Bankless - 199 - Are Crypto Games Making a Comeback?

Episode Date: December 4, 2023

Are crypto games making a comeback? Vance Spencer and his Co-Founder Michael Anderson join us today to answer that question. We did a bunch of episode on crypto gaming last hype cycle – retrospectively, it was too early. But now we have cheap blockspace, better wallets, and games that are fun to play. ------ ✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-crypto-gaming-2 ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2 ⁠ 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask  ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum ⁠ 👾GMX | V2 IS NOW LIVE  https://bankless.cc/GMX 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo  🦄UNISWAP | ON-CHAIN MARKETPLACE ⁠https://bankless.cc/uniswap ------ TIMESTAMPS 00:00:00 Intro 00:07:19 Intro To Crypto Gaming 00:14:00 How Has Crypto Gaming Evolved? 00:17:39 Casual Vs AAA Games 00:21:10 The Current Gaming Experience 00:26:00 What Benefits Come From Blockchain? 00:32:47 Best Argument Against Crypto Gaming? 00:45:29 How Far Can This Go? 00:50:47 IOS and Taxes 00:55:11 Dealing With Regulators 00:59:01 Choosing a Chain 01:04:50 Are Traditional Studios Coming? 01:07:27 What's An On Chain Game? 01:12:20 Blockspace 01:18:58 Can This Pump Our Assets? 01:21:44 Closings and Disclaimers   ------ RESOURCES Vance: https://twitter.com/pythianism Michael: https://twitter.com/im_manderson ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

you're going to see it start out international. You're going to see most of the users in Asia. You can see most of the users in Eastern Europe. And then as you kind of build that side of the game, the labor side, you're going to see the capital side flow in and kind of build the sustainable game economy. And I don't think the question is like whether you can build a crypto game that works. Like there's no rules that say you can. And what we're doing on defy is kind of like an early iteration of a crypto game anyways.

I think the question is, can you build a sustainable economy? 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. The question today, are crypto games making a comeback? So we did a bunch of episodes. Are we back?

Yeah, I don't know. We're going to find out we did a bunch of episodes on crypto gaming last hype cycle. And retrospectively, it was a little bit early, David. But now this time. Front running the opportunity, right? Yeah, I think so. And this time sings are a little bit different. We got cheap block space.

We got better wallets. We've got games that are maybe actually fun to play. We've got Vance Spencer and Michael Anderson in the podcast from Framework. They are investors in crypto gaming. They're on the frontier here. And they're here to make the case for why the time for crypto gaming is now. Crypto games are making a comeback. A few things we talk about.

What's the state of crypto gaming as we head into 2022? Number two, why our guests think now is the time for crypto games to take off. Number three, which chain is going to win all of this cryptocurrency? gaming activities. Is it Solana? Is it Avalanche? Is it an Ethereum layer two? There's actually a pretty compelling answer here. Number four, we talk about this one simple trick to route around iOS store and Google Play Store, our current gatekeepers on the crypto gaming market. And number five, if everything they say comes to pass, the big question is, what does this mean for our assets? What does this mean for ether, for defy tokens, for layer two block space? David, you're sticking your finger in the air,

pointing to the sign up. Why is this episode significant to you? I think just adjacently, the story of framework, Van Spencer's like bull case for Defi. Episode 10, I think with us, really early, was one of the strongest articulations for

Defi, and that's where framework as a VC firm, like, cut their teeth and also made a killing, right? Investing in things that you will be familiar with back when it was super contrarian post-2017 ICO mania, things like, AVE synthetics chain link that just rocketed out of the bear market of 2018 and 2019.

And so this is where framework got their start. And now is a very large VC firm, like a large assets under management, large, like hundreds of millions of dollars. And I think the story of like how Vance and Michael like went from defy and the last bull market into gaming was because that they they had such a strong performance that they were like, well, now we have so much capital and we need to deploy it into a sector. And right now, the rest of crypto is not large enough for us to deploy our sector. So we need something larger to deploy it to. And they came to the conclusion of gaming, not exclusively, but gaming is something

that they have been investing in for their thesis for a number of years now. Because gaming is like a way bigger industry than crypto. And so that could actually absorb some of the investments that they need to make in this space. And now two years later, some of these investments are starting to bear fruit. This is my quick, like, TLDR history of framework from my perspective. And I think it makes sense if when we get to the part of like why gamers in crypto people are like really similar, if you believe that thesis, it makes sense that gaming is the next big frontier for crypto. If that story tracks with reality, then framework will have themselves set up because gamers, like Vance said, they're always online. They're familiar

with digitally native things. They've got technical chops. They've got computers. And so all of these ingredients are coming together if you believe the thesis that Vance Brenzer and Michael Anderson are about to make you very bullish on. And most importantly, maybe there's

three billion of them out there, gamers out there, that could become crypto users. Guys, we're getting it right to the episode, but first we disclose both David and I own some IMX tokens. And of course, you've got to know, Michael and Vance, they are venture capitalists.

So they have a fund that invest in crypto gaming. So of course, they're going to be bullish on crypto gaming, a particular set of assets. Guys, let's get right to the conversation. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange, the way you get into crypto. That is opening an account on Cracken. Go check them out. Cracken knows crypto.

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Bankless Nation, I couldn't be more excited to introduce you once again to Vance Spencer. And also, Michael Anderson for the first time who lead Framework Ventures, long time bankless listeners should be familiar with Vance. We've had them on the show a couple of times. This is Michael's first time on the podcast, but they're both at Framework. Michael, welcome, Vance. Welcome back. It's good to have you guys.

Thanks for having us. Hey, we want to dive into a topic we haven't talked about in a while, but I think it's going to be an important topic. It's gone dormant for a while. And this is the topic of crypto gaming. I can tell you we've explored this thoroughly, though. Okay? And it was probably most like two years ago.

Let me read you some episode titles to get us kicked off here. The Crypto Gaming Revolution. This is with Ariana Simpson. The Emerging Metaverse. This is where the folks said, Galaxy Ventures. Web3 Gaming 101, Amy Wu. The Dawn of Crypto Gaming we had Robby on. What's Real about Crypto Gaming?

This was all like two years ago when it felt like the crypto gaming narrative was like really taking off. And, you know, if you remember that time, Axie was hitting like all-time highs and it had grown from like, I don't know, $10 million in market cap to multiple billions. Since that time, things have really quieted down. And I want to find out from you guys, do games still need crypto? Like, why? Like, what's the story with games and crypto? Has it died? Is it set for a resurgence? Give us the tag. We'll start with you, Mike. I mean, I think the thesis here is really simple. If you, have two games and they're the exact same game, the same game play, the same game mechanics. One of them is in a digital ecosystem like a PlayStation or an Xbox or a computer that we're used to playing

and have been for the last couple of decades. The other is the exact same game played on the exact same venue, but you actually own parts of the game, whether it be your characters or resources or attributes within the game. And you put that up against anyone who's an avid gamer and you say, do you want to play this game or the other game, the one with ownership or the one of without. I think just about everybody would say, okay, if it's the exact same game and I'm going to enjoy it the exact same way, I want ownership. And I think we haven't, what we've been waiting for and taking it back to what you were talking about, Ryan, is, you know, two years ago, we didn't really have any fun to play games. There were, there were sort of like random

number generator based games with two-dimensional artwork. And what's happened since is there's been multiple years, hundreds of millions of dollars invested into games and game ecosystems that have been developing and gestating and are now kind of set to launch. You know, and games are, you know, really, really massive markets, but they're also really hard to build. And so I'm excited just because, you know, we've been waiting and investing and building. And it's kind of time for that to come to the forefront. So, Michael, let me take the skeptic take for just a minute because we started this podcast on maybe a skeptical kind of lens. And I don't think we'll conclude there. But we've got to start

there because there's a lot of questions. You said that if you give any two games, one game, you can sell your assets, you have ownership of your assets. Gammers will prefer that rather than the other, right? That was my thinking too. I legitimately thought this. I think I still think this. And yet we haven't seen that played out because if you call that thing an NFT, right now, we've seen the gaming community kind of rebel against this. I must have watched like an hour and a half long video about how NFTs and games are just like, it's the end of gaming. Gammers like consistently all sorts of threats. I know gamers like to complain, but there's, there's a, a consistent chant of we hate NFTs. So it seems like if you call them NFTs, it might be in trouble.

