From Gucci to Louis Vuitton, Spider-Man to Batman, there's no escaping the craze for NFTs. The market for NFTs or non-fungible tokens catapulted to US$18.5 billion in 2021, a rise of over 500 times compared to the previous year. So what are the opportunities for this segment? Would GameFi continue to drive the rise or will we see new use cases take the lead? Forkast’s Angie Lau is in conversation with Duc Luu of Spores Network to answer these questions and more.
Angie Lau: You'd be hard pressed to find something that has gone more mainstream than NFTs in the last year. From a couple of hundred million in sales in 2020, the market for non-fungible tokens or NFTs catapulted to 18 and a half billion in 2021. And this is just the beginning. From Gucci to Louis Vuitton, Spider-Man to Batman, there's no escaping the craze for NFTs and we're here to uncover it all.
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. That's what we cover right here on Forkast.News. I'm Editor-in-Chief Angie Lau.
Well, today we are in conversation with Duc Luu. He's executive chairman of Sports Network, a GameFi and metaverse publisher, incubator and launch pad right from his home base in Vietnam. And thanks for joining us, Duc.
Duc Luu: Thank you for having me.
Angie Lau: I love the fact that this space has really accelerated. But for the people who are in the space, including yourself, and certainly from this part of the world in Asia and you there being in Vietnam, what are the opportunities that you see in the NFT market that kind of explains the craze that we see currently?
Duc Luu: Okay. So I think when you look at the NFT market, it goes back to the original thesis that Spores had, which was we'd come out of blockchain infrastructure and what it could do. And then we moved into, as you said, you kind of hinted in 2020, 2019 the rise of Defi and looking at decentralized banking and financing as an opportunity. So you have the infrastructure, then you have the financing. So it becomes very natural and it's really where we came into the throw which is around 2020, 2021 and with the rise of NFTs, which are digital goods, you know, you've banked, you’ve financed, you have a lot of liquidity or you've made a lot of money. Now you have to buy digital goods, disposable goods, either in the physical world or more likely what we're seeing now is the digital world. So that opportunity space is incredibly large because, you know, frankly, how many banks, you know, exist in the real world today through consolidation and such. They're actually not many banks as a proportion of how many stores you see, how many brands do you see in the digital world? I'm sorry, in the physical world. So we're at the very, very beginning of digital goods, digital brands, and it's incredibly exciting from where I sit.
Angie Lau: I totally agree with you. And this year has been very interesting to observe the state of the NFT market. After a solid start to the year, Opensea lost over 67% of its trading volume. LooksRare's 30 day trading volume also fell by 84%. What do you see behind the significant fall in NFT trading volume? Is this a natural correction? What are investors reacting to?
Duc Luu: Sure. First of all, I would say that this ebb and flow is natural and let's call it an emerging market. Right. This is exactly what this is, that this digital market is an emerging market. The moment you have demand dry up in the digital world, then supply just sits there. Right? And so I think these beta that you're seeing, the percentages that you're quoting sounds scary. Well, they are. We're definitely in a mini bear market, a correcting market. But those that flux is is not as scary as, you know, a 5% drop on Nasdaq per se. Right. That's the first thing.
So the second issue is, yes, with this new emerging digital economy, you'll have speculative run ups, right. And you had that probably in late Q4. Is speculative run ups that led you to the number that you presented of trading volume and open sea. Because in reality, the digital economy is still very trader heavy, right, instead of consumer heavy and we're beginning to move towards consumer heavy trading volume. So when you have any kind of to larger run up, the traders will just reevaluate from a technical analysis perspective and take money off the table.
The last point I would say is that the big volume in January, that was a bit more of an arbitrage, right. Because you had the drop in Ethereum, right. So you'd have you then have because of the currency play there between Ethereum, USDT and the actual NFT that you'd have a big month of trading in January. But then with Ethereum continuing to go down with the rest of the top crypto tokens, right, then you see the income side start to kick in and now you're seeing a pretty significant drop in volume. However, behind the scenes, you're seeing companies like ourselves, you're seeing venture capital that usually put in equity rather than token investment are doing deals left and right.
