Why altcoins will be bigger than bitcoin, with Yat Siu, Co-founder of Animoca Brands

Thank you for having me. It's a great pleasure to be here.

Yeah, so I mean I guess just for context, my mom was a musician and she was working at the Komische Oper, which is on the eastern side of Berlin. And so sometimes, and this is the other thing, I was quite young. I think I would have been maybe anywhere from 12 or 13 or 14. It was kind of funny because back then, I guess it was not unusual for kids to travel by themselves. The world was different at the time. But either way, basically you take the train and then you go to the western side of Berlin. It was kind of like everything was normal, although it was isolated by itself in a way. You could either fly in or do other stuff. But to visit my mom, I would cross the border because she was working on that side. And by the way, this experience wasn't just in East and West Berlin. It was also, I grew up in Vienna, and we would also literally go to what used to be Czechoslovakia, as in Prague, and Hungary. And you cross over and it was literally two different worlds. The most striking image was you go to the supermarket and there's canned food literally one meter apart because there was true scarcity in those environments. And when friends of my mom, when they were on tour, they would be able to travel with her and then they would go to Zurich and Paris and so on for the show. But the reason they were allowed out is also because essentially, typically the other half, whether it's a husband or wife or parents, were basically held hostage back in the eastern side of Berlin or Leipzig or wherever it was. So they literally had hostages to make sure you come back. And so there were many things around the construction of appreciating the freedoms that I had and the difference of what I knew, what I wanted to have and didn't want to have. And of course, ultimately I didn't fully appreciate this when I was a child because I didn't have the capacity to understand that this was around capitalism and property rights. I just knew that this was not what I wanted. We wanted freedom. And back then the world was quite black and white. This was when you had Reagan and then later on Gorbachev, who with Glasnost and Perestroika opened it all up. But at that time, Russia was the bad guy, or the USSR as it was called. So it was a very clear divide, ideological as well. It was like USSR was bad, the West is good, very simple. Of course today we know the world is a lot more nuanced than that, but these had very clear lines of views of the world. And definitely capitalism and the Western construction of democracy was much more superior to what we saw in the Soviet Union and the satellite states, which included eastern Germany. But maybe I'll close with one other thing, which is the nuance. People who have never been to China and are criticizing China because it is a communist system, China is nothing like communism that you would think of. Those people who don't know would compare the communism of what they may have seen in Cuba or in formerly Eastern Europe or Russia or the USSR at the time. And so they compare it against that, when in fact China is perhaps, at least on the economic level, more capitalist than most countries in the world. So they've kind of blended it. It's a bit different. So you can't compare it that way. Just because you call it communist doesn't mean it's communism in that way. I think we see a lot of double speak where you say something but it doesn't quite mean that or it's a little bit different. And so what comes to mind really when I went to Eastern Europe and particularly East Berlin was it was very much like 1984. And it was kind of funny because I actually crossed the border in the 80s, just around that time, this whole idea of what it's like to be in a tyrannical, despotic environment, which was really what communism was like at the time.

