The Altcoin Economy: Yat Siu on Web3 Investment and Animoca Brands

Thank you for having me. I'm excited to be here.

Well, I don't think it's really changed that much in certain things. It's just maybe the constructs may have changed a little bit, but the idea that you're basically investing in things that can completely transform society. It's not just about the asymmetric opportunity. It's the fact that the change that we see is exponential and particularly in the early days of the internet. So I'm a child of the 70s. So I've basically experienced both massive societal change growing up in Europe. I grew up in Austria right during the time when essentially we still had the Cold War, at least the last Cold War. And that was one where we still had the Iron Curtain between Eastern and Western Europe. But the other thing of course we had was the different forms of medium that were changing the world. At that point it was TV and satellite. Before it was radio and of course afterwards came the internet. And each of them provided forms of exponential change that were difficult for people to measure. But if you could project that not just mathematically but just project that in terms of okay well basically what are the network effects, what are the growth potential that can come from that, then you could kind of map out sort of the exponential growth curve. And from that, not that we would get it right necessarily all the time, but from that you can then estimate maybe what is the rate of change and therefore the kind of transformative change that could happen. And I think the part where everyone started to somewhat lose the plot really was probably when the internet first came found in sort of more of a mainstream side back in let's call it mid '90s. It was really starting to sort of gain some steam and I think it was very difficult for people to imagine just how the rate of that exponential growth could happen. And today it's happening everywhere, right? Whether this is with AI, whether this is with mobile phones before, right? And so I think what we need to be prepared for regardless of as an individual or as an investor is that we need to think of every new innovation as one that has the potential to really be explosive. And because of the fact that we're so interconnected, any new idea, not just sort of social media and virality, but any construct can actually travel so quickly, so rapidly and be adopted so fast that it is really difficult to let's call it control that. And I would say that we need to be much more accustomed to an environment that is more chaotic. The world has in one way appeared to be more chaotic than it is certainly from, but I don't think it's ever been less chaotic. It's just that we get to see less. So because we have less information and we have less data in our world, it seems things appear to be stable, but in reality it was always kind of chaotic and now we just see all the chaos in our faces all the time and we're just not accustomed enough to do that. So I think this is where this sort of volatility if you will is the opportunity, but we haven't trained ourselves really to whether they go to school or in society to deal with that volatility. Right? So I think the thinking is you have to be comfortable with volatility. You have to be thinking in terms of exponential growth all the time and you have to be thinking in terms of basically sort of that changes, you know, it's a trope about the changes everywhere and I think for the exact phrase, but you know, the only constant is change. That's one of those, you know, it is a bit of a trope, however it is true, right? And the difference is is that the rate of change is now probably sort of daily as opposed to or sometimes even hourly. I mean, if you just look at the news from just the last couple of days ago, you're like what the hell just happened, right? You know, all these things and then being able to sort of calculate that. So, I think we just have to be prepared for that. Everything else follows from there, but we have to be really prepared for that. And which means also that you can't look at the past as the perfect model for the future, which is what a lot of people used to do, right? You can learn from the past. I think that's important. History is a great teacher. However, we can't say, well, because this worked in the past, this is going to work in the future. In the same way I think we have to distinguish between sort of that the only thing I think history teaches us very well is human behavior because somehow that doesn't seem to change too much. So I think that's the lens you can take. However, when it comes to technology, when it comes to innovation, when it comes to things like in recently like AI or even blockchain, we have to accept the fact that there's going to be radical change and we can't look at the past as a model for the future.

Yeah, I think technology innovation is constant as well. If you look at the sort of human history, technology has always been the one thing that completely changed society except that we won't necessarily see it per se because we might understand the technology whether it's the telephone or whether it's the railway or whether it's horse carriages, right? I mean these are all forms of technology that have completely transformed society. But the effects can only be seen local. And I think the difference right now is that we can see the effects of this globally because we're more global and because we have access to all what's happening in the world and we can observe and see that, right? Which also means that we actually have the ability to navigate it better theoretically and we also have the ability to shape it as well. So I would say that before we were somewhat powerless, much more powerless to do stuff because we wouldn't see what was happening across the world or we wouldn't know that the effects of the railway that is being built has an impact because we just don't know what that means. However, today we actually have access to that information so we can map things out more and project things more. And they say this thing about you know being open-minded and being flexible. I mean it's always been true but it's probably more true than now. And I think also the other perspective is that you have to be willing to basically give up on old ideas if it were right, so let's call them beliefs or whatever it is, right? Whether it's your belief on, since we talk about crypto, your belief on money or your belief on how the financial system works, well you have to throw that out. Or in the past with the internet, your belief on how media should work or which became social media or how distribution should work or how even sort of language works. It's all of these things are radically changing so quickly.