Angie Lau: But to ignore the part that you're talking about that you participate in with with the venture capital, still investing in this space quite strongly, in fact, and banking on a return from the mini bear environment that we're existing in right now to potentially a rebound, that that that's the long term vision for this space. Why do you see this growth for this space? What do you think this industry in terms of NFTs needs to see in terms of strong rebound that will generate more buyer interest. What will it take?
Duc Luu: What will it take? Well, it's there. The arrival of brands, right. Who are very much embedded in Web 2, making it a conscious decision to move into Web 3 for several reasons. The first reason is a pure marketing play, right? A pure branding play, as it were. Okay, well, this is a new sparkly toy, so let's go ahead and bring a product into that sparkly toy world. Now we've got to do an NFT of a McDonald's, for example. So that will be the first group of corporates doing that. Then the next phase is companies who are then saying, wait a minute, this is actually a market for us. This is a revenue driving market for us. Right. And it's no longer it's no longer a bubble, but it's a revenue line. And now and you're starting to see that, for example, with Nike's acquisition of RTFAKT, for example. Probably they're worried that, wait a minute, we're focused on the physical world, right? We're focused on athletics, and how do we keep that audience like, okay exercising on your headset, for example.
The third group that we're seeing now announced in the last couple of weeks and I know another couple of deals that are that are in the works that have have not been announced yet, but the the actual Web 2 infrastructure guys, HTC, for example, announcing something Microsoft through Minecraft, for example, making making a move.
So that group will come next again one revenue generating right to really re-securing their moat right, they had a moat in Web 2 they are going to accept that parts of their moats now need to be decentralized so that their audience pool doesn't walk away. That’s happening. One industry that I think that is at odds right now with this is the game industry. Right. We, as we said, are a publisher launch pad and incubator in GameFi and they're GameFi's split completely down the middle right now. There's people, the gaming industry either completely loves it and says, you know what, we've got to move this in this direction. And then there's the other group that completely hates it, right? Because it says, Oh, no, it's going to destroy this beautiful moat that we have.
A friend of mine, within the gaming space. But I asked him about this, right? And I said, What's the big deal? Why is there a split in your field? And he said, actually, very interesting Duc, is the split is actually along geographic lines. In other words, in the West, where the average gamer is a middle class person. Right. Who is happy to play, to pay a little bit monthly, to have that leisurely experience. They're actually very, very angry at GameFi, which is a very commercial approach, play-to-earn, you know, a pay-to-win, etc.. But he said, actually in our demographic, if you look at our Asian players. We're already used to playing paying transactional fees just to play monthly or to pay, you know, the whales, Asian whales who pay as much money, 10,000 a month to get the, you know, the best bells and whistles on whatever mobile casual game that is hot at the moment.
Angie Lau: You said that there is a geographical distinction. So who's leading the way in terms of the innovation that we're seeing in Web 3 and the metaverse right now?
Duc Luu: The West, particularly the US, has always been far more willing to be innovative and more importantly, finance innovation. It's the classic answer that actually I don't know the exact stat. Something like 30%, 40% of startup founders are actually of Asian descent, even immigrants in America. Right. And you ask yourselves, wait a minute, why didn't they succeed in India or China, you know, or Vietnam, for that matter. And the reason why is that there isn’t a culture of financing innovation, especially at the infrastructure or at the true free thinking level. Asia is taking a lead, you know, guys like Animoca, I know again, some Korean firms in the GameFi space are pushing quite far. Is things that one we're comfortable with, we're obviously dominant. Asia is dominant in game consumption, right, there's no question that you'd want the Chinese market, you'd want the Asian market when you're playing games.
So it's not a it's not surprising that GameFi innovation could come out of Asia.
Angie Lau: But more broadly in the region, we're seeing gaming. It's still one of the most exciting use cases for NFTs right now as we see it. Popular play-to-earn game. Let's talk about Axie Infinity here. It became the first NFT series to cross the $4 billion mark in historic sales at the end of February. How did Axie’s NFT sales volume become almost double the value of Cryptopunks? You know, this is the NFT that also took to the market like hotcakes. What does this say about the relationship between NFTs and gaming?
Duc Luu: Wow. I'm going to toss me a hard question now. Okay, fine.