Maybe there's a branding problem. And then there's also this other, this other accompanying thing, which is like some gamers will tell you, now, if you start monetizing it, it becomes too real for me. And it becomes more like a job. And you actually take the fun. I go to games to escape. These have been two of the persistent, I think, themes from gamers is one is this anti-NFT thing. They see it as exploitative maybe. And another is, like if you inject economics into it, then it becomes like a job. And I start to lose the virtual, you know, escapeism element of my games. So what's your take on that?

I've got to take on that. So like asking the, you know, the people who play or who like go to Kataku, which is like a game rating website, who play like super intense games like Dark Souls or Final Fantasy, asking them if crypto gaming is real or the right thing to do is like asking traditional finance if defy is isn't right it's just it's just like not the right segment it's not the right job to be done the real answer of you know like who's it's it's not about like if crypto needs gaming or if gaming needs crypto it's what users want and i tweeted this out a few days ago but you know when i was early in the mba top shot discord it was filled with people trying to

turn five dollars into ten dollars or people try to turn their time into any amount of money and if you think about like the crypto use cases that we have today like defy is like a power user segment. NFTs are kind of this whole other thing. Games are really the only thing that can fulfill this need of like, you know, I've got some money, I've got some time, I'm trying to play a game, I want to have some ownership. And sure, like the people who play like Gears of War or Final Fantasy, like they're not going to want the NFTs. But the people who are playing Candy Crush, which is frankly most of the gaming market, the people who are overseas who don't have the same access to, you know, economic opportunity, like those are going to be at least the first

cohort of people that try and use these games. And you're going to see it start out international. You're going to see most of the users in Asia. You can see most of the users in Eastern Europe. And then as you kind of build that side of the game, the labor side, you're going to see the capital side flow in and kind of build the sustainable game economy. And I don't think the question is like whether you can build a crypto game that works. Like there's no rules that say you can't.

And what we're doing on defy is kind of like an early iteration of a crypto game anyways. I think the question is, can you build a sustainable economy? And that's kind of like where the discussion gets more nuanced and more interesting. Like I don't think anybody wants to recreate Axy. It's just like financial napalm for retail. It just doesn't work. What you do want, though, is something that looks and feels like a game that you might play where you earn some money, but you also really like playing it.

And that goes on in perpetuity. And that means probably less reflective token economics, but it doesn't mean taking them out as a whole. I think that that's a lot of just what the resonating. with me in the early days of gaming. Like every single game establishes its own economy, right? And there's like the idealized like every you get ownership. You get sovereignty as a player. You have your own assets.

And this is one of the reasons why the idea around crypto gaming kind of took off way back when. I'm wondering if you, I'm hoping you guys can kind of just like download us on the undercurrents that have been flowing in the crypto gaming space over the last two years because most people, including myself, have been largely like tapped out of it. And Michael, I think a bit of your answer. was like, yo, building a game is long and hard.

So it's going to be a while until the games come to market. But I think we're starting to see some games come to market. So if I had been tapped in for the last two years, and I would imagine this space has been dominated by devs, game devs, building dev stuff, doing game dev stuff, how have they been interfacing with crypto? What does it mean to be a crypto game versus our expectations that we were left with post-Axia infinity?

like what are the undercurrents that are being established by some of the game does right now? Yeah. Yeah, I mean, so I think there's kind of two ways of looking at this. There's sort of the financial capital and the amount of money that it takes to actually build the game. And then there's the technology. And maybe I'll start with the tech and we could talk about the financial side. But the tech side, you know, within any ecosystem right now within crypto, within Web3, it's exceedingly hard.

It's much harder than what you're at. average application is, whether it's, you know, you're using it for payments, you're using it for defy, you're using it for any of, you know, the different ETO systems. You have to be pretty knowledgeable about Metamask or whatever wallet solution you're using. You have to be knowledgeable about what network you're on. You have to bridge assets over. It's an exceedingly difficult process, even today and, you know, at the end of 2023. Gamers are not going to be able to put up with this. gamers are also not going to be able to put up with any sort of system where every single time they need to do a transaction on chain, they have to pay a little bit of gas, even if that

gas is one cent or one tenth of one penny. That's just not going to be something that's feasible. So the two major improvements, I would say on the technology side, are account abstraction where you don't actually have to pay the gas yourself as a user. And then having the ecosystems where you're abstracting away the blockchain elements via a unified wallet experience. And historically, you know, when we talk to game developers, the biggest impediment of growth for them or their forecast of growth is what they call the wallet wall, where you get hit with this Metamasker wallet connect type ecosystem when you just go to sign up for the game. It has to be as simple as username, password, email, password, just like every other application.

And so we have solved over the last few years. There are a number of solutions that have gone out and solved this problem, whether it be infrastructure providers or wallet solutions themselves or games who have taken it upon themselves to build these solutions into their ecosystems. But I'd say that is sort of the clearing of the path of opportunity for these games to actually get real usage, actually get real gamers. And then, you know, to take to the financial side, you have to have tens of millions of dollars just to be able to build these games.

And we can talk about it further. But, you know, we're recording this on the eve of when Aluvium is going to announce or going to launch their open beta via the Epic Game Store. I mean, they've spent tens of millions of dollars. and they have hundreds of people building this game of the last three years. There's sort of an opportunity that if you want to have a game, you had to go back two years with all that capital, with all that time and all those people, and build it.

And I think that's just one thing that is a blocker for anybody who hasn't been able to do that. When it comes to games, there's just like a massive spectrum, right? There's like the AAA games that require a pretty fancy GPU built by some of the studios that we all know and love. And I think this is kind of where Alluvium is in the sphere of, like, you know, very elegant graphics with a lot of development time.

And then there's on the other end of the spectrum, the mobile player candy crush. Where is Web3 crypto gaming assets interfacing on this spectrum more or less? Is it like lumpy? Is Illuvium kind of a special case? Is it more to what Vance was talking about where it's further down on the cheaper game

end of the spectrum? if I'm allowed to call mobile games, kind of the cheaper end. Like, where, where's the distribution here? So, Aluvium has a mobile app game that is kind of like a version of like SimCity slash like Clash of Clans. And that's for kind of the casual enjoyer of the game. Then they have the Overworld, which is kind of like GTA on an alien planet, but you're mining resources and your mining characters that you can then play in the arena, which is kind

of like the classic Pokemon arena battle. games are going to start at kind of every end of the spectrum generally. Like we've seen people who are just building the mobile fast casual side. We've seen people who are just building the super intense, you know, like crazy, like Dark Souls, Final Fantasy, like GTA, like Overworld. We've seen people start with just like a TFT battler. I think that, you know, eventually you're going to need all three as a game to address these different audiences and to make your economic loops make sense.

but I think the key thing is just like the IP needs to be compelling. Like if you're playing, you know, a clash of clan or like, you know, let's say Candy Crush with a token, there's not really a lot of expansiveness to that. The game kind of ends and starts like right kind of in your in your pocket. Like there's not anything that would compel you to use or transact with that asset. And in many ways, it kind of mirrors like the birth of Ethereum. Like what is Ethereum? It's a community of developers.

