Bankless - 102 - The Emerging Metaverse | Sam Englebardt & Richard Kim

Episode Date: January 24, 2022

Sam Englebardt is a co-founder and partner at Galaxy Digital, and is the founding general partner of Galaxy Interactive, which invests in next-generation interactive entertainment. He is also a content producer of film and television, working in a broad range of traditional & digital businesses. Richard Kim is a general partner at Galaxy Interactive, after a stint as COO at Galaxy Digital. These two guests are getting their hands dirty as the gaming, cultural, and technological worlds converge into the Metaverse. Trying to predict, invest, and help build this emerging phenomenon is a massive endeavor, but it’s one that we need to get right. Exploring what the Metaverse actually is, how today’s internet compares to the digital worlds of the future, and optimizing the user experience comprise the core of this discussion—but we open it to understanding the skeptics in the space, as well game economies and tokenomics. Sam and Richard expect to see a mass exodus into the Metaverse over the next couple decades… how are you going to play the Metaverse game? ------ 📣 ALTO IRA | THE CRYPTO RETIREMENT ACCOUNT https://bankless.cc/AltoIRA  ------ 🚀 SUBSCRIBE TO NEWSLETTER:          https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST:                 http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS:  👀 POLYGON | LAYER 2 DEFI https://bankless.cc/Polygon  ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across  🦊 METAMASK | THE CRYPTO WALLET https://bankless.cc/metamask  💳 LEDGER | THE CRYPTO LIFE CARD https://bankless.cc/Ledger  🧙‍♂️ ALCHEMIX | SELF REPAYING LOANS https://bankless.cc/Alchemix  🦄 UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants  ------ Topics Covered: 0:00 Intro 5:00 Sam & Richard of Galaxy 8:23 The Year of the Metaverse 13:33 The Gaming Gateway 17:09 Skeptical Pioneers 26:21 Value vs Price 29:30 Enabling, not Escape 36:27 Building Stakes that Matter 43:51 Steak and the Sizzle 47:45 Creating Meaning in the Metaverse 55:21 Social Sandboxes & Other Theses 1:02:55 Viewer Participation 1:07:54 The Power of Emergence 1:13:48 How the Thesis Changes 1:18:40 Overhyped? Top Signals? 1:27:08 Microsoft & Decentralization 1:34:02 Closing & Disclaimers ------ Resources: Richard on Twitter https://twitter.com/galaxyRTK?s=20  Sam on Twitter https://twitter.com/samenglebardt?s=20  Galaxy Interactive’s Thesis https://www.galaxyinteractive.io/thesis  Asmongold’s Rant https://youtu.be/rgg768z2GRA  Metaverse Episodes Defining the Metaverse https://youtu.be/EqQiPseP_P8  Web3 Gaming 101 with Amy Wu https://youtu.be/x-3wNEahNl4  The Crypto Gaming Revolution with Arianna Simpson https://youtu.be/A_xsjqMcnCQ  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to bankless where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, we have a fantastic episode for you coming up on the metaverse. We cover a number of things that I think you're going to want to take away from this episode. Number one, what is the metaverse, an actual definition? Second, why today's metaverse is nothing like the metaverse in its final form. Third, why they're play to earn skeptics.

Soft currency versus hard currency in gaming economies. Number four, how the metaverse isn't predetermined, it's emergent. The metaverse actually builds itself. Number five, what's wrong today with crypto gaming and how it can be fixed? Number six, this big idea, I think the central idea of the podcast, is we are embarking, Humanity's embarking on a multi-decade exodus to the real world. We unpack all of this in the episode today. David, what were some of your thoughts?

I think my biggest enjoyment in this podcast is the fact that Richard and Sam seem to have a conclusion for what the metaverse is. And it's hard to argue with that conclusion. It's very, very easy to hop on board with it. And some of their very, like, easy to define versions of the metaverse are some things you'll hear in this podcast, such as when you're talking about some. version of the Metaverse and whoever you're talking to is like, wait, wait, which reality are you talking about? Are you talking about the digital one or the real one? Like, that's how we know

kind of when the Metaverse comes. And then working backwards from there. What does that mean? Because if you're going to mix up the digital world and the physical world, a lot of things need to happen where, for example, meaning and purpose and some sort of emergence needs to be in the metaverse on the digital side of things. And so what does that mean? And what does that create and what teams and what games create meaning and purpose in the metaverse in a way that's emblematic of the world that we currently live in. And the other big takeaway I had is that there's a stark difference between some of these play to earn games, these early metaverse startups that we are seeing today in 2021 and

2022 versus what logically needs to happen in order to have this more holistic version of the metaverse built out. So my takeaways, Ryan, are what we're building today in crypto is probably going to be very, very different than what we're going to be building in five to 10 years. And it's really the five to 10 year plan that really, I think, excites me and what excites people about whatever the hell this metaverse thing is. Yeah, same here. And what I like about Sam and Richard is they were here before all of the Metaverse mania that we've seen, right? And so, like, they were here in 2018 investing in the space, trying to figure out their thesis, you know, laying it down. There are so many projects that have spun up in the last six months that

are just, like, jumping on the narrative. Without a lot of like long-term substance. And I think both Richard and Sam sort of bring this long-term perspective to the space that's needed. Once you get past all of the mania of like, you know, digital real estate and $2 billion funds pouring money into the space, what are we actually left with? And the thing to me that we're left with is if you're in the space, if you're listening to this episode, if you're exploring the metaverse today, you are so early and you also can't go wrong because this is all about humanity's exodus. It's migration. from the analog world into this digital world.

And so no one can predict it. And if they could predict it, it wouldn't be the metaverse, right? Because the metaverse is fundamentally emergent. So, you know, that's the fun part of this is this is another episode where we're all trying to figure it out together. We get to pick the brains of Sam and Richard who are experienced venture capitalists in the space, investors in the space, and are gamers themselves very plugged into the media side of things, the content creation side of things.

And so it was overall a really fun conversation. that I know you guys will enjoy, as always, make sure you like this podcast if you're listening to it on YouTube, subscribe in your local podcast feed, and also review it on Apple iTunes. Need those iTunes reviews to boost us to the top of the charts. And we will get started with the episode in just a minute. But without further ado, we want to thank the sponsors who made this episode possible. Bankless is proud to be sponsored by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure.

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You'll be able to manage your CL card powered by Ledger inside the Ledger Live app, right next to all the Defi apps and services that you're already used to using, making the Ledger Live app your one-stop shop for all of your financial needs. Go to ledger.com, grab a ledger, and download Ledger Live to get all of your Defi applications all in one place. Bankless Nation, we are super excited about our next guest. We're here with Sam Engelbart at Richard Kim of Galaxy Interactive. We're talking about their themes. for the Metaverse. Big topic today to unwind. Sam is the co-founder and partner at Galaxy

Digital. He's also the founding general partner at Galaxy Interactive, where he now works. He's a media and tech investor and content producer who's helped create a broad range of traditional and digital businesses and a ton of different films and television shows over the past decade. Definitely a lot of experience in the interactive space. And Richard is a general partner at Galaxy Interactive as well in a managing director at Galaxy Digital. He joined Galaxy Digital as their chief operating officer in May 2018 before going full-time into Galaxy Interactive in December. Guys, welcome the show. You ready to talk? We are ready. Glad to be here. Thanks for having us on. You know, we're super excited to dig into this. We've touched on a few different, I guess, topics related

to the Metaverse, but I feel like this is sort of a Metaverse episode. Actually, before we call this a metaverse episode. Let me ask you guys about this term metaverse, whether you like it or not, because I know we're going to talk a lot about like just gaming in general and how that's going to evolve. Maybe that's the terminology you prefer. But what do you think of this term metiverse? Is 2022 going to be the year of the metaverse? Thoughts on this? I mean, I guess I would start by saying whether we like it or not, and regardless of what we think of it, it's here to stay. Is that Zuckerberg's fault? It's not his fault. Things were trending in that direction, but he's certainly solidified it for us. We were just talking earlier today, and the reality is whatever happens,

metaverse, the idea of the metaverse, meta, the company, and all the buzz around this concept, we can be certain that at a minimum, at earnings time every quarter, we're going to be hearing most of the big companies, certainly one enormous company and a lot of others following their lead talking about Metaverse. So it's here. I think ultimately that's a good thing. But in terms of the word and what we think about it and to what extent our strategy is a metaverse strategy, you know, we end up in this conversation a lot, as you can imagine

over the last couple of years. And I feel like, and including I've heard you guys on your show as well, you know, there's this need, I think, initially to define Metaverse and figure out first and foremost, are we even talking about the same thing? And I think when you dig into it at all, what you realize, is very few people are talking about the same thing. And it's the ability for one person to hear the word metaverse and imagine Ready Player 1 in the oasis and the things that have been made popular in the literature over the last

couple decades most recently, but even going back historically to ancient Greece, if you think about some of the ideas philosophically, the concepts of immersive worlds have been explored. There's that version of it. And then there's on the other end everything that might mean to some people, nothing more complicated than a mobile game and buying digital objects in a game. So we need to define the term and that's the first task. And then we can figure out whether we're in it or soon to be.