Yeah. So the thesis that we've basically started building up, and again this is just a collection of my own experiences over time and the work that I've had, is that I think capitalism remains the superior system broadly, but when left unchecked has a lot of problems. And the idea why today, for instance, and I think it's topical, things like communism and to an extent socialism have become more popular is because most people in the world are not participating in the capitalist system. Meaning that if you're a child growing up as a youth, the idea that you can own property to be introduced into the capital world, whether it's real estate or something else, is almost impossible to think of. If you think about my parents' generation or a generation maybe 10 years more senior, you had two broadly inclusive ways to grow into a capitalist environment. One was real estate. We could all buy real estate, have a home, and over time the home compounds in value, and I'm part of the capitalist system. I'm a land owner now. I have property and I participate in growth. And the second one was compound earnings. If you compound your savings, given QE and everything else, there is no way you can afford anything. In fact, compounding might actually give you negative returns given the way money is being inflated. In the 70s and even 80s, even though the gold standard was long gone, there was an implicit promise that money was still supposed to be a store of value, not just a medium of exchange. But that store of value has eviscerated itself, especially post the financial crises that we've had. And now governments have become very addicted to printing money to deal with their debt. And I think this is the challenge that we have right now in the world. In reality, are we really living in a capitalist world? We live in a capitalist environment in terms of property rights and we have commerce, but the way governments are using the money system, they're abusing it by constantly printing it. And so that's why we had the birth of things like Bitcoin or people buying more gold. These assets have gone up in value because those who understand what's going on need more safe havens. Real estate has been going up in large part because of the printing and dilution of money. It's not just that real estate has increased in value. It's that the dollar or the currency you have has devalued, and therefore your assets have adjusted to that level of devaluation. So you needed to understand that hedge. But the shaping of the thinking came from this idea: how do we find a way in which all of us can participate in capitalism? Because capitalism is still the far superior system. With entrepreneurship, growth, human development, and innovation, that's only really possible in capitalism. And it has to be in a way that all of us can participate in capitalism, which means somehow we all need to own a stake. The important thing about capitalism is that a lot of people conflate participation and equal opportunity with equality, which is not the same thing. Having equity and equality are not the same thing. Having the ability to participate doesn't mean I get the same thing. Capitalism functions on the fact that we all don't have the same thing, but we can compete for it and we can have a way of participating as long as we have access to the opportunity. Which is the problem with equality, which is more socialist and definitely more communist thinking. We all get the same thing because we're all the same. That's actually the system that doesn't work. But if we have more people involved in the capitalist system, which we have seen in places like Singapore or Hong Kong where land ownership is very high, you have generally happier societies, more participated societies, higher growth in the middle class, versus places that don't have that. You can definitely see the countries that have no property rights, no capitalism, extreme case being North Korea, that have poverty and low GDP. And those countries that have higher participation and more property rights tend to have not just better GDPs but also more freedoms because there's a respect for your property which is defended in whatever constitution you're in. That means you have the ability to trade and do business because it's the freedom of your assets that are yours. So definitely capitalism is better. But capitalism has become very monopolistic. We used to have antitrust, but antitrust has failed society for the most part. Now corporations are so large that antitrust can't even touch them. You have these monolithic super giant organizations, mostly tech companies, who control everything, especially because the most valuable asset today is our data and the network effects derived from it. So how do we create a way in which we can claim some of that and own some of our data? That is why blockchain is so important. The philosophical thinking is how do we create a framework where we can all own a stake in what we're building? That's tokenization. Whether it's fractional ownership or broad participation, you can imagine how a billion people can own a stake in a network, but you can't have a billion shareholders. There's a limitation in the current world. You can't have hundreds of millions of shareholders in one company. The systems don't work. And also, there's no way to easily participate. You need a stockbroking account, you need to be qualified. With a token, you basically need an internet connection. That's it. And you can participate. We see this in blockchain. How many people own a token in the world through a wallet? It's super easy. Whether you're in Africa, you don't even have a bank account, you can now participate with digital property, which makes you a capitalist. So the thinking is we need to have more broad participation in this new network asset. And that's through what we call stakeholder capitalism. The powerful thing is that the more people participate in stakeholder capitalism, the more valuable the entire network becomes. Which is different from creating a monopolistic, zero-sum environment where only a small elite exclusive club may have access, which creates a very inequitable society that historically has always led to very poor outcomes, typically revolutions and war.