We've built really strong IP around the core values, around the functioning of the system, around the mini games that exist on chain. And that's kind of what I think the best games you're going to do as well. I think, you know, alluvium started from a perspective of like, what would Pokemon look like if it was Web3? And you have, you know, the characters,

you have the mining, you have the SimCity builder, you can loop it all together with the economics. The token is the thing that unifies everything, just like the asset does to the Ethereum network and the developer community. That's what's going to make these games stand out. I don't think it's necessarily the best game wins. I think there's a certain quality threshold

that you need to get to, but the thing that's going to make these things like massive, interesting economy is the IP. And to Michael's point, like, let's think about, you know, whose opportunity this is. You needed to have started building, you know, a few years ago, if you're going to launch in the next year. There's probably 10 teams that have done that. You need to have a couple hundred million. You know, of those 10 teams, there's probably five who've done that. And then you need to actually have really compelling IP in a strong token economic flywheel. Of those five teams, there's maybe a couple. And so I think a lot of our thesis with, you know, how at least Web3 gaming plays out initially

is that there's going to be a huge first mover advantage, just like there was with D5. And, you know, some of that is because you're going to have the ability to bootstrap the economy. But another part of that, which is different than Defi is like the next wave of people who are going to chase you are probably going to launch in like two to three years. So there's going to be like lumpy success in Web3 gaming, but it's going to spur, you know, this like multi-year process of games getting funded. getting built and then launching. So that's kind of how we think it'll play out.

All right. Can we talk about like the impediments or the blocker so far and like just update us on kind of the, again, the last that David and I probably left this was more in the Axi era, right? And you're still kind of playing with your Metamask browser and it was kind of clunky and all these things. Tell me about a modern experience, like something like Alluvium. So first of all, it's in the Epic Store, right? So it's in the Epic Game Store.

So that is much more native than something like Axi ever was from a distribution perspective. And then tell me about like the wallet experience. If I'm just a casual gamer, I just don't know anything about holding my private keys or like Metamask. What's my experience? And then if you could tell us about kind of the front facing experience. And then also like for the crypto native who's listening to this, what parts are actually crypto? So when you said Alluvium has its own kind of asset that's like ETH for its own economy, what is that? in ERC 20? Is that on some layer 2 somewhere? Is that on its own side chain? And we're talking about

like these NFT assets, like where are they stored? Could you just walk through what a modern game like Alluvium actually looks like right now? Yep. So first off, Alluvium is built on a mutable X, which is a application-specific blockchain built by Starkware. And I think this is kind of the example of the abstraction becoming, you know, the real important component of the tech stack. Most people who play alluvium should never even know, you know, what immutable X is or that it's built on starkware. The way that you enter into the ecosystem is another product called Passport that is built by the Ammutable team. And think of Passport as truly your passport across all the different games that are built on the Immutable Platform. And the Immutable Platform has the Starkware instances of the games that are built on top of them,

Olivia being one of them. They also have a ZK EVM instance that they're starting. that they're launching in January, that's where most of the other games will be built. And then they'll have the opportunity for games that get big enough to actually have their own app chains. But once again, this is like what type of database is your favorite social media application using? Nobody should actually ever know that.

They just care about the product and the experience itself. The passport is the unifying layer of value that connects across all of these different game ecosystems. And once again, it's sign up email, password, username, password, and you put my, or value into that passport experience where you can then use that to go off and buy or transact. But in the Alluvium case, you're not actually ever doing anything if you don't have to, if you don't want to. And so I personally play the city builder. I can start playing the city builder without ever having to buy anything or spend any money. I can just start farming resources

and then build up over time. If I want to expedite the process, I would be able to buy something, speed up the building, speed up the process, earn more resources in that process. But that's kind of the normal experience that you would expect with any digital game. If I was to go on to the Epic Game Store right now and download any game, it would be user email, username, email, password to sign up. It would be me putting in my credit card just in the same way that you have with passport, or I could fund it from another source and then start playing and start buying things. So the passport is kind of like a wallet for crypto.

The passport is, exactly. It's a wallet that connects across all the different games within the immutable ecosystem. And we're talking about immutable right now just because Olivia is topic de jour. But, you know, there are other ecosystems that are building, you know, games and, you know, other platforms, other blockchains that have similar type products. Okay. So the experience for the typical gamer is going to actually feel very similar to, like, traditional games then, right? There's not going to be this wallet wall, this crypto learning curve. that we've seen in the past with this generation of games.

Are you saying? No high gas fees either. Like actually was on L1. For a while, right? And then they did their side chain. There was a hack, all sorts of things, right? And, you know, they built the L2, and then they built the bridge. And then the bridge got like, you know, we're like so far away from that point.

Like it was just a complete song show for a long time. And to kind of like the opener that you put to us, you know, you've done all these podcasts about crypto gaming and you know, they were early and we're definitely guilty of that. We were excited about it. But like,

you can't really judge it yet. Like, we haven't seen any games launch. And so, you know, you have to defer your judgment. I don't think you can be bearers on Webster gaming.

I think you can just say, it hasn't happened yet, but we haven't had any games launch and we have all these things, the UI, the low cost blockchains, the ability to distract them away. Like,

the proof points get stronger as we go on. Okay. Now link this. So now the, crypto native kind of understands this, right? So I understand the backing of how this works. It's on immutable, so it's a layer two. You've got this passport thing that's basically like a wallet and you own all of your own assets, whether that's all of the tokens in these ecosystems or the NFTs, like skins and items, all of these things, right? So I get that. Now, for the gaming,

you know, individual who is just like new to crypto, okay, tell me, guys, how is this, why, what benefits am I getting from a blockchain underneath all of them? this. All right? So like, I can kind of get that same experience with, with other games. Like, it feels, I mean, how do I feel the ownership of my own assets? Can I go take these assets and, like, bring them into another world? Can I, like, go onto like Ethereum layer one and like, I don't know, sell them in a uniswap market, like if I want? So now talk to the gamer and what are the benefits of being on a blockchain rather than a central database? Frankly, just the, the, marketplace capabilities of being able to sell these different assets. And it could be, you know,

OpenC where you're selling these and sort of like that style of marketplace. It could be, you know, a mechanism that's built specific for the games that we're talking about. But maybe there's a uniswap pool where you have, you know, a fungible asset or a fungible type asset like resources in a game that you're able to go off and make markets for. But really, it's the same way that we look at any, you know, digital asset that is in your metamast right now or an NFT that's, in your MetaMass right now, it's you have ownership because you have the agency and you have the ability to sell it. It's not, and I think one of the biggest misnomer's and points of confusion is the ability

to say, I'm going to take this asset from one game and bring it into the digital ecosystem of another game. That is such high complexity. That's never going to happen. That's never going to be a value proposition. I think that, you know, being able to, you know, use an NFL character and, you know, I'lluvium, Maybe that's like kind of interesting, but like nobody really cares about that. And so for us, ownership really just means the ability to sell these assets or make a market for them.

And that's how you kind of imbune the sense of ownership. And it's exactly the same way as you would have with defy tokens or any other asset. There's an interesting implication here that I want to get to. And then, you know, I bet David has a bunch of questions here. But it's like, what does that turn a gamer into? Do that turn a gamer into like, I don't know, somebody who's working? Like, could gamers think of this as a job? I mean, you mentioned developing economies and developing countries.

And that was certainly something that was incredibly popular during kind of the Axi blowup days. There were stories of, you know, people in the Philippines who basically made their income from playing Axi all day. But it started to like turn into like a job for many people rather than rather than kind of a game. How do you guys see this fusion? Do you think that that plays a role in things when you introduce economics and the ability to kind of sell things? I mean, that starts to sound a little bit like the real world. And like after all, if we said before, I mean, I feel like maybe life is a game. Everything's a game. I mean, like, what are we doing? I'm going and I'm collecting like, you know, tokens and, you know, currencies and defy. Is that a game? Like, I don't know. This gets

complex pretty quickly. But what's your take on that? Does this shift the time? type of game player and the experience it all when you introduce like real world economics here. It's a similar form factor to Ethereum. Like from a highly speculative economy, we've built something that's sustainable. We've built kind of these mini games on chain, like whatever you want to call DFI, whatever you want to call NFTs. Like we've built the sustainable economy and I'm sure some people do it for fun. Some people do it for work.

