Invest Like the Best with Patrick O'Shaughnessy - Gabriel Leydon - How Web3 Onboards a Billion Users - [Web3 Breakdowns, EP.37]

Episode Date: September 15, 2022

Today, we are sharing an episode of Web3 Breakdowns with you. My Invest Like the Best conversation with Gabe Leydon last year was one of my favorites and became one of our most popular. Since that conversation, Gabe has become one of the most interesting builders in web3 that I know so I was excited to have him back to share his views of the space and how it might grow. If you enjoy this episode, subscribe to Web3 Breakdowns on your preferred podcast player.   My guest today is Gabe Leydon, who’s episode last year was one of our most popular ever. Gabe has spent the last 20 years designing video games and is one of the most original thinkers I know. He was the co-founder of Machine Zone, which pioneered free-to-play hits like Mobile Strike and Game of War. Over the past year, he has been in stealth mode building a web2 meets web3 video game company called Limit Break, which is founded on a brand new business model that he calls free-to-own. We dive into his vision for the future of gaming, how it could onboard a billion users onto the Ethereum network, and why the LTVs of crypto gamers are so far higher than their web2 counterparts. Please enjoy this conversation with Gabe Leydon.   For the full show notes, transcript, and links to mentioned content, check out the episode page here.   -----   This episode is brought to you by Coinbase Prime. Coinbase Prime combines advanced trading, battle-tested custody, financing, and prime services in a single solution. Clients have used our comprehensive investing platform to execute some of the largest trades in the industry because they are the only publicly-traded company with experience trading and custodying crypto assets at scale. Get started with Coinbase Prime today at coinbase.com/prime.   -----   Web3 Breakdowns is a property of Colossus, LLC. For more episodes of Web3 Breakdowns, visit joincolossus.com/episodes.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @Web3Breakdowns | @ericgoldenx | @patrick_oshag    Show Notes [00:02:19] - [First question] - What free-to-own gaming means and why it’s exciting  [00:11:40] - Pre-existing behavior that sets up free-to-own for success [00:12:32] - The progression from PFP NFTs to clubs and the road ahead [00:14:16] - Overview of the business and monetization model for free-to-own games [00:17:51] - The story of DigiDaigaku, their mechanics, the drops, and what lead to their creation [00:22:14] - Balancing supply and demand in a free-to-own market [00:24:35] - Creativity and extensions of the DigiDaigaku NFTs [00:26:13] - Tiering, breeding and the role the Genesis series will play in the Digi universe [00:27:32] - The level of brand marketing NFTs will unlock for businesses [00:29:57] - How free-to-own will be the primary monetization method for brands [00:31:21] - A future with a global marketing shift towards digital property and economies [00:33:06] - Why most of the winning PFP projects are of unique characters [00:35:50] - His Twitter strategy and how he’s created such a fervor around him [00:42:40] - What will define the legendary marketers over the coming decade  [00:43:06] - Interoperability needed to make real-world NFT uses appealing to consumers  [00:44:44] - Whether or not we’ll see more token-gated business in the future  [00:45:40] - Stable Diffusion and his impression of the new AI art generating bots [00:48:56] - What great distribution looks like in a digitally native world [00:50:03] - The emphasis of innovation taking place in the metaverse being a bad thing [00:53:24] - Things he most admires in adjacent games and creators in his world [00:54:25] - Unique game mechanics that Web3 technology unlocks  [00:56:16] - NFTs will be the gateway for people to acquire crypto

Today, we're sharing an episode of Web3 breakdowns with you. My Invest Like the Best Conversation with Gabe Layden last year was one of my personal favorites and became one of our most popular. Since that conversation, Gabe has become one of the most interesting builders in Web3, so I was excited to discuss his views on the space and how it might grow. If you enjoy this episode, be sure to subscribe to Web3 breakdowns on your preferred podcast player where you'll find more conversations like this one. This episode is brought to you by Coinbase Prime, an integrated solution that provides

an advanced trading platform, secure custody, and Prime services so you can manage all your crypto assets in one place. Coinbase Prime fully integrates crypto trading in custody on a single platform while giving clients the market's best all in pricing through their proprietary smart order router and algorithmic execution. Coinbase Prime extends beyond individuals, with companies like Tesla and Micro Strategy using the investing platform to execute some of the largest trades in the industry. Coinbase is the only publicly traded company with experience trading and custodying crypto assets at scale. Build a unified investment portfolio with the most trusted name in crypto. Learn more by visiting coinbase.com slash prime to get started. This is Web3 breakdowns.