It's one reason we generally don't like to use the term metaverse because we don't want to spend 15 minutes talking about definitions when we could be talking about what actually matters, which is that, you know, this is a world where our digital identities have become just as real as our physical ones. And so if you think about the practical ramifications of that, they're quite wide-ranging, right? And really challenge a lot of the foundations of value that traditional kind of markets people have understood, right? And started with Fortnite cosmetics and now with crypto, it's about earning a livelihood for, you know, doing the things you otherwise would have just consumed as entertainment. It's now a whole investable asset class, right?

So that's what's interesting to us. Yeah, if you're, if what we're talking about is where do you spend, your time, your money, meet your friends, build your life, have your status, create your identity. You know, I think we realized even a few years ago it was true and it's even more true today that people are already spending the majority of their conscious time inside of digital spaces through their devices. And if you include ideas around the second and third screen and the way that we're all looking at, you know, our phones and our consoles and our PCs and everything else, we're spending more considerably more than 100% of our conscious time at this point in digital worlds.

And so if that's what we mean, maybe we're already there. So if we were to play a game where we weren't allowed to use the term metaverse, but we still needed a word or a phrase to talk about what we're going to talk about, what would be second best? What other word is relevant to this conversation? I think the concept of digital identity and value is really what it boils down to. I mean, Ben Thompson had what I think is the best take. I mean, he's in this bucket of we're already in the metaverse.

It's a world where, particularly in a post-COVID world, a lot of the most important relationships and time and energy we spend are in interactions with people we've actually never even met physically, right? And I think it's useful to think not just how digital worlds are the equivalent of physical ones, but the types of interactions that are only possible in purely digital realms, you know, especially in this world where you can zoom in with hyper specificity to people who share the same interests and values that you do, form a community around that, just like you guys have done with bankless style, right? And really have that be a long-term sustainable meta game. I think that's

the most fascinating part. And then when you unpack the implications of a lot of that, it's about this intersection of markets, content, tech that all come together in really interesting ways to enable things that weren't possible before. I think a lot of this podcast is going to be about games. But high level, do you see games as kind of the gateway to the metaverse? Is this how we're going to experience the metaverse primarily? Because I know there's a big emphasis in your investment, your fund, your thesis on gaming. Is that going to be the metaverse for people?

I mean, I think gaming is an enormously important part of this conversation. And it is the tip of the spear for where so many of the behaviors that they're going to matter in the metaverse. conversation and just in people's lives generally going forward, the generations younger than me and I think forever going forward are learning their behavior and are building their lives inside of games primarily. And so, you know, if what we think the metaverse is or a big part of what the metaverse is, it is immersive digital worlds than what better place than the game worlds that are already built and that are being built where people are spending their time. And, you know,

I think the thing Richard and I realized it is the for us, and we do have such a heavy focus on gaming in our business, but not because we just want to be or believe the opportunity is in games, but what we've recognized is two massive growth trends that are converging, right? And so it's immersive digital worlds led by games with a real sea change in finance and fintech and trading technologies and markets and all of the ways that people are monetizing their experiences and their time. And so for us, games matter, but it's all. also really the intersection of games and markets with all this new technology. And, you know, I think if you start talking about things like digital objects and the other stuff that we explore, especially as you unpack the Web 3 piece of all this, it's really like no better place than games where people have been comfortable for a very long time with the idea that digital objects have value. And they've already been making markets inside of those worlds and building economies, many of which have grown to be enormous, you know, in size at this point. And for a lot of people they've been spending a lot of time in those worlds.

I think the types of games that are going to do well in this kind of metaverse world, and by that I mean, you know, fully open economy. Because, you know, just look on the app store, look at the top charts today, take random mobile game X and put a token on it. Is that going to work? I think in 99.99% of cases, the answer is no, right? So it's not as simple as taking an existing popular game and slapping a token on it. I think the things that are going to do really well are those that are specific,

designed to work well from a long-term sustainable economic standpoint with fully open economies, right? And so I think the most lasting part of gaming and game design is going to be in a lot of the early experimentation we saw around open world economies. It's quite interesting to me, when I talk to a lot of the pioneers in that space, they're the ones who are actually the most skeptical blockchain and play to earn, not because they don't believe in the potential of earning value for your time, but they just know how complicated it is, you know, short-term speculative fervor aside to build a lasting and sustainable kind of token economy that's fully open. So I think learning a lot of the learnings from the last two decades and applying that to play

to earn game design is going to be a really interesting space. Wait, can we dig into that for one second? Because you hit on something that I think is interesting. So you're saying like the early pioneers of digital worlds who created digital economies before there was a thing called Web 3, and before there was a blockchain that had been invented, they are the most skeptical of the sustainability of this Web 3 thing. Can you talk about some of their concerns?

Why are they so skeptical? Yeah. I think a few points come up pretty regularly. One is this general theme that what we should be optimizing for with this new primitive is not scarcity, but abundance. You know, so many of the initial play-to-earn kind of game loops are some form of buy an NFT, use that as access, and then build, breed, all these things that kind of flow from this exclusive club to start off with, right?

When there's a whole sample space of design out there of you should really be using tokens as an incentive to encourage user-generated content and work not to exclude your community in the form of like a thousand or 10,000 avatar project, but actually give people tokens for their time, right? And then over that course of earning, you produce such a sustainable volume of user-generated content that that's like the insular economic loop that keeps the thing going.

I think there's a lot of things that flow from that. Like we could have a whole discussion about land, right? Like in things like Ultima Online, if you talk to one of our portfolio companies, Ralph Koster, about the learnings of land in Ultima, you know, I think they're almost universally skeptical that land is a good idea. And you see so many of these early Play to Earn projects focusing on land as a heuristic. So I think we're going to go through this process where a lot of the lessons over the last 20

years get re-learned in the crypto space. It's hard to tell to date because so much of the beta in the space has been so strong. You say Metaverse or play to earn on anything. And you see companies raising $50 million when, you know, literally six to 12 months ago, the same company was on our list of potential writeoffs, right? A couple of cases like that. And so I think over time, it's going to take a few years to play out. We're going to start to see some of these things reveal themselves.

That's so fascinating to me. I think we could do a future bankless podcast just on that subject of what, like, you know, the OG game designers who created some of these economies like the Yvon lines. of the world and world crafts and you know diabolos and all of these what they think of this whole crypto economic and you're saying that they're like actually anti land which is just blowing my mind and fasting to me because like my model for the metaverse is kind of like it's just like real life only digital and we have this scarce thing called land in real life and so why not make that digital but it strikes me that that might be um skeuomorphic right that might be sort of like oh

you're just importing the old world into this into this new paradigm rather than seeing what the, what the, uh, the new technology can actually bring about. Um, but just can you help me there, Richard?

Why, why anti-digital like land? I'd really encourage people to look at, um, Asmond Gold's recent rant post-Square Unix, uh, launching their, um,

NFT strategy. Uh, because I think, and try to watch that, not with a you're wrong about this or that, but just listen. Like, refrain from trying to,

explain why he's misguided or whatever, just listen. And I think what you hear when you listen to that, Asman Gold, for those who don't know, is a pretty well-known Twitch streamer who's played, is probably the number one World of Warcraft Twitch streamer, right? So he was talking about, you know, how a lot of NFT and blockchain gaming is, it's essentially micro-transaction squared, right?