So it's a bit of a controversial statement for some I would say and I think a lot of people say this about capitalism as well, right? Which is that one of the things that is bad about capitalism is the implied volatility in it because of the fact that markets give you information. They tell you what works, what doesn't work, but as a result of that is volatile. A business goes out of business or does really well, a share price goes up a lot for instance, right? These are actually very volatile examples that happen every single day. And I would argue that volatility is part of life. And if you don't have volatility, we wouldn't have change, which nature sort of expresses in the form of mutations. In that sense, right, we have basically volatility inherent in all sorts of things that could be dangerous, that could sometimes lead to death, that could lead to these things. But on the other hand, that volatility also creates sort of incredible opportunities and growth and things that we wouldn't normally see. The struggle I see with certain nations, Europe as an example, as a continent, is that they want to tame volatility, right? And the problem when taming volatility, and I understand the sentiment, so I appreciate it. But when you tame volatility, you're actually not letting it go its natural course. And it's kind of like saying that humans essentially have a predictable nature about them. And this by the way goes down not just to sort of early days of philosophical thinking but also about economical thinking. Right? Economists have been so focused around trying to turn economy into a science but actually economy is sort of social science because what it ultimately is is a study of humans, how we interact with each other. When it's not physics, it's not biology, right? It's quite different and so that means you have to try to predict human nature and people are trying to say yeah whether it's Chicago school or Austrian school or whatever school you want to put out, whatever it is that you want to sort of put out in terms of an economic theory, actually the reason why it always struggles is because it's trying to basically create a prediction of a human model. And inherently, humans are unpredictable. And in fact, I would argue it's our unpredictability that is our inner chaos, if you will, that makes us so beautiful and so special. And the kind of places that can actually celebrate and allow that to nurture and grow tend to be the places that have the highest level of innovation and the highest level of growth. And the kind of places where you control that tend to be the kind of places that actually struggle with that because you don't allow it because there's some kind of system or norm or let's call it antibody that's basically saying you can't do that because it's not socially acceptable or it's not something you should do. I remember in the 80s and 90s I was obviously a kid. Kids had no authority to say anything. You have to listen to elders. That was it. Right? And if you had an opinion, shut up, right? Because you had no place to say. You know, then today it's like, you know, totally acceptable, in fact expected. You could be a 16-year-old kid and you have some wisdom to share and people are like okay, but it depends which society you go to, right? So these are things essentially that we have to sort of kill these sacred cows that we thought were important but actually they hold us back. And again to this question, I think volatility and chaos is necessary. It's not to say that it's comfortable and again if you want to live life comfortably then you're not actually going into the areas of change and you're not pushing yourself forward, I would argue. And again, maybe that's what you want. That's okay. However, that means also you won't see much progress. And plenty of countries in the world that are good examples of those kind of places that don't want to see that kind of change and are left behind.

So just to riff on that a little bit, emotions is a great example of something that is not sort of inherently predictable per se, right? So that's also what makes it both special and a little bit terrifying at times as well, right? But if you have emotions and you're guided by something that doesn't seem logical, that actually is the part that I would say differs between us and let's call it an AI because we obviously have something that affects us in some form of fashion that some may argue isn't entirely programmatic. Although there's some people out there who would argue that we're just biological computers and that ultimately, you know, we're going to get trumped by AI because they're just better computers than us. And I think some people out there, including myself, that would disagree with that notion because I don't believe that humans are entirely computable per se. In fact, nature isn't entirely computable. And there's many other elements around let's call it sort of points of evidence that would demonstrate that whether things like quantum mechanics or Gödel's in computers theorem. There's whole sort of ideas as well as proofs out there that could demonstrate that we ought to be more than just computers. But I think the thing that really sort of makes us so special is this idea of we do things for pleasure. So for instance, when you think of the earliest forms of innovation, I think there's a great example of when the cavemen back in their days basically were sort of finally getting to some level of stability of some sort, right? Where they have their fire and they could do their hunting. Then they started painting and a lot of people were like, 'Okay, so what are these cave paintings for? Is it a diary? Is it some practical information or in some cases it turned out to be maybe just for whimsical art?' And one of the things that they also started doing was they started basically making musical instruments out of bones. Now just think about that from a very purely practical perspective. If you were just really utilitarian, the very first thing you do once you found some level of stability is well how to make more food or how to make more stuff, you wouldn't sit back and say let's make a musical instrument that basically is entertaining, right? And it turns out that actually that's what we found in the excavations in archaeology that people started making whimsical sort of entertaining sort of instruments and artifacts that were for your personal enjoyment and entertainment. And then of course later on these type of innovations would end up becoming things that might change the world in a different way. For instance, the inspiration of the keyboard that every person in the world uses actually was essentially a musical instrument. It was inspired by essentially the keyboard of a piano, right? The very first typewriter actually looks like a piano. It doesn't actually look like the sort of QWERTY keyboard that we have right now. And from that came the idea, wait, hold on, actually this is kind of efficient and this works. But people didn't design the piano for utility. They designed it entirely for entertainment. And bring it back to even the more modern perhaps, you know, talking about AI. You know, Nvidia, which is of course by market cap probably the largest or one of the largest companies in the world today. I think at one point they hit $5 trillion. They serviced initially the gaming industry and it was because of gamers who wanted to experience their favorite game at higher fidelity, at higher graphics, at better speed for an entirely whimsical basically entertainment and personal emotional experience. They paid all that money for better and better graphic cards until these graphic cards were able to essentially allow us to do things like Bitcoin mining and obviously AI compute for things like simulation. So this idea and this construct that we as humans have this sort of creative emotional whimsical nature about us that forces us to create these sort of let's call it wacky ideas that don't make any sense whatsoever from a utility standpoint but here we go and then they open the pathways to the biggest and greatest inventions we've ever seen.

