The Game's the Game: The Current State of Digital Assets Feat. Yat Siu

Well, thank you for having me first of all. Well, it's a great pleasure to be here and today I'm dialing in from Hong Kong which is actually our headquarters. So glad to be here.

Dubious honor, dubious honor.

It is. It is. And I think it's also great just because, you know, family's here and everything like that as well. So, it's not just about, although my, you know, I've already, you know, sort of semi-empty nested. So, I do see my kids around the world, but generally speaking, you know, it's nice to be back in Hong Kong. This is where we built everything. And, you know, it's been my home for over 25 years.

Yeah, I mean I think the history of how we got into and how we understood web 3 really started off, you know, starting from my childhood but I won't go there. I'll just quickly start in terms of sort of how we got into sort of the cryptosphere and that was really with CryptoKitties as with NFTs right back in 2017. Our studio in Vancouver called FuelPowered was actually engaged and involved in helping build CryptoKitties back in the day and one of our sort of guys who was leading that as essentially the head of that office eventually became one of the co-founders of what would eventually become Dapper Labs. So that was kind of a very intimate beginning you could say but it's also interesting because we entered the sphere really because of NFTs. We didn't enter the sphere because of Bitcoin. So in that sense I would say that we're different and have a differentiated approach to the whole sort of I guess, you know, why crypto, why web 3, why does it matter perspective because we came in from that angle first initially from the perspective of, you know, what it does for gamers in gaming because we were actually a gaming studio, we still are to an extent but a gaming studio before, but eventually sort of saw what it could really mean for property rights specifically digital property right at large and then the mission just became larger and bigger and more meaningful.

That's right. But also, you know, back in the day when I say NFTs being at the peak of their hype cycle doesn't mean that they aren't relevant still. I mean at the end of the day NFTs still do about a half a billion dollars of sales a month. You know what I mean? And this is one of those funny things where if you're not in the space you would say oh NFTs are dead or they don't exist right but actually, you know, it does more sales than most things. And they actually are the ones in which we sort of symbolize a lot of our culture capital. But what has changed and this is why, you know, for people who aren't paying attention might feel it's dead is it's become more fragmented meaning that the NFT space is now distributed not just on Ethereum which used to be 99% of everything that was going on in the NFT space which by the way this is one of the key reasons why Ethereum actually had such a price appreciation from our vantage point right when NFTs were sort of, you know, not just popular because it's not unpopular at the moment either but the fact that they actually were 99% of the sort of NFT market was on Ethereum is part of the reason why Ethereum had so much value retention which is not the case anymore right it's distributed in Solana and on ApeChain and now Abstract and then, you know, various L2s as well. So it's much more distributed which is why Ethereum doesn't have center stage even though it is the largest one it is maybe the largest one by like 20 or 30% it's not like 70 or 90% that's the only difference.

Exactly. And I think it's going to get even broader over time. It's an innovation that in a way has been dampened in large part because also the US has been hostile towards crypto for such a long time. And NFTs were part of that target so people wouldn't innovate around that and then I think that's all changing.

Absolutely. But I guess the other thing also is that for all the stuff that people say about Bored Apes, the floor price is still around 35 to $40,000 US for a Bored Ape. So, you know what, that's not too shabby. So, still a strong community.