There's a lot of PTSD from decades-long, excessive monetization that really takes the gamer out of the heart of the immersive experience they wanted, right? I'm personally obsessed playing Breath of the Wild right now, which is not a new game. The reason I love it is there's no micro-transactions and it's completely transporting. And yet it hits all of the themes that are in vogue in multiplayer social gaming today, like open world crafting, you know, all these things in the context of a narrative structure that's quite inspiring and like mythologically grounded, right? And so, you know, when I see kind of videos like that, my mind immediately goes to that the next wave of play to earn

gaming that's going to be really successful are the games that give players value for their time without ever asking them to buy anything, right? They're going to be airdropped value for playing the game. Well, and it feels like playing a game. I mean, without overcomplicating it. I think it's like it doesn't take a deep study to figure out very quickly that if you go on and play a blockchain game, a lot of the skills and a lot of the experience and the things that you're being asked to do and that things that will determine your success, you may, if you're a gamer that's been playing World Warcraft or other games or a first person shooter or any of the things that have defined you as a gamer in the areas in which you've built your skills, you're being asked to do and to learn entirely new things and to understand things that may not be in your vocabulary or in your skill set at all. Like how many of these traditional gamers that have been playing games for decades now come to a black,

chain game, understanding yield curves and understanding how to be a trader and understanding all of those things that really determines success in a lot of blockchain games. And so, like, I think it's not surprising at all that people come to those games and actually want to play a great game and want to continue to do the things that they have learned how to do in their experience as gamers. Yeah. I mean, I'll tell you my mental model for how I think the next wave of real games is going to work is, you know, you have this concept in gaming today of like soft currencies and

hard currencies, right? Soft currencies are the things that you earn playing the game that allow you to do various things in game, right? It's like an earn. It's the equivalent of SLP in Axelagland, right? And then you have a hard currency, which today is like the equivalent of gems that allow you things like super cosmetics and other things, but you have to pay money for. You can't earn, right? So what is the equivalent of that in play to earn space? Well, soft currencies are interesting because they're these things that help game designers balance supply and demand. And the objective of a soft currency should not be to have this thing go up. You sometimes see Axi analyses where it's like,

uh, SLP is inflating like crazy and the price is going down and it's a disaster. I personally don't view it that way. Like I don't think SLP was ever meant to go up. It was meant to be this plug to like bridge supply and demand. And if you think about like an RPG or any kind of game mechanic, it's a very useful thing for a game designer to have. have a fungible soft currency now where if I want a shortcut playing a thousand hours in the

game, I can do that by buying the equivalent of SLP in this game. And it's fine, right? That market exists. Like there's many progression based in-app purchases and mobile is a very big thing. And it'll be great. I think the really exciting thing is you air drop soft currency to players for their time, but then have this opt-in hard currency, the equivalent of AXS to go back to AXI, that, can redistribute the economic rewards through kind of shares of transaction fees or otherwise back to players. And that, if I'm a gamer and I don't ever want to do another micro-transaction again, like a truly free-to-play system where I'm earning value for my time and don't have to opt into that hard currency, but I can, true believer, and I want equity-like upside in the growth

of the ecosystem. I think that's really interesting, right? So I looked at the top 50 blockchain gaming projects recently. I forgot who published it. And like, frankly, it was a chore even looking through that because I just knew what the core loop of all these things is going to be. It's either like some clone of Axi. It's like some buy my avatar and I'll promise to create some game that may or may not be delivered. It's like all these things, they're like three blockchain games today. And we're much more excited about the opposite, which is like real game designers who are thinking about how can we incorporate fungibility into our token and economic model in ways that give players value for their time. And game designers that are going to

build a game or have a shot that people are going to be playing 10 and 20 years into the future. This is so interesting. The idea that you were saying, Richard, is kind of like this idea of like there are some people who have more money than time and some people have more time than money, right? And there's this separation between a hard currency and a soft currency between almost like labor and capital that you're getting in. But like you have to have the balance, right? It's like the Thanos thing, all things in perfect balance. Like you can't have too much capital invading, you can't have too much labor without capital. But I also wonder if there's some sort of a, you know, crypto loves it's trilemma, some sort of, you know, trilemma here that might

prevent this world from coming true. Because once we have that thing that you said was important earlier called an open economy, then everything just suddenly gets priced, right? Like, everything has a market. Like, do you think there are ways around that? You know, people are going to speculate on SLP. And that, like, that's why SLP in the Axi game, it was supposed to be soft currency, but that's why it's gone up. And if you want to have an open economy, then it has to plug into defy and has to be part of this whole speculative game. And then, like, you kind of get what we have right now. What are your thoughts on that? Is there some sort of impossibility your trilemma that we're hitting up against? I think there is. Like, you know, I think there's

a fundamental tension between reputation-based currencies that you can only earn by doing things and they connote real status because of the proof of work that goes into earning them versus something you can just buy and say, I have the same status. Now, I've said that in the past and I've had mobile game designers come up to me and be like, you're wrong. You know, here's why you're wrong because like, you know, we sell this thing as IAP and it goes just as much status as someone who's earned it. But, you know, I think particularly in a crypto world where you can really tell who's put in the proof of work versus just bought something, I think it's going to really detract from the long-term value accretion that goes into virtual goods that you can only earn,

right, or find randomly. So, yeah, I do think there is that tension. And there's a lot of tensions in any kind of currency whose value is driven by engagement, right? Like, I think we can even talk about social tokens as an example, right? Like, you often hear this social token paradox of there's a tension between the need to expand your token community versus exclusivity, right? right? And how do you balance those two things? I think it's the same for any kind of virtual good or token that plays in the status realm. And I don't know how that tension kind of sustains itself in the long term. One of the things I really enjoyed about learning about Galaxy Interactive is you guys call yourself a thesis-driven investors. And, you know, banklists, we like to

call ourselves a thesis-driven media company. So we have some alignment there. And I think another thing that we align on is just overall long-term thinking rather than just, you know, cloning, axi and, you know, re-skinned it with some new loop. You guys are really thinking deeply about what it means to actually have a successful metaverse, successful virtual worlds. And there's some things in your guys' literature that really stood out to me that I want to unpack with you guys. The first one is on your website, you guys say that you believe in the power of digital playgrounds to foster a healthy sense of community, place, and purpose, a means of enablement, not merely escape. And I really like that last line. Enablement, not merely escape. How will, in your

guys' minds, how will the metaverse enable people? And is it a good thing that we are also depriving people's a way to escape when so many sectors of the gaming industry is like kind of optimizing for escapism? Yeah. I mean, I think we should both comment on it because I think we have different ideas and angles. But I mean, I think when I think about enablement, so much of this is first imagining and understanding these worlds as being proactive places that people are a building, right? And so if you're building your identity and you're building the content that you find inside of it and you're able to design a life for yourself. I mean, obviously, to the extent you're earning, you're living inside of these worlds,

that's one very important part of this conversation. But likewise, just the ability to really, this way predates metaverse, right? I mean, just user-generated content in the first place. And when you imagine persistent virtual worlds that people are building, whether they go all the way to the extreme version of metaverse that some people are imagining. We've already gone in the direction of people being able to realize the vision for themselves and their lives inside of these worlds. And that's very, very different if you think about the history of gaming, right? And I mean, gaming in the evolution of media, obviously we, you know, even 2030, 40 years ago, gaming was already far more lean forward than, you know, television before it and movies before it.

But even in the last few years, the progression we've made towards gaming, not just being leaning forward and interactive, but actually a place where you impose your will and your creativity into a world for others on a permanent basis. That, we think, is an enormously empowering, enabling idea. And then as this space grows, the other thing we're starting to see are just the best practices from these game worlds that are being built carry out into other aspects of people's lives. And again, I think we talk in other places about just the gamification of the world more broadly. And that is, we hope, and to the extent we have an opportunity to influence the direction these things go in, we think it's really an opportunity to take those best practices from games and help people apply them to their lives more broadly. Yeah.

I think my perspective on this is it's really colored by my own experiences with my son. I tell this story all the time of, you know, we're investors in the San Francisco. box. And a couple of months ago, he plays Minecraft for three hours a day. So I was like, Charlie, why are you wasting your time in Minecraft? You could be earning sand tokens as a creator. Like, I literally forced him to do it. And you're trying to crypto pill your son here. Yeah. And he built some pretty cool stuff in there. And then after a while, he just, he wasn't using it anymore. And I said, Charlie, why aren't you using the sandbox anymore? He's like, it's really, really simple. The sandbox doesn't have a concept. of Redstone yet. Redstone is the block that is essentially electricity in Minecraft. Like, you can read books about Redstone. I was just mind blown when I actually looked into this. And I think one of the things that makes Minecraft so popular, it's like digital Lego blocks, right? I have this imagination of the world. It's like kind of like what's in my mind. I want to just like play without even having a plan.

