102 - The Emerging Metaverse | Sam Englebardt & Richard Kim

Transcript

build um a jungle gym not a tight rope and i think the moment we get um emotionally closer to like that jungle gym where we're like we just hang out with our friends and that that kind of social space is just as real as like the things we were doing if we were all hanging out having beers right now like i believe in that world because i think it can teach us something about ourselves that we don't get to capture every day given our physical limitations and that's the type of stuff that gets me excited welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better how to front run the opportunity this is ryan sean adams i'm

here with david hoffman and we're here to help you become more bankless guys we have a fantastic episode for you coming up on the metaverse we cover a number of things that i think you're going to want to take away from this episode number one what is the metaverse an actual definition second why today's metaverse is nothing like the metaverse in its final form third why the play to earn skeptics soft currency versus hard currency and gaming economies number four how the metaverse isn't predetermined it's emergent the metaverse actually builds itself number five what's wrong today with crypto gaming and how it can be fixed number six this big idea i think the essential idea of the podcast is we are embarking

humanity's embarking on a multi-decade exodus to the real world we unpack all of this in the episode today david uh what were some of your thoughts i think my biggest enjoyment in this podcast is the fact that richard and sam seem to have a conclusion for what the metaverse is and it's hard to argue with that conclusion it's very very um easy to hop on board with with it and the some of their very like easy to define versions of the metaverse or some things you'll hear in this podcast such as when you're talking about some version of the metaverse and whoever you're talking to is like wait wait which one which reality are you talking about are you talking about the digital one or the real one like that's how we know kind of

when the metaverse comes and then working backwards from there what does that mean because if we're going to mix up the digital world in the physical world a lot of things need to happen where for example meaning and purpose and some sort of emergence needs to be in the metaverse on the digital side of things and so what does that mean and what does that create and what teams and what games create meaning and purpose in the metaverse in a way that's emblematic of the world that we currently live in and the other big takeaway i had is that there's a stark difference between some of these play to earn games these early metaverse startups and that we are seeing today in 2021 and 2022 versus what logically needs to happen in order to have this uh

more holistic version of the metaverse built out um so my takeaways ryan are what we're building today in crypto is probably going to be very very different than what we're going to be building in five to ten years and uh it's really the five to ten year plan that really i think excites me and what excites people about whatever the hell this metaphors thing is yeah same here and what i like about uh you know sam and richard is they they were here before all of the metaverse mania that that we've seen right and so like they were here in 2018 investing in the space um trying to figure out their thesis uh you know laying it down uh there are so many projects that have spun up in the last six months that are just like jumping on the narrative we thought without a lot of like long-term

substance and i think both both richard and sam sort of bring this long-term perspective to the space that's needed once you get past all of the mania of like you know digital real estate and you know two billion dollar uh funds pouring money into the space what are we actually left with and the the thing to me that that we're left with is if you're if you're in this space if you're listening this episode if you're exploring the metaverse today you are so early and you also can't go wrong because this is all about humanity's exodus it's it's migration from the analog world into this digital world and so no one can predict it and if they could predict it it wouldn't be the metaverse right because the metaverse is

fundamentally uh emergent so you know that that's the fun part of this is this is another episode where we're all trying to figure out figure it out together we get to pick the brains of uh sam and richard who are experienced venture capitalists in the space investors in the space and are gamers themselves very plugged into the media side of things the content creation side of things and so it's overall a really fun conversation that i know you guys will enjoy as always make sure you like this podcast if you're listening to it on youtube subscribe in your local podcast feed and also review it on apple itunes need those itunes reviews to boost us to the top of the charts and we will get started with

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sell and receive the token you want to buy the uniswap grants program is accepting applications for grants do you have something of value that you think you want to contribute to the uniswap ecosystem no matter how big or small your idea is you can apply it for a unique grant at uniswap grants.org and help steer uniswap in the direction that you think it should go thank you uniswap for sponsoring bankless bankless nation we are super excited about our next guest we're here with sam engelbart and richard kim of galaxy interactive we're talking about their thesis for the metaverse big topic today to unwind sam is the co-founder and partner at galaxy digital he's also the founding general partner galaxy interactive where he now works he's a media and tech investor and content

producer who's helped create a broad range of traditional and digital businesses and a ton of different films and television shows over the past decade definitely a lot of experience in the interactive space and richard is a general partner at galaxy interactive as well and a managing director at galaxy digital he joined galaxy digital as their chief operating officer in may 2018 before going full time into galaxy interactive in december guys welcome the show you ready to talk we are ready glad to be here thanks for having us all right you know we're we're super excited to dig into this we've done a we've touched on a few different um i guess topics related to the to the metaverse but i feel like this is sort of a metaverse episode actually before

we call this a metaverse episode let me ask you guys about this term metaverse whether you like it or not because i know we're going to talk a lot about like just gaming in general and how that's going to evolve maybe that's the terminology you prefer but what do you think of this term metaverse is 2022 going to be the year of the metaverse thoughts on this i mean i guess i would start by saying whether we like it or not and regardless of what we think of it it's here to stay is that zuckerberg's fault it's not his fault things were trending in that direction but he's he's certainly solidified it for us we we were just talking earlier today and the reality is um whatever happens um

metaverse uh the idea of the metaverse meta the company and all the buzz around this concept uh we we can be certain that at a minimum uh at earnings time every quarter we're going to be hearing yeah most of the of the big companies certainly one enormous company and a lot of others following their their lead talking about metaverse so it's here i think uh i think ultimately that's a good thing um but in terms of of the word and and what we think about it and to what extent uh our strategy uh is a metaverse strategy you know we end up in this conversation a lot as you can imagine over the last couple of years and i feel like and including i've heard you guys on on your show as well

um you know there's this this need i think initially to define metaverse and figure out first and foremost are we even talking about the same thing and i think when you dig into it at all what you realize is uh is very few people are talking about the same thing and it's the you know the ability uh for one person to hear the word metaverse and imagine ready player one and the oasis and the things that have been made popular in the literature over the last couple decades most recently but you know even going back historically to ancient greece if you think about some of the ideas of philosophically that the concepts of immersive worlds have been explored um there's that version of it and then there's on the other end everything that

might mean to some people nothing more complicated than you know a mobile game and and buying digital objects in a game so we need to define the term and and that's the first task and uh and then we can figure out whether we're in it or or soon to be it's one reason we generally don't like to use the term metaverse because we don't want to spend 15 minutes talking about definitions when we could be talking about what actually matters which is that you know this is a world where our digital identities have become just as real as our physical ones and so if you think about the practical ramifications of that um they're quite wide-ranging right and really challenge a lot of the foundations of value that traditional kind of markets people have understood right and started with fortnight

cosmetics and you know now with crypto it's it's it's about earning a livelihood for you know doing the things you otherwise would have just consumed as entertainment it's now a whole investable asset class right so that's what's interesting to us yeah if you're if what we're talking about is where do you spend your time your money meet your friends build your your life have your status create your identity uh you know i think we realized even a few years ago it was true and it's even more true today that people are already spending the majority of their conscious time inside of digital spaces through through their devices and if you include ideas around the second and third screen and the way that we're we're all looking at you know our phones and our consoles and and our uh pcs and everything else uh

we're spending more considerably more than 100 of our conscious time at this point in digital worlds and so if that's what we mean maybe we're already there so if we were to play a game where we weren't allowed to use the term metaverse but we still needed a word to or a phrase to talk about what we're going to talk about what would be second best what would what else what other word is relevant to this conversation i think the concept of um digital identity and value is is really what it boils down to i mean ben thompson had what i think is the best take i mean he's in this bucket of we're already in the metaverse it's a world where particularly in a post-covered world uh a lot of the most important relationships and time and energy we spend are in interactions with people we've

