2014 building tokens, games, metaverses, incubating innovation, creating a whole new ecosystem really is one firm that we are sitting down today, a unicorn, if you will. Today we find out what is next.

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It's what we cover right here on Forkast.News. I'm Editor-in-chief Angie Lau. 

Well, today we are in conversation with Yat Siu, co-founder and executive chairman of Hong Kong based Unicorn Animoca Brands, 200 Web3 brands – to be precise, companies and projects and more are coming. Thanks for joining us yet. It's been a while. It's great to catch up with you, 200 and counting. It's incredible to see what you've built.

Yat Siu: Well, thank you so much, it's a great pleasure being here. And in fact, I need to update you on the number, it's 340 plus at this point. But, you know, I remember when we first you first interviewed me on sort of the idea and the vision of Animoca brands, I think that was maybe 2019, it was quite some time ago. And it's been quite a blessing and a privilege to see just how the industry has grown from where it is today. And at the core of it, it's still the same mission, which is to deliver true digital property rights to all. 

And I think back then and it's still very much playing out right now. We felt that approaching it from the gaming angle originally was the best way to obtain and get mass adoption into the space because gamers already had a sense of virtual ownership. Of course, we're still at the early innings of all this. But, you know, it's really exciting to see where it is. And, you know, when we spoke some years ago, our organization was probably maybe like 150 people, today, we are 900 people worldwide. 

We have obviously many large projects that you might know of, such as the Sandbox. We're involved, obviously, with our partnership with Yuga Labs and our involvement with Apecoin and the other deed and many other projects. But then also we've made many, many investments and our belief in investing in the space is similar to what was before, which is we're trying to spur on an entire ecosystem. We're trying to sort of grow the open metaverse, which is very different from what some other companies are trying to do to sort of control the metaverse, because I think at this point it's already been established that Web3 or more specifically, the metaverse is the sort of next iteration of the Internet. And I think there's a little bit of a battle going on in terms of what that should look like. And we very much believe in the decentralized version of this and the one that has to be user owned in order to not have happen – what happened in Web2?

Angie Lau: I remember those conversations very well. In 2019, you were already so highly respected in the space, already seen as enormously successful. And I remember those conversations very well, where you explained with such detail why the gaming ecosystem could be well served by blockchain and crypto and vice versa. Building on that thesis. What are you building out now with 340? What is this ecosystem that you're building?

Yat Siu: So the ecosystem that we're building is all about delivering judicial property rights to all. And one of the big thesis is that we have in investing in companies outside of the ones that we're building is to try to invest in companies that can either aid in mass adoption. So basically new users joining the ecosystem or can add more powerful network effects to the ownership of things. We believe that ownership generally is a driver of innovation and is the driver of growth overall in the same sense that property rights in actual countries that actually do have real property rights and enduring ones, they have very good economies and the ones that don't tend to have very small economies. And there's many plenty of examples of this. And so we feel that the Internet as it is right now with Web2, is very much an Internet with zero property rights. And so the economies, despite the size that they are being very large, obviously in companies like Facebook and so on, is still equivalent to that of a sort of despotic feudal society.

In other words, the economic size is small. And what happens when you have people owning assets and people can construct their own network effects on top of it.  But not all of these companies exist today, right? It's a little bit like building a country. Well, when you're building a country, you can't just have people. That's that's great, that's a good start. But you need to have infrastructure, you have roads, you need to have all these things, which is why we invested in many layer one, layer two protocols, which is why we also invested in DeFi protocols as well and of course in NFT gaming and all these other areas where we can also now see because of ownership capital formation take place.