Angie Lau: You're the expert. Yeah, yeah.
Duc Luu: No worries. No. Essentially I would say that Cryptopunks, you know, given their average value, their average ticket size, now you're getting into the six, seven figures, eight figures easily per cryptopunks. So you'll see you'll see record highs on singular cryptopunks, but you'll probably see a slower velocity in volume compared to Axie Infinity and what therefore I would call the play-to-earn market. I assume that Cryptopunks is traded by maybe 10,000 people at any given time. Maximum. More likely might be even if you want to look at how the dispersion, it might be really only 500 traders at any given time. That creates the kind of volume that you're seeing. Whereas Axie is, you know, I don't again, call it maybe several hundred thousand to a million players. So I think it's not the correct comparison, frankly, to compare Cryptopunks to Axie. Yeah, it's two different markets.
Angie Lau: It's actually really great distinction because for a lot of people who are joining the space and learning about it, they are taking a look at NFTs as a holistic, you know, singular entity. And to your point, it's not. There's different demographics, different behavior sets, different taste, level, different financial realities, quite frankly, which speaks to the demographic and geographical distinction. Look, you said yourself you're looking for the next big thing. You're looking for the future of GameFi. What is it?
Duc Luu: Sure. So on our venture cap side, we have a couple of macro thoughts on this right now. The first macro thought is what is play-to-earn and where it sits on the spectrum that begins with freemium. And somewhere in the middle is pay-to-win. Right. And at the end of that is play-to-earn. And actually, as I parallel this to the professional poker world, which I was very familiar with in the past. You have your casual player who sits at the casino and is happy to lose money for a good time, right. And that's pretty much your freemium, guys, right. Then you have your pay-to-win. Actually, those are your prop players who are paid by the casino as a marketing fee to sit there to create action. Right. And actually those guys would be more of your play-to-earn, excuse me. Right, to play- to-earn guys. And then your whales sit in the middle, pay-to-win. Right. And maybe in poker it's pay to you, pay-to-lose. Right. Is it because there are whales? But that distinction of those three classes of players needs to exist. Otherwise, if you only add the play-to-earn, then you only have the demand side and you have no supply side, right.
And in the professional poker world, the way they solve that was you had other income streams that could infuse that poker community, right? You had sponsorship, you had tournament, which was like bad players around the world who are going to dump money into a tournament which then flows directly into the the daily cash tables that were where the real money is being extracted, for example. So that's for me, that's the easiest correlation is that play-to-earn cannot exist by itself, right? Because it's only demand driven, it needs supply. And so what we're looking at in the studios that we're acquiring or we're building from scratch is we're looking to add the supply side, which would be definitely adding from freemium, definitely bridging Web 2 into Web 3, all of the games that we incubate have to be available in other platforms, not just Web 3 platforms, IOS, Android. There is actually technological backend differences that you have to reconcile in between this space shift right, but in essence, You want them all to be playing together, ideally right. And even in Web 2, take a game, but there were farmers, you know it’s a nasty little underbelly of the Web 2 gaming economy. But there were farmers who farm on World of Warcraft. And all that money sits in that little ecosystem. It's because it's a closed system. It's a centralized closed system in Web 2. Now, GameFi just blows that up and says, no, no, no, you can actually bring/ take that money and bring it to Fiat or sell it onto a marketplace and exchange it for another game to another player that cares to that whale who wants to pay-to- win. Nothing wrong with that.
Angie Lau: So we live in the real world. And increasingly we're hearing about the metaverse, the digital space, the virtual space in which this growth is exploding Duc. And speaking of the metaverse, back in January, Spores Network announced the launch of Republique. This is a museum, retail space and sculpture park in the real world that you had intended on becoming the go to destination for NFTs in the curated space. Tell us about this hybrid experience. Real World Metaverse. What is Republique? What is this vision that you have for this space?