Great. Going straight into philosophical thinking. I love it. So first, the base concept. One of the things that draws so much attention, and just to be clear, John Locke was writing in the context of his time, hundreds of years ago. The world was different. We're talking about a world where there was still slavery, where environments were slightly different. And John Locke himself wasn't of nobility. But he understood that we all had an intrinsic right in the work of what we did, the labor at the time, because it was labor that you would own. So the idea is I get to pluck the apple, and by plucking the apple it is by right mine because it was my labor, my effort that received this right. And so that's your property right. You could sell it, eat it, do whatever you want with it. And ownership of the land gave you the right to keep plucking that apple. That's the element of that property right. That idea caught fire and became the constitution and the base thinking of people like Adam Smith, the Wealth of Nations, and the whole idea of capitalism. But it came from this idea that to be capitalist, you must first own your property. So he's really the godfather of it, even if some of his ideas aren't as relevant today. It's important to understand the context. But what I found fascinating is that the labor of our hands has changed today. It is no longer the labor of our hands that is as valuable because we've now developed in a technological age where we have AI and tools. So we're not laborers anymore. We're actually thinkers, creators. We have ideas. The fastest growing asset class in this last century was intellectual property. Patents and ideas are worth $80 trillion today. That's roughly three and a half to four times the value of gold. And these were all things that came from our mind. So the true labor of today, the value of that labor, is intellectual property. It's the labor of our mind, the labor of our ideas. But these forms of labor today, and this is where we think about blockchain and the work of Animoca Brands, no longer belong to us even though we thought about these ideas. It actually belongs to the platform. Just think about OpenAI. You ask ChatGPT a question, it gives you an answer. Who gave them the ideas for this answer? All of us. However, do we get paid for that? Not at all. In university or high school, that would be called plagiarism and you would get a fat zero. But somehow if it's AI, it's okay. And it's very different from search. For search, you come with your own ideas based on the material you're searching. There was never a claim that I took someone else's idea and made it my own. But with AI, they are doing this. There's a more insidious version of this, and that's social media. When I'm sharing photos on Instagram, creating a social graph and building network effects, am I building network effects that are mine? No. Those likes and follows are not mine. They belong to the platform, and they're the ones who own you now. Because if Instagram went to you and you had a million followers and said, 'We need you to do something else or we'll delete your account,' the likelihood is you will do what Instagram asks because you want to keep your million followers, because they were never yours to begin with. So who's working for who? We've essentially become the slaves and serfs of the platforms. When you think about what's happened to our youth, it's even more apparent. They've become essentially slaves to the platforms, working for them for free. That's why these platforms have become the fastest growing and biggest companies in the world. They own our digital time, which is valuable and is sold in the form of advertising, almost a trillion dollars a year. That ought to be, by right, some of ours because it comes from our time and our ideas. So that's part of that thinking. When we talk about property rights, it's something that touches us deeply. The idea caught fire back in the day because everyone was like, 'Yeah, I should own this. This is mine.' It's interesting when you think about philosophy like this because it didn't take a lot of persuading for people to debate it. It was like property that should be ours. And it's similar to our own freedoms. Should I be a slave or a free man? Most people will say, 'I'd rather be a free man.' It doesn't take intellectual debating around what you intrinsically want to be as a human. You want to be free. So these are things that are inalienable. I think we as humans are naturally attracted to this idea that we should have freedom, but to have freedom we need to have property rights, because property rights are the basis of that right.

Very quickly, let me start with the second one first and I'll come to the first question shortly. First, as I say, no king willingly gives up their kingdom. So if you think about the big platforms like Spotify, they're the kings of music. They control the fate of creators. They have all the power. Why are they motivated to change that? There's no musician in the world that makes money on Spotify, and it works for Spotify. It's a great deal for them, a terrible one for creators. So there's no reason for them to change. And that is a story of creative destruction and innovation anyway. Whether it's Tesla, Uber, Airbnb, or Google, they challenged the status quo with a new paradigm. And it was the new paradigm that took over, and the incumbents either had to adapt or die. That's exactly the same thing here. So we don't believe that a Spotify or Facebook is going to change their business model because it works quite well. It's going to be a new company, whether it's someone like us or someone else, that will emerge and disrupt the space substantially. Then they have to adapt or die. We see this already today. Just think about Bitcoin. It sounds simple enough, but today Bitcoin