That's the other thing that was just mind blowing to me. One time I went with him to his friend's house. And so you have four 11-year-olds. They're like, hey, let's. let's go play Minecraft together. You actually watch them play. I was just entranced watching this for an hour. No plan whatsoever. And somehow the most beautiful order emerged from total chaos, like from literally like killing like the sheep and like cutting down trees

to like one of those beautiful worlds with like no coordination. It's just kids expressing themselves, right? And I think somewhere along the way we get jaded in life. And especially like the crypto audience, everything becomes about money. And it's like, Why would you not earn value for your time? And to him, it was like the exact opposite.

It's like, why would I want to work if I just want to play? Like that, and that's not play, right? So how do we get to this point of play in virtual world, which it's as seamless as, you know, Alex Danko has this great line, like build a jungle gym, not a tightrope? I think so many, like, play to earn economies, they feel like work to earn or like walking on a tightrope. It's like, why am I doing this? And it's just this visceral, like, oh, feeling, right? And I think the moment we get emotionally closer to like that jungle gym where we're like,

we just hang out with our friends. And that kind of social space is just as real as like the things we were doing if we were all hanging out having beers right now. Like I believe in that world because I think it can teach us something about ourselves that we don't get to capture every day given our physical limitations. And that's the type of stuff that gets me excited. I mean, by the way, I'm listening to Richard say all this. And I've heard it.

Obviously, it's a topic. we discuss a lot, but he hasn't been to Burning Man yet, right? And what I love about this conversation is, like, if you, and I don't know if you guys have, but you can talk about playing games and game worlds for kids and all the rest of it, but this doesn't have to be only an immersive digital worlds. It can also be in physical worlds and in real life. And you go to a place like that and you realize that like a small number of people in events like Burning Man and the related events thrown around the world. And that whole trend, again, I think is growing as a result of so many people coming out of games or feeling empowered by the gaming experiences they had when they were younger

or just wanting to relive them or reinvent them. And when you go to a place like that, that is, for all intents and purposes, a fantasy land for a week each year where the only thing for you to do there is play and create and share these experiences and, like, visceral joy. The benefits that come from allowing yourself as an adult the opportunities to do that are so tremendous in terms of how we engage with other people in our lives and what we end up building and bringing back to the world. And so, like, that, I think, if we are creating as a result of the gamification of everything in the world and the way that things are going, I think it bodes very well for what we're capable of as a, you know, as a species going forward. There's a number of topics that we're

dancing around and I want to circle in on one here. I was actually talking to Gio from Axi just yesterday about a lot of the mistakes that many play to earn metaverse games make. And he talked about how one of the mistakes that they make is they just try to just make the most fun game possible and slap some tokens on it. We've talked a little bit about this. But what really gets really interesting is not just games that serve you dopamine on a platter, but serve you also what we've been talking about, like, you know, meaning and purpose. And he thinks that the future of many of these metaverse games is not to just be super fun,

but to actually emulate the real world so that you can actually find meaning and purpose. And one of the, I think, reasons why Yv Online was such a successful game is because there's such a strong component of loss in EVE Online. You can put a ton of energy, a ton of blood, sweat, and tears into building out your resources and collecting your instruments just to have it just be like, you know, looted by a bunch of pirates and then all of your labor just goes out the door. And so one of the lines that you guys have on your website is that you believe that the virtual communities, marketplaces and experiences will cause people us to revisit long-held assumptions

around the meaning of real. So when you guys are looking at the games being played and things that you are investing in, how are you thinking about what is real? And how will the metaverse come to redefine what we think is real? My colleague Michael Fan actually had the best definition of the metaverse I've come across, which is, you know you've hit the metaverse when you have to ask the question, wait, which reality? Wow. Yeah. And I think that's very relevant to the question you just asked because one of the things we haven't seen yet is a play to earn or a virtual experience that, you know, has real world societal impact.

And through our actions in those purely digital realms, they have real world consequences. And so, you know, where does one end and the other begin? I think there's much more room for that type of experience. You know, we just this past weekend, I don't know if you can say the name, but, you know, we were brainstorming with, you know, know, a very large organization with a ton of societal impact and thinking about how token economies could potentially instigate a wider community dedicated towards these things that actually matter. And I think there's tremendous opportunity for that because it goes back to like the whole saying, you know, like I think it's monger saying, you know, play stupid games, win stupid prizes. And I feel

like there's a lot of stupid games and stupid prizes right now. And they get obfuscated in, you know, like staking token economics and like the third om fork type of discussions. But all these things ultimately are like short-term distractions in my opinion to like making a real impact, whether emotional relatedness or some charitable or social impact cause. And I think a lot of these primitives that we're now experimenting with through DOWs, through NFTs, through play to earn, they're eventually going to find their analog and things that actually matter. And I think people are going to be tremendously proud of what they do in these digital realms. and the impact it has, right? Like Constitution Dow is like a foreshadowing of like the many,

many things to come in the space. I mean, this in some ways wraps us background to your first question and how we started this conversation because like when you ask about is Metaverse here to stay or what's the importance of this, you know, to put a cap on what Richard just said. It's when the world decides that as they have now that games matter. I mean, we have an amazing day to day in the game space with the, you know, the acquisition of Activision by Microsoft largest gaming M&A deal ever by lot. You know, when the world has decided that games matter, then the things that games can do start to matter to. And people put a much finer eye towards what's possible with these games.

And they don't matter. And very rarely do we ultimately decide that things matter just purely as entertainment when they get to the size that the gaming economies have become. Yeah. And I think one of the things, when people look at this space with a primarily financial lens and they look at, you know, these NFT projects and other things trading at crazy values, they really struggled to understand it. And the thing I always explain is what Web3 is enabled is it's allowed the things that previously could only be consumed as entertainment, i.e. were e. were ephemeral, to be captured in persistent form. So like the, you know, consumption is now an investment. And the implications of that from a consumer TAM standpoint are just

massive, right? Because think about whether it's World of Warcraft. So it started in games, but it's not limited to games. There's all sorts of things that consumers have affinity for. that they could only go to a concert or buy a virtual good, like these things that were consumption before, they're now potentially investable because of the fungibility, tradeability, et cetera, that Web 3 brings. And what's interesting about that is that it allows communities to form with an incentive structure built in, right? Like if you imagine a chart of like the market cap of a token on the Y axis and the engagement

value on the X axis, like in the old world, like I get out. ask this question. Well, why can't you just use dollars? Why do you need a token? Right? So if you use dollars in, say, a game, that chart, if you would applaud it, would be something like a straight line that starts from the origin and extends out diagonally. So if you've built up a lot of actual engagement in your game, your kind of currency or your DMV should be quite high. Like the Fortnite Skins is a good example of this, right? But in the early part of that curve, there's like no engagement, right? There's potential engagement, but there's no actual engagement. The interesting thing about tokens is that that line is no longer a kind of diagonal line.

It's like a horizontal line where irrespective of actual engagement, the market has assigned some price to this token, right? And what's interesting is if you think about the area under the curve, that horizontal line, and split it into potential engagement value versus actual engagement value, you know, potential engagement value is a vast majority of what's under the curve today for play to earn gaming, but also all sorts of causes. But that's not a bad thing. Why? Because you've essentially allowed people to stake the things they think they care about. And then over time, turn that perception into reality. Right. So I think that as a mechanic is something that has massive tempotential across all sorts of causes that matter. And I'm really excited to see those causes materialize. Yeah, this mechanic that you mentioned, this is really what we've seen in crypto since the beginning, right? It's like, do you remember the days where they

used to call Bitcoin magic internet money. We don't see that, we don't see that meme very often anymore. And that's because, like, at the stage in the, it became like institutions are buying. And if Paul Tudor Jones is buying, like, Bitcoin, is it really magic internet money? Or is it just money? Right? And so, like, part of this crypto journey, at least for me personally, has been somewhat surreal. And I think many, many people will cross the chasm from, like, what you think is just a game, to suddenly something becoming real. Like, David and I, and you guys probably too, every day we log into the crypto game and like we're just playing.