 And I think one of the other things that we also spoke about is how blockchain, broadly speaking and the whole space is also creating, I think, broadly better financial literacy. So one of our star portfolios is Axie Infinity. We were the lead investor back maybe three or four years ago. And, you know, they they just demonstrated how a society like the Philippines, most of those people don't have a university degree that ended up playing axie, nor do they have a strong education in this area of financial education. However, they they were completely able to sort of grasp the use of a crypto wallet and start playing and making money, in this case, playing axie infinity, helping them survive basically the COVID crisis at the time. So it just shows that it's not really sort of a difficult thing. In fact, I would argue that learning how to use, for instance, metamask at a time or using basically basically axie infinity is much, much easier than opening up a physical bank account, for instance. 

So that's kind of sort of how that sort of spurred along. And we're still early, so we still continue to invest in many gaming models to help drive that adoption. But the other area that we're focused on a lot now is in education. And one of the reasons why we like the education field is because teachers in and of itself are amongst some of the greatest content creators and perhaps most prolific content creators in the world. But they are actually just like the artists of before, or maybe even people who are sort of sort of gaming in these developing countries. Actually, their value was not really ever truly realized.

You know, teachers are amongst the sort of least paid members relative to their value to society. And that's partially because the content that they create is actually not something that can really be. It can't have capital formation because they either don't own it or they don't have a way in which they could own it. So that sort of sort of was one of our new focus areas as well to try to spur along an industry and hopefully we can do something similar to how we assisted and helped grow the game space. Which, you know, think about it today, almost no game that isn't doing Web3 can raise money in the sense that I would say that if you're doing a Web3 game, then the chances of you raising money is quite high. There's billions of dollars being poured into this space. It's so it's not all us, right? In fact, we're a small part of that now. Which means that, there’s an entire movement.

Angie Lau: It is, it is. It’s a movement that you're funding that you identified. 

Yat Siu: We do have a lot of capital

Angie Lau: You did. Let me ask you about that. You kicked off with some fund raising recently, A cool 75 million US in July. It now values the firm at what is it now, five and a half billion US dollars, is that right?

Yat Siu: Yeah. So it depends. You see, the reason why is because even though it's a US dollar fundraise, we're still an Australian public company. So the share price is measured at an Australian dollar price. So depending on what the currency of the Australian dollar is, we're somewhere between, you know, 5.5 and 5.9 billion. And it's funny because normally these are Not A big deal, but at the scale and size of these valuations, a five or 10% swing in currency actually has a material impact on the valuation. So, you know, so the pricing Is at an australian dollar term.

Angie Lau: Thank you for that clarification. But, you know, this happened during I mean, yes, it happened in the summer, but I this crypto winter, how difficult was it to organize that fund raise? And what why why do you think that people are still investing so vociferously in this space, despite what we're seeing in the headlines?

Yat Siu: The main thing I would say is that when you look at the investing scene, despite the fact that it appears like there's pullback, the most of the pullback is in traditional business models in the Web2 space, you know, Web3 people are still investing very heavily. The only difference is that maybe valuations have come down or maybe the amount of funding size might be a little smaller, for instance. But it's all relative still. It's still, I would argue, a pretty healthy climate. And in fact, for companies like us, there's even better opportunities to be had because now the competition isn't isn't quite the same. And the reason why is because I think it's not just about the opportunity. Of course, you know, the disruption, what Web3 is, it's also the fact that people believe where blockchain should go, where Web3 is going, where the metaverse is going.

And it's also what people want to see. People don't like what they're seeing in Web2. They feel the threat that it's arranged in their society, you know, the threat to democracy, the threat to our personal rights, or the fact that we don't have actually any digital freedoms whatsoever. Right, I mean, if a company the size of Epic can't even launch their app on the app store, then we have a problem. Right. It's it's not even it's not even a battle of the Giants. It's just the fact that they're just excluded. So if a big company like this can have digital rights, then what does it mean for, you know, the every person who has absolutely no rights whatsoever and is a complete dependent? 

So it's more than just money, I would say it's a mission, it's a purpose. And the investors who are participating in us believe in this vision, but they also believe that this is a better future, because they also understand that a more decentralized, distributed property rights framework is actually one that provides better prosperity. And so unless you're the monopoly, unless you're the power, then you know, it's to everyone's benefit that we see this world happen rather than have one that is controlled by the few.