Web3 breakdowns is a series of conversations exploring innovation in the decentralized internet. Each episode, we will focus on a different topic. We will cover NFT projects, crypto assets, blockchain-based protocols, and businesses being built with Web3 architecture. We will talk to founders, artists, investors, and influencers to understand this emerging ecosystem. Come join us down the rapid hall. To find more episodes, transcripts, and a library of content to continue your learning, visit join colossus.com. All opinions expressed by hosts and podcast guests are solely their own opinions.

Hosts and podcast guests may maintain positions in the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. My guest today is Gabe Layton, whose episode last year was one of our most popular ever. Gabe has spent the last 20 years designing video games and is one of the most original thinkers I know. He was the co-founder of Machine Zone, which pioneered free-to-play hits like Mobile Strike and Game of War. Over the past year, he has been in stealth mode building a Web 2 meets Web 3 video game company called Limit Break, which is founded on a brand new business model that he calls free to own. We dive into his vision for the future of gaming, how it could onboard a billion users onto

the Ethereum network, and why the LTVs of crypto gamers are so far higher than those of their web two counterparts. Please enjoy this great conversation with Gabe Layden. All right, Gabe, so it's been almost exactly a year since our first conversation, which remains probably our biggest hit of the last year. In the intervening year, you've been building a new business called Limit Break. Nor did thanks to you. Harley, thanks to me, and I'm an investor in the business.

Yeah, not just because of that, because of the episode. Well, I hope it had a small part. But we get to revisit a lot of those ideas because you've basically been a learning machine in the year since, building probably more actively than anyone else in the Web 3 space, which is ironic. So much talk and not much building, but you and the team have done a lot of innovating in that world. I think we need to start with this concept that you've just kind of released to the public called Free to Own, one of the key builders and innovators in the free-to-play mobile video game space. And I think you believe pretty deeply that that era might be sunsitting.

And free-to-own as a concept is sort of the next wave of how games are built and monetized. So I'd love you to give Vitreides on Free to Own what it means and why it's exciting to you. Well, it's the next level of free, first of all. I can definitely talk about this subject probably like 30 minutes straight. But first of all, the reason Free to Play took off was because of, of piracy. They were making PC games and Nexon was tired of getting their games pirated. So they said, let's just give our game away free. That was the beginning of free to play. And it was attractive to gamers who had to pay up front for a game. That's why they were pirating in the first place because

they didn't want to. So they said, well, look, now I'm going to just try this. So the term free to play, what it means is is you're free to play it. You can play it whenever you want. It doesn't cost you anything to play it. You just download it and play it. That's a big step in distribution, player sentiment. They're very happy that the game is free. But then when they play the game, they start buying items. Essentially, that's what happens. There's item stores, there's virtual currency stores, and they have to buy those. So the early criticism of free to play was, especially by people who didn't understand it, they said, well, the game isn't really free because you have to buy upgrades inside the game. So it's not really free.

Of course, that didn't really matter to anybody. And now, the vast majority of the business is free to play, soon to be all of it. So the next step in all of that is we have these items in the store that we sell to people and free to play. They're all Web 2 locked on a server and the developer completely controls them. And they decide basically everything about those items. So you have to buy them and then you kind of like hope that they remain relevant. So the next step is free to own, which is essentially an extension on free

to play, except we move what's free a step further. It's not just the game that's free now. You can get virtual items that could potentially have value before you even play the game. So we're abstracting the items that everyone's paying for already. So $120 billion a year of items are sold essentially every year on mobile phones. Now we say, okay, not only is the game free, you can, download it and play it. But before you do it, here's some important items in the game. So now the players have ownership and it's a Web 3 item. It's not a Web 2 item. So they don't have

to pay for the game. They don't have to pay for the item. Now they're incentivized. They're like, I hope this game does well. I have this item. It's a rare item. It's a provable one-of-one item in a game. And if this game takes off, maybe other people will want it from me. I think the simple explanation of it is that we're taking the free-to-play economy, we're putting that on Web 3, and we're giving it out. And the reason why that's so important, and a lot of people in Web 3 criticize say, you know, well, people have done free stuff before. Right. But they didn't brand it right.

They didn't call it a category. They're not saying it's the next thing. They just didn't. So what I'm trying to do here is say, no, this is what's going to replace free to play. And how it replaces free to play is going to be important. possible to just do the same old item store thing moving forward. And the opportunity is, I think I read today there's only 60,000 daily wallets on Ethereum that own an NFT. That's it. 60,000 daily users, nothing. As a result, Web3 gaming kind of doesn't look like a thing. It

looks fake in a way. You have one big game with AXI and it's big. It's had some issues, but they've They innovated a ton, but they've got like something like 800,000 monthly players. It's respectable. And then the number two game has like 10,000. Okay? And the number 10 game has like 100. So basically it's not a thing. It's not a real thing.