But it doesn't kind of work without both of those character types. Like you need people who enjoy it. then you need people who are trying to, you know, get value or get work out of it. And again, it comes down to can you build a sustainable economy? And, you know, one way of doing that is building something around financial services. Another way of doing it is building it around entertainment and consumption of digital assets in a non-financialized way. And so for the gamer, it's basically the exact same premise as traditional gaming. You're going to play a game that you like.

And maybe after everything, you know, it's not. not just you giving the game developers thousands of dollars. Maybe you get something in return. And you can make money on a micro level off of the assets that you've generated. And at a macro level, if you want to buy the token of the game, it's akin to owning a share of a stock. Like, you get a direct upside participation in the game. That's pretty interesting. For developers, it's a different proposition. IDFA, which is the Apple retargeting of ads, which drove most of the business models of free-to-play game developers. That's been killed as of last. year. Most gaming studios saw the revenue trend down 30 to 40%. And there's more competition

than ever because these games are easier and easier to build. So you need some sort of new monetization, even if you can kind of stick with your existing IP, which is what you're seeing a lot of game developers in Asia do. Crypto is just the best monetization known to man. If you can earn, you know, 2% on every fungible token transaction, on every NFT transaction like amutable or like alluvium does, like that gives you a whole different vector for not only monetization, but redistribution via token to the community. And, you know, like, when you get to the point of, like, finger pointing saying, you know, those aren't real gamers, those are just people that are, like, working,

that to me is, like, an immediate indication of, like, okay, we're doing something right. And the initial player base is going to be people from India, people from Asia, people from Africa, Eastern Europe, like, you go in these discords, those are the people. And that's fine. And that'll be kind of the initial, like, if you think of it as, like, labor, if they're, like, working or if they're enjoying it, those are going to be the first people to play it, but they're going to be the earliest participants as well. And I think that's kind of beautiful that in no other gaming function, like, are you able

to partake in the actual game success? And this is hopefully something that's a bit more egalitarian. The only thing I'd add is that I think, you know, in the 2021 era of Web3D gaming, the original sin was that speculation was basically the only thing that you had. And I think that speculation is a necessary component, but it needs to be balanced with a fun-to-play ecosystem, high-quality games, whether that's an alluvium-type, AAA quality, or just something that's really engaging in editing in the way that most digital games are. But the other element, which I think we haven't really touched on, is is it really hard to win?

And if you have the ability to have it be really deep in terms of how far you could take it and how far you can go, that's going to make it a game of skill, or at least closer to skill. and that's where you start to see all of these variables start to coincide in a way that we just haven't seen yet. And so, you know, we've only seen one aspect, which is speculation, and I'm excited for the others. Let me ask you guys' question, David and Ryan, what's the best argument against crypto gaming? Oh, God, you're asking crypto bulls to argue against crypto stuff. The best argument against crypto gaming is, well, I could give you an answer in a variety of different respects. like A, we haven't even figured out like wallets yet.

Like smart contract wallets, it's like, but I guess you could route around that. It's like, okay, you just have a centralized wallet, do all that stuff for you. And then all of it. And then like, then you can take assets later. The best argument, I would say,

is going to be something along the lines of crypto gaming is not, is all going to be zero sum because somebody, if somebody's making money, right? which means somebody else is losing money, which means like how do you really incentivize that? Or like there's no really like flywheel there if it's a zero-sum game. That'll be, that's my...

Wait, wait, wait, wait. Let me address that one. Okay, cool. Ethereum has gone from, you know, what, 50 cents to whatever it is today, $2,000. Right, yeah, yeah. Is that zero-sum or not? Sure.

Okay, so let's go back to alluvium. So how do I play alluvium and do I need to deposit money first? Nope. You can just mine. You can mine. Not even like ETH where you had to buy it. Okay.

So I can enter the game and it's like some sort of like I get some sort of like tutorial like wooden shield and wooden sword and then I like can start and then. But then how do I get money? You can craft things together and you can create new assets. You can sell them. You can partake in in game actions that earn you the native currency of the game. Like there's a variety of ways to bootstrap your account without actually putting money. Okay.

In particular, what that means is you run around in the overworld, the ecosystem, and you could collect or catch alluvials. The alluvials are the characters kind of like Pokemon, if you think of it that way. The other entry point is if you play arena, or if you play X, which is their city builder game, you can actually just start a city, start farming resources, and just sell those resources in the ecosystem to earn enough, you know, capital to be able to go off and buy an alluvial. So there's multiple ways of entry.

Okay, so I can just sell this stuff, but someone's buying it. them. Why are people buying them so they can just get ahead? Because you need those resources to be able to play the overall game at a higher level. Okay. So like, okay, so if there's going to be an economy and like this is, this is also true for games, but before there's financial assets in the games, everyone is just like, I'm, I play Overwatch so I can win and feel momentarily good about that with the dopamine. When there's financial assets, like that, it really ups the ante. of why people are playing the game. And like some people are going to win and it's going to be the same like well capitalized entities,

well capitalized players are going to win more than less well capitalized players because they have the advantage of capital. And so it doesn't like capital just centralized over time and winners, winners, like it's like poker, right? Like all of the small fry come to the table and the big sharks like eat up all the small fries. You could buy your way in, right?

Well, you buy your way in, but like this guild people end up taking all the money all the time, and then it's not fun because all the small fries keep having to shovel out money over and over and over again to play the game. I would argue that what you're describing is precisely the issue of a speculation-only game. You have to have a good economy design that doesn't allow people to pay to win. It maybe means that you're able to pay to, for instance, in alluvium, if you want to pay for something, the main use of paying for things is to travel faster

through the world. And it's like taking the train versus walking there. And that's kind of one of their core economic principles that I think is unique. And we just haven't seen those examples yet. But yes, I agree. In the way that you're describing it, if you can just buy your way in and buy your way to the victory podium, then it doesn't matter. It's not a game. It's not fun. Okay. So there's there's like the PVE element, like the player versus environment element. And then there's PVP, player versus player. And if we keep the monetization to increase your odds of winning versus the environment. We're okay with that?

Your ability to win? In the player versus environment domain. I mean, I think that's okay. You have to have some function for paying for things at some point. And travel is not even in Web 3 games. It's the most common thing that you're paying for. But also look at like Boom Beach, for instance. Okay, you could either spend time and you could wait for things.

to reset for you to get more ammunition or, you know, more lives, whatever it may be, or you could just pay, you know, $4.99 to Apple to be able to upgrade immediately and not have to wait 24 hours for that to reset. Like that is zero sum. That is zero sum. Totally. But those are the types of monetization elements that exist in mobile gaming. And I think, you know, we will start to see and test what these different monetization elements are such that you have a sustainable game economy that we haven't seen yet in a game. Can I throw out some other to your questions, fans?

So what about this? The idea that crypto can often collapse, and I worry about this about Defi, quite frankly, at some level to Ponzi and speculation. So you have these big boombuss. Or you have somebody who is willing to create a game that plays the short-term kind of games, essentially. and you have these like axi style it runs up into the billions and then it just like collapses and just like there's something about human nature and speculation and tokens and prices that just like ruins things and the whiplash is like too harsh right because humans you know we go there's massive run-up we're all feeling great and so many people buy the top and they're you know they're their experience nept they're net promoter score is really low because they purchased an asset that they thought was going to do well

and it lost like 99%. They're very dissatisfied with this. What about this? The temptation of speculation, maybe let's say, the temptation of pondification of pyramid schemeization, like maybe that's a thing that could hold this whole crypto gaming thing back. What do you think about this? I mean, people will do that. People will start outright gaming Ponzi's. I think they might do well for a time, but they won't last, you know, for much longer than that. You'll also have people who build really good games and have really good economic fly wheels. And maybe there's a couple issues along the way, but it's not zero sum. You're growing the pie and you're distributing people who are playing your game. And so there will be both. I also think like if you look at

the traditional gaming industry, especially like mobile games, there's people who spend hundreds of thousands of dollars on Candy Crush and, you know, things like that. And, you know, things like that. in the traditional free to play space. It's pretty sad, honestly. It's just kind of like they're pay-pigging for like these gigantic mobile gaming companies. And so, you know, when you're starting from that position, almost anything is better than it.