actually never even met physically right and i think it's useful to think um not just how digital worlds um are the equivalent of physical ones but the types of interactions that are only possible in purely digital realms you know especially in this world where you can zoom in with hyper specificity to people who share the same interests and values that you do form a community around that just like you guys have done with bank list now right and and really have that be a long-term sustainable metagame i think that's the most fascinating part and then when you unpack the implications of of a lot of that it's about this intersection of markets content tech that all come together in really

interesting ways to enable things that weren't possible before i think a lot of this podcast is going to be about games but do you high level do you see games as kind of the gateway to the metaverse is this how we're going to experience the metaverse primarily because i know there's a big emphasis in your investment your fun your thesis on gaming is that is that going to be the the the metaverse for for people i i mean i think gaming is an enormously important part of this conversation and it is you know the tip of the spear for where so many of the behaviors that they're going to matter in in the metaverse conversation and just in people's lives generally going forward um the generations younger than me and i think forever going forward are learning um

their behavior and and are building their lives inside of games primarily and so you know if what we think the metaverse is or a big part of what the metaverse is uh it is immersive digital worlds then what better place than than the game worlds that are already built and that are being built where people are spending their time and you know i think the the thing richard and i realized is the for us and we do have such a heavy focus on gaming in our business but not because we just want to be or believe the opportunity is in games but what we've recognized is um two massive growth trends that are converging right and so it's it's immersive digital worlds led by games uh with um a real um sea change in finance and and and

fintech and trading technologies and markets and all of the ways that people are monetizing their experiences and their time and so for us games matter but it's also really the intersection of games and markets with all this new technology and um yeah i think if you start talking about things like digital objects and and the other stuff that we explore especially as you unpack the web 3 piece of all this um it's it's really like no better place than games where people have been comfortable for a very long time with the idea that digital objects have value and they're they've already been uh making markets inside of those worlds and building economies many of which have grown to be enormous uh you know in size at this point uh and and for a lot of people they've been spending a lot of

time uh in those worlds i think the types of games that are gonna be do well in this kind of metaverse world and by that i mean you know fully open economy because you know there just look on the app store look at the top charts uh today take random mobile game x and put a token on it is that gonna work i think in 99.99 of cases the answer is no right so it's not as simple as taking an existing popular game and slapping a token on it i think the things that are going to do really well are those that are specifically designed to work well from a long-term sustainable economic standpoint with fully open economies right and and so i think the most lasting part of gaming

and game design is going to be um in in a lot of the early experimentation we saw around open world economies um it's it's quite interesting to me you know when i talk to a lot of the pioneers in that space they're the ones who are actually the most skeptical um blockchain and and play to earn not because they don't believe in the potential of earning value for your time but they just know how complicated it is you know short-term speculative fervor aside to build a lasting and sustainable kind of token economy that's fully open um so i think learning a lot of the the learnings from the last two decades and applying that to play to earn game design is going to be a really interesting space wait can we dig into

that for one second because you hit on something that i think is interesting so you're saying like the early pioneers of digital worlds who created digital economies before there was a thing called web 3 and before there was a blockchain that had been invented they are the most skeptical of the sustainability of this this web three thing can you talk about some of their concerns like why are they why are they so skeptical i i think uh i i think a few points come up pretty regularly one is this general theme that what we should be optimizing for with this new primitive is um not scarcity but abundance um you know so many of the initial play to earn

um kind of game loops are some form of buy an nft use that as access uh and then build breed all these things that that kind of flow from this exclusive club to start off with right um when there's a whole sample space of design out there of um you should really be using tokens as an incentive to encourage user generated content and and work not to exclude your community in the form of like a thousand or ten thousand avatar project but actually um give people tokens for their time right and then over over that course of earning you produce such a such a sustainable volume of user generated

content that that's like the insular economic loop that keeps the thing going um i think there's a lot of things that flow from that like we could have a whole discussion about land right like in in things like ultima online if you talk to you know one of our portfolio companies ralph koster about the learnings of land and ultima you know i i think they're almost universally skeptical that land is a good idea and you see so many of these early plato urn projects focusing on land um as a heuristic so i think we're going to go through this process where a lot of the lessons over the last 20 years get relearned uh in the crypto space it's hard to tell

um to date because so much of the beta in the space has been so strong you you say metaverse or plato earn on anything and you see companies raising 50 million dollars when you know literally six to 12 months ago the same company was on our list of potential write-offs right a couple of cases like that um and and so i think over time it's going to take a few years to play out um we're going to start to see some of these things reveal themselves that's so fascinating to me i think we could do a future bankless podcast just on that subject of what like you know the the og game designers who created some of these economies like the eve on lines of the world ward of world crafts and you have diablos and all of these what they think

of this whole crypto economy and you're saying that they're like actually anti-land which is just blowing my mind fasting to me because like my my model for the metaverse is is kind of like it's just like real life only digital and we have this scarce thing called land in real life and so why not make that digital but it strikes me that that might be um skeuomorphic right that might be sort of like oh you're just importing the old world into this into this new paradigm rather than seeing what the what the the new technology can actually bring about um but just can you help me there richard why why anti-digital like i i i'd really encourage people to look at um

asmongold's recent rant post square unix launching their um nft strategy uh because i think and and try to watch that not with a you're wrong about this or that but just listen like a refrain from trying to explain why he's misguided or whatever just listen and i think what you hear when you listen to that um husband gold for those who don't know is a pretty pretty well-known twitch streamer who's played he's probably the number one world of warcraft twitch streamer right um so he was talking about uh you know how a lot of nft and blockchain gaming is it's essentially micro transaction squared right there's a lot of ptsd from decades long

excessive monetization that really takes the gamer out of the heart of the immersive experience they wanted right i i'm personally obsessed playing breath of the wild right now which is not a new game but the reason i love it is there's no micro transactions and it's completely transporting and yet it hits all of the themes that are in vogue in multiplayer social gaming today like open open world crafting you know all these things in the context of a narrative structure that's quite inspiring and like mythologically grounded right and and so you know when when i when i see uh kind of videos like that my mind immediately goes to that the next wave of play to earn gaming that's going to be really successful

are the games that give players value for their time without ever asking them to buy anything right they're going to be airdropped value for playing the game and well and that feels like playing a game i mean without over complicating it i think it's like it doesn't it doesn't take a deep study to figure out very quickly that if you go on and play a blockchain game um a lot of the skills and a lot of the experience and the things that you're being asked to do and the the things that will determine your success you may if you're a gamer that's been playing world of warcraft or other games or a first person shooter or any of the things that like have defined you as a gamer and in the areas in which you've built your skills you're you're being asked to do and to learn entirely

new things um and to understand things that may not be in your vocabulary or in your skill set at all like how many of these traditional gamers that have been playing games for for decades now um come to a to a blockchain game understanding yield curves and understanding how to how to be a traitor and understanding all of those things that really determine sex success in a lot of blockchain games and so like i think it's not surprising at all that people come to those games and actually want to um want to play a great game and and want to continue to do the things that they have learned how to do in their experience as gamers yeah i mean i'll tell you my mental model for how i think the next wave of real games is going to work is you know you have this

um concept in gaming today of like soft currencies and hard currencies right soft currencies are the things that you earn um playing the game uh that allow you to do various things in game right it's like an earn it's a it's the equivalent of slp in axiland right um and then you have a hard currency which today is is like the equivalent of gems that allow you things like super cosmetics and other things but you have to pay money for you can't earn right um so what is the equivalent of that in play to earn space well soft currencies are interesting because they're these things that help game designers balance supply and demand and the objective of a soft currency should not be to have this thing go up like you

sometimes see um axi analyses where it's like uh slp is inflating like crazy and the price is going down and it's a disaster i i personally don't view it that way like i don't think slp was ever meant to go up it was it was meant to be this plug to like bridge supply and demand and if you think about like an rpg or any kind of game mechanic it's a very useful thing for a game designer to have a fungible soft currency now where if i want to shortcut playing a thousand hours in the game i can do that by buying the equivalent of slp in this game and it's fine right that market exists like there's many progression-based in-app purchases and mobile is a very big thing um and and it'll be great i think the really exciting thing