is a major disruptor in the financial ecosystem. DeFi is a major component that is now used in significant ways. Yes, it's a small number, but look at stablecoins. In a relative size of the global economy, $180 to $200 billion of stablecoin isn't a lot, but just imagine where it has come from in a short period of time. Over the last 5 to 7 years, stablecoins have become a powerful force. It's basically the sixth or seventh largest buyer of T-bills in the world. And it wasn't JP Morgan, Bank of America, or Citibank that said, 'Let's do a stablecoin.' It was Tether or Circle that innovated and made that change. And now there's no going back. From that vantage point, innovation typically always happens at the edge, or at the fringe, and then they grow and emerge. Either they get gobbled up or they become large forces and force the industry to change. So I think it's no different here. What we do is we enable other companies. We don't just invest, but we advise and support them to create challengers in the space. People might say we're known for gaming. Today, blockchain gaming is still a 15 to 20 billion dollar industry, which was a zero industry before. And I would argue that it is still much easier for an indie game developer to launch a game with Web3 and tokenization components than to try to make a game and compete on Apple, Facebook, and Steam, because you have no chance at all. There are many examples of that. In time, when you think about digital identity, what we're doing with student loans on chain, all the new things happening in DeFi, we're funding and supporting that. It's all disrupting these incredible spaces. Our own joint venture with Standard Chartered and Hong Telecom, Anchor Point here in Hong Kong, these are all things challenging the status quo. Whether we help incubate them or fund them, that's a big part of it. Remember, in the '90s, the internet was kind of like that as well. A lot of crazy ideas. Amazon used to just sell books. Google was only doing search. These were companies that started in a certain way and have become the giants they are because they expanded and figured out new markets to conquer. The same is true for us. Now, in terms of the cynical view about scams and tokens that don't do anything, first of all, you'll always have scams when you have commercial applications. Even at the start of the internet, which wasn't even transferring money, you had Nigerian prince scams and 401k scams. People used to send an email saying, 'I'm this prince and I've got this money, please give me your details so I can send it to you.' Nobody falls for that today, or almost nobody. But back then, a lot of people used to fall for it because they didn't understand the medium. The challenging thing is that unfortunately you will always have scams. It's a matter of education and knowledge to know that you're not going to fall for that type of stuff. That just comes with literacy in the space. Financial literacy is something a lot of people don't have today. Before, the equivalent was digital literacy. As people become more digitally literate, they won't follow these types of problems. And then we have other things like antivirus that protect us. We're in the early days of crypto and blockchain development where these tools are emerging but aren't as mature. This is the challenge with all frontier tech and frontier environments. For all the people discovering the American West hundreds of years ago, there were a lot of risks and dangers until it matured. So you are venturing into new environments and new spaces which do come with risks. I think that has to be said. You have to be aware and conscious around that.

I think the other point though is around this idea that only a small number of people may have benefited. That's not true. It is true that some people have become incredibly more wealthy than others, but the participatory wealth that's been created in crypto broadly speaking, anyone who's gotten into crypto over the last 5 to 10 years would have made much more substantial money than they had before. And that to me is the key point. Capitalism isn't about everyone making the same amount of money, but it is that we all get to grow with it. When you remember in the 80s and 90s, for the most part when the economy was growing broadly in places like Europe and America, there were some billionaires and some millionaires and some middle class people, but it was a very harmonious environment broadly because everyone got to participate in growth in one form or the other. You had scams and then regulation came in, and regulation had to control this type of stuff, which is getting better and better. Today we have regulatory frameworks. A lot of people misunderstand and think regulation might be a hindrance, but actually what regulation does is it legitimizes a space and puts it in a form of law that you can now protect and defend. If you didn't have regulation and someone just launches a token, you're like, what does it mean? Who protects you? Is there a framework? You don't have anything to go with, and that's why it's truly the Wild West. But if you now have a law around this or a system that has a legal framework, then you have a certain kind of safety and protection. So regulation is broadly speaking a good thing because the key is that there's a consequence for doing something the wrong way. In America, a lot of people are going to be looking for the market structure bill, the Clarity Act, to get an idea of what it means to launch these tokens with a framing, because we have to bear in mind that right now everyone's launching tokens in their best guess as to what they think would be right, with advice and so on. Many of them have the right and best intentions, but honestly speaking, there's been no framework for it because it wasn't something that was