Yeah. So I mean I think in some ways we were especially when we entered in the sort of I guess web 3 space we expanded very quickly beyond gaming because we're very early in things like L1 and L2s particularly L2s like, you know, back in the day I think we were most of the traffic of, you know, what became Polygon used to be Matic for instance. The reason we expanded into all these areas initially was because we're looking at ways in which you could expand this topic that we believe deeply in which is digital property rights. And it started with this idea of gaming because of course gamers wanted to own their assets or so was the thesis. But then we realized wait hold on if you actually can own your digital property, you know, beyond gaming but in everything else then what else could that mean in the form of tokenization and so expanded into basically investing in anything that would be tokenizable that could expand essentially digital property rights which really means in layman terms is that, you know, if there's a real reason to tokenize it then we're interested in taking a look at it. And this goes down to the broader thesis as to what does tokenization do? So we look at tokens and tokenization essentially as creation or expansion of network and network effects. And what that means is that when you tokenize anything whether it is something like a memecoin even or whether it's something that is virtual that doesn't really exist physically but exists virtually let's say for instance like friendship or like communities or like some kind of network, right? What happens is when you tokenize that you actually enumerate a value to it. It has a sense of sort of capital containment and now for the first time I can actually measure a network effect whether it's a fleeting network effect like it could be just five or 10 minutes, you know, like some memecoins might just have a moment of glory for literally minutes or maybe hours sometimes days but most of them just fade away and then there are some of those that actually sort of last longer because there are stronger communities or bigger network effects or more purpose whatever that may be. That is something we can now measure And that's something we couldn't measure before. So that's kind of the base level. And you could say it's quite whimsical because if you look at the number of memecoins that are out there, there's really only a handful that matter and the rest of them don't. But many of them have had these short moments of glory, shall we say, because they represented these type of networks.

Correct. And that is and it's a way to measure the network effect and the strength of a network that previously we couldn't really do and you couldn't do authentically. For instance, you know, you could very easily fake your Instagram followers because you could just bought it and nobody but Instagram might know whether this is real or not, right? So however, today on blockchain because of capital, the actual authenticity of the strength of your network is relevant because there's something at stake. There's real money behind it. And that's the power of it, right? If there's not real money behind it, then you can't really tell if it's real or not, then you have to trust some authority to tell you that it's real or not. You know, in the social network, that would be I trust Instagram or trust TikTok to tell me the true stats. But, you know, that's why people bought it because there's value inherent with it. It's worth saying to people, hey, I have a million followers even if they're not real because it gives me some kind of status or some kind of power or some kind of derivative way of making more money and therefore I would want to pretend to have that, right? Whereas blockchain sort of makes that real. So, that's basically sort of the high level thesis as to why tokenization matters. And so we basically want to become essentially the company that helps tokenize the most important projects and is involved in the sort of I guess the deepest sort of areas of digital property rights tokenization in everything. Which you could basically say that, you know, in some ways that you could describe Animoca Brands as almost as a quasi index of essentially the web 3 sort of token market because we're so broadly engaged. We have over 570 portfolios and growing in what we believe are the most meaningful projects in the space. And just to add one more point around sort of the expansion of network effects. It's not just about creating new networks or a new asset that didn't exist before like the network effects I described. But it's also about expanding networks like stablecoins are a great example, right? And we have our own with Standard Chartered which is the Hong Kong licensed one which is kind of interesting now because the US just passed the Genius Act which basically means that we now have two territories that have essentially legal stablecoin bills. Which means that there's going to be a lot more stables out there. But what does a stablecoin do? A stablecoin actually expands the network effect of the currency in question. Right? The fact that the US dollar is a stablecoin in the form of Circle and Tether and other stablecoins actually made the dollar more powerful and had a bigger network and because of stablecoin and it's measured against that, you know, there is no value increase but it's undeniable that its network impact is larger and more powerful because of it right and the same is true if you turn it into an RWA. If you basically tokenize something like, you know, like the Stradivarius violin for instance that we did a little while ago just sort of as an experiment or if you tokenize a piece of art or whatever that is, what you're really doing is you're expanding the network and you're creating more of a community. You're creating a deeper network in a digital realm without borders. Right? So again, it's really sort of expanding the network properties and the network value already inherent in an asset just amplified now through tokenization.