And sure, there might be some creative destruction as we go from good games to bad games or vice versa. But like, I guess my point with this question was like, there's no universal rule that says that we can't do this. And I think you just kind of need to bet on like entrepreneurs and innovators who really believe. and like we don't need to kind of just like just believe for much longer like we're going to have proof points in the next couple months so I think we'll hopefully have better arguments in a couple of

months but right now I don't think there's like anything that's super convincing to me about like why isn't this possible like there's no rule of like physics that says it's not so one additional variable here I think you know what's implied with all these different questions is that you're you're assuming that people are having to pay a substantial amount of money just to enter into these game ecosystems. And I think most of the smart game developers recognize that that's just never going to happen. Maybe you buy a subscription or a license in the same way that you had a digital game today. Maybe it costs 20 bucks for a season type thing. But it's not going to be a situation where you're paying $10,000 for an Axy and then it goes down to $5 and everybody feels terrible

and MPS is negative. The sentiment here is games. are now coming to the realization that it has to be free to start. You have to be able to have monetization elements that you be able to earn your way to, but you could also pay for to expedite. And those are kind of the new norms that people are kind of circling around, game developers are circling around, which I think is fundamentally different from anything that existed in 2021, where speculation, once again, was the overriding variable. So to Vance's point, I think, you know, this stuff is happening, like literally tomorrow and for the next few months.

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Follow at SELOorg on Twitter and visit cello.org to shape the future of Ethereum. I think the big questions I have about crypto gaming is more about just like the scope of the success, not whether or not it's real or not. It's more like how far does that realness take it? Because you could have like the very, very bullish scenario versus the very, very bearish scenario. For example, like maybe the most bearish scenario is something like, well, we have online like casinos, right?

Like literal casinos like Texas Hold'em, Blackjack. And then they also take like Bitcoin or maybe stable coins too. And those are like, those are games. And they take crypto payments. And so like we're starting to enter. we're starting to combine these primitives. And then there's on the complete opposite end of the spectrum, which is like something like Ready Player 1,

which is like a straight metaverse and there's digital currencies and there's digital artifacts and there's digital assets and everything is an NFT, everything is on chain. And then there's like different stops along these visions, right? You have like, okay, maybe you have a Fortnite except the skins are NFTs, which is still like asset light, I would say. Or there's like we revitalize the diabolize the diabolize, the Diablo 3 auction house and you discover in-house items except those are NFTs and you can sell

those now for a currency on Ethereum that can go to Unoswap and now we're starting to get pretty heavy. So I guess like the real vision is or the real question is like where along this spectrum do we really end up and can we really get all the way to the full like ready player one fully like simulated economy except it's not simulated because it's real and it's in the Metaverse. Where do we end up here? Let me say this. With every new technology platform for games, you've had a new dominant game model that

takes over. And when it was console-based, you had the depth of Diablo and first-person shooters and things that required real high technical requirements to be able to play those games. When you had mobile, it became fast casual. And that was sort of the dominant game mode. We don't yet know what the dominant game mode will be. And something we talked about with the game developers we talk to on the regular is like,

what's going to be that candy crush moment where it's like, boom, okay, we now see it. Everybody now has to play a book. That's how it's going to work. One of the feces that at least I have is, and something that we haven't talked about yet, is UGC being a major component of Web 3 gaming, where it's not you going in and saying, I've earned this resource or I've got this. I now have ownership over it. I can sell it.

What if you're in there in the digital ecosystem, creating something, creating a template that other people may want to use in that same game, and then you are able to monetize that yourself. You know, you own the template. People can buy it. You know, those are great ways that I think you just haven't seen as a dominant game model yet. But we're starting to see a ton of those types of games employ UGC elements and monetization through UGC elements.

that would be unique. And so that is one possible path for web 3daming that we haven't seen yet. The other thing I'll say is like, you know, to your point of like if it works, how big does it get? I think that's when you need to kind of rely on the data that we have and there's not a ton of it. But Axi had more daily fees than Ethereum in the last bull run for a period of months. It had the most users of any chain. You know, it's still, Ronan at least still has, you know, almost as many as like the lower L2 blockchains. So, like, these things are considerable size.

And the token itself, you know, obviously didn't stay there for a long time, but it was a $40 billion FDV outcome. Like, these things are huge. $40 billion, man. Yeah, but hang on. I want to throw a flag there because, like, why were the fees paid? Well, because the token pumped and people could afford the fees because the token was very, very highly priced because it is a speculative, speculative

mania. So in the final equilibrium of crypto gaming, we can't expect high fees to be paid just because as like these assets have these speculative premiums. I mean, like, look, this is the data that we have. You know, it's not the data that we would want. And what it tells you is that these things get quite large when they get going. And there's a reflexive aspect to them. And so that's kind of like the backwards looking data.

And then the day that we have right now is all the playtest data that's coming in on these games. And like almost unanimously, the retention is like 40, 50% higher than traditional games. Like people come back because they know that they, own something. It's like not, you know, the most like big brain explanation, but the aspects of ownership are compelling to people in a way that represents in the data. And so, you know, I feel more or not less confident as the, as the playtest data comes in, whether or not the game of the future manifests in a similar way to AXE, to your point, I don't think they're going to be paying like crazy eth gas fees. But like the monetization schemes that these things have is considerable. You know,

Oluvium is taking 2% of all fungible and non-fungible transactions. Think about if this gets to be the size of open C in terms of just like transactions. And I think that's like kind of where we think things are going to go. I think the NFT-PFP market, other than like punks and Fidenzes and things like that, I think that's pretty much done. What I do think is coming, you know, and going to be a lot bigger are in game asset NFTs. And if you think about like the theses that were thrown around back in the day of like the unbundle of these NFT marketplaces,

it hasn't really happened because there's been nothing to unbundle. Other than maybe the derivative side with blur and the spot side with OpenC, we're now going to see just like gaming NFTs be their own thing. And it's not going to be monetized by some third party NFT marketplace.

It's going to be monetized by the game itself. And so like you've got the game, but you've also got like this 2% thing that's attached to it that imagine if that starts getting going and you start redistributing to token, holders and it feeds on itself. You can see how it would become quite big. Yes, I can see how it can

become quite big. And if that 2% is real and all of these things do become as large as we hope that they are going to become, you are going to then be faced with some extra obstacles. The smaller of the two is going to be like the distribution platforms, the Steam, Epic Game Store, iOS store, which they're going to want their fee. They're going to want their tax. You know, who else is going to want their tax? The taxman. the actual tax man. And so we're going to start to get into regulatory conversations as well.

How do you guys navigate these conversations? Not tax advice, but anytime you earn income, you owe to taxes on that. Yeah, but what about little Jimmy, who's eight years old, who just downloaded a game, who doesn't know a damn thing about taxes?

He's got an item drop, and it's a taxable event that he's got a file, right? It's like, you can see how this is weird. Jimmy can fend for himself, but, but like, so like the iOS, the iOS point is a good one. So a lot of the games that we see start off as, you know, no crypto in the iOS app store. And then if you own assets and you want to sell them,

then you transfer them to a blockchain. And that's a way to, one, play nice with Apple. But two, you know, you can have, like this graduating onboarding funnel where you say like, cool, you now own the asset in the game, you want to sell, you want to do different things, we're going to take you on chain, a place that is devoid of the iOS taxman.

And just to clarify, if you are onboarding via a mobile device and you're buying something, and Apple has already come out and suggested that this is the path that they're going to do with their guidelines for iOS App Store transactions, you're going to pay 30%. The developer is going to pay 30% to Apple.