is you air you you airdrop soft currency to players for their time but then have this opt-in hard currency uh the equivalent of axs to go back to axi that can redistribute the economic rewards uh through kind of shares of transaction fees or otherwise back to players and that if i'm a if i'm a gamer and i don't ever want to do another micro transaction again like a truly free-to-play system where i'm earning value for my time and don't have to opt into that hard currency but i can true believer and i want equity-like upside in the growth of the ecosystem i think that's really interesting right so um i looked at the top 50 blockchain gaming projects recently i forgot who

published it and like frankly it was a chore even looking through that because i just knew what the core loop of all these things is going to be it's either like some clone of axi it's like some buy my avatar and i'll promise to create some game that may or may not be delivered it's like all these things they're like three blockchain games today uh and and we're much more excited about the opposite which is like real game designers who are um uh who are thinking about how can we incorporate fungible fungibility into our token and economic model in ways that give players value for their time and and and game designers are they're going to build a game or have a shot that people are going to be playing 10 and 20 years into the future this is so

interesting like the the idea that you're saying richard is kind of like this uh this idea of like there's some people who have more money than time and some people have more time than money right there's this separation between a hard currency and a soft currency between almost like labor and capital that you're getting in but like you you have to have the balance right it's like it's the thanos thing all things in perfect balance like you can't have too much capital invading you can't have you know too much labor without capital but i i also wonder if there's uh some sort of uh you know try crypto loves its trilemma some sort of you know trilemma here that might might prevent this world from from coming true because once we have that thing that you said was important earlier called an open economy then everything just

suddenly gets priced right like everything has a market like do you think there are ways around that you know people are gonna speculate on uh slp and that like that's why slp in the axi game it was supposed to be soft currency but that's why it's it's gone up and if you want to have an open economy then it has to plug into d5 it has to be part of this whole speculative game and then like you kind of get what you what you what we have right now what are your thoughts on that is there some sort of impossibility yeah trilemma that we're hitting up against i think there is like um you know i think there's a fundamental tension between reputation-based currencies that you can only earn by doing things and they connote real status because of the

proof-of-work that goes into earning them versus something you can just buy and say i have the same status now i've said that in the past and i've had mobile game designers come up to me like you're wrong you know here's why you're wrong because like you know we sell this thing as iap and it caused just as much status as someone who's earned it but you know i think particularly in a crypto world where you can really tell who's put in the proof of work versus just bought something i think it's going to really detract from the long-term value accretion that goes into virtual goods that you can only earn right or find randomly so yeah i do i do think there is a tension and we see we there's a lot of tensions in any kind of currency whose value is

driven by engagement right like um i i think we we can even talk about social tokens as an example right like you often hear this social token paradox of there's a tension between the need to expand your your token community versus exclusivity right and how do you balance those two things i think it's the same for any any any kind of virtual good or token that plays on in the status realm um and and i don't know how that tension kind of sustains itself in the long term one of the things i really enjoyed about learning about galaxy interactive is you guys call yourself a thesis driven investors and you know bank list we like to call ourselves a thesis driven media

company so we have some alignment there and i think another thing that we align on is just overall long-term thinking rather than just you know cloning axing and you know re-skinning it with some new loop you guys are really thinking deeply about what it means to actually have a successful metaverse successful virtual worlds and there's some things on in your guys's literature that really stood out to me that i want to unpack with you guys the first one is on your website you guys say that you believe in the power of digital playgrounds to foster a healthy sense of community place and purpose a means of enablement not merely escape and i really like that last line enablement not merely escape how will in your guys minds how will the metaverse enable people and uh is it a

good thing that we are also depriving people's uh a way to escape when so many uh sectors of the gaming industry is like kind of optimizing for escapism yeah i mean i i think we should both comment on because i think we have different different ideas and angles but i mean i think of when i think about enablement so much of this is first imagining and understanding these worlds as being proactive places that people people are building right and so if you're building your identity and you're building the content that you find inside of it and you're able to uh you're able to design a life for yourself i mean obviously to the extent you're earning you're living inside of these worlds that's that's one very important part of this conversation but likewise just the ability to

really and in this way predates metaverse right i mean just user generated content in the first place and when you imagine persistent virtual worlds that people are building whether they go all the way to the to the extreme version of metaverse that some people are imagining um these we've already gone in the direction of people being able to realize the vision for themselves and their lives inside of these worlds and that's very very different if you think about the history of gaming right and and i mean gaming in the evolution of media obviously we you know even 20 30 40 years ago gaming was already far more lean forward than you know television before it and movies before it but even in the last uh few years the progression we've made

towards uh towards gaming not just be not just being leaning forward and interactive but actually a place where you impose your will and your creativity into a world for others on a permanent basis that we think is an enormously empowering enabling uh idea and then in it as this space grows the other thing we're starting to see are just the best practices from these game worlds that are being built um carry out into other aspects of people's lives and again i think we talk in in other places about just the gamification of the world more broadly and that is uh we we hope uh and to the extent we have an opportunity to influence the

direction these things go in we think it's really an opportunity um to take those best practices from games and help people apply them to their lives more broadly yeah um i think my perspective on this is it's really colored by my own experiences with my son um i i tell this story all the time of uh you know we're investors in the sandbox and i a couple of months ago um i he plays minecraft for three hours a day so i was like charlie why why are you wasting your time in minecraft you could be earning sand tokens as a creator like i literally forced him to do it and you're trying to crypto pill your son here yeah and he built some pretty cool stuff

in there and then um after a while you just he wasn't using it anymore and i said charlie why aren't you using the sandbox anymore he's like it's really really simple sandbox doesn't have a concept of redstone yet redstone is the block that is essentially electricity in minecraft that oh if you've ever like you can read books about redstone i was just mind blown when i actually looked into this um and i think one of the things that makes minecraft so popular is it's it's like digital lego blocks right i have this imagination of the world it's like kind of like what's in my mind i want to just like play without even having a plan that's the other that's the other thing that was just mind-blowing to me one time i went with him to his friend's house and so you

have four 11 year olds they're like hey let's go play minecraft together you actually watch them play i was just in trance watching this for an hour no plan whatsoever and somehow the most beautiful order emerged from total chaos like from literally like killing like the sheep and like cutting down trees to like one of those beautiful worlds with like no coordination it's just kids expressing themselves right and i think somewhere along the way um we get jaded in life and uh and especially like the crypto audience everything becomes about money uh and it's like why would you why would you not earn value for your time and and to him it was like the exact opposite it's like why why would i want to work if i just want to play like that and that's not

play right so how do we get to this point of play in virtual worlds which it's as seamless as um you know alex danko has this great line like build um a jungle gym not a tight rope i think so many like play to earn economies they feel like work to earn or like walking on a tightrope it's like why am i doing this and it's just this visceral like oh feeling right and i think the moment we get um emotionally closer to like that jungle gym where we're like we just hang out with our friends and that that kind of social space is just as real as like the things we were doing if we were all hanging out having beers right now like i believe in that world because i think it can teach us something about

ourselves um that we don't get to capture every day given our physical limitations um and that's the type of stuff that gets me excited i mean by the way i'm listening to richard say all this and i've heard it obviously it's a topic we discuss a lot but he hasn't been to burning man yet right and what i love about this conversation is like if you and i don't know if you guys have but like you can talk about play in games and game worlds for kids and all the rest of it but like it just doesn't have to be only in immersive digital worlds it can also be in physical worlds and in real life and you go to a place like that and you realize that like a small number of people in in events like burning man and the and the related