I mean we have so many categories because as I said broadly it's trying to index basically the space but, you know, gaming is of course one of the largest ones just because of our history. Of the 573 over 160 of them are in gaming and, you know, the metric that we look at is what can help sort of get to the fastest form of adoption in digital property rights and of course most meaningful impact right so what that means is that, you know, gaming still makes sense because, you know, something like 60 to 70% of the world is gaming and they already engage in a form of virtual experience. You know, a virtual currency isn't a far stretch from a token and a skin isn't a far stretch from an NFT, right? Conceptually speaking. So, it's more natural for them and particularly when you look at adoption rates in Asia, it's been much better than it's been in the west, which we can go into maybe later. But really, that has been a big helper and driver in terms of the growth of that space. Let's not forget back in, you know, when the metaverse was sort of the hottest thing ever, back in 21 and 22, actually most of the people who joined essentially the web 3 and I guess crypto asset class at that moment in time wasn't because they wanted to buy Bitcoin. That was sort of a narrative before and is kind of the narrative today again. It was because they wanted to buy virtual land in Sandbox. They wanted to have SAND tokens and they wanted to have gaming assets, right? So again, you know, these things will come in cycles, but the point being that they were very easy for people to sort of imagine, right? And it's almost like, you know, thinking of what would be the most because, you know, web 3 does have a little bit of an adoption problem in terms of its sort of user interface design. And I don't mean in this case, user interface to me in web 3 isn't the interface of a MetaMask. It's really sort of the why that's so difficult for people to understand because it's virtual, right? They don't even understand how intellectual property rights works, never mind how to deal with something like an NFT, right? So they struggle with that. So what's the most skeuomorphic design aspect, shall we say, of a sort of web 2 construct that we can move into web 3. And that's kind of why gaming is important because, you know, it's so much easier for someone in gaming to at least principally understand why web 3 matters right but, you know, we've expanded into education, into DeFi, of course AI, infrastructure and, you know, we even, you know, like and again we look at what drives adoption like the most recent one that was just announced yesterday was our participation and support in sort of DDC which is a NASDAQ listed sort of Bitcoin MicroStrategy type play, you know, having just raised $500 million, which, you know, we were part of to basically really build a Bitcoin treasury. And you might say, oh, not another one, right? But the other thing is say there's never enough places to buy Bitcoin at a reasonable price, right? And if you want to tell a story, because what we notice is that, you know, if you go tell a story about here, you can buy Bitcoin through this listed company. Once you basically have that proxy and you see that it's a levered play, then you go, okay, now I'm interested in this asset. And then from there you go, okay, I'm interested in Bitcoin. What else could I be looking at? Oh, there's another altcoin or there's something else. So, you begin that journey. It's not like sort of just one way. There's multiple ways to get there. We try to sort of address all of these. And so some of the projects that we really like in this space are those that really sort of break the mold and really sort of take advantage of what sort of crypto is really good at. So our joint venture with Standard Chartered which is one of the biggest banks in our region to launch a stablecoin which licensed by the HKMA is another one of those examples which, you know, like why is Animoca doing stablecoins? I mean, think about mass adoption. It's probably no better way of creating that kind of mass adoption than to do it through a stablecoin. But the key thing about this stablecoin is that it's not just Hong Kong dollar stablecoin which is launched but because it's licensed by the HKMA has the potential to open up a RMB stablecoin. And now that's actually really interesting because of course the whole world's talking US dollars. Well, what's the actual other major important currency in the world? It's not the euro, it's the RMB, right? And Hong Kong basically clears something like two trillion RMB a day, right? So you can kind of see why all of this starts to become relevant and important. But it's broad basically. It's not specifically focused on sort of one or two verticals. Because the other thing about web 3 and this is a really key part about our thesis as well is that we believe in this thing called the shared network effect. And it's this idea this stemmed a little bit from our open source background and open source thinking that it's not possible to have monopolies in web 3 because of the permissionless nature of crypto. So if Bitcoin does really well that's great for everyone because value will sort of trickle through to the rest of the ecosystem quite literally.