Apple is exceedingly happy about this, they'll start promoting NFT-based games. If you're going to be buying a $10 NFT in-game, you're going to have, you know, the developer's going to get $7, basically, but you're still paying $10. And what happens afterwards is you move outside. There's no, there probably won't be secondary marketplaces within, you know, iOS App Store ecosystem, but you're still going to have that same, once again, passport and or connective wallet that connects your mobile device and your web device. And the web will be where you have that secondary market transaction

and everything will live on chain. Wait, so are you guys saying we just have a backdoor here? We just have a loophole here, which is like... We just go on chain. Okay, so basically the game is in Steam or it's in Epic or it's in iOS, right? So like it's deployed there. But we're not exposing any of the kind of the, like, defy type economics inside of that wrapper.

You just hit a button and you like export. off-chain when you want to sell all your assets. And that's just our simple loophole. Checkmate? It's like, Apple hasn't come out and said whether or not they will allow any of the defy elements. Can you sell it via uniswap contract or pool?

Assume that they won't allow that type of stuff. But yes, this is the way that most games are thinking about integrating both mobile and web experiences. I mean, that seems like it could be defensible here, right? because like how how would Apple argue that you can't export your own like metadata off like their platform it seems that that would be a pretty because Ryan their metadata has never

been worth money before I think you can come up with like creative reasons as to why it won't work but right now it works like they're games that do this there's also people who are expander-banting with PWAs and things of that nature yeah there's there's a few different ways you can skin this cat. Okay. So you guys aren't very worried about the gatekeeping of kind of the, you know, the gaming platforms at all, at all. Across the ages, and this data was in France specific,

which is where they started, was a top five game for the last two months. And it's an NFT-based game. Okay. So to go back to David's quite, there's another class of gatekeeper. We touched upon it with a tax man and whatever. Little Jimmy's going to have to download some software to help him figure out his taxes. He'll be 1099.

Little Jimmy is going to have quite the education. But there's another class of regulators out there, and this is kind of the SEC Gary Gensler class. And right now, at least in the U.S., Gary can't tell us whether a Pokemon card, if it's tokenized, is a security or not. Does this put a foil, throw a wrench into the works here? We're going to have a problem with regulators on the crypto gaming side.

Back it up. It's over. No, I mean, like, you know, they're going to, how it's manifested in practice has been that the U.S. game developers have gotten really gun shy. Like, they don't want to launch tokens. They don't want to launch NFTs unless it's like a hundred percent chance of them being compliant. But that's just left this door open for all the international developers who have, frankly, better regulation countries. And I hope our country gets there in time as well. I think it will.

But people aren't stopping. You know, they're not like, ooh, sounds like Gary Gensel doesn't like this. Potentially. We don't even have an answer yet. We don't even know, right? Like, there's a certain subset of people that will stop. And those people probably should not be entrepreneurs.

But, like, nobody really cares. Sorry, Gary. So this gets solved through jurisdictional arbitrage, right? Like, if for a period of time, the U.S. is just very hard. and there's not clarity, then maybe less game development happens in the U.S. and just escapes outside of the U.S. and then the U.S. realizes, you know,

our population wants access to these games and they have to update. Is that how this plays out in your mind? I'll tell you this. 75% of the games we talk to, the number one jurisdiction or the number one region that they're targeting from a gameplay standpoint is Asia or Southeast Asia.

Really? Not even in Europe, not not the U.S. Europe and more so the US is like kind of an afterthought Is this reflected Because of regulation specifically Because of US No no it's because I mean look The biggest games in Asia are pay to win games

You pay $5 more you win the game Congratulations Asia has no problem with this Conceptually America is a huge problem with this conceptually And so it's like you know Wait What's a pay to win game

that's just like gambling, right? That's like a casino is a pay-to-win game, right? It's not like you're gambling against anyone else. So like a good example of how this does not fly in the U.S. is the latest NBA 2K update where you can pay to enhance your player. People threw a hissy fit over this on the internet forums and just like, you know. Because it's not fair. Because it's not fair.

Yeah, people standing their feet. It's not fair. People in Asia don't care about this. And so, look, it may sound strange. It may sound like a different mental model, but it's like, that to me is like a very good sign of there's a market that's largely unseen for what we're trying to build that isn't really comparable to what exists today, but that could be massive.

And like if Axi Infinity can be a 40 billion FDB outcome with only Southeast Asian players, guess where everyone's going to go? Like it's like, you know, it's sad that people are not going to target the U.S. I do think that is changing as the quality of game increases. like most of the Alluvian play testers are Western-oriented just from like perusing the Discord but that's certainly not who they're targeting.

The other thing I'd add to is just in terms of technology obviously Android heavy in all of those regions and Android just has a much more open ecosystem for games and gameplay. Okay. I want to turn the conversation to chains, games and chains.

So like the Ethereum I think stance towards games is that oh every single game is going to want their own chain like give game developers the sovereignty and the control that they have over the game over the chain that there are assets run on. The Salana narrative is probably something along the lines of

games need maximum amount of scale. The Avalanche narrative of which I know games and Avalanche for some reason go together is probably something similar to the Salana narrative. I don't really know. Hopefully you can tell me. But just like what do game devs, crypto game devs think about the chains that they're building on. How do we think about these things? There's a really interesting stat, which is of the games that are still in development that we've

talked to or some of our investors investments are partnered with, something along the lines of like 40 to 50% of the games that are building games currently have not even chosen a blockchain yet. Doesn't matter. Really? And it doesn't really matter to them. What really matters to them is throughput. therefore cost and where assets are or users are.

And so where, you know, that starts to aggregate is whoever has the lowest cost per transaction is going to be something that's really viable for games, but you also have to be able to have people. One thing we haven't talked about yet is there's this massive industry in the traditional games industry or in traditional games for user acquisition. You know, it costs tens of millions of dollars to develop these games. Well, it also costs tens of millions of dollars to market. these games, to have them break through, have them actually get attention from the game players

that they want. And that is something that just hasn't even been around yet. I mean, historically within Defi, this has been like, you know, farming or, you know, if you're in Discord, you kind of have to be in the know. But what we're talking about attracting here is people who are not in these, you know, Web3 native discords, not people who are Web3 native per se. You know, these are people who want to play the game because it looks interesting. And then, you know, you you kind of come for the game and then you stay for the ownership. And that is a totally different model that we just haven't really seen yet. And so, you know, does it really matter where these net new users are going to be from

a blockchain perspective? Not as much as it does, you know, from a D5 perspective, where really security and like TVL are kind of the core metrics. I think there still is like the EVM versus everyone else dynamic. And I would still say that 90% of games we see. are building on some form of the EVM. Most of them, frankly, on IMX, just because they're, like, oriented and focused towards that.

And, like, just to give me an example of, like, where the ecosystem stands today. So Polygon signed a partnership with IMX that basically makes IMX, like the default gaming super chain of their network. But, by the way, IMX is immutable. We talked about immutable. Yeah, it's a mutable organization.

Yeah, same thing. Okay. And IMX has, like, you know, they're extraordinary. nearly well-resourced. They've got like 250 million of cash. They've got like, you know, more than $600 or $700 million of their own tokens on their balance sheet. And it's structured as an equity company. So they have like a large degree of discretion over like how and when grants are given out. And they're able to win a lot of game developers just because like capital for games

is so thin right now that being able to offer like an integrated blockchain, a passport solution that's the UI layer and some grants and some capital to build a game. It's like pretty compelling. Solana, we've seen less games go to recently, just since the foundation is kind of like geared down a little bit on that, just like from resourcing. It's also just like you're on your own island. There's no base chain that's adjacent to you with a shit ton of users or like Ethel 1 that you can do interesting like pack drops or things like parallel has been doing. So that's definitely happening. And then you have kind of like a string of like also rands that are giving out small chunkier grants. But like instead of having like,

200 games like IMX has, they've got like three. And gaming, like, as we all know, is like a shots on goal business, because you never know what's going to hit, and it's a power law distribution when it does. So it's still the EVM's game, 90% of games are building on the EVM. I would say like immutable is probably the one that's been the most focused and concentrated and has won the most. And if you, you know, flash forward a year, like, does this look different? It does because once you start to have, you know, say immutable gets like a ton of users,

on their chain, like, that's just another value problem. Like, you want to launch on a chain with a shitload of gaming users that are willing to try your product, try IMX. And so, like, once the flywheel starts spinning, the moats are going to build. And I think that is kind of the next phase of, like, say alluvium works and there's like, you know, 50 million players, guess where everyone's going to want to launch on Immutable, where they are. Mm-hmm.