Angie Lau: A lot of people are paying attention to exactly what you're saying. You're you're often at the leading edge of these trends. Axie infinity really triggered an entire wave of investor dollars into the GameFi space. What are you looking at very specifically? I know you said education, but what are the plays? When you say yes to something, what is it that speaks to you and what do you think the future needs?

Yat Siu: So I think what we typically look for when we invest, obviously we look at the purpose of the of both companies and entities that are involved. And therefore, we also seek for the impact that they might deliver. And in this particular case, let me just just give you our most recent acquisition that we did, which is a really exciting Israeli based education company called Tiny Tap. Tiny Tap has created, I would say, the world's largest mobile teacher marketplace, serves about eight plus million families, has hundreds of thousands of content creators, mostly teachers, you know, private teachers who, you know, in schools that make like 50-100 dollars, in some cases they might even make thousands of dollars, you know, basically a year with their content. And so what they built was a kind of Netflix type marketplace model where people can basically subscribe to this content. And now this content is generating a kind of yield now.

Now that this content generates a kind of yield, the value that a teacher receives might only be a couple of hundred or maybe $1,000 a year. And that's that's great income because we know teachers don't make that much money for the most part. But if it now becomes an asset generating yield in which you can actually give it the kind of capital formation that property rights can give, then you might be willing to pay for a 10% yield ten times the amount. Now you give a teacher $1,000. That's good. You give them $10,000. That changes your life. 

And we've seen basically what happened when we did this with NFT artists. We see what happened when you give it for people who have gaming assets and items. And one of the big troubles that a lot of people have in the traditional sort of Web2 world is they don't understand why a gaming item can be worth hundreds of thousands of dollars, why a digital art could be worth millions of dollars, because they themselves don't understand that the value of these assets is already heavily financeified, except they all go 100% to the institution that technically owns it. You're just simply using it so they get the value for this. But actually once it's released from this, other people can start playing into this and where they can basically start investing if they want to or participate in this as well. 

Now, what we're hoping it will do, and we're obviously not done just with tiny step, but we're hoping would it do is that it sort of demonstrates a new model in which an entirely new segment of society can benefit from this type of capital formation with digital property rights. Because after all, teaching content is a kind of content as well. And what we do know is that once you take content and basically in Web3, all content becomes a kind of asset because it is a property and capital formation can then begin to whatever level that may be.

And we're very excited about that also because as we've seen, for instance, with the Sandbox, we've seen with NFT artists. You know, the Sandbox flourishes because of all the creators that are building on top of it and they have creative freedom and the ability to do things. And in fact, what our teachers teaches are creators. If you look at, for instance, the biggest learning platform in the world, it's funnily enough, it's YouTube. Actually, YouTube is where you would argue most of the educational content is. So it's not necessarily that it has to be something that's specifically like a curriculum. People can learn all sorts of things from each other in these platforms. But again, who owns the content? Who owns the platform? It's not the creators themselves. So we're hoping that we can continue to push that narrative. So in some ways you could say it's not that different from NFT art, nor is it that different from blockchain games, but it's just moving it into new segments and hopefully we can encourage more growth in other areas as well. But obviously education is an area that we feel really passionate about.

Angie Lau: I can't wait to to really see what this world is that you're supporting. Education is obviously at the heart of all of that. But hang on to that thought, because when we come back, we're going to take a quick break here.

When we come back, we're going to talk about Axie Infinity, play-to-earn and all of this happening in a bear market despite it all. Yat Siu and Animoca Brands continues to build in this space. Stay with us.