But it's also real life. Like this weird internet money thing, go like talk to your parents about it, right? They think what you're doing is strange and bizarre. But like it's now work and it's play and it's a video game maybe, but it's also real life. I think that this thing will happen to an entire generation. until like all of humanity like the metaverse becomes the thing that is real that's like that's what we do I mean it sure makes it harder to refute the idea that we're living inside of a simulation right yeah well don't get me started the more of these things happening the little the little you know

blips in the matrix that we're starting to see but I mean for sure and I think of so many things as I hear both you guys talk about this stuff and it's you know we've been saying for a very long time. There's been this idea of selling the sizzle and not the steak, right? And I mean, I think to some extent what crypto has done is enable you to sell the sizzle at scale, you know, throughout the entire cooking process. And that's important. And much more importantly, I think you nailed it, though. I think we're getting a little taste of this game that is our lives for sure. And I think the more that you reel into that, you realize that we're all playing a game and we're sort of, you know, betting our lives every day.

the decisions that we make and the things that we do that we're playing the game correctly. Yeah. And now we've been able to put markets around it. I think one of the most challenging things is balancing the tension between like trading and short-term speculative motivations versus being more of a builder and participant. Like I've been thinking a lot about wanting to spend my time in the causes with large areas under the curve. Like it's okay for a lot of the value today to be potential engagement.

but in a world where a dot, dot, dot, dot, the answer to that has to be a world where that value under the curve is real and meaningful, right? And I think my issue with, just to use one example, a lot of, say, profile pick project communities is you hear this word community a lot, you talk about shared interest and values, but as I apply my like mental framing of, okay, what's the area under the curve of, you know, these profile pick communities, you know, in a success scenario. I just, I struggled to get excited about why that's big. And I think a lot of it is justification for short-term speculative behavior on obviously like talking your own book a bit. And I think if there

were less talk about trading and more talk about, you know, spending value and spending time and energy in the projects that actually make a difference and just forgetting about selling entirely, you know, I just turned 36. I wrote an article in my blog about how I wish I could go back and tell my 18-year-old self, forget about selling, forget about the zero-sum mentality, you know, for your mental health, if nothing else, and just focus on what projects do you want to devote your time to. I think that's ultimately a much more healthy way of approaching the space and a long-term sustainable way of approaching the space than getting caught up in the high buy-in, come join our cult type of trading that you see today. Well said, and I too have

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The last of the overarching thesis that I've been able to pull out from what you guys think is this concept of meaning, which we've definitely been talking about, but I want to go straight for it right now. Say there's a team trying to build some sort of game, some sort of component of the metaverse, and they're looking to raise funds from Galaxy Interactive. You guys say that you guys are looking to back teams creating meaning in the metaverse. How does one create meaning in the metaverse? I mean, I think it's a difficult thing to answer.

And the truth is that's what we aspire to do. And we also end up backing a lot of companies that are just building great games. And I think we have to do that right now at this stage in the development of this industry. But we aspire to find the ones that are going to build something that people care about. And I think a lot of it has to do with what are the skills that people are learning in these worlds and what are they going to carry through into the things that they build. I don't want to sound like a broken record, but it comes back a lot to user-generated content. and a lot to self-expression. I think that's ultimately at this moment in time, the best opportunity for people to make something that matters. If they don't have the tools to put

their mark on a world, then it's going to be very hard for them to have an impact at all. And so that's where a lot of the sandbox games that we back come in. And again, I think we are hopefully by inspiring people to build games and enabling them to do it with the tools that a lot of our companies are creating, their own search for meaning, and I do believe it's universal amongst human beings, ultimately to search out meaning and to put their mark on things.

And so at this stage, we're really largely building the infrastructure to enable them to do that, as opposed to, I'd be kidding you, if I said, look at our portfolio companies and they're spilling out with deep philosophical meaning and answers to the questions of life in the world, like we're not there yet.

But the tools that are going to enable people to express themselves, just like the, printing press enabled people to write and computers and the web enabled people like Richard to build a blog and share his thoughts and ideas. I think that's what the games that are being made today are going to allow people to do. I think a lot about like what loops are internally consistent and stable. So like I go back to, you know, I create a social token community called RNG, like before FWB and all these things. And I learned a lot from the experience. You know, I had this idea of, well,

if you got a discord together and you put a token on it, like can't you like boosting, engagement, retention, like 100 acts, and don't all the rules go out the door? And I quickly discovered that the answer that was no, because you still need a community of shared interest and values. And like one of my favorite things as part of that was some of the self-sustaining internal loops we created there where, like we had this token, for example, and we had host these creative challenges. I think you guys sort of do this too in bankless down now where like we would ask artists to create NFTs on a theme. And then the community, so the community would create the NFTs, the community would curate the NFTs in terms of

of like the top three and then the top three would get minted and then sold back to the community and the native token, right? Like I think that's a really cool thing. I think there's a tremendous amount of meaning and value you get from building these self-sustaining loops. I think a lot of the fatigue in the space you see comes from feeling like you're participating in punsies because for anything to be sustainable, you need like the next sucker to come in and buy it.

Right. So, you know, in terms of, again, where I want to spend my time, it's less on the stuff that requires new fiat inflows to work and more on the how do we get a bunch of people who care about some cause to create these internally self-sustaining loops where in success this thing gets massive and it's long-term sustainable right i do think this is a good point that we're brushing upon and again we're not turning this into a philosophy podcast i'm sure there's a philosopher that has commented on it but it strikes me that in all of my metaverse or interactive experiences the times and the places where I found the most meaning have been with other people. It's been a part

of engaging in some sort of community, like the social element and aligned people playing long-term games together is where at least I found a ton of the meaning in this space, right? And that's why it's like I would encourage those that are listening to go and seek out those types of communities, right? I mean, you guys were talking about there's so many different get rich quick, you know, speculation-type communities out there. But there are some incredible projects that are building these insanely incredible aligned communities that are here for the long run, right? Not the tourists. These are the settlers. And I would encourage anyone listening to this to go seek out those communities. And when you find one, plug in deeply because magic things will happen. And like,

play the long game there too. Right? It's like it's not going to happen in a week. You know, token price isn't going to 10x. in the next two months, but like magic things will happen. And I found purpose there too. I mean, Ryan, that's such an important point because if you've spent any time in these worlds and whether they're 2D worlds or 3D or VR, it's, I mean, Mark Zuckerberg's getting so much shit for, you know, putting on the headset and in his talk and the idea of saying, I'm going to build these worlds and, you know, and looking like he's doing something, you know, in activity that's ultimately so isolating. But people forget that on the inside,

of that headset and inside the screen for everything else you want to say, like he's having and everybody that has had a really immersive digital experience like that, a digital social experience like that, understand that there really is a feeling when you get that immersion right and you're in a shared social, like deep immersive experience that you are bridging enormous physical gaps to connect with people that you might otherwise never meet and never see and likewise for a lot of people who can be somebody that they've never been comfortable being in physical space, right? There isn't like such an important unlock that happens for so many people that where they have courage that they didn't think that they could have, where they have an

opportunity, a sense of humor that they never had before. Like all of these things are tools to self-actualize and realize things that you may just not be equipped to experience if you're just meant to walk up to random people on a street or at a bar or these things. So it's all really empowering stuff. It comes with its dark side. And I think you can't be in this space and building these things without being conscious of the challenges that come when you create worlds like this for people or participate in it. But ultimately, the opportunity to empower people in a way that they might not otherwise have in the physical world is really important. Absolutely. All right, guys. Let's zone in on a few things now because we're all looking at how to evaluate communities

and opportunities in this space. And you guys have a thesis that you put out, I believe, like 18 months ago or so, maybe a little bit longer. And I'm curious to dig into some of the themes of that thesis, both in what they originally were when you started on this journey and how they've evolved, how they've changed. A few of them all lists, there were seven or eight different pieces of this. Social sandboxes, like the ability to design your own experience. Viewer participation, so users creating the games, the interactions themselves, interactive tech, felt like kind of a VR type play. Mobile gaming, you still thought mobile gaming at the time would be huge.

The creator economy, so this is the idea of creators kind of remixing and building things, gaming becoming a cultural movement, right? Like gaming as like the new Hollywood is maybe how I think about it. Synthetic media, so these new forms of media with like AI. And then, of course, Web 3 in Open Finance, this concept of squad. wealth, which is maybe a foundation layer to all of these things. But so let's touch on a few of those. And one that you mentioned a few times throughout the course of this episode is this idea

of sandboxes and maybe social sandboxes. Could you touch on that thesis and then some of the other macro trends where you've been right, where you've been wrong, you can just pick a few of these out for us? Yeah. I think one of the interesting things is to, so we put this document out in the third quarter of 2020, which isn't that long ago. but these were written with a decidedly, you know, Web 2 hat on. Crypto and blockchain didn't dominate every one of these things.