Yeah, I mean it's not a super straightforward answer, but generally speaking, every nation has innovation envy. Every nation wants to say that they're innovative, but what are the ingredients to make that happen? One of the things that I found so fascinating when I first visited Silicon Valley was that walking around Silicon Valley is particularly uninspiring. I don't mean that in the sense that the people aren't inspiring. They're very inspiring. It's the fact that the environment is entirely uninspiring. I mean, your internet sometimes doesn't work, right? The infrastructure is pretty bad, right? You know, the technology that they have is, you know, a little bit backwards. The buildings are generally low-rises. I'm talking about Palo Alto here, right? But yet it is the center of innovation. And so for the most part and it's sort of touted as an example because the biggest companies or tech companies of the world tend to have emerged from there. And so what makes it special? Well, part of it is that you have basically a very open-minded community. Sure. But you have also a set of people who look at backing startups as a sport. And so what I mean that is that if you go and hang around sort of the Starbucks in Palo Alto, you'd have a hard time not sort of inadvertently overhearing some investment, some startup, some cool company that they sort of invested in, right? Whereas maybe in other cities around the world, they might talk about restaurants that way or they might talk about real estate investment that way, whatever the construct is, right? So that's part of that essentially having a community where everyone basically contributing the capital back into the growth of the ecosystem. But of course there's sort of government and regulatory things that can be supportive of that, right? Countries are creating grants and countries are trying to sort of provide tax breaks and so on. But these turned out to be really sort of secondary as an effect. So they help a little bit but what's really important is the cultural social mind shift of a mindset of essentially the people who are there. And one example historically that's always been an issue for particularly in Asia. And again there's some demographic reasons why that's changing but it's been an issue is that you know in America for instance a lot of young people actually most young people have to leave home when they go to college and then they don't come back to home. Basically you're effectively cast out as it were. I know some friends of mine that if they go and again this is not a common occurrence but sometimes they say I want to live back home, right? Actually their parents might charge them rent, right? But when you go to Asia particularly in places like Hong Kong for instance it's not just that you are welcomed of course it's more like it's almost expected and because of the cost of real estate being really high you tend to sometimes live with your parents until you're in your 30s sometimes. And I remember when we hired some of our very first people back in the 90s, I wasn't just interviewing sort of the kid as it were. I was also being interviewed by the parents. And again, this isn't so much the case now, but it's because the family had such an incredible influence back in the day. And I would get complaints from them. Why is my son not home for dinner? His work is like 9 to 6 right now. This is of course in the 90s and early 2000s. But the point simply being that that was the culture and in one hand you have a very strong family unit but the influence of your parents is very very strong. So if your parents don't approve of what you do and you live in the same household, it's kind of hard not to be influenced by that. Whereas if you're pushed out of your home and you're basically just living with everyone else of your same age group and you're away from home, then you're much more independent in a sense and you basically just do what you want to do sort of yourself or what you're being pushed into or whatever. So that's also part of that right and then of course the other thing is that in some ways you look at the US the fact that the US is so messy is a negative on one hand but it also provides the opportunity spectrum for why basically you have so much innovation growth because there's so many needs to be fixed or to be done and things aren't perfect and also I think there's a lot of empty spaces as well. I was observing this when I went to the US and stayed there for a little while and commutes are just generally very long, right? You know everything takes like such a long period of time going with like an hour and a half commute normal, right? And then when you go to Hong Kong, 20 minutes is far. Everyone's like, 'My goodness.' Right? However, you are in a lot of empty spaces when you're in a car for an hour and an hour and a half when you go there, which means that you're listening to podcasts, you're listening to music, you have different things where you're basically kind of not doing anything, right? And because you're in a car and it's not self-driving cars just yet, you can't just be on your phone and do stuff, right? Or read a paper. You kind of have to be there. So, it's very audio, but it's also something that you sort of have to think. And I think this is part of that. Whereas in places like Hong Kong, which wants to promote innovation, but you don't have a lot of empty time. You don't have time to be bored. Everything's pushing you along all the time, especially when you're a kid. And so, I think these are all these kind of elements and ingredients that help this innovation mindset as well. So, you just have to let people just kind of get bored and sort of sit there and do nothing. And inadvertently, I think some places like in the US have created these sort of I guess liminal spaces. Not intentionally necessarily, it's just the poor infrastructure. But there you go. Very interesting.