BREAK 1

Angie Lau:  All right, welcome back to Word on the Block. We are back with the Yat Siu cofounder of Hong Kong-based Unicorn Animoca Brands, 340 brands, as you as you shared. You're continuing to expand. But you know we talk about this bear market and the recent bear market hit crypto investors and companies like like a brick wall. This was also visible in the play to earn space a valuation of GameFi tokens and and play-to-earn games really took a hit Axie I nfinity. We saw the rise of it come through the Philippines and it was extraordinary really to see and it also has plunged since then. How do you view the sustainability of the space of Axie Infinity compared to other player to earn games? Do you think the model needs to change? How have all of these play to earn entities and properties behaved in a bear market and been able to to to react to the impact?

Yat Siu: So first of all, we remain super bullish on Axie. And I think one of the things that's interesting to note is that, you know, similar to the development of a country as we typically like to give examples and sort of the metaverse is that while you'll always have downturns in markets as the market shifts and there's obviously going to be a mix of people coming in that might not naturally want to play the game, the speculators, you know, all that type of stuff. That's as we see in every economy that's developing for us. From our perspective, it's a little bit of a blip. And the reason why, obviously it's a downturn, but relative to where Axie was even two years ago or three years ago, it's still a rising trend upwards. So my perspective on the Axie drop is a bump because people forget that, oh my goodness, you know, it's dropped from, what is it, $160 as a token. But people forget that say, when the token is listed, barely, maybe two, some years ago, it was 10 cent. So it's all it's all relative to to sort of the broad market.

So then the question becomes, what is your conviction in a game like Axie or any other game, for that matter, for the long term? Right. So the macro picture from our perspective is that we still only have millions of people in the blockchain gaming space, in the metaverse, in the open metaverse. And you have three point today, 3.4 billion gamers. So if you believe that somewhere between that there is basically an adoption that will take place, that there should be general sort of growth that happens. And also remember that about a year or so ago, Axie was really one of the very few ones that are out there. And today, because of all the investments and competition that is out there, there's a lot more choices. 

And what typically happens in those environments is as VC money pours into this, the gamers themselves have more choices. In some cases, maybe there's been a degree of overinvestment in the sense that there's more content available for people to play and try, and not enough gamers necessarily to sort of play all of them, although that is actually changing quite quickly. So there's a little bit of that dynamic.

 

So I would say it's not just the fact that the market itself is down. That is a broad macro. Macro is relatively poor in comparison to even six months ago, but it's also just a whole sort of scene. And we've seen this, by the way, with mobile gaming. We've seen this with console gaming. We've seen this with PC gaming. All the history of these industries go through these cycles.

 

But talking about Axie in and of itself, I mean, a lot of people were critical of Axie because they looked at the numbers and they said, 'Oh, look at the engagement rates. It's small and everything or it's dropped almost zero.' This is the problem when people aren't actually in it, so they don't actually know that Axie Classic was being sunset for Axie Origin. And Axie Origin actually has shown very promising numbers, but they weren't actually releasing rewards just yet. They just started doing that. The only issue is, of course, that there was this period of time in which we were doing the transition on top of the fact that Axie had to deal, as you know, with this hack situation, which has been resolved, but they had all these other things that they had to deal with at the same time. But to me, actually, the fact that they could resolve the hack situation is just demonstration that they've got a very strong community and the growth of Axie as well as the whole industry as a whole, we remain very bullish on.

Angie Lau: Obviously, people pay attention very closely to the micro events against a macro backdrop, which you've explained. But I remember in our early conversations your greater thesis, which is blockchain and crypto is here, there's enormous value and gaming is a way to onboard people into this new world, almost, of crypto. Does that remain true?

Yat Siu:Yes, it does remain true. I think there's a couple of factors that are actually making this. I would say maybe it was a prediction back then but I would say it is becoming very much a reality now. When you take a look at the amount of money that is being invested in Web3 gaming, broadly speaking, it sort of eclipses everything that we call trad gaming, if you will. So that's the first one. So a lot of money going in.

