Yat Siu on the Future of Crypto, Gaming & Digital Property Rights | Animoca Brands

Thank you for the really kind introduction. You're making me blush, so I wasn't expecting that, but thank you. Thank you.

Yeah, I'm in Switzerland. I'm in St. Moritz right now for the CFC conference and then afterwards I'll be going to Davos.

I mean, I think the most relevant part as to sort of my history is that I grew up in the 70s and 80s when the internet wasn't really around per se, but through essentially an early version of the internet as a service called CompuServe, which is really effectively a bulletin board system, just sort of wrapped in a little bit more nice interfaces. Sort of let's call it pre-Tamagotchi era of internet almost in a way in terms of its UX and UI. I got to connect and meet with people all over the world, and in the 70s and 80s connecting with people all over the world was kind of an anomaly. It's not like normal as it is today, right? And with that, I got opportunities which eventually led to a job at Atari that eventually led me to the US and eventually led me to go be in Hong Kong being an entrepreneur. So this whole journey of going online really was a big part of sort of I guess my experience, my upbringing, and what I love. And so when web3 came about, which technically you could say we were pretty late as in we didn't come into crypto with Bitcoin. So it wasn't like we saw the white paper in like 2009, 2010, we're like, oh my goodness, this is the future of money, which is kind of what people were talking about then. We came into the scene because of NFTs, and our studio in Vancouver was involved in building CryptoKitties. And when we saw that, we saw kind of what we thought the internet should have been in what we sometimes call web1, and then in web2 what happened with Facebook and Apple and Google, they essentially centralized the internet and it was kind of a little bit of a sad moment. And we didn't know what the answer would be to sort of decentralize the internet as it was back in the web1 era when it was all about open source and it was about Linux and FreeBSD and all of these sort of systems that were all about the open internet. And so the broad sort of thinking was, well, the best way to decentralize sort of any future network or any future operation is to essentially hold both the power and the ownership base to essentially the network as it were or the community. And so this is where digital property rights became interesting because this is for the first time where you as an end user can own a piece of a network. You couldn't do that before, right? You could own shares in a company, but that company would then own the network, but you don't really own it per se. You don't have true control over it. But owning a network in this sort of decentralized structure through the blockchain, you know, like who owns Bitcoin, who owns Ethereum, right? That's something that was really only possible basically through the crypto technology that is blockchain. And so that's what really attracted us. And it started with gaming because in gaming, we already had this big problem which was that we don't own our assets in game. And yet three billion people in the world basically operate with the assumption that they own these things until they don't, when they realize, oh, I don't have this. And so that was really the attraction point. And so we came into it from that angle rather than from the sort of money angle per se. But then of course, when it's about ownership, then money is involved clearly, right? You can't have capitalism without property rights, and so therefore if you have digital property rights, you have digital capitalism, which is basically crypto. So it all kind of came together, but at the time we didn't truly recognize that. It was only maybe when DeFi Summer came about when we really started to recognize, wait, hold on a second, this is much more than just sort of owning skins in a game or something like that. This is essentially a global revolution and we want to be a part of that. So that's kind of how we got into that and our journey in that moved back from the days when we were a small Australian listed company.