Web 3 gaming is not a thing. No, it's not a real thing yet. Not yet. It will be very shortly. And the reason why is because everybody's been saying, do this land sale, buy this land sale, and the land costs $7,000 because that's what it costs. when the game comes out, it's going to be great. And the player is sitting there going, gosh, if the game is really big, my land is going to be worth 30 grand or something.

They're so excited about it versus just giving it to them for free, getting the exact same effect, the exact same effect, but more with them thinking, this is awesome. Like, this could actually be the next big game and I own a piece of this. And as a result, I think we go from 60,000 daily wallets to a billion. very fast, very, very fast. We just saw on Reddit, there was a controversy with their NFTs that they just put out. People are like, oh, we don't like NFTs, but they gave them for free. And it changed the sentiment on Reddit overnight. There's still some people that don't like it.

But overall, the sentiment changed a ton when they didn't have to pay for it. Free to own games are how the world on boards to Ethereum. And once we get those 3 billion gamers on Ethereum, I think the gaming business goes from 200 billion a year to 6 trillion a year very quickly. Why 6 trillion? Because I think it's a 30x, mainly because of the unrestricted nature of the payment rail that we're on. I think you and I talked about this before, but everything is throttled by paper money, $20 bills, $50 bills, $100 bills,

products are designed around those bills, 1999, 4999. The world designs products around these denominations because of the anchoring that was set. Think about when was that anchoring set 70 years ago, something like that, 100 years ago? Who knows? Long time ago. And the dollar is worth 99% less. There's no $10,000 bill, right? That would be the equivalent probably.

Yeah, but people still. think in terms of $20 bills. They do. It's very important to have skews at 1999. Anybody who makes products will tell you that. 99, 99. So Ethereum is a huge reset on all of that. Now it's one-eth, 20-eth.

You see all these people talking about it this way. It's a different way. It's a different way of thinking. Also, the big change, the obvious change, I don't know if it's so obvious, actually, is if you go to the App Store and you make a game, the biggest in-app purchase you can do is $100. And that's limited by Apple.

Google also just copied it. Said, okay, we can only do $100. Yet you see these board apes selling for $2 million. If you take the average person and you show them an item in a game and you show them a board aid, will they be able to tell a difference? No, they won't. All of that behavior that you're seeing on Ethereum with profile pictures is crazy, like $500,000, $2 million,

whatever. All of that behavior is preexisting behavior. None of it is new. It's been around in games forever. People have been spending tremendous amount of money in games forever, more than they've ever spent on a board date or whatever, like a lot more. But they did it through credit cards.

They did it through in-app purchases. Ethereum is kind of the equivalent to a wire, an instant wiring system, except with a different currency with Ethereum. and it allows people to kind of express their behavior, their pre-existing behavior in more upfront ways, like what you see with the PFPs. And I think it's super important to recognize that none of this is new.

None of it is new. It's been going on in games for 20 years. I've seen it up close. It's not new. Except now we have the ability to kind of give you ownership of that item, which is super important. and the potential for desire for the item is worldwide. Everybody in the world could want that one item that is provably yours.

What does it go to? A billion dollars, a billion dollar NFT. It's hard to imagine, but what is it? 500x more than what we're already seeing? We already saw 70 million NFT. We're like 14x more than what we've already seen with only 60,000 active wallets. Is it really that crazy? can you just clearly define the pre-existing behavior that you referenced that you've seen before?

I want to make sure, like, we fully describe the thing being tapped into. People are willing to spend a lot of money on virtual items. They're willing to do it. They love it. They like it. They do $120 billion every year on their mobile phone. And if you show someone an NFTE and you show them the item they're buying the game, those people won't be able to tell the difference.

But if they understood that one was property and one was not, they're going to prefer the property. obviously. And there's a lot of pushback in the gamer community around NFTs. You've got to remember, like that $120 billion is generated probably about 8% of the people who play the games. It's a vast minority. And there's nothing anybody can tell me that would convince me that those people don't want an NFT. Why wouldn't they? Can you say a little bit about this progression in the world of NFTs from PFPs, which is, we'll just call that, like the board aid category, to what you're calling clubs. They were kind of like the second version. Cryptopunks, maybe it was V1. Yeah, Cryptopunks would be like a PFP, version one, very early NFT. And then version two would be

what we kind of just went through, which is a lot of non-technical teams making NFTs and then getting a big audience around them and frankly, not knowing what to do. Having all this capital and just like sitting on them. Yeah, and they would like just send people stickers and stuff. So they just literally they would send you a sticker, a t-shirt, a fanny pack, and they would say you're part of the club. You got the fanny pack, you got the sticker, you're now a part of the club. But I kind of just see that as what I would do if I didn't have any engineers either. I also do that.