Okay. So the immutable is like kind of one piece of real estate for everyone to share. What I didn't hear is any sort of conversation about one chain per game or at least when that game hit scale that they might be interested in having their own domicile, having their own sovereign network. Maybe it's just too early for these conversations. We'll see when a game gets that large. Maybe that's your response.

They will. you know but that's probably like three or four years down the line and it may even be still within the same like iMX or polygon or whatever ecosystem but i think like the job to be done right now is like build successful games once you know we've already seen that like on a long enough time horizon everyone wants to launch their own l2 i'm sure that will happen here too um but like we're just not in that phase of the game quite yet okay okay can you guys um this was another narrative that started to kick off in the gaming, like, crypto gaming world in 2021, which is like the traditional gaming studios are coming, right? It's just kind of like the herd is coming, a type of riff, I think.

I don't think they're coming. Tell me about that. I mean, there's come. I heard there was like maybe two weeks ago, Lance May he was the Roblox CEO. And he said something to the fact of, hey, you know, might make sense to do something on Roblox like an NFT. He actually used that to be an NFT word. So like, but you don't think they're coming at all? Is that not going to be a tailwind for crypto gaming that traditional studios start to play around with immutable and deploying assets and Fortnite skins? You know, like that was the thing in 2021. It's kind of like when Netflix was first coming up, like it was like this streaming enabled player. They were faster.

They were smarter. They had more data. They used all the new technology to their advantage. And they leapfrogged everyone else. And then you had HBO Max that was trying to launch their own streaming. service for like 10 years. And they like launched it once, half ass. They like pulled it back. At one point,

they had HBO go and HBO Max. They like pulled that back. They re-branded his max. Like they're trying to like, you know, compete with all the major streaming players, but they're not even like a tenth of the scale. The people who actually use this technology from first principles versus like, we're thinking about an NFT. You know, what do you think? It's just like, you know, it's like worlds of difference.

So I think it's, um, it's the innovators dilemma always. boys and the entrepreneurs who they're competing against are just like not sleeping you know it's we don't need trad gaming then we just don't even need them i mean look at look at the the past platform shift of you know desktop or console to mobile you know the biggest mobile based game developers are not the biggest developers of games from previous platforms either you know it's not the ubossofs it's not you know the app it's sure they have mobile games but it took them so long because for them it was, how are we going to be able to fit this call of duty game,

this first person shooter, onto a mobile device? Like, it's just, we're going to have to degrade the service so much. And to Vance's point, that's classic innovator's dilemma problem. You have to start from the ground up with the new platform, and that's what blockchains represent. It may be eventually the Ubisofts or the kings of the world or even the Zingas, the Tate twos, they're going to be able to build something that's on chain or integrate to NFTs. But I think they're going to have to be shown what that playbook is.

And it's going to have to be not just one instance of. it's going to have to be like we hit them over the head 20 times before they start to get the picture and and we haven't even started yet you know we haven't hit that candid crush moment so far we've been talking about games that are sort of using the blockchain for it's sort of the property rights type use case and if that sounds so you know to you pine the sky just basically saying the assets whether it's a token a coin of some sort or it's an nfti an item a scan or something like this they're all registered on chain but the rest of the game is just on on like traditional gaming servers

in an AWS server somewhere or something like this. There has been another, I guess, theme that is sort of very indie right now. And actually David's been on the frontier of exploring this a bit more, which is like fully on-chain games. I don't know, David, maybe you should give like an explainer of this, not for Michael in advance,

but for bankless listeners to pose the question of like, what do you guys think about this? But what's a fully on-chain game, David? the way I would define it is just like this state of the game is derived from data that's held on chain. So like when you are looking at your computer screen and you're looking at some sort of visual image of that, it's not coming from a server that is being served to you by like Activision Blizzard. That data of how it's being displayed to you is coming from reading a blockchain. And so fully on chain game like the physics are on chain.

The assets are on chain. The moves are on chain. Like everything is on chain. So it's actually just like the entire game logic. We talk about D5 is putting like business logic on chain. Fully on chains are like all gaming logic exists on chain, which is a completely different endeavor than just like building a game with some assets in it. Yeah, what do you guys think of this?

Is this sci-fi? Is this in your terminology? Are you guys looking at this at all? We've looked at a couple of different, I mean, Dark Forest is kind of like the start of this concept. You know, Dark Forest took down X-Dye because of the amount of throughput. That's it. Oh, wow. Sorry.

This, this, uh, you're always going to be battling with a throughput problem. And I think it could be interesting to have things that, you know, game types or game models that don't necessarily need synchronous throughput as, you know, a core component to make it a fun to play game. Maybe this is like a turn-based game or something that, you know, you kind of, you make your play and then you wait for other people to make theirs. Like there's, there are game models that I think could work. Uh, I also think.

with infrastructure getting faster and cheaper and better, the cost of using, you know, putting something fully on chain is going to go down as well. And yeah, I mean, there could be other things that come up, but frankly, it's not sci-fi, but I think this is probably like way further out than, you know, the traditional game types that are going to be launching soon. Strikes me is like a little bit like Erbit-esque. Like we all need self-sovereign servers because reasons. Like, you know, You never, like, fully get to, like, the why. And I think why we're bullish on gaming is, like, a different reason than, you know, most people are bullish on on-chain games.

We're bullish gaming because there's billions of people who play it. And they look, feel, and act very much like crypto people. And we're not that far. Like, putting it even further away from them doesn't feel like, at least for us, like, the best path. Going to that a little bit more advanced, why are, why are gamers like crypto people? Or how cut from the same cloth are we? I mean, have you ever hung out in a, like, a gaming discord, and they're all screeching at each other for, you know, you really can't even interpret and they're, they're on their computer, you know, they're internet people, they're obsessive, they own digital items, they participate in digital economies, like a lot of- nerds, David.

They are literally, like, you know, somewhere in the genealogical tree, like, there are cousins. And so it just doesn't feel like a large lift to get them in here. It's a lot different than like, I don't know, say like music people. Like music people are cool. They go out. You know, they do different thing. They're not, they don't own digital assets

other than something on like iTunes. Right. You know, it's just different. I mean, one other thing I'd say to that is like, almost everyone I've met in crypto has like, been a gamer like previously or is a gamer now still.

You played Roonscape. You played wow. You play like so many origin stories are from that stuff, including Vitalix. Yeah, exactly. Yeah. including Metallics, yeah. Diablo 2, I think, is the game that Ryan and I share the most just with nostalgia and also with crypto memes. Oh, 100%.

Like the cat, CL 120 or whatever. Like, he's always streaming league. You know, like pop in and watch that. He's playing that with like Ansem and like a few other crypto people. Like they are us, you know? Like it's the same thing. So let's talk about the, let's talk about R bags for a minute. Okay. So like by R, I mean, crypto natives. So I feel like one of the themes lately has been, we've created all of this cheap block space. Now, who's going to buy it? Right? And I'm wanting you to say that's going to be the crypto gamers in the crypto games.