events thrown around the world and that whole trend again i think is growing uh as a result of so many people coming out of games or feeling empowered by the gaming experiences they had when they were younger or just wanting to relive them or reinvent them and you when you when you go to a place like that that is for all intents and purposes a fantasy land for for a week each year um where the only thing for you to do there is play and create and share these experiences and like visceral joy um the the the benefits that come from allowing yourself as an adult the opportunities to do that are so tremendous in terms of how we engage with other people in our lives and what we end up building and bringing back to

the world and so like that i think if if we are creating as a result of the gamification of everything in the world and the way that things are going i think um it bodes very well for what we're capable of as a you know as a species going forward there's a number of topics that we're dancing around and i want to uh circle in on one here i was actually talking to uh jiho from axi just yesterday about a lot of the mistakes that many uh you know play to earn metaverse games make and uh he he talked about how one of the mistakes that they make is they just try to just make the fun most fun game possible and slap some tokens on it we've talked a little bit about this um but what um what really gets really interesting is is not just games that

serve you dopamine on a platter but serve you uh also what we've been talking about like you know meaning and purpose uh and he thinks that the the future of many of these metaverse games is not to just be super fun but to actually emulate the real world so that you can actually find meaning and purpose and one of the i think the reasons why eve online was such a successful game is because there's such a strong component of loss in eve online you can put a ton of energy a ton of you know blood sweat and tears into building out your resources and collecting your your instruments just to have it just be like you know looted by a bunch of pirates and then all of your labor just goes out the door and so uh one of the lines that you guys have on your website

is that you believe that the virtual communities marketplaces and experiences will cause people us to revisit long-held assumptions around the meaning of real so when you guys are looking at the games being played and the things that you are investing in how are you thinking about what is real and how will the metaverse come to redefine what we think is real my my colleague michael fann actually had the best definition of the metaverse i've come across um which is uh you know you've hit the metaverse when you have to ask the question wait which reality wow yeah and i think i think that's very relevant to the question you just asked

because one of the things we haven't seen yet is a play to earn or virtual experience that you know has real world societal impact and through our actions in those purely digital realms they have real world consequences and so you know where where does one end and the other begin i think there's much more room for that type of experience um you know we were just this past weekend i don't know if you can say the name but you know we were brainstorming with you know a very large um organization with a ton of societal impact and thinking about how token economies could potentially uh instigate a wider community dedicated towards these things that actually matter and i think there's tremendous opportunity for that because it goes back to like the whole saying um you

know like i think it's monger saying you know play stupid games win stupid prizes and i feel like there's a lot of stupid games and stupid prizes right now um and they get obfuscated in you know like staking token economics and like the you know the the third ohm fork type of discussions but all these things ultimately are like short-term distractions in my opinion to like making a a real impact whether emotional relatedness um or some charitable or social impact cause right and i think a lot of these primitives that we're now experimenting with through daos through nfts um through play to earn they're eventually going to find their analog and things that actually matter and i think people are going to be tremendously proud of what they do in

these digital realms and the impact it has right like constitution now is like a is a foreshadowing of like the many many things to come in this space i mean this in some ways wraps us background to your first question and how we started this conversation because like when you ask about his metaverse here to stay or what's the importance of this uh you know to put a cap on what richard just said it's it's when the world decides as they have now that games matter and i mean we have an amazing day today in the game space with the you know the acquisition of activision by microsoft largest gaming m a deal ever uh by lot um you know when the world has decided that games matter then the things that games can do uh start to matter too and people put a put a much finer point you

know eye towards what's possible with these games and they they don't they don't matter and very rarely do we ultimately decide that things matter just purely as entertainment when they get to the size that that the gaming economies have become yeah and i think i think one of the things when when people look at this space with a primarily financial lens and they look at you know these nft projects and other things trading at crazy values they really struggle to understand it and the thing i always explain is what web3 has enabled is the um it's allowed the things that previously could only be consumed as entertainment uh i.e were ephemeral to be captured in persistent form so like the you know consumption is now an

investment um and the implications of that from a consumer tam standpoint are just massive right because think about um whether it's world of warcraft so it's started in games but it's not limited to games there's all sorts of things that consumers have affinity for um that they could only you know go to a concert or buy a virtual good like these things that were consumption before they're now potentially investible because of the fungibility tradability um et cetera that web 3 brings and and what's interesting about that is that it allows communities to form um with an incentive structure built in right like if you imagine a chart of like the market cap of a token on the

y-axis and the engagement value on the x-axis like in the old world like i get asked this question well why can't you just use dollars why do you need a token right so if you use dollars in say a game um that chart if you were to plot it would be something like a a straight line that starts from the origin and extends out diagonally so if you've built up a lot of actual engagement in your game your your kind of currency or your gmv should be quite high like the fortnight skins is a good example of this right but in the early part of that curve there's like no engagement right there's all there's potential engagement but there's no actual engagement the interesting thing about tokens is that that line is no longer a kind of diagonal line it's like a horizontal

line where irrespective of actual engagement the market has assigned some price to this token right and what's interesting is if you think about the area under the curve that that horizontal line like and split it into potential engagement value versus actual engagement value it you know potential engagement value is the vast majority of what's under the curve today uh for play to earn gaming but also all sorts of causes but that's not a bad thing why because you've essentially allowed people to stake the things they think they care about and then over time um turn that perception into reality right and i so i think that as a mechanic is something that has massive temp potential across all sorts of causes that matter

um and i'm really excited to see those causes materialize yeah this um this mechanic that you mentioned this is really what we've seen in crypto since the beginning right it's like do you remember the days where they used to call uh bitcoin magic internet money we don't see that we don't see that meme very often anymore and that's because like at the same time it became like institutions are buying and if paul tudor jones is is buying like bitcoin is it really magic internet money or is it just uh money right and so like par part of this crypto journey at least for me personally has been somewhat surreal and i think many many people will cross the chasm from like um what you think is just a game to suddenly

something becoming real like uh david and i and you guys probably too every day we log into the crypto game and like we're just playing but it's but it's also real life like this weird internet money thing go like talk to your parents about it right they think what you're doing is strange and bizarre but like it's now work and it's play and it's a video game maybe but it's also real life i think that this thing will happen to an entire generation until like all of humanity like the metaverse becomes the thing that is real that's like that's what we do i mean it sure makes it harder to refute the idea that we're living inside of a simulation right yeah well dude

don't get me started the more things happening the little the little you know blips in the matrix that we're starting to see but i i mean for sure and it's i i think of so many things as i hear both you guys talk about this stuff and it's you know we've been saying for a very long time there's this been this idea of selling the sizzle and not the steak right and i mean i think to some extent what crypto has done is enable you you to sell the sizzle at scale uh you know throughout the entire cooking process uh and and that's important and much more importantly i think you nailed it though i think i think we're we're getting a little taste of the the this game that is our lives for sure and i

think the more that you really you you sort of drill into that you realize that um we're we're all playing uh a game and we're we're sort of you know betting our lives every day on the decisions that we made make and the you know the things that we do that we're playing the game correctly yeah and now we've been able to put markets around it i think one of the most challenging things um is balancing the tension between like trading and short-term speculative motivations versus being more of a builder and participant like i i've been thinking a lot about wanting to spend my time in the in the causes with large areas under the curve like it's okay for a lot of the value today to be potential

engagement but in a world where dot dot dot the answer to that has to be a world where that value under the curve is real and meaningful right and i think my issue with just to use one example a lot of say um profile pic project communities is you hear this word community a lot you talk about shared interests and values but as i apply my like mental framing of okay what's the area under the curve of you know these profile pick communities you know in a success scenario i just i struggled to get excited about why that's big right um and and and i think if we and i think a lot of it is justification for short-term speculative behavior on

obviously like talking your own book a bit um and i think if there were less talk about trading and more talk about um you know spending value and um spending spending time and energy in the projects that actually make a difference and just forgetting about selling entirely um you know i just turned 36 i wrote an article on my blog about how i wish i could go back and tell my 18 year old self forget about selling forget about the zero sum mentality um you know for your mental health if if nothing else and just focus on what what do you what projects do you want to devote your time to i think that's ultimately a much more healthy way of approaching the space and a long-term sustainable way of approaching the space then getting caught up in the high