And what's been interesting is to think about, particularly over the last six months, how Web 3 really accelerates adoption of these things in meaningful ways. So let's just start with the sandbox side, right? So we've seen this kind of decade-long trend towards, you know, game design evolving from a work of intentional creation to one that, you know, is more individual to, you know, how users want to play, like Minecraft is the example here. But, you know, you can also point to Fortnite Creative, like GTA Online. There's many examples of this.

And, you know, some of the biggest titles today started out as like mods of, you know, StarC and other games. And so, you know, when I look at things like loot, for example, take something that's like a pure UGC user-generated content thing or a CCO project like Toads, for example, I'm generally pretty skeptical that any of these things are going to produce like the equivalent of the next Picasso because you need this good balance between kind of top-down narrative and a framing, really like a sandbox for people to go play, like the equivalent of all those blocks in Minecraft. And if it's a, hey, guys, go build something interesting.

Here's 10 words. Like, I don't think you get there. Right. So I think it's a space where traditional game developers who are thinking about the promise of token economies can potentially do some really massive things. Like we have a few in our portfolio that, you know, we highlighted in that deck as being exciting, like build a rocket boy. So here you have, you know, like Leslie Benzies who created Grand Theft Auto, which is now this like, it's produced over like nearly $20 billion in lifetime revenues, right? And he's building this world that combines the kind of

seven part epic narrative, really fantastic AAA gameplay, you know, with this world where there is the sandbox environment, right, for people to take a lot of the lore and the assets in that title and express themselves by creating their own games with that, right? You know, I think those types of UGC environments are going to do better than kind of pure play, go build something interesting. And the potential for tokens then to capitalize on that as like a monetization mechanic to incentivize creators to do interesting things, I think that is one of the kind of core sustaining primitives behind token economies, right? In contrast to let me turn my virtual goods economy into a fungible thing, like, because

that doesn't work 99.9% of the time, as I've said, because of inflation issues, right? Everyone wants to sell their famous, like, to use Vitalik's word sword and world of aircraft, but if you've suddenly made all swords tradable, like the price is going to tend towards zero and no one's going to be happy in that world. So, like, what is the buy side demand for this fungible token? a very good answer is user generated content. And I think we've seen a little bit about this before. Another one of your guys is a thesis that you have is viewer participation.

And I think maybe the first instance of this that I think is relevant to bring up that listeners might be familiar with is Twitch plays Pokemon. That was like a very early preliminary. It's like, oh, everyone just log into Twitch and watch this Ash character that's being controlled by the collective brains of 10,000 people. It was entertaining. But then it was also just so easy to also partake it. Can you guys talk about just the future of this kind of engagement and its role to play in these digital worlds that we're all apparently going towards?

Yeah, sure. I think this has been an observation that we made, obviously back when we started Galaxy Interactive, I think it's increasingly becoming the expectation that people will be able to access these worlds from everywhere and engage with them to the extent that they want. And again, we were talking earlier about sort of leaning back versus even in the gaming world, how passive is the gaming experience versus being able to assert yourself and impose your will on the environment. I mean, we made an investment in our first fund in a company called GenVid, which is, in our opinion, really leading the charge in terms of enabling real two-way interactivity in game engine rendered worlds at scale.

They've built technology. It's middleware technology that allows you to access a game or an experience that they've created from a web browser from any device with zero latency and actually participate as a viewer in the activities of that world. And so you're impacting and affecting the game that you're watching. But in the case of the first experience that they launched at scale was a game, really what they call a mile, a massively interactive live event to capture this idea that they're building things that aren't quite games,

aren't quite broadcast television and our opportunities for everybody to interact in an enormous scale. So they made this game called Rival Peak, which they launched in partnership with Facebook, and it became very quickly the highest engagement experience that Facebook has ever launched. This was part game. I mean, it was really, I guess if you were to check it out, it would look like a game engine rendered version of Survivor, where 12 contestants are on an island. These are all AI-controlled characters. They're on an island. This thing is running live for months.

You can log in and watch from a browser, any place where you can access Facebook. You can experience rival peak and watch the characters on this island, engage in their lives. The AI characters on this island engage in their lives. They've got cameras on all of them, which you as the viewer can choose, you know, who you want to watch. And then you as a viewer can also engage in the content experience that they're having. And if the character you like is attempting to make a fire and you want to make it a little easier for him to get some wood, or if you want to create a problem for somebody else to find food or whatever it is, right? So you're really like in from a spectator's perspective, you are able to impose your will on the space. And it's experiences like that where you recognize that everybody's got a device on them at all times.

again, probably multiple devices, but at least one at this point. And they want to choose whether they're going to just watch and be entertained. And I mean, what Rival Peak did that was so brilliant, once a week, they would cut together the best events from the footage of the week and actually hosted Will Wheaton would host a live show that was very much like a recap show like you would watch in the old, you know, produced version of Survivor, where they're cutting to the content from the week and you're able to come in and watch. And that's where you see what happened and how everybody participated. And then back to the next seven days where you're letting people log in and direct the action to some

extent. And so it's the blurring of these lines that we're really excited about in terms of expanding the total Tam for gaming and the idea of what gaming is. And this is, you know, in some ways, it's just you don't, do you define this as a game? Do you define it as a show? Do you define it? like what is this thing? And that to us is sort of a sign of what people are starting to demand from their content experiences. There's a theme that's going on here, I think, that I want to pull out. And that theme is emergence. And we've talked about this a number of times where Richard, you talked about it when you watched your son and his friends play Minecraft where they didn't have a goal. They just went into Minecraft and things happened. And we are seeing the same thing with that same

sort of like view or participation, at least with I remember Twitch plays Pokemon. The names of these Pokemon were just gibberish because no one could really control the keyboard. And so these gibberish names got named for these Pokemon. And then the viewers started to actually create like songs and wraps and like content around these like weird me-me-names about these Pokemon and turned into like this cult following around what was going on in this very small digital world, which is this one instance of Pokemon being played. And this is why this is both a crypto, and not a crypto conversation, because we've also seen this in the world of crypto.

Not even Vitalik realized that it was the composability of Defi that would really unlock Defi. Vitalik just thought that contracts would be written and then we would use them, but he didn't really think that contracts would interoperate with other contracts to create money Legos. That was something emergent. And I think a lot of your guys' themes,

your 7 to 8 Theses, are all about trying to foster some sort of emergence. Like, we don't know what's going to happen, but it's going to be cool. And that's the same kind of thing with the internet. No one knew what the internet would turn into. But in hindsight, now we do. And I feel like now we're on the cusp of the metaverse. And no one knows what's really going to happen.

And that's kind of the point. Is emergence something that you guys are trying to optimize for with your investments? I mean, optimize for it, at least acknowledge it and not get in its way. I mean, I think if there's one thing that's been true about the evolution of just, say, content, for example, alone, without addressing all the other things we're talking about and finance and the rest of it. But if you think about the evolution of content mediums, for certain, the only thing you know is that with technology, you really can't predict and shouldn't try to put like the format of the content experience that was into the new medium that is today.

I mean, you need to recognize. I think back to like, I mean, I always joke, I spent the first half of my career entirely in old media and traditional. media and everything that's, you know, was then and continues to be in secular decline. And it's, it's like back in 2007, 2008, like that was the era of everybody thinking that, you know, the webisode days, right? If you guys remember that, you were pretty young. But it was, you know, the internet was happening and streaming was possible. And everybody just assumed that you should take a television show and cut it up into three, you know, a 30 minute television show and

cut it up into the three minute bites. And that was going to be what people were going to watch on the web. And obviously it turned out to be something very different than that. And it's the same thing with games. And again, that's why enabling people to do their thing with the tools that are being built now, either at the end user side or on the infrastructure side and the game engines themselves and the middleware that's being built on them, and this is all about ultimately empowering people to build. And by the way, going back to the metaverse conversation, this is super important, right?

Because, again, whether we're in the metaverse today or not, one thing that's certain is for any version of the Metaverse, at least the really interesting versions we want to talk about, they're going to require an enormous amount of content. Way more content. And for any game developer, their single biggest line item is your two biggest line items, like as user acquisition and content creation. And the amount of content that we're talking about, if you want to build a persistent virtual world that people are going to be in all the time and that it's going to feel in any way, shape, or form like their real life, it is way more content than any one company or any 1,000 companies are going to be able to build themselves.