And just to be clear, this isn't about fairness, right? So I think it is about opportunity. But this isn't about fairness, but it is about opportunity. So meaning that I can entice someone to collateralize his Bitcoin to go buy another token somewhere else in a completely free and open market, right? And I can go to someone who's made a lot of money on Solana and I can ask him to bridge assets over and there's no gates, no walls, nothing to prevent you from doing so and I can create compelling use cases for broad audiences which we've seen, right? So I mean if you look at the launches of all the L2s as an example right that would be almost unthinkable to consider in the web 2 world where I can literally just sort of basically use the network that was in Facebook to create another kind of mini Facebook and business that might actually potentially become bigger or maybe at least become very meaningful. That's just not possible in the web 2 frame because of the permission nature. So permissionlessness allows for that opportunity to construct and build from that and that's why if you believe in that which we do then you can't really sort of concentrate your power in one right and if you believe that there's something that will really grow the space then it literally is sort of rising tide lifts all boats which is why when the industry does well our entire index of companies does well our entire portfolio and our entire token positions does well and it's, you know, we're broadly aligned.

Well we're not going into porn.

And we're not going into gambling directly. So those are categories that we stay away from. And by the way, this is not a judgment against those industries. Like we're not trying to be holier than thou and that kind of stuff, right? Like if you're into that stuff, then you're totally into that stuff. That's not the issue for us. It's more around the fact that these are areas that we're one not familiar with first of all. And two I would say also that, you know, we are a public company, right? And so, you know, if we relist our business it's kind of harder to do that when you're in those categories as well. So there is a little bit of that. We work with governments, we advise governments, we have licensed stablecoins. So there are certain kind of areas that's kind of hard for us to be in. So we intentionally stay away from that. So those would be the type of things we just simply won't touch.

Yes. And it's also about expanding the space. For instance, one of the things that we started to develop a thesis on earlier on which I think has come somewhat to bear is that, you know, what's lacking in the space is financial literacy to grow the web 3 space. So if you're in web 3 you become financially literate or you are already financially literate but if you're not in web 3 actually the likelihood of you not being financially literate is much higher right and so how do you get people to become financially literate. It's around basically introducing sort of the value of money and sort of capital formation and capital assets and capitalism broadly into the kind of assets or experiences that you as an individual value right so my mother is a musician and she couldn't really care less about Bitcoin frankly speaking even though maybe many people on the show would say but it's the best investment asset but she doesn't care about investment assets because it's not her thing right or the same is true for, you know, whether it's a Tesla stock or whether it's some energy company, right? However, if you tokenize something like a Stradivarius in her mind, it's like, oh, wait. I understand that. That's valuable. What does that mean? And then that's the journey in which she as a person would actually get into the world of money and finance and eventually into web 3 because it's something that she's interested and passionate about. And that's actually when you think about learning. I mean it seems obvious which is that you learn better things that you're passionate about than if you're not. I mean like when you go to school how many times have you just tuned out because you're like what the hell am I doing here? And then there's a topic that was really interesting and you're basically just there and ready for it. And so if you introduce, this is a powerful thing about tokenization in web 3 is once you tokenize any topic like that, you basically infuse it with capital formation and capitalism and money. And so it's a natural element in which we learn about money because of that. And we saw this for instance what happened in the Philippines with things like Axie Infinity, one of our first star portfolios, right? Where, you know, a lot of people are like oh look at everything happened in the Philippines. You know, of course, what they didn't pay attention to, which is today, Philippines is one of the most crypto-friendly nations in the world. Why? Because of Axie because all of those villagers in the Philippines who had no bank account suddenly had a banking platform through crypto wallet started to learn about the world of money through essentially crypto that became financially more literate and now it's become a platform and it's completely changed the lives of millions of people in the Philippines. And you've also introduced the concept of remote working arbitrage, right? Saying, well, if I can earn $5 an hour by engaging in some digital media as opposed to earning $3 an hour doing something locally, I'm going to do that because it serves me better. Now, obviously, longterm, you got to figure out is that going to be that way forever or, you know, do I become a professional gamer at this point at age 85 living in the Philippines, whatever it is. But again that introduces this is really interesting because it gets quite big when you get into this territory right at that point you're introducing the concept of remote working you're talking about introducing the concept of financial literacy and also spreading the idea of capitalism. These are very very big things. These are really really big topics for any one organization to be taking on as a mission right.