buy-in come join our cult type of trading that you see today well said and i too have bull market fatigue especially nowadays and the the last of the overarching theses that i've been able to pull out from what you guys think is this concept of meaning which we've definitely been talking about but i want to go straight forward uh straight forward for it right now if uh say there's a team trying to build some sort of game some sort of a component of the metaverse and they're looking to raise funds from galaxy interactive uh you guys say that you guys are looking to back teams creating meaning in the metaverse how does one create meaning in the metaverse you want to take a shot you want me to

i mean like i i think it's it's a difficult thing to answer and the truth is that's what we aspire to do and we also end up backing a lot of companies that are just building great games and i think we have to do that right now at this stage in the development of the of this industry um uh but we aspire to find the ones that are gonna that are gonna build something that people care about uh and i think a lot of it has to do with what are the skills that people are um are learning in these worlds and and what are they going to carry through into the into the things that they build i don't want to sound like a broken record but it comes back a lot to user-generated content and a lot to self-expression i think that's ultimately at this moment in time the

best opportunity for people to to make something that matters um if they don't have the tools to put their mark on a world then it's gonna be very hard for them to to have an impact at all and so that's where a lot of the sandbox games that we back come in and again it's uh i think we are hopefully by inspiring people to build games uh and enabling them to do it with the tools that a lot of our companies are creating their own search for meaning and i do believe it's universal amongst human beings ultimately to to to search out meaning and to put their mark on things and so at this stage we're really largely building the infrastructure to

enable them to do to do that as opposed to i'd be kidding you if i said look at our portfolio companies and there's you know they're spilling out with with deep philosophical meaning and answers to the questions of life in the world like we're not there yet but uh but the tools that are going to enable people to express themselves uh just like the printing press enabled people to write and that you know and computers enabled people like richard to you know and the web enabled people like richard to build a blog and share his thoughts and ideas i think that's what um what the games that are being made today are going to allow people to do i think a lot about like what what loops are internally consistent and stable so like i go back to you know we created a i created a

social token community called rng um like before fwb and all these things and i learned a lot from the experience um you know i had this idea of well if you got a discord together and you put a token on it like can't you like boost engagement retention uh like 100 acts and don't all the rules go out the door and i quickly discovered that the answer that was no because you still need a community of shared interests and values and like one of my favorite things as part of that was some of the self-sustaining internal loops we created there where we had this token for example and we would host these creative challenges i think you guys sort of do this too in bank list now now where like we would we would ask artists to create nfts on a theme and then the community so the community

would create the nfts the community would curate the nfts in terms of like the top three and then the top three would get minted and then sold back to the community in the native token right like i think that's a really cool thing i think there's a tremendous amount of meaning um and and and value you get from building these self-sustaining loops i think a lot of the fatigue in the space you see um comes from feeling like you're participating in punsies because uh you know like for anything to be sustainable you need like the next sucker to come in and buy it right so you know in terms of again where i want to spend my time it's less on the stuff that you know requires new fiat inflows to work and more on the how do we get a bunch of people who care

about some cause to create these internally self-sustaining loops uh where in in success this thing gets massive and it's long-term sustainable right i do think this is a good point that we're you know brushing upon and again that's not don't we're not turning this into a philosophy podcast i'm sure there's a philosopher out there that has commented on it but it it strikes me that in all of my metaverse or interactive experiences the the times and the places where i found the most meeting have been with other people it's been a part of engaging in some sort of community like the social element and and aligned people playing long-term games together is where at least i found a ton of the meaning in this space right and that's

why it's like i i would encourage those that are listening to go and seek out those types of communities right i mean you guys were talking about there's so many different uh get rich quick you know speculation type communities out there but there are some incredible projects that are building these insanely incredible aligned communities that are here for the long run right not the tourists these are the settlers and i would encourage anyone listening to this to go seek out those communities when you find one plug in deeply because magic things will happen and like play like uh play the long game there too right it's like it's not gonna happen in a week you know token price isn't going to 10x in the

next two months but like magic things will happen and uh yeah i've i found purpose here too i mean ryan at such an important point because um if you've spent any time in these worlds and uh and you know whether they're 2d worlds or or or 3d or or vr it's um i mean mark zuckerberg is getting so much for you know putting on putting on the headset and and you know in his talk and the idea of saying i'm gonna build these these these worlds and you know and and looking like he's doing something you know an activity that's ultimately so isolating but people forget that on the inside of that headset and inside the screen for everything else you want to say like he's having and everybody that that has

had a really immersive digital experience like that a digital social experience like that understands that like there really is a feeling when you get that immersion right and you're in a shared social like deep immersive experience that you are bridging enormous physical gaps uh to connect with people that you might otherwise never meet and never see uh and and likewise for a lot of people who can be um somebody that they've never been comfortable being in physical space right there there's an in like such an important unlock that happens for so many people that where they have courage that they didn't think that they could have where they have it you know an opportunity a sense of humor that

they never had before like all of these things are tools to self-actualize and realize things that you may just not be equipped to experience if you're just meant to walk up to random people on a street or at a bar or these things so it's all really empowering stuff it comes with its dark side and i think you can't be in this space and building these things without being conscious of the the challenges that come when you um you know create worlds like this for people or participate in it but ultimately the opportunity to empower people in a in a way that they might not otherwise have in the physical world is really important so you've got some money

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when i'm out and about which i use to collect po-apps nfts and do all my defy things while i'm away from home if you haven't downloaded metamask you got to try it out web3 wouldn't be the same without it download menumax for desktop and mobile at metamask.io and load up your trezor ledger lattice or keystone hardware wallets so that they too can get into the world of web3 living a bankless life requires taking control of your own private keys not your keys not your crypto that's why so many in the bank list nation already have their ledger hardware wallet but the ledger ecosystem is much more than just a secure hardware wallet ledger is the combination of the ledger hardware wallet the ledger live app and soon the cl cryptolife card powered by ledger the cl card powered by ledger is a crypto debit card with powerful features like

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maybe a little bit longer and i'm curious to dig into some of the themes of that thesis both in you know what they originally were when you when you started on this journey and how they've evolved how they've how they've changed um a few of them all list there were seven or eight different different pieces of this social sandboxes like the ability to design your own experience viewer participation so users creating the games the interactions themselves uh interactive tech felt like kind of a vr type play mobile gaming you still thought mobile gaming at the time would be huge uh the creator economy so this is the idea of creators kind of remixing and building things gaming becoming a cultural movement right like gaming as like the new hollywood is maybe how i

think about it uh synthetic media so these new forms of media with like ai and then of course uh web 3 and open finance this this concept of squad squad wealth which is maybe a foundation layer to to all of these things but so let's touch on a few of those uh and one that you mentioned a few times throughout the course of this episode is this idea of sandboxes and maybe social sandboxes could you touch on that thesis uh and then some of the other macro trends where you've been right where you've been wrong you can just pick a few of these out for us yeah um i i think one of the interesting things is to so we we put this document out in um in the third quarter of 2020 which isn't that long ago but

these were written with the decidedly uh you know web 2 hat on these none of these were like crypto and blockchain didn't dominate every one of these things and what's been interesting is to think about um particularly the last six months how web 3 really accelerates adoption of these things in meaningful ways so let's just start with the sandbox side right so we've seen this kind of decade-long trend towards you know game design evolving from a work of intentional creation to one that you know is more individual to you know how users want to play like minecraft is is the example here but you know you can also point to fortnite creative like gta online there's many examples of of this and some of the biggest titles today um you