Yeah, I mean so broadly speaking we're obviously really, really bullish on web3. Obviously we have to be, that's kind of who we are. However, when it comes to gaming, the sort of whole thesis point was just that there's basically billions of people who play games, want ownership, who are essentially kind of already dealing with digital assets because, you know, our kids believe that the skins or the assets they own in Roblox are valuable, right? And when it talks about currency, I mean, think about sort of what our children want for Christmas. They want Robux or V-Bucks. They don't want cash, right? They want essentially virtual currency. So the leap between a virtual currency and a token isn't exactly very, very high, right? However, one of the things that perhaps we misread, and I think this is one thing that where it's all coming together, and this is usually how it goes, right? You have an idea, you go a certain way and then you turn around and then you discover actually it's actually more this way. So the broad thesis was correct but it looks very different than what we thought it would be. And so when people talk about GameFi, which is kind of web3 gaming, I think the conclusion we've come to at this moment in time is that yes, it is of course about bringing essentially digital ownership into games, but it's much more about gamifying finance. So GameFi is gamified finance, meaning that the culture of games is essentially something that Gen Z, it's their language. It's what they understand. It's not a culture that my generation or older understands. Which is why when we look at young people how they trade or what they expect when they sort of spend money, we kind of go, these guys are just YOLOing, they don't know what they're doing, it's kind of crazy, why are you guys doing this, right? But there's this funny thing around when I guess Gen Zers and younger sort of trade, even as they lose money, there's some weird feeling of, oh, I lost money, you too? Oh yeah, great, you're all part of the club. And it's a really weird way to think about it for some people, but that's kind of essentially when you think of it as a game, then it's different, right? You know, it's kind of like when you go bet on horses, ah, you know, tough luck. It's okay. Yeah, sure, you want to make money, but it's a game, right? And so when you look at prediction markets, right? You could say yes, there's an aspect that is definitely very much in the is it gambling, is it not? What is it exactly? However, the social fun aspect of it, the slightly informative nature of it, or in some cases very informative nature of it, makes it entertaining, makes it a game. So, it's kind of like people watch Polymarket like watching Netflix. And how is that different from watching news before for our generation that we look at that as a kind of entertainment? Oh my goodness, look what this politician did. How crazy is that, right? Except now we have some skin in the game. And when you look at leaderboards and eToro or Robinhood or basically all these other platforms, right, and sort of social rankings and social followings, I mean, what is really the difference between a trading platform that has essentially quasi-Instagram and gamified functions, right? And in the future, is Instagram therefore going to just add a trading function right inside its interface because effectively they're converging because it's the culture that they understand, that they speak to, and that's how you attract them. So I think when we say web3 gaming, we say GameFi, it's about gamified finance, which is about how do you introduce the powerful elements of finance into games, but also how does everything else, including finance, become more gamified, which is kind of what we've seen much more of, right? So that's kind of how we're looking at this. So, it's not just about here's a game that looks really cool and it can have ownership. It's around prediction markets. It's around basically how people can sort of have skin in the game. It's about trading, right? This is all part of that experience when we talk about basically blockchain gaming in and of itself, right? And then there's lessons you learn, right? For instance, are we going to be learning about finance through basically a textbook or YouTube video or can we learn it through a game that teaches you about finance? Because gaming is one of the ultimate storytelling crafts that are out there. I mean, our kids know more about Pokemon and about Roblox, which are entirely virtual creations out of fantasy and stories than they would know about other things precisely because they are immersed in the powerful art of storytelling that gaming can provide. So, there's that aspect. Having said that, there's a number of sort of game projects that we think can become very, very large, right? And it's very different from before because now you have thousands and thousands of gaming projects that are out there with a token whereas before there was only a few. So you had a little bit of a concentration thing. And it's about essentially real world use cases. So is this a type of game or project that actually people are playing not because they care that it's crypto but because crypto is just better with it in the back end, right? So Polymarket is a good example for that for instance, which is that they don't really care that it's blockchain based on the back for the most part but it works, or stablecoins, I can just basically sort of better forms of payment or it's composable, that's wonderful, but do I actually care that it runs on a blockchain, do I care that it's Polygon versus Solana? For most people they don't, right? And that's kind of how the internet evolved as well. I mean, we used to talk about MP3s, right? We used to talk about digital music in a certain way and now it's just music. And on the back end, it's actually MP3s or it's AACs or it's some kind of format, but we don't care. And I kind of think of the same as NFTs and all that kind of area. So for instance, one project we're really sort of bullish on is chess, right, with AnyChess, because chess is 600 million users, right? And the reason why the finance aspect is interesting is because what is of course the most financified sort of game in the world? It's arguably poker, right? It's a card game, right? Poker has about a third or less of the number of players in the world. It has prize money and capital that is easily 10, 20, 30x that of chess, right? Which is why the grandmasters of chess, the Magnus Carlsens of the world are actually making money playing poker, right? But they play chess, right? It's kind of funny how all these grandmasters are also in the poker circuit. But what if you could take, in the spirit of what I talk about GameFi, essentially something that is intellectual and important and fun like chess played by 600, 700 million people in the world, but essentially introduce elements of money and value into it and bring that out. That's actually exciting, right? So that's an example of that. There's many of them, but I just sort of want to highlight. So because the people who are looking and who love chess, they're going to say, oh, is this a better chess experience? Can I have an opportunity to play with someone stronger because there's someone who has money on the table or because it's more sort of because there's people who have skin in the game or it's more serious. Okay, right. And then there's like a prediction market element perhaps that makes it more fun as a game, right? Then yes, the fact that there's blockchain and crypto on the back is kind of not important for most people who play chess, right? But it helps make it a better experience, right?