Absolutely. And so when you look at a place like Hong Kong, which is a great place, right? I live here and I love it. But then you look at a place like China and China has so much more innovation. And it's not just because it's they say, 'Yeah, it's a big market. It's a big country.' That's true, of course, right? But similarly to the US, it has a lot of things that need to be built as it's very large spaces. People commute for hours on a train that is fairly efficient. But the point simply being that you have essentially much stronger innovation culture and innovation mindset there. And of course, you have a country that basically didn't have anything. I mean, my parents' generation, if they had been in China, would have been a generation of people who had lost everything. So that means that I would be the generation that essentially would be experiencing opportunity and wealth for the first time and then my children would be growing up slightly better. Of course, however, we experienced what life and we know what life was like when there was nothing, right? Versus if you're in other places, you were kind of comfortable or your life and in some ways you take certain things for granted because it's always been there.

Yeah, I think there's a distinction to be made around infrastructure that is there and how it's used versus having zero infrastructure. You know if you go to certain countries more torn places like say in Africa for instance like Somalia or so on then yes it doesn't matter, you know, it's just not going to work, right? The infrastructure just isn't there, right? What I think however what we're really describing here is the power of network effects and the proximity of these network effects matter. The difference though is especially when you look at sort of industrial economies and in a way even though of course we are post-industrial there's a lot of the world today that operates in an industrial construct. When you look at for instance the cities in America, the IBM towns or the GE towns, right? I mean, they're basically sort of towns that were built specifically for their purposes and then they were adjacent because they're in New Jersey close to New York or something. So, there was something that was there within that kind of network, right? And I think there is a strong historical reason why the US subsidizes essentially gas and oil, right? Because from their lens subsidizing gas and oil essentially greases the economic engine because it makes it cheaper for people to move and connect with each other and do business and do transport and to deliver goods and whatever. So that is still true. I think the difference though is that a lot of this has now moved virtually in this world. So the network connections that we can establish don't have to be entirely physical. So it means that you know you can now conduct business anywhere in the world and you can basically do that efficiently. It doesn't necessarily replace human connection but it does make it possible basically to connect and to build products and services and to do business around the world without actually having to be physically there. So there is that part and of course as we deal more and more with sort of virtual services and the equivalent of virtual commodities which is effectively crypto kind of is, you do away with a lot of the practical sort of logistics aspects that normal commodities would have had endure. I need a shipping port. Why is Hong Kong or places like Hamburg or New York or Guangdong so important? Because they are shipping ports for goods and services. And since we're physical beings, we still need those goods and services, right? However, there's another aspect of that goods and services that is becoming much more prevalent, which is essentially these virtual goods and services. And those ports no longer are limited by space and geography in the same way that essentially sort of physical goods are. So Hong Kong as a port is undeniably powerful because it is in a spot that is not just sort of practical but geographically in the super spot as it were like location is everything in this example but in the virtual world you don't need that type of location you just need strong internet connection right and that's one of the reasons why local that have like if you look at what happened in Korea after the IMF bailout one of the very first things that Korea did back in 1999 was to essentially invest and build massive broadband infrastructure and a lot of people were deriding that and saying you can't feed your nation and you're building essentially broadband you know what is that all about right and now Korea is the 12th or 13th largest GDP in the world that is entirely powered by essentially the creative economies that comes from intellectual property and digital services powering some you know whether it's K-pop whether it's gaming companies whether it's Samsung it doesn't really matter right Korea has become this powerhouse but they don't produce oil. They don't have natural resources. They're not a great shipping port because they built the infrastructure that allowed for them to have an advantage towards others by creating essentially that domestic sort of highway, but it wasn't a physical highway. It was a virtual highway.