know started out as like mods of you know starcraft and you know other games and so you know when i look at things like uh loot for example um take take something that's like a pure ugc user-generated content thing um or a cco project like toads for example um i'm generally pretty skeptical that any of these things are going to produce like the equivalent of the next picasso because you need this you need this good balance between kind of top-down narrative and a in a framing really like a sandbox for people to go play like the equivalent of all those blocks in minecraft um and if it's a hey guys go build

something interesting here's 10 words like i don't think you get there right um so so uh i think it's a space where traditional game developers who are thinking about the promise of token economies um can potentially do some really massive things like we have a few in our portfolio that uh you know we highlighted in that deck as being exciting like build a rocket boy so here you have you know like leslie benzies who created grand theft auto which is now this like it's produced over like nearly 20 billion dollars in lifetime revenues right and and he's building this this this world that combines the kind of seven part epic narrative uh really fantastic aaa gameplay you know with this world where there is the

sandbox environment right for people to take um a lot of the the lore and the assets and that in that title and express uh themselves by creating their own games with that right you know i think those types of ugc environments are going to do better than kind of pure play uh go go build something interesting um and and the potential for tokens then to capitalize on that as like a monetization mechanic to incentivize creators to do interesting things i think those that is one of the kind of core sustaining primitives behind token economies right in contrast to uh let me turn my virtual economy into a funnel thing like because that doesn't work 99.9 percent of the time as i've said

because of inflation issues right everyone wants to sell their their famous like to use vitalik's word sword and world of warcraft but if you've suddenly made all swords tradable like the price is going to tend towards zero and no one's going to be happy in that world so like what is the buy side demand uh for this fungible token uh a very good answer is user generated content and i think we've seen a little bit about this before and another no another one of your guys's theses that you have is viewer participation and i think maybe the first instance of this that i think is relevant to bring up that user listeners might be familiar with is um uh twitch plays pokemon uh that was like a very early preliminary like oh everyone just log into twitch and watch

this ash character that's being controlled by ten thousand the collective brains of ten thousand people uh it was entertaining uh but then it was also just so easy to also partake in uh can you guys talk about just the future of this kind of engagement and its role to play in in the these digital worlds that we're all uh apparently going towards yeah sure yeah i mean i think this has been um an observation that we made obviously back back when we started galaxy interactive i think it's uh increasingly um becoming the expectation that people will be able to access these worlds from everywhere uh and and engage with them to the extent that they want uh and

again that we were talking earlier about sort of leaning back versus even in the gaming world how passive is the gaming experience versus being able to to assert yourself and impose your will on the environment i mean we made an investment in our first fund in a company called genvid um which is in our opinion really leading the charge in terms of enabling um real two-way interactivity in in uh game engine rendered worlds at scale uh you know they've built technology it's middleware technology that allows you to access uh a game or an experience that they've created from a web browser from any device with zero latency and actually participate as a viewer um in in the

activities of that world and so you're you're impacting and and affecting the the game that you're watching um but you know in the case of uh the first experience that they launched at scale was a a game uh really what they they call a mile a massively interactive live event to capture this idea that they're building things that aren't aren't quite games aren't quite um broadcast television and our and and our opportunities for everybody to interact in an enormous scale so they made this game called rival peak which um uh they launched in partnership with facebook and it became very quickly the the most highest engaged our engagement uh experience that facebook has ever

launched um this was part game i mean it was really uh i guess if you were to check it out it would look like um a game engine rendered version of uh survivor where 12 contestants are on an island these are all ai controlled um characters they're on an island this thing is running live for months you can log in and watch from a browser uh any any place where you can access facebook you can experience rival peak and watch the characters on this island engage in their lives the ai characters on this island engage in their lives um they've got cameras on all of them which you as the viewer can

choose uh you know who you want to watch and then you as a viewer can also engage uh in the content experience that they're having and you know if if the character you like is attempting to make a fire and you want to uh make it a little easier for him to get some wood uh or if you want to create a problem for somebody you know else uh to find food or whatever it is right so you're really like in you from a spectator's perspective you are able to impose your will on the on the space and it's experiences like that where um you recognize that everybody's got a device on them at all times um again probably multiple devices but at least one at this point uh and

they want to choose whether they're going to just watch and be entertained and i mean what rival peak did that was so brilliant once a week they would cut together the best events from the you know from the footage of the week and actually hosted will wheaton would host a live show that was very much like a recap show like you would watch in the old you know produced version of survivor where where they're cutting to the content from the week and you're able to come in and watch and that's where you see what happened and how everybody participated and then back to the next seven days where you're letting people log in and uh direct the action to some extent and so it's the blurring of these lines that um we're really excited about in terms of expanding the

total um tam for gaming and the idea of what gaming is and and this is um you know in some ways it's just you don't you know do you define this as a game do you define it as a show do you define it like what is this thing um and that to us is sort of a sign of what people are starting to demand from their content experiences there's a theme that's going on here i think that i i want to pull out and that theme is emergence and we've talked about this a number of times where uh richard you talked about it when you watched your son and his friends uh play minecraft where they didn't have a goal they just went into minecraft and things happened uh and we are seeing the same thing with that same sort of like you

viewer participation uh at least with i remember twitch plays pokemon uh they the names of these pokemon were just gibberish because no one could really control the keyboard and so these gibberish names got named for these pokemon and then the viewers started to actually create like songs and raps and like content around these like weird memey names about these pokemon it turned into like this cult following around what was going on in this very small digital world which is this one instance of pokemon being played and and we are also seeing this and this is why this is both both a crypto and not a crypto conversation because we've also seen this in the world of crypto not even vitalik realized that it was the composability of defy that would really

unlock defy vitalik just thought that contracts would be happen would be written and then we would use them but he didn't really think that contracts would interoperate with other contracts to create money legos that was something emergent and i think a lot of your guys's themes your seven theses uh your your seven to eight theses are all about trying to foster some sort of emergence like we don't know what's going to happen but it's going to be cool and that's the same kind of thing with the internet no one knew what the internet would turn into but you know in hindsight now we do and i feel like now we're on we're on the cusp of the metaverse and no one knows what's really going to happen and that's kind of the point is emergence something that you guys are trying to optimize for

with your investments i i mean optimize for it at least acknowledge it and not get in its way i mean i think the if there's one thing that's been true about the evolution of just say content for example alone without addressing the all the other things we're talking about and finance and the rest of it it's but if you're if you think about the evolution of content mediums um for certain the only thing you know is that with technology you really can't predict uh and shouldn't try to to put like the format of the content experience that was into the new medium that that is today i mean you need to recognize i i think back to like i mean i always joke i i spent the

first half of my career entirely in old media and traditional you know media and everything that that's you know was it then and continues to be in secular decline and it's it's like back in 2007 2008 like that was the era of everybody thinking that you know the webisode days right if you guys remember that you were pretty young but it was you know the internet was happening and streaming was possible and everybody just assumed that you should take a television show and cut it up into three you know a 30-minute television show and cut it up into the three-minute bites and that was going to be what people were going to watch on the web and obviously it turned out to be something very different than that um and it's the same thing with with games and and again

that's why enabling people to do their thing with the tools that are being built now either at the end user side or in the on the infrastructure side and the the game engines themselves and the middleware that's being built on them this is all about ultimately empowering people to build and by the way going back to the metaverse conversation this is super important right because again whether we're in the metaverse today or not one thing that's certain is that for any version of the metaverse at least the really interesting versions we want to talk about they are going to require an enormous amount of content way more content and and for any game developer their single biggest line item is your two biggest line items like as

user acquisition and content creation and the the amount of content that we're talking about if you want to build a persistent virtual world that people are going to be in all the time and that is going to feel in any way shape or form like their real life it is way more content than any one company or any one 1000 companies are going to be able to build themselves so the only way this is going to happen is via user generated content and the tools that enable people to make the content and and the the incentives that enable them or encourage them to want to make it yeah i mean i i think you you hit the nail on the head with the emergence because you know i wrote a long thread on what i think is going to drive long-term sustainability of play-to-earn economies and i think it