All of these layer two is pumping out block space. Mostly it's empty block space. And in order for the economics of this entire crypto system to work and the promise of crypto to work, somebody actually has to want that block space, actually has to demand it. And, you know, of course, we're ultra bullish on defiles, sorts of other. use cases. But could crypto gaming be the big demand catalyst for our block space? What if the 2023, 2024 version of crypto gaming is maximally successful, what does that do to layer twos and block space? What does that do even to defy? What are the kind of the ripple on effects

in the crypto-native economy, do you think? So, I mean, the biggest, to your last point, I mean, the main, other than Binance, the main exchange for trading alluvium tokens is sushi swap on EFL1. Yeah. And so like, you know, gaming is going to benefit all the infrastructure from ETH that's getting, you know, posted for

data availability and settlement to the actual defy primitives like sushi swap. Like a rising tide will lift all boats. It will be lumpy. Like alluvium will probably have days where it's making more fees than, you know, the L2 that it's based on.

immutable might have some days where like if all the games are firing it's like the most revenue generating blockchain that exists but generally like a rising tide is going to lift all boats and i'm more concerned at the margins about an ecosystem that's trying to create like a mini eith you know we have like a mini defy protocol and like we have like smaller nfts that are cheaper like i just don't think that's like a differentiated use case of block space um and it's also not the same quality as Heath. I think what you're going to need to have to fill all this block space is differentiated use cases.

And so, like, I'm more bullish on, like, a gaming chain, you know, that rolls up to an eth chain. And I'm more bullish on, like, I don't know, maybe even like an NFT specific chain that rolls up to the East chain. But, like, recreating mini versions of Eith, I don't think is a good use of block space. Okay. So let me just unpack what that means. When you said sushi swap was the biggest exchange, like maybe the deepest liquidity for

alluvials, which is kind of, these are the assets of alluvium. Fundable tokens. Fungible tokens. Okay. So these are the tokens, the ERC20s of the alluvium ecosystem. So how does that work, you know, practically? It's just all the activity happens inside of the mutable, you know, chain. And then when people want deep liquidity to actually, like, exchange their alluvials,

then they just bridge back to, like, you know, EFL1 right now. I mean, in the future, that could be an L2 with deep liquidity. and that's where they sell it. And so effectively, what's the knock on effect of that? More consumption of block space for the Ethereum and for Defi and actual use of the defy protocols through these on-chain assets. And that's essentially the upside for everything in the crypto economy is that we've just provided the banking financial infrastructure for all of these games, all of these on-chain

games that we're creating. right like you know for most people defy isn't something that you do defy is something that facilitates something that you're doing you know you want to get an asset you want to get out of an asset it's not like you came on chain to trade defy it's like you came on chain to play a game and there's an ownership aspect of it and a lot of it is like kind of infrastructure-esque so you know like i think about eth and i'm not concerned about block space demand there like it takes like somewhat chaotic of an afternoon to send Guay to 100 for most of the day

in like a semi-bowl market. For most of these other L2s, I just don't understand if you're not vertically oriented with apps, how you drive block space demand because it can't just be a mini version of Euth. It needs to be something that's oriented around gaming or some other consumer use case.

And I think that's kind of like where we net out is that maybe like the generalized L2s of today are not really kind of what ends up being powerful tomorrow. It's like value capture, especially in this space, is so fleeting, where OpenC can be worth $13.5 billion one day. And then, you know, a year later, it's worth, you know, $900 million or whatever it's worth the day on secondaries.

I think you could see some of that happen with, you know, the abundance of L2s that we have today. Only thing I'd add is that I think we're also just sort of discounting the amount of scale that successful games have. And one example is a game that we've been talking to, and they did their initial mint of sort of just like badges as NFTs, that if you're in the Discord or if you're participating in the ecosystem, you get one of these NFTs,

and it grants you access to like the alpha or the beta product as they start testing new features and things. That mint alone was 40% of all transactions in March of this year on Polygon. And that's just one game that hasn't even launched yet. And so you think about the scale of something that just hits a million or a couple million of monthly active users. That's probably more activity than we've seen on chain yet in any of the markets that we've been in over the last few years. Can I ask you guys question? So how many gamers are there worldwide right now?

Three billion play. Billion. Billion? Three billion? There's like eight billion people. Yeah. three billion are gamers hang on

this candy crush count yes yes yes no three billion console games three billion people play a digital game every single month all right so there's three billion

okay yes what what portion of those three billion own crypto do you think I don't know if you if there was a Venn diagram I'm not sure how much those circles would intersect but like crypto is first and foremost

demographic and geographic phenomenon. It's more popular with young people. It's more popular in developing countries than it is in developed countries. I'm wondering if in addition to block space consumption and defy consumption, all of these things is like, or finally, and maybe this is a recycled 2021 narrative. And by the way, all the, the good narratives do come true in the fullness of time. Oh, yeah. The best narratives are a multi-cycle narrative.

That's right. Well said. So we got three billion gamers. and their first experience with crypto is not like buying Bitcoin or Ether like we all thought. You know, hard money, guys, come on. They don't care about that.

It's they've just played a fantastic game. And now they see the value of crypto because they've just, you know, mined a bunch of alluviums. Sorry, mining is probably the wrong term, but they've played hard to earn these alluviums and now they're selling it in crypto. And that turns them on to you, oh, what is this asset called ether?

right and like do they become net buyers of that i mean could am i getting too bullish there or do you think this is really an onboarding mechanism that we haven't tapped into fully yet and and could actually pump our assets guys bring it home there we go just wondering uh my my guess is that in a year or two's time with you know what's to be hundreds of games launching we're going to have 100 million people, net new people into the Web 3 ecosystem with private key ownership, whether or not they know it, I think, doesn't really matter. You're going to have 100 million people on chain in a few years' time. Most of that's going to be driven by games. Okay. Well, let's close this out, guys. This has been a fantastic tour. You've gotten me excited

about crypto games again. I haven't felt this excitement in a good 18 months or so. I would say, I'm pretty excited. It was a last time you played a game, Ryan. It's been a while, David. Let's not get it done. More than 18 months. I have fond memories. I like the, you know, I get to pass the torch to a new generation of gamers here. But so we mentioned Alluvium, right? And that's coming out imminently. Is it available right now?

Like, tell us about the games tomorrow. Okay. So at the time of recording. Today is the 27th of November. Yeah. So we'll get this out soon. So it'll be out by the time you guys are hearing this episode. And so is that the game if you were to pick one game for people to get started,

that showcases the glory of, of cripple? Gaming for Crypto-Natives now? Would it be Alluvium? They should go check that out. Yeah, go check it out. It's the first one that's launching that's like, you know, of the major crypto games, I would say there's like maybe two or three of those. And then there's kind of a whole long tail.

But like, if you really want something that's high fidelity that looks amazing, it's alluvium. It's alluvium. Do you need a GPU? No. Oh. Yes, you do. For some versions of the game you do.

Yeah. For the, for the, depends on which game you're playing. But you need to play it on our computer. Okay. Okay. So that's the game. And then as far as your platforms out there that are kind of crypto gaming platforms,

immutable, is that kind of the biggest one? Are they, you winning the most market share at this point? I would say that it definitely seems to be the case so far. But once the anneluvium is built on immutable, I think that's the start of when we see these games launch and where they aggregate. But immutable seems to have all the technology pieces that. we've been missing the last few years. There we go, guys.

All right. Well, it's an exciting time to being crypto, crypto gaming leading into 2024. We're going to do it this time, everybody. So Michael, Vance, thank you so much for joining us. This has been a lot of fun. Thanks, guys. Thank you.

Appreciate it. Bankless Nation, if you want to dip into the archive and hear what we were thinking about crypto gaming, about 18 to 24 months ago, will include a list of previous episodes for you. I think a lot of those concepts are a multi-cycle, right, Vance? I'm pretty sure. Got to end with this, of course,

risk and disclaimers. None of this has been financial advice, neither crypto, financial advice, nor gaming, financial advice. You could 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 in the bankless journey. Thanks.