Yeah, I mean I think in any sort of emerging technology or emerging sort of market opportunity there's going to be higher volatility, doesn't change that. And I think there's obviously how you manage the business, basically being prudent in the way, being also in a way the difference about crypto versus other businesses is that the assets that you are generally on are fairly liquid, right? Which means that now you have a lot more instruments in which you're able to hedge, right? Because of basically options and futures, there's ways in which your asset base can be protected against. So you have to sort of have a team that can focus on that and we have that. We've built essentially a team that helps around that which is why we've been able to do reasonably well still despite the fact that post-FTX, '23 was tough, '24 wasn't great, '25 has frankly been shaky especially for altcoins, right? And yet we're still able to operate and grow the business because of the fact that we have essentially various strategies that help us hedge on the market, right? And I think that's true for anything in finance. And just to segue a little bit, in a way what we're doing is what we think ultimately every business needs to be doing big or small, right? Except that most business entrepreneurs especially don't think of themselves as having to hedge financially because they're focused on the business itself and they tend to give this type of role to someone else to do, right? Because they don't understand anything about it. But when you think about things like AI agents and where crypto is going and the future of finance, this sort of knowledge around how to hedge yourself actually should be and will become much more common knowledge, just how the internet basically made other forms of knowledge more common. Essentially financial access, financial knowledge, and financial strategies become more common knowledge as well, which is kind of how I think we'll get to a place where we're going to have a little bit more stability because people are going to be able to hedge themselves. And the companies that know how to do this are going to win against the companies that don't know how to do this, right? Because one is just overexposed in one direction versus another one is balanced against the world that is inherently becoming more volatile. Crypto aside, like to me, crypto isn't more volatile than the global market. It's just something that you see more clearly because it's 24/7, because it happens all the time, because there's no 9-to-5 stock market. There's no, it doesn't stop over Christmas, right? When there's something happening, it happens rapidly. Imagine if the stock market was 24/7 and it didn't stop over the holidays, you would have essentially very similar swings in the market because something happens and you can react towards it and that in itself is information. That's what crypto is really illustrating for the most part, it reacts and it sort of also gives us indications where it goes in the future. Like I also imagine that when you look at prediction markets in the future, when prediction markets become more liquid and more sizable, actually these are ways that you can hedge yourself against the business, right? You have a business direction but you can hedge yourself against essentially a political outcome, right? And manage along those lines so that at least that if an outcome happened politically that is bad for your business, at least you have some kind of cover, right? And we used to call this insurance, right? It's just that we just don't have ways to insure against those outcomes because the systems didn't exist. But essentially I see that as the next level where people might buy essentially business insurance against outcomes because you have markets like prediction markets and of course other markets out there in which you can build sophisticated models to hedge yourself against that, right? So that's kind of how we see where it's all going. And so as an entrepreneur in the space, you need to be much more financially savvy. That's the other thing, just building a product isn't enough because the whole world operates around that. And I don't mean that you know how to trade or that you sort of, hey, what's the memecoin here or something, you know, what kind of tips do I have, that's let's call it fun if you will, right? It's more around really being able to manage that as a core skill now for any business person. And I think this was something that you didn't need to have before, right? Before it was like just build a product. I don't think that's true anymore. I think every entrepreneur needs to have a level of financial savvy as a base skill, just kind of like how you need to have, if you're building a business, you need to know how to use Instagram. You need to know how to be social. You need to know how to use online services. If you don't know how to do that, you lose. And I think the same is true for financial knowledge.