boiled down to a virtual world that mirrors the real world right like that's the ultimate upside case for any virtual currency um and and part of the reason why is the shift as you were describing of live content design evolving away from these works of predetermined creation um you know where all the rules are and the the kind of script is fixed up front to this paradigm where like users are feeding on on each other um to create the their own kind of personalized experiences and also um you know encounter the unexpected it's one reason why i as i mentioned at the outset i'm relatively bearish a lot of traditional mobile game designers in particular and then their transition to crypto uh you

know when i went to slash and helsinki and 2019 if you use the word blockchain you would be ostracized right um like you know it's just giant no no and this tier when i visited slush a few months ago um there's a lot of people who are quite interested in it but they're thinking about it the wrong way they're still thinking about it with this lens of okay i have a fully designed game i'm like goddess central bank i can design all these things uh let's just give players value for their time by making these things fungible and what you'll inevitably find is the economy doesn't work and i think so that unexpected emergence and user-generated content is the lifeblood long-term of these economies so when you guys put together these theses like when you

started in in 2020 in 2020 um how has the theses changed right of course we've we've seen web three open finance you know d5 the metaverse kind of coming into vogue uh has that been the only change or like what have you been right about and what have you had to pivot and adjust yeah i mean to be to be honest the the the overarching thesis and the sort of top down what drove uh our whole ethos and galaxy interactive and and what still drives our our big macro invest in perspective is this idea that we are in uh in the early days but in the middle of

an exodus in many respects from the physical world to these immersive digital worlds and what are the opportunities that are created as that happens and if we just assume that's going to continue to happen so that was the that was the big idea that drove all these sub theses um and and we just feel like if anything that's just been further validated as opposed to changing um we were wrong for sure about the timing and order of some of this stuff i think if you had asked us um a couple years ago even a year and a half ago prior to 2021 being the year of the nft right i i think we thought in a big thing that was driving our our portfolio and our investments was the idea that um if if

the ownership of digital objects or the ownership of blockchain objects right was going to happen anywhere it was going to happen inside of a game world mainly because like that's where people already were and where they were uh were and have sometimes very comfortable with the idea of of ownership of digital objects there were markets in the games they would we thought they would open up earlier that's where we expected to see scale first around the this idea and obviously it didn't happen that way and it happened more uh in in the art nft and the collectible nft that was completely detached from any top-down created uh immersive game now it's coming back around and i think you know we were making a bet broadly across the space and so and obviously nfts and both

individual uh projects as well as the infrastructure that was powering all of this were a big part of our investment you know portfolios from the beginning um but we had the year uh of all of these nfts happening out you know away from games and now i think we're going to start to see the launch of some of the you know some of the games that have been created by really great developers and the and the emergence of nfts and the importance of them uh and open economies inside those games yeah i i think one thing that's interesting to me is like we as sam was saying we invested in blockchain gaming us and animoka were like the two earliest investors back in 2018 and but even us like we viewed blockchain gaming

as a thing and then gaming is a thing right mainstream gaming and then all the other theses like that had nothing to do with blockchain and what's been so interesting to me is web3 now i could take any one of those seven or eight theses and describe to you why web3 is accelerating those trends um and and so i i think that's going to be the most interesting part like i mean just take culture for example gaming culture we invested in artifact we were the first check-in artifact when they weren't an nft company they you know they had this idea around digital sneakers and if you look at their actual first drop it was it was hoodies and physical sneakers right which a lot of people don't realize

because they just assume artifact was always like the supreme of the nft space right and so see like somewhere along the way this is the group by the way richard that just did a deal with nike correct yeah they were just bought by nike they're bought by nike that's right yeah so so going through that ideation process with benoit and zapto and all these guys when as we were thinking about hey web3 is really interesting can we use nfts to accelerate a lot of these themes that we know people care about like that that's what's interesting to me the things that start off as web 3 things pure crypto things and say a later add-on gaming as a supplement those aren't likely to work right so so i think the core of our strategy to try to identify independently of crypto what

are the societal trends around meaning and purpose in digital realms that matter and thinking about how web3 might accelerate that was really the right strategy um and and and one reason why despite the fact that you do see a lot of speculative hype particularly around say plato iron and the whole metaverse sector in crypto as it exists today i think we haven't even see like the game hasn't even started like i don't even know if we're in in inning one yet like it feels like the warm-up batting practice uh part of the the the evolution here well can we talk about that for for just a minute as we close the thesis part up and then we have a few other you know rap wrapping up questions i guess for you but like it does feel like the the the crypto gaming

uh sector is suddenly hot it's like actually infinity's blew the doors open on the thing there's all of this capital all of this money flowing into the space you guys were here back in 2018 doing this before it was sexy before was cool before people like they would look at you like you had three heads if you said the term blockchain but now um there's that ftx just launched a two billion dollar fund okay all crypto game two billion dollars okay that's a lot of money mechanism capital just this week another 100 million uh the player to earn uh category there's so many other things there's game studios there that are talking about it are we like over hyped in the cycle because i i'm catching some vibes from uh

both you richard and you sam that like you are you super bullish on this thing long term but you're seeing some things in like the short term that are not exactly healthy or not exactly sustainable you tell me if i'm reading into that but but tell me if you think it's over hyped in the short run right now and where we go from here i mean i think you are i think you're you're spot on um are there projects today and is you know are certain themes um overhyped perhaps and and obviously we've seen a lot of there are a lot of projects out there that it took to richard's point that um if they don't have the fundamental team in place that

really understand for example how to make a great game or or understand um game mechanics and and engagement loops and how to build a a virtual world that people are going to want to stay in and live in and build in these actually are not things that that have emerged in the last year with the rise of blockchain gaming there are things that people have been building and learning and thinking about for for decades now um and and in some ways they ultimately come down to how well do the people making this this world understand storytelling and some of the the fundamentals about content that also haven't changed for thousands of years so like for us the the thing that hasn't changed in our approach from the first uh game

studio that we invested in the our in the first fund our first investment in in the studio was mythical games and uh under uh writing a studio like mythical was all about the fact that there was a team that had proven themselves over over decades to understand how to build and ship and operate a great game and so we skipped a number of you know as the blockchain wave happened we skipped a number of projects that um that would have been short-term great financial investments but that we just didn't believe were back you know we're being built by a team that we're gonna be able to operate something and create something that was gonna last and so nothing about our thesis has changed in that respect and in fact i think what's so exciting a

lot of what richard's talking about is we're independent of the short-term hype around this um this is an opportunity now where there are teams creating some really really great things and the like web three tools that are available to them now and at their disposal to expand their ability to tell a story and pull people into a world where they're gonna where they're gonna stay um i think that is the most exciting thing about this but um as you guys know if you if you want to jump on you know a new short-term ban crypto bandwagon like every day it's available at least in the bull market cycles and and then for some period of time it may not be um but what is exciting to us like i'm very certain

that we are uh at the at the beginning as richard said of decades of tailwind um behind this idea of building immersive worlds for people to live in and play in and build their identity inside of and so that's the stuff that we want to back yeah it's critical um to not get high on your own supply in this space um and and you know that that's obviously in the form of uh massive fully diluted valuations to tokens right there are deals we passed on because you know like a 30 million dollar seed round in a in a game studio context is rich and there are token projects we talked to last year that started off at this level with with a deck and barely a team

and now traded 10 billion ftvs um you know is that sustainable well bethesda sold the microsoft for eight point something billion so i'd say probably not um you know i and and i think too much is being read into top of book fdv as if that reflected one liquidity depth and two what's going to actually happen once tokens unlock so you know with with that caveat in mind um i i think there's too much capital and crypto chasing the same themes like i i point to the guild theme as a great example of this like there's a lot of money flowing into guilds and no one has ever been able to explain to me what the exit strategy of these things is because it's great to go and