debated and discussed. We're in that phase right now. You saw Chair Atkins make comments around an innovation exemption for crypto. That's very interesting. However, when you launch something with an innovation exemption, then maybe they should know that it's a very innovative and potentially high-risk type of asset, so people know. It's buyer beware. It's like when people go smoking, you know it might damage your lungs. Those are the type of things we probably need to do in the industry so people are aware. And then if you still want to take that chance because you're interested or curious, you've been told. Disclosure is the main thing. These are all things that are maturing and developing. One more point: a lot of people are critical about memecoins. We should remember why a lot of memecoins launched. They launched because you had a very hostile regulatory regime that essentially said if you launch a token that had any kind of utility, then you're really basically a security according to the previous SEC chair, which is of course very different today. So what do you do? You launch a memecoin because you say it's a joke. You shouldn't take it seriously. Don't buy it. Seriously, don't do anything. I'm warning you. And then people still buy it. But I think it ended up creating a disservice to our industry because it made people launch memecoins thinking that memecoins is the way to launch a token, which is only proper for a certain type of tokens, not for everything. But they did it because they wanted to protect themselves from a regulatory perspective when in fact they were planning for utility and value capture which they couldn't really talk about publicly. Memecoins is a great topic. I wrote a lot about memecoins a couple of months back, and my view was memecoins are very interesting even though they might seem scammy, but it's a very interesting concept at heart because it allows people to capture cultural value. It's not just cultural, cultural value is one part, but also it allows you to be a member of a particular network from that particular community or culture. So it's capturing a portion of that network effect. Whether it's momentary or long-term is a different question. But by owning a memecoin or a token of any kind, you're actually owning a piece of the network effect and the implied value of that network effect. For instance, if you own Ethereum, it's not that Ethereum pays you great yield. At 2% or whatever your staking yield, that's a pretty high PE ratio if you were to calculate it as a pure yield generating asset. But actually, the real value of owning Ethereum is that you get rights to participate in the network. It's not the amount of gas, that's value generative. It's the fact that I can now use the token to do stuff on the network, build stuff on it, target communities, grow my customers, or trade on DeFi platforms. It's essentially my membership pass to the entire Ethereum ecosystem, which has a network effect value above and beyond the implied revenue value that comes from it. Network effects have always had value. They just never had a way in which that value could be enumerated, and tokenization does that quite well.

In simplest terms, Animoca Brands is probably from our perspective, especially because we have our go public plans announced about a month or so ago, we think of ourselves as the best sort of amplified and levered bet on altcoins. That's because we have over 600 portfolio companies. Most of them are launching a token and have not yet launched one. We believe that altcoins collectively will be significantly larger than Bitcoin. If you're a public company, maybe you buy a MicroStrategy, maybe you buy a Bitcoin ETF, maybe you have your Ethereum and Solana, but then how do I know which of the millions of other tokens out there I should invest in? You could do it yourself or you can give it to someone like ourselves who, not as a fund but on the balance sheet, continually invests and grows its participation in what we think will be the fastest growth market in the tokenization space, which is altcoins. The reason we believe altcoins will ultimately collectively be larger than Bitcoin is because we think of Bitcoin like gold. It's digital gold, the ultimate reserve asset and store of value. Gold today is 27 trillion. The stock market is 128 trillion. The private markets is something like 250 trillion. Altcoins to us represents both the public stock market and the private markets, big and small. You don't have to have a billion dollar token. You could have a million dollar token. That's okay too. What the tokens represent in altcoin space is the utility and the access and the growth potential. Whether it's Google or Facebook or Nvidia, they will never be bigger than gold, but they're driving customers into the economy. They're the ones creating participation. The tools we're using in crypto are altcoins. Whether it's for gas, for access to DeFi platforms, for governance, for using for games, we're not using Bitcoin for that. We're using altcoins. That doesn't mean altcoins are going to be as valuable as Bitcoin, but collectively as a space, it will be. We think of that as having to have an index of that. If we are correct, altcoins today is half the value of Bitcoin, roughly 1 trillion to 2 trillion. Markets are choppy. But if we are correct, then ultimately altcoins will be larger collectively than Bitcoin. If Bitcoin was to become a 10 trillion asset over time, then there's either two ways to go for altcoins. It either has the same ratio, which means it's 5 trillion, or because of the higher growth and higher utility collectively, it's going to be maybe 20 or 30 trillion. How do you participate as an investor and as a public vehicle in the future? Animoca Brands positions itself as the ultimate access point for the altcoin economy.