So the only way this is going to happen is via user-generated content and the tools that enable people to make the content and the incentives that enable them or encourage them to want to make it. Yeah. I mean, I think you hit the nail on the head with emergence because, you know, I wrote a long thread on what I think is going to drive long-term sustainability of play to earn economies. And I think it boiled down to a virtual world that mirrors the real world, right? Like that's the ultimate upside case for any virtual currency.

And part of the reason why is the shift, as you were describing, of live content design, evolving away from these works of predetermined creation, you know, where all of the rules and the kind of script is fixed up front to this paradigm where, like, users are feeding on each other to create their own kind of personalized experiences and also encounter the unexpected. It's one reason why I, as I mentioned at the outset, I'm relatively bearish, a lot of traditional mobile game designers in particular and then their transition to crypto. You know, when I went to Slash in Helsinki in 2019, if you use the word blockchain, you would be ostracized, right? Like, you know, it's just giant no-no. And this year when I visited Slush

a few months ago, there's a lot of people who are quite interested in it, but they're thinking about it the wrong way. They're still thinking about it with this lens of, okay, I have a fully design game, I'm like God is Central Bank, I can design all these things. Let's just give players value for their time by making these things fungible. And what you'll inevitably find is the economy doesn't work. And I think so that unexpected emergence and user-generated content is the lifeblood long term of these economies. So when you guys put together these theseses like when you started in 2020, how has the theses changed? Right. Of course, we've seen Web 3, Open Finance, you know, DFI, the metaphyl, the metaphylums.

kind of come into vogue. Has that been the only change? Or like, what have you been right about and what have you had to pivot and adjust? I mean, to be honest, the overarching thesis and the sort of top down, what drove our whole ethos and galaxy interactive and what still drives our big macro invest in perspective is this idea that we are in the early days, but in the middle of an exodus in many respects from the physical world to these immersive digital worlds. And what are the opportunities that are created as that happens. And if we just assume that's going to continue to happen. So that was the big idea that drove all these sub-theces. And we just feel like, if anything, that's just been further validated as opposed to changing. We were wrong for sure about

the timing and order of some of this stuff. I think if you had asked us a couple years ago, even a year and a half ago prior to 2021 being the year of the NFT, right? I think we thought, and a big thing that was driving our portfolio and our investments, was the idea, that if the ownership of digital objects or the ownership of blockchain objects, right, was going to happen anywhere, it was going to happen inside of a game world, mainly because like that's where people already were and where they were comfortable with the idea of ownership of digital objects. There were markets in the games. We thought they would open up earlier. That's where we expected to see scale first around this idea. And obviously, it didn't happen that way. And it happened more in the art NFT and the collectible NFT that was completely detached from any top-down created immersive game. Now, it's coming back around, and I think we were making a bet broadly across the space, and obviously NFTs in both individual projects, as well as the infrastructure that was powering all of this were a big part of our investment portfolios from the beginning. But we had the year of all of these NFTs happening away from

games, and now I think we're going to start to see the launch of some of the games that have been created by really great developers and the emergence of NFTs and the importance of them and open economies inside those games. Yeah. I think one thing that's interesting to me is like we, as Sam was saying, we invested in blockchain gaming. Us and Anamoka were like the two earliest investors back in 2018. But even us, like we viewed blockchain gaming as a thing and then gaming as a thing, right? Mainstream gaming and then all the other feces that had nothing to do with blockchain. And what's been so interesting to me is web three now, I could take any one of those seven or eight DECs and describe to you why Web3 is accelerating those trends. And so I think that's going to be the most

interesting part. Like, I mean, just take culture, for example, gaming culture. We invested in artifact. We were the first check-in to artifact when they weren't an NFT company. You know, they had this idea around digital sneakers. And if you look at their actual first drop, it was hoodies and physical sneakers, right? which a lot of people don't realize because they just assume artifact was always like the supreme of the NFTs space right and so like somewhere along the way this is the group by the way Richard that just did a deal with Nike correct they were just bought by Nike that's right yeah so going through that ideation process with Benoit and Zaphto and all these guys as we were thinking about

hey web3 is really interesting can we use NFTs to accelerate a lot of these themes that we know people care about like that that's what's interesting to me the things that's start off as Web 3 things, pure crypto things, and say, I'll later add on gaming as a supplement. Those aren't likely to work. So I think the core of our strategy to try to identify independently of crypto, what are the societal trends around meaning and purpose in digital realms that matter? And then thinking about how Web 3 might accelerate that was really the right strategy. And one reason why, despite the fact that you do see a lot of speculative hype, particularly around, say, Play to Earn and the whole metaverse sector in crypto as it exists today,

I think the game hasn't even started. I don't even know if we're inning one yet. It feels like the warm-up batting practice part of the evolution here. Can we talk about that for just a minute? I'll just close the thesis part up. And then we have a few other wrapping up questions, I guess, for you. But it does feel like the crypto gaming sector is suddenly hot. It's like Axi Infinities blew the doors open on the thing.

There's all of this capital, all of this money flowing in the space. You guys were here back in 2018 doing this before it was sexy. before is cool, before people, like, they would look at you like you had three heads if you said the term blockchain. But now there's that FTX just launched a $2 billion fund, okay? All crypto game, $2 billion. Okay, that's a lot of money. Now, mechanism capital just this week, another $100 million, the play rate to earn category.

There's so many other things. There's game studios that are talking about it. Are we like overhyped in the cycle? Because I'm catching some vibes from both you Richard and you, Sam, that like, you are, super bullish on this thing long term, but you're seeing some things in like the short term that are not exactly healthy or not exactly sustainable. You tell me if I'm reading into that, but tell me if you think it's overhyped in the short run right now and where we go from here. I mean, I think you are, I think you're spot on. Are there projects today and are certain

themes overhyped perhaps? And obviously we've seen there are a lot of projects out there. that to Richard's point, that if they don't have the fundamental team in place that really understand, for example, how to make a great game or understand game mechanics and engagement loops and how to build a virtual world that people are going to want to stay in and live in and build. These actually are not things that have emerged in the last year with the rise of blockchain gaming. There are things that people have been building and learning and thinking about for decades now. And in some ways, they ultimately come down to how will do the people making this world

to understand storytelling and some of the fundamentals about content that also haven't changed for thousands of years. So for us, the thing that hasn't changed in our approach from the first game studio that we invested in the first fund, our first investment in the studio was Mythical Games. And underwriting a studio like Mythical was all about the fact that there was a team that had proven themselves over decades to understand how to build and ship and operate a great game. And so we skipped a number of, you know, as the blockchain wave happened, we skipped a number of projects that would have been short-term great financial investments, but that we just didn't believe we're being built by a team that we're going to be able to operate something and create something that was going to last. And so nothing about our thesis has changed in that respect. And in fact, I think what's so exciting a lot of what Richard's talking about is we're independent of the short-term hype around this. This is an opportunity now where there, There are teams creating some really, really great things.

And the web three tools that are available to them now and at their disposal to expand their ability to tell a story and pull people into a world where they're going to stay. I think that is the most exciting thing about this. But as you guys know, if you want to jump on a new short-term crypto bandwagon, like every day it's available, at least in the bull market cycles. And then for some period of time, it may not be. But what is exciting to us, like, I'm very certain that we are at the beginning, as Richard said, of decades of tailwind behind this idea of building immersive worlds for people to live in and play in and build their identity inside of it. So that's the stuff that we want to back. Yeah. It's critical to not get high on your own supply in this space.

And, you know, that's obviously in the form of massive, fully diluted valuations to tokens. There are deals we passed on because, you know, like a $30 million seed round in a game studio context is rich. And there are token projects we talked to last year that started off at this level with a deck and barely a team and now trade a 10 billion FDVs. You know, is that sustainable? Well, Bethesda sold the Microsoft for $8.something billion, so I'd say probably not. I think too much is being read into top of book FDV as if that reflected one liquidity depth into what's going to actually happen once tokens unlock. So, you know, with that caveat in mind, I think there's too much capital and crypto chasing

the same themes. Like I would point to the guild theme as a great example of this. Like there's a lot of money flowing into guilds. And no one has ever been able to explain to me what the exit strategy of these things is because it's great to go and buy a bunch of long-tail virtual goods, but what happens when you want to exit and monetize that? Well, I'm pretty sure if you're a guild that matters and you start selling some of these virtual goods,

it's going to trigger a collapse in the price of these things as soon as you want to get out, right? So I think there's a lot of mechanics people need to be careful of when indexing the nominal market to market that can lead you to the wrong decisions. And so, like, the question I ask myself is, can I convince myself that this game, this network, this experience is going to be stronger five years from now than it is today.