Super challenging question. Not because the answer doesn't seem obvious but because it's hard to find people like that in general, right? So first one I would say generally speaking I think the era of specialization is basically going away and I don't mean that you don't need to be very strong and have subject matter expertise in certain things but if you're only good at that then you're limiting yourself because in some ways an AI or computer can probably do some of these tasks very efficiently as well. And in fact, I think what differentiates us between the machines much more so is the ability to synthesize this through the lens of our human experience, which I spoke earlier with Anthony about is essentially not entirely predictable because we're humans and because we're emotional. And it's that sort of chaotic impulsive nature that sometimes actually delivers these surprises that are sometimes whimsical and sometimes ridiculous, but then come with incredible outcomes. And so I think that's really the sort of superpower that we have and we used to basically build that by constructing experts to come around us. So we have like 10, 20, 30 experts come together and we try to share that information and then come up with something. It's somewhat inefficient but it works because you know how to do this basically you know understand metals and this guy understands the chemistry of that and this person understands the geography of here. Come together and they build something, right? And today all of this essentially can be done by a machine. And so the compounding of that has to be the person who can see the vision for it rather than basically just the parts, right? And they have to have an understanding, but they don't have to understand the full mechanics of it quite the same way. You know, I think the earliest form of that mass abstraction I would argue, I mean there's many examples, but I would say the best example that I can recall from my own childhood is when we got the calculator, right? I grew up in an era when we were not allowed to use a calculator in class because that was considered cheating. So now everyone has a calculator and what we really done is we basically amateurized math and that allowed a person who could be an incredible architect did not have to be a mathematical genius in his head anymore. But the architects of before might not be able to pass architecture school if they weren't able to be not just strong in math but essentially almost like human computers. Right? And I'm just sort of giving some examples of how the fields of basically study and opportunity have grown so much more because essentially things like math and sciences and so on isn't something that was only reserved for the few who happen to be sort of almost functioning like human computers, right? And you see this with medicine as well, much to the annoyance of doctors. How many people walk into the doctor with ideas about what's happening to them and the doctor no longer can just prescribe them, but actually has to have a debate. Sometimes good, sometimes bad or the role of teaching, right? The role of teaching in schools used to be essentially very didactic. It's like top down. You basically I tell you and you just repeat what I say. Okay? Right? And now it's like no, no, no. I got stuff that I'm reading. This is what ChatGPT is saying. Is it true? Is it not? I have opinions because I'm seeing stuff there. Right? So teachers have to basically be able to debate that. And in fact, there's no way that they can compete with the knowledge that actually is percolating within their own classroom, let alone on an annualized basis, right? Where every kid is probably coming in smarter than the cohort before while they're kind of stuck in time a little bit because it's teaching the same stuff, right? So all of that's changed. And so you have to be able to navigate that and you have to be able to sort of synthesize that. And I think that's the skill that's needed. Which means that for instance when you want to hire someone and he has to be able to put that together. I think the one of the most important skills is understanding human behavior and understanding humans generally. So if you're really really good at technology, that's great. But if you can't interact with humans and you wouldn't know how to build for them and you wouldn't know what they want and you also wouldn't be able to sort of coordinate with people within your office or your fellow co-workers how to get the most of it because it's no longer about you doing the task really well just by yourself, but essentially how to get the most out of the people who you're working together with whether they're physically with you or not, right? And so yeah, you need to have knowledge of that. I think you need to have a background of history, liberal arts, right? And that's not something that we've been telling sort of our children to do. We said, okay, you want to be a scientist, you do this, right? However, the best economists or the most successful entrepreneurs tend to be people who have a deep interest in history and tend to be a people who also study and read philosophy and they do other things, right? They're not just doing the one thing, right? So, I think you need to be basically much more interdisciplinary and you need to be interested in that, too.

Just to add to that comment, I think we grew up in an environment where it was a hierarchy. And so parents were people you would listen to pretty much authoritatively because they knew better. In the construct of the world, they did know better, but it wasn't because they necessarily had more intelligence per se. It's because the tools and access of information was something they had that we did not have. They had access to books or they read them before we did or they had access to information through work or through newspapers that we didn't have. So in a way they basically had information arbitrage and they were able to navigate this way. That information arbitrage is all gone. And in fact there's information that our children have that is probably not just more advanced but it's more sophisticated or more developed than we have. And then I think the role of parents can no longer be that from the perspective of certainly the classic hierarchy. I think it's more about values and mentorship and again it's about being essentially a good human rather than necessarily having all the answers.