Yeah it's right that's right. I mean, you know, if you can teach our kids algebra can certainly teach them compound interest for instance, right? It's pretty straightforward. But I was saying also.

And they're like, oh, that's interesting. I wonder how I could do this. And but I think the problem is is that in many societies, first of all, I agree with you on this one wholeheartedly, but do you first need to be in a society that has a relationship with money that is not unhealthy? And I grew up in Europe. So going a little back on my background, why is web 3 so fascinating for me and why I think it's sort of the calling of the company and somewhat for myself is because, you know, when I grew up in Europe and in the 70s and 80s, so I'm totally dating myself at this point, right? And, you know, I've already, you know, a kid who's working. So I've been around the block. I grew up in Europe at a time when we still had Eastern Europe. The Iron Curtain was still there and my mom used to work at the eastern side of Berlin at the Kompa, which basically was as communist as it gets. So, I grew up in a socially democratic country which embraced, let's call it, a tamed version of capitalism. and moved and saw my mom basically at the communist side which was like to me like what the hell is this right and then afterwards I went to America for work and which was like, you know, everyone talks about money at the time especially in sort of late 80s 90s and I came to Hong Kong which is a Milton Friedman's wet dream because we didn't even have social security at the time right it was literally like and but to that extent you would also see the flip side of that right so you'd have a lot of social protection in a place like Europe and then you go to Hong Kong which has improved but still has an issue where you literally have elderly people basically carrying trash right because there's no other means right so you have the extremes around that but in Europe, you know, I couldn't talk about money and talking about money was kind of rude and in a dinner table conversation you would not talk about the price of real estate or your assets or your stock let alone your crypto right people most people in the room would look at you and say, what the hell? Who invited this guy? Right? But if you're in Hong Kong, and I presume New York or London might be similar, it's quite common to say, hey, you know, I looked at this place and that was the cost of the real estate. Hey, look at the stock market. Like, you know, and the most shocking thing I experienced when I first came to Hong Kong and I took this sort of the train up to Sha Tin, which is one of the places where they have the horse races, which is one of the legalized gambling forms in Hong Kong with Hong Kong Jockey Club. And I saw a dad teaching his child who was maybe I don't know six or seven or like a young age how to bet on horses. Okay. So the European in me at the time was like what is he doing? Okay. He's corrupting this young mind teaching about gambling. But you know the current me is like okay he's teaching him how to do risk from his perspective. And sure I mean and it's not life savings or something. It was just it was fun. It was whatever. And then and this is also the thing in Hong Kong for those of you who know the space, you know, you go to certain districts, you would hear essentially sort of the clashing of these mahjong basically marbles, which is kind of like a I think of it as a Chinese version of poker, right? And I've played mahjong since I was a kid. It's one of the coolest games anybody can learn. It is tactile. It is sensory. It is fun. It's colorful. It's complicated, but also kind of easy. Anybody out there who isn't playing mahjong, go check it out. Would recommend. It's about and there's money involved, right? Even if it's just play money, right? And it's fun, right? Because of the money, right? And so in some ways that sort of setup teaches you and it gives you a relationship with money. And frankly, I think it's also the reason why places like Hong Kong are much much better at crypto adoption because they're much more comfortable with money, right? Whereas I think the closest thing we teach about money with our kids in school, I mean in during early education is probably playing Monopoly, which is the wrong idea about money. So unfortunately,

Yeah, I know. It also at the end of the day, it's winner takes all, which is also the other issue.