And if the answer is yes, and I see a credible path there, those are the things we want to spend our time on. Do you also get worried, Richard, when you see the crowd, like, piling into something? Is that, like, a signal to you to, like, run the other way? Right. It's like, I was on YouTube watching a crypto video or something the other day, and I saw this this advertisement for, like, digital real estate as, like, the next new thing. And, like, I'm in crypto, okay?

I'm aware of generally what's going on. And like, that's not, I don't know the economics behind that, right? Like worries me that that message is going out to sort of normies and they're purchasing all of this land in these virtual worlds. It just feels very topy and worrisome to me. But is that in general a principle we should take away? It's like when you see everyone piling into something, like turn and go the other direction in the crypto gaming metaverse industry?

Yeah, I mean, I think the problem is the cost of admission. to all sorts of projects these days is extremely high, right? Like if your plot of land in your Metaverse costs $15,000 to get in, like you've by definition excluded 99.9% of users that will actually drive value in your economy. Plus all the 12-year-olds that are going to make it way better, right? They have the time. 100%.

Like the risk, if that's your model, is you end up with large corporations who create like the equivalent of the empty shopping malls of Second Life. because no one else has to capital. And your lifeblood of 12-year-olds, as you say, is not in this economy, right? And so the same comment applies to profile pick communities to anything with a high cost of, like even AXE, right? Like it's not free to play. Yes, you have scholarships and all these things, but how painful can you make an onboarding

process, right? So I think retaining some form of value accretion and form of digitally scarce goods, but having insourced mechanics. So another reason why, by the way, I'm skeptical. the guild thesis. I think the next wave of play to earn games is going to have a lot of the borrowing scholarship stuff that you see the big guilds in Axi right now being outsourced. I think that's going to be insourced into internal marketplaces in games and you have the potential for like global arbitrage and labor directly in these games. Right. So this space is

moving so quickly that if you're deploying a hundred million of capital into the existing suite of play during opportunities. Again, that's like investing all your capital before the games even started, right? Absolutely. Also, as we kind of draw to close, have a couple more questions, but got to ask you this, because this was a big news this morning. So Microsoft just bought Activision and Blizzard. Of course, we were talking about Vitalik's World of Warcraft sword. And now Microsoft owns his World of Warcraft character, right, that got nerfed as a classic story. What do you think this means? Is this just another run-of-the-mill acquisition? Is this Microsoft somehow chasing the Metaverse, or is this just kind of a regular course of business

gaming acquisition that they've done in the past? I mean, I think it's hard to look at Microsoft paying, what is it, 45% premium to the share price to buy a company that has quite an active labor lawsuit in the state of California and all sorts of problems with a toxic work culture. Like, Microsoft doesn't do that if they're not making an enormous. statement and bet on on the metaverse theme, sure, but more specifically, the value that is in the Activision IP franchises that can be unlocked as they bring those worlds together in, I mean, the closest comp would be the Marvel Cinematic Universe, the idea that you have this IP that is intergenerational now and undeniable in its importance to culture. And I think they see this as an

opportunity to come in. I think it's also a statement to Facebook directly that like they're coming and it's not going to be just meta in the building of the metaverse. But no, it's an enormously, enormously important acquisition in our space, but also just in the world. And again, going back to that first question you asked, I think it virtually guarantees that continued focus on immersive digital metaverse, if that's what we want to call it. Last question for you guys. So we managed to get this far through the podcast, and we haven't mentioned the D word, okay? We haven't once said decentralization. And I'm curious if you think that's important for the metaverse or for your investment

thesis, right? We maybe danced around it. We talked about the concept of openness being very important, open economies. But is decentralization important for the metaverse? Or is that not really a concept you think that investors will care about, users will care about into the future? Thoughts on that? I think it matters primarily in terms of composability, right? If composability accrues to ecosystems

that people ex-ante feel are going to be decentralized and not get captured by centralized actors, you can build a wide range of marketplaces, galleries, like other ways to display your kind of digital identity in ways that really scale. I think it's much less about, you know, my sword is going to get stolen because like the game's going to turn off the economy. Like it's not bad. But it's a relatively, I think, weaker use case in gaming relative to something like Defi, for example, which has, you know, very good reasons why it needs to maintain decentralization, particularly if we see a regulatory crackdown.

You know, just while we're on the R word there, like, you know, I think that's going to be one of the biggest challenges to the space is how you can engender like real economic value in tokens in the hard currency equivalent without having your thing be a security. And I think like the way the industry is dealing with it right now, practically, is there's the U.S. and there's the non-U.S. and just exclude U.S. people. But I don't think the world's that simple. It's not like the U.S. is the only country with securities laws. And the more of these things look like tokens that accrue real value as a result of the product of centralized actors and game designers, I think the more challenging it gets. Right. So that's another one of your

from back to your Trilema conversation, that's another one of these tensions between, like, exit to communities slash decentralization versus the need to build the great content experience while also giving users value for their time. And it's unclear how that all shakes out. I mean, I do think if you imagine the metaverse version where you're really moving, like if you think of the metaverse being the ability to move seamlessly, like across various content verticals that, like right now we sort of go down a content rabbit hole, that's generally a centrally owned or controlled experience, right? And then we come back up and we move over into the next one and down we go.

And like in each one of those places, we're usually opting into a system where, you know, whoever dug that hole is controlling the monetization of what I do in that place. And I think like if we're going to talk about a really expansive immersive digital experience like people have in mind when we think about the metaverse, at least a strong version of the metaverse, it's hard to understand how that can exist in any form other than decentralized, because presumably, you know, you're going to need your identity and the monetization of your actions and the ability to reap the rewards of going across these different places. It's easier, actually, for me to imagine some version of a decentralized system where I control

ultimately the monetization of what I do in these worlds than to imagine the alternative, which is like massive coordination across all of these different verticals in some way where everybody's agreeing. Like, it's actually simpler for me to imagine that, you know, given we're building the tools for something like a decentralized version of that to exist, it's easier for me to imagine it's just decentralized. And there's participation with the different top-down centralized content experiences along the way, but some control that stays ultimately at the end user.

I also think it's a phasing thing, right? Like, I think five years from now, decentralization in play-to-earned gaming economies can be a really real topic that's super interesting, right? Like which of these ecosystems have a sufficient velocity and quality of UGC that you could arguably exit to community? Right now there's no point in even having that conversation because, you know, as we were saying earlier, you need some, it's almost like raising a baby, right? And like the baby needs to grow up first to have, you know, the wherewithal to stand, you know, by himself, right? And so because the game hasn't started yet, we're not having the decentralization discussion. But I think at a certain point, if our thesis on the space plays out, we will.

Guys, well said, we are in the crawl phase of crawl, walk, run still. It's so very early with the Metaverse. It's been a pleasure to have you, Richard and Sam, to guide us through this. And we're really excited about what's going to happen in 2022. I think we're going to follow it in Bankless very closely. So thanks for walking us through that. Thanks for having us on, guys. This was great.

Bankless Nation. Hope you enjoyed this episode on the Metaverse. A few action items for you. we'll include a link to Galaxy Interactive's thesis and their investments in the space. I think it's a fantastic deck. You can get some good ideas there. There's also been a few other episodes that we've done on the Metaverse on Crypto Gaming, specifically, one from Amy Wu, Web3 Gaming.

It's called Ariana Simpson as well. The Crypto Gaming Revolution will include those as links in the show notes. Finally, we'll include a link to the rant by Asman Gold on NFTs that Richard was mentioning earlier. I think it's very important to check your priors on the. this stuff. And like sometimes we have our crypto bubble hat on everything web three and NFTs are good. Look at it from the existing traditional gaming perspective as well, an actual player. And that'll help inform your ideas in the space too. Of course, risks and disclaimers, all this stuff in the metaverse is risky. Crypto is risky. Eth is risky. Defi.

Crypto gaming items, virtual real estate. You could definitely lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.