Duc Luu: Yeah. So it's actually phase one of what we're trying to put together. We do believe that digital art and NFTs again exist on range, right? Either you have the physical good that you sell, you can digitize that physical good and you sell that or you can make the 100% digital good itself and offer that right. So Republic was our first answer to that. It's like, okay, we can take great artists in the physical world, bring them to the digital world and try to offer a digital good. Or we can take native digital artists and also bring their work up into that very much of a gallery space, a retail space/museum for those that want to have a curated and really a showpiece type of thing. So I call it phase one because what we're now moving into is phase two, tentatively called Spores-verse. We're actually working with municipalities and very famous architectural monuments and centers and real estate developers and saying, why don't you do a digital twin right in the metaverse. We've signed deals to do exactly that is to take a famous retail space, a famous real estate space and say, you know what, let's take this space and let's reimagine it in the metaverse and then look at all the points of interaction points of sale that could exist in that and integrate it.
Angie Lau: You know, it's a fascinating combination of what people want to experience virtually. And then also, if given the opportunity, of course, once the world writes itself, have that same opportunity to experience it in the real world.
Duc Luu: It's like if you have a Nike store there, that is a, remember in retail, it's very regional. Right. It's not every shoe is everywhere. So you have a Nike store within this particular city, municipality that we're doing. Well if you want to buy that shoe in that store, you can go to that exact address or you can go to the metaverse version of that exact address, browse, click, buy, and then it'll get Amazon-ed to go to your house or Uber directly to that to your house. That's one that's the retail experience, right? One of the projects, one of the deals that we've put together is there's a performing arts space. And then we're going to literally have a full concert in that space. Right. That will be captured 3D and shown both live and rebroadcast. And you can buy a ticket to the actual show. Go there. Watch it, or you can buy a ticket sitting in your own home. Republique and our NFT marketplace will be simply the distribution platform at the end of that buyer journey.
Angie Lau: And amidst all of this is still this legality question. And I want to talk about I, you know, Cryptopunks this is, of course, the world's biggest selling NFT collection. It's at the center of the attention of NFT space right now due to their copyright legal dispute. One of the collections has been replaced with version two due to a bug. Owners of the version, the first version cryptopunks, filed a counter DMCA to overturn the delisting of their tokens. It's a huge legal mess. This is almost tainting the value of how people perceive digital assets to be. And so as you invest more into the space and as we see this more and more, how do you regard really the true legality of copyright? Who owns what? If I own something in the real world, if I don't claim it in metaverse, do I lay claim to the digital version of that?
Duc Luu: So I'm not a lawyer, so don't quote me on this. But generally I think that any latent rights you have should find themselves in Web 3. I think right now you have you have, yeah. Some gray areas that we need to start to figure out. The language and licensing is starting to incorporate NFTs anyways we when we were we're talking to Hollywood studios, we're talking to music, music publishers, they're all in their new contracts, integrating just digital assets as a whole and then then saying that they own those rights and then parsing them out by by contract as they would, you know, in the physical world. So I think, yes, there are a lot of gray areas, but I think those gray areas are starting to get solved or being or going through litigation to find a solution. Then, for example, I think we've talked about before the Cryptopunks scenario. I mean, when the owner itself says they're delisted, then they're delisted now, and they're no longer correct. Cryptopunks, now, does that all that affect the market of, you know, the delisted goods?
Yes and no, right. You know, a coin collectors love collecting a bad coin. You know, the Lincoln penny, whatever, with the reverse, blah, blah, blah right, dates, they love that stuff. And it could be a $1,000,000 penny just because of that minting error. So don't we just have a minting physical digital minting error. That's all we have. Right? So, sorry, but you've released it. So it has some intrinsic value because it's supply and demand. Again, you know, you can't stop that, right, unless you actually physically destroyed it, which neither the US mint wanted to do, nor I think, you know, Dapper Labs wants to do or can do.
Angie Lau: I mean, this is what is really just so fascinating about this space. We're really just at the inception of what is possible, and it's only to our imagination where this goes.
Angie Lau: There's just so much going on in this space. And it's changing by the second, and you're right there on top of it. Duc, it was thank you so much for sharing just the blow by blow, minute by minute, second by second changes in our NFT GameFi metaverse universe and sharing it with our audience. Really appreciate you.
Duc Luu: Thank you for having me again.
Angie Lau: And thank you, everyone, for joining us on Word On The Block. It was great to have you with us. I'm Angie Lau, Editor-in-Chief of Forkast. Until the next time.