I mean that's part of essentially I guess sort of smart asset management in terms of if you think that the market is right for essentially making sure that you sharpen your balance sheet, absolutely. At Animoca Brands we have two buckets in our balance sheet. There's the on-balance sheet assets which is cash and crypto like Bitcoin, Ethereum, that kind of stuff. And then we have what we call off-balance sheet assets. And off-balance sheet assets are, I mean what you might describe as illiquid, but actually they are quite liquid, they just happen to be off-balance sheet because essentially our issuance cost was effectively zero or very low cost, right? And so we report essentially two balance sheets essentially. One which is called off-balance sheet because of course this off-balance sheet isn't necessarily just assets that you would sell. In most cases it's used to essentially use as a marketing cost, right? So for instance, you want to incentivize people to buy your product or to try it out, right? So instead of paying advertising dollars in cash, you can give token incentives like as a form of an airdrop and that would come out of that bucket for instance, right? Because our technical cost is zero. Therefore, we don't put it in the balance sheet even if it has a market value. But then essentially we can use it as an incentive. So it is to be considered kind of like a toolbox or like an arsenal. But it's not necessarily something that is sort of immediately cash realizable. But you know it is possible to cash realize that if the markets are very hot or if there's an ability to sort of sell, or sometimes especially when markets become much larger and more liquidity, say like some of our bigger assets that we have in our stable, then you can actually do hedges, there's people who are willing to buy them OTC because they want to manage their positions. So it really becomes a fairly liquid asset that way. So there's a lot that one can do with that. And Animoca continues to accumulate tokens through its investments, right? Every investment we make typically issues a token. Whether it's a high or low liquidity is obviously a reflection of the market and the product. However this token is an asset that can be monetized. Whether it's big or not obviously depends on the success of the project, right? Which is quite different again from venture capital in the traditional sense. Because you might be stuck with equity and you won't be able to realize or have any way in which you can manage that for a long period of time even if it's very successful because of the fact that it's typically locked, right? Which we think tokenized stocks in the future will change as well, but for now essentially tokens are just a much more powerful instrument that way.

So it kind of depends because we're not a fund so we don't have a mandate in a practical sense. What we do is we look at where we think the market goes. The reason why we are sort of viewed as I guess flexible and nimble is because it's our balance sheet asset. So that means that we can decide to say, hey, you know what, this is a liquid opportunity that looks really good because the market seems down and seems like a better opportunity to buy something that is already listed or already public with reasonable trading volume that we can help and get involved rather than for instance just looking at sort of seed or series A or early stage investments which is kind of what we're known for. But that's also because of the stage of the market, right? In 2018 and 2019 the sort of crypto investing side was totally nascent. Everything was essentially early stage startups and that's not true necessarily now anymore where we have quite a few significantly significant companies that are profitable for instance that have however a token price that might not reflect that for whatever reason. And so we can come in, help with that because we're also of course not just investing, we're doing operations, we're doing incubation, we're doing services, we're helping essentially make the project better, right? And so sometimes there's a better opportunity to buy the tokens in market. So you kind of have to react to where you think the market opportunity sits as well, right? But in terms of what we're looking for, so it depends on the stage, right? So if it's already a liquid token, then it's really about the product. Of course, the team matters, but this is are you profitable? Are your revenue? It's kind of like a let's call it semi-late stage investment, right? You look at fundamentals. Team is important, but yeah, are you making money or is your revenue, what's the growth path? Is there a market? Is there a big enough market? The classic things I would say. Beyond sort of the team for startups and series A, it's much more heavily indexed towards the team, right? And so it's just not about do you share the ethos of web3 about the whole sort of vision of the shared network because we think if you are someone who understands about network effects and that you're building a shared economy you'll have more success than if you're trying to build a walled garden, right? Because we think in crypto that doesn't work. But of course the other thing is that how driven are you as a founder and that's really the hardest test because of course in the bull market everyone's driven because hey I can make a lot of money. But it's in the bear markets where you find the real driven founders because they're the ones who are not giving up and they're clearly not here for the money. And then why are you building this? Sometimes that's important too, like what's your story? Some people describe it as how big is your chip on your shoulder that you're willing to push that forward. And I don't like the term too much because it indicates that you're doing it for kind of the wrong reasons, right? It's like you're upset about something, but it is a driver. But essentially, is the cause, is the purpose, is the mission big enough that you're willing to basically give up so much of your life and of other things that you're willing to do so, right? Because the sacrifice isn't just travel and time and airplane rides. It's about time with your loved ones, right? It's your time with friends, these are things that you are essentially trading off against. So, is it that important for you? Like, I fly basically 70 or 80% of the time I'm somewhere else relative to where home should be. I know that's what I need to do. But if I didn't like that, if I didn't think it was important for the business, for the mission, then I wouldn't be able to do a reasonably good job because I would...