buy a bunch of long tail virtual goods but what happens when you want to exit and monetize that well i'm pretty sure if you're a guild that matters and you start selling some of these virtual goods it's going to be it's going to trigger a collapse in the price of these things as soon as you want to get out right so i think there's a lot of mechanics people need to be careful of when indexing to nominal mark to market that can lead you to the the wrong decisions and so like the question i ask myself is can i convince myself that this this game this network this experience is going to be stronger five years from now than than it is today and if the answer is yes and i see a credible path there those are the things we want to spend our time on do you also get worried

richard when you see the crowd like piling into something is that like a signal to you to like uh run the other way right it's like i um i i was i i was on youtube watching a crypto video or something uh the other day and i saw this um this advertisement for like digital real estate as like the next new thing and like i'm in crypto okay like i'm aware of generally what's going on like in in like that's not i don't know the economics behind that right like worries me that that message is going out to sort of normies and they're purchasing all of this land in these virtual worlds it just feels very toppy and worrisome to me but is that in general a principle we should take away is like when you see everyone piling

into something like turn and go the other direction in the crypto gaming metaverse industry yeah i mean i think the problem is um the cost of admission to all sorts of projects these days is extremely high right like if your plot of land in your metaverse costs 15 000 to get in like you've by definition excluded 99.9 of um you know users that will actually drive value into your economy plus all the 12 year olds that are going to make it way better right they have the time 100 way better like like the risk if if that's your model is you end up with large corporations who create like the equivalent of the empty shopping malls of second life um because no one else is the capital and your your

lifeblood of 12 year olds as you say is not in this economy right um and so uh the same comment applies to um you know profile pic communities to anything with a high cost of like even axi right like it's not free to play yes you have scholarships and all these things but how painful can you make an onboarding process right so i i think retaining some form of value accretion in the form of digitally squished goods but having in-sourced mechanics is another reason why by the way i'm skeptical the guild um thesis i think the next wave of play to earn games is going to have a lot of the borrowing scholarship stuff that you see um you know the big guilds and axia right now uh being outsourced like i

think that's going to be insourced into internal marketplaces um in games and you have the potential for like global arbitrage and labor um directly in these games right uh so this space is moving so quickly that if you're deploying a hundred million of capital into the existing suite of platon opportunities again that's like investing all your capital before the game's even started right absolutely also as we kind of draw to a close have a couple more questions but gotta ask you this because this was a big news this morning so microsoft just bought activision blizzard of course we were talking about vitalik's um you know world of warcraft sword and uh now microsoft owns his um his world of

warcraft character right that got nerfed uh as a classic story um what do you think this means is this just another run-of-the-mill acquisition is this microsoft somehow um chasing the metaverse or is this just kind of a regular course of business gaming acquisition that they've done in the past i mean i think uh it's hard to look at microsoft paying what was it 45 premium to the share price to buy a company that uh has a a quite a an active labor lawsuit in the state of california and and all sorts of problems with the toxic you know work culture um like microsoft doesn't do that if they're not making an enormous

statement and bet on uh on on the metaverse theme sure but but more specifically the value that is in the activision ip franchises that can be unlocked um as as they bring those worlds together in i mean the closest comp would be the marvel cinematic universe the the idea that you have this ip that is intergenerational now um and and undeniable in its importance uh to to culture uh and i think they see this as an opportunity to come in i think it's also a statement uh to facebook directly that like they're they're coming and it's not going to be just just meta uh in the building of the metaverse um but

no it's an enormously enormously important acquisition in our space but also just in the in the world um and again going back to that first question you asked i think it virtually guarantees that continued focus on immersive digital metaverse if that's what we want to call it last question for you guys so we managed to get this uh far through the podcast and we haven't mentioned the d word okay we haven't one once uh said decentralization uh and i'm curious if you think that's important for the metaverse or for your investment thesis right we we maybe danced around it we talked about the the concept of openness being very important open economies but is decentralization

important for the metaverse or is that not really a concept do you think that um investors will care about users will care about into the future thoughts on that i think it matters primarily in terms of composability right if composability accrues to ecosystems that people xnt feel are going to be decentralized and not get captured by centralized actors you can build a wide range of marketplaces um galleries like other ways to display your kind of digital identity uh in ways that really scale i think it's much less about um you know my sword is going to get stolen because like the game is going to turn

off the economy like it's it's not that um but it it's it's it's a relatively i think weaker use case in gaming relative to something like defy for example which has you know very good reasons why it needs to maintain uh decentralization particularly if we see a regulatory crackdown you know while just while we're on the the r word there like you know i think that's going to be one of the biggest challenges to the space is how you can engender like real economic value in tokens in the hard currency equivalent without having your thing be a security and i think like the way the industry's

dealing with it right now practically is there's the us and there's the non-us and just exclude us people but i i don't think the world's that simple it's not like the us is the only country with securities laws and and the more these things look like tokens that accrue real value as a result of the product of centralized actors and game designers um i think the more challenging it gets right so that that's another one of your comments your trilemma conversation that's another one of these tensions between like exit to community slash decentralization versus the need to build the great content experience um while also giving users value for their time and it's it's unclear how that all shakes out i mean i i do think if you imagine the metaverse version where you're really

moving like if you think of of the metaverse being the ability to move seamlessly like across various content verticals that like right now we sort of go down a content rabbit hole that's generally essentially owned or controlled experience right and then we come back up and we move over into the next one and down we go and like in each one of those places um we're usually opting into a system where you know the whoever dug that hole is controlling the monetization of what i do in that place and i think like if we're going to talk about a really expansive immersive digital experience like people have in mind when we think about the metaverse at least the strong version of the metaverse it's hard to understand how that can exist with in in any form other

than decentralized because presumably you you know you're going to need your identity and the and the ability the monetization of your actions and the ability to to to reap the rewards of going across these different places it's easier actually for me to imagine some version of a decentralized system where i control ultimately the monetization of what i do in these worlds than to imagine the alternative which is like massive coordination across all of these different verticals in some way where where everybody's agreeing and put like it's it's actually simpler for me to imagine that you you know given we were building the tools for something um like a decentralized version of that to exist it's easier for me to imagine it's just decentralized and and there's

participation with the different top-down centralized content experiences along the way but some control that stays ultimately the end user i also think it's a phasing thing right like i think five years from now decentralization in plato and gaming economies can be a really real topic that's super interesting right like which of these ecosystems have a sufficient velocity and quality of ugc that you could arguably exit to community right now there's no point in even having that conversation because you know as we were saying earlier you need some it's almost like raising a baby right and like the baby needs to grow up first to have uh you know the wherewithal to stand

you know by himself right and and so because the game hasn't started yet we're not having the decentralization discussion but i think at a certain point if our thesis on the space plays out we will guys will said we are in the the crawl phase of crawl walk run still it's so very early with the metaverse uh it's been a pleasure to have you richard and sam to to guide us through this and uh we're really excited about what's gonna happen in 2022 i think we're going to follow it in bank list very closely so thanks for walking us through that thanks for having us on guys this was great bankless nation hope you enjoyed this episode on the metaverse a few action items for you we'll include a link to galaxy's uh galaxy interactive's thesis

and their investments in the space i think it's a fantastic deck you can get some good ideas there there's also been a few other episodes that we've done on the metaverse on crypto gaming specifically one from amy wu web3 gaming it's called ariana simpson as well the crypto gaming revolution will include those as links in the show notes uh finally we'll include a link to the rant by asmin gold on nfts that rich richard was mentioning earlier i think it's very important to check your priors on this stuff and um like sometimes we have our crypto bubble hat on everything web 3 and nfts are good look at it from the existing traditional gaming perspective as well an actual player and uh that'll help inform your ideas in this space too

of course risks and disclaimers all this stuff in the metaverse is risky crypto is risky ethan's risky defy crypto gaming items virtual real estate you could definitely lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bankless experience you'll get access to our market analysis

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