 

The second thing is that a lot of really smart people are developing in that space. And in fact, the smartest people are actually thinking, 'You know what, there's something there.' And this is what's important, because you could argue that maybe some of the very first builders in the space, not all of them had maybe the best of intentions because they saw money, as you see often in these cases where you have opportunists come in and just take advantage of a market. But the people entering now, people building in a bear market, they're the kind of people who have a long lens on this one, because, again, if it was just about the money, maybe there's better, easier ways to do it. But they really believe in this future because it gives new forms of gameplay and it gives ownership to the end user. And one thing to understand is that many of the people who design games aren't necessarily in love with the game companies they work for because their particular agenda is very different to necessarily that of what they want the players to experience.

 

Now, I think there is one other element here that probably needs to be said, which is that there is a diverging sort of narrative that's going on between the West and the East. In America, for instance, there is generally a sort of - I wouldn't say generally, it's not true for everyone - but there is a large sort of vocal group of people that don't like NFTs. And I think it comes from this history of game companies with free-to-play, having really abused their customers and heavily monetized it. And they don't quite understand that, in fact, this gives them more freedom and it gives them a way in which they can actually benefit from this sort of financification that game companies have done on them. But they also don't understand, because they are not that financially literate. And also they play a game, presumably not because they want to make money, understandably so.

 

Now, in Asia, this doesn't exist at all. You go to Korea, for instance, where I was just at, every game company is talking Web3. Everyone's doing something, and more importantly, the gaming audiences are welcoming it. So it's not that dissimilar from where free-to-play was, say, a decade plus ago, where again the West was like, 'You know what? We're not so sure about that.' But actually Asia was like, 'Let's go, this is great.'

Angie Lau: Fully embracing it. And that's really the story that we're seeing from our vantage point at Forkast. It really is this often cultural divergence, but also the acceptance of Asia for a lot of these innovations that you're building out, which I think really speaks to why you've been able to build out to the success of what you've achieved at Animoca Brands. I want to finally ask you about Open Metaverse Alliance for Web3, or OMA3, you call it, and why it's different from the other metaverse we know. Tell us about this. Tell us about what what OMA3 is and why we should be paying attention

Yat Siu: So what the Open Metaverse Alliance really is, is a group of companies that is ever growing to come together and agree on essentially the open metaverse construct and essentially create not so much even a standards-based system, although that could be part of it, but it's really sort of to create a framework in which we agree that we're all going to build in an open framework collaboratively.There are some other metaverse alliances that have been set up that have a conspicuous absence of anyone in Web3 and blockchain, for instance. So that's that's kind of interesting. And we don't think that's a good idea. In fact, you could argue that the desire to create OMA3 is because of the fact that we saw other groups formed together to create another kind of alliance that was really in some ways perhaps trying to exclude sort of the blockchain narrative out of it.

 

And what we want prevent is that people are going to create sort of an API-based, permission-based, metaverse alliance where people give access to each other and then they can turn it off whenever they want to, almost like sort of a trade war style. It is supposed that the end user actually has most of the agency. It's their assets. You can't take it away from them. And they have the freedom to move where it is. It actually is a much better system. That's kind of what we're really trying to push forward. So true digital property rights sort of lies at the heart of what the Open Metaverse Alliance is about, whereas I would argue that the other metaverse alliances out there, that's not even part of the conversation. The conversation is not about owning your stuff. The conversation is how these other companies can work together to create maybe a method of interoperability. But that's a very different narrative.

Angie Lau:  It's been great to catch up with you since 2019 when we first chatted and building out something that is enormous right now and where it's going. Anyone can guess, but we'll be speaking again. Don't you worry. And for our audience, this is a fly in the wall moment for the thinking of where this industry is going. Yat, you're truly one of those crystal ball readers, and you're making it happen. Thank you.

Yat Siu: Thank you so much.

Angie Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block. I'm Angie Lau, Forkast Editor-in-Chief. Until the next time.