But I think that phase is going to quickly go away and move into more, this is all software, it's all virtual items. So there's a lot of unique things that you can do online with an NFT. if you have a serious engineering team that is building new solutions. And of course, all these things are going to plug into games, and they'll be interoperable between other games. That'll be what NFTs are mainly for, like moving from one virtual universe to the next.

Limit Break is kind of pushing into that. My new company is pushing into that version three, which is constantly updating, always adding new features, creating new technology around the products. That's where I think everything's going. So NFTs are about to get a lot more exciting now, too, because it's not just about getting a T-shirt or whatever. You can actually be able to interact with lots of different software with your NFT.

I want to get much deeper into that interactivity and what you've already done with the Digi NFTs. Before we do that, I just want to talk a business model a little bit. So as I understand it, obviously one way to do this would be the land sale. You make seven grand a sale. The company makes a seven grand straightforward. No, they make like seven. $70 million in a day.

I mean, per though. And that's been pretty normal. I think it's actually been the biggest reason why Web3 games haven't took off because it was normal to make $50 million in a day or $100. And it didn't just happen once. It happened, I don't know, maybe 100 times. So there's something there. If you can do $50 million in a day 100 times in an industry with only 60,000 people,

really, maybe $100,000 at the peak, there's something there. but it's not going to exactly bring in the masses. We were talking about one example of our text, six months ago or something. And I think my response is like, it's so fucking dumb. And you were like, Patrick, how many times do you need to see this before you understand the potentially? It's a tiny number of people with a crazy amount of money. It's not something that happened one time.

It's something that happened a hundred times. Yeah. In terms of onboarding billion people, not 60,000 people, the role of free is critical. But then the business model gets pushed further down. So as I understand it, it is ongoing participation in the transaction volume, the dollar transaction volume for the company. So we're building free to play games, mobile free to play games. We can't do Web 3 on mobile yet. Do you think it'll eventually happen, but not yet.

You have to build a bridge, first of all. So you have to build free to play game, high quality, something that you can distribute worldwide, mobile, free to play game. That's the only way to get scale. And you have to build a specific crypto version of that game to bridge those players over. In the browser? No, there's PC. AXE has two-thirds of their traffic. It's on side-loaded Android apps.

Honestly, I think Android is actually where a lot of the action is going to be, the Android and PC Mac. All right. So we've got this model where you're building a traditional game that you've obviously spent your career building, traditional mobile, traditional free-to-play. And on the other side, building this set up NFT, heat projects and almost like a game embedded in the NFTs that we'll talk about with Digi. But the business model for limit break is twofold than it sounds like. The first part is traditional free to play. The second part is participating in some of the transaction dollar

volume or ETH volume on the trading of the NFTs. What's exciting about EIT is it's programmable. When I work with in-app purchase Google in-app purchase API, I can't really do anything with it. This is programmable. So we've got a bunch of stuff coming that just hasn't even been done before. We just did something that works with the existing system, but there's no reason not to make new things. So there could be new token types, new business models. This is all programmable stuff.

So it's a mistake to look at Ethereum and say what it is today is what it's going to be. That's a huge mistake. You can do pretty much whatever you want. It's an imagination problem. I think it's a lot of the reason why people discredit Web3 is because, one, they don't really know that much about it. Two, they don't consider the programmability of it, what you can change about it. They kind of just think about, well, here's what I would do with my existing game,

and here's how I would put it on it with the stuff that everybody else does. And that's not right. That's not the right way to think about this at all. It's a lot more exciting than that. Can you tell the story then of Digi, how it was conceived, why they look the way they do, what they are, how many there are, get into some of the mechanics, the drops that you've done since. as much of the story, I think, as possible would be fascinating to people. The first thing that we thought about, we made the Digi series was I'm particularly obsessed

with Japan and wanting to be number one in Japan. Japan is the best gaming market, period. They consume games like nobody else in the world. Everybody wants to be number one in Japan. It's very, very hard to do as outsiders, for sure. you definitely have to kind of adopt their way to an extent of how they play games if you want to do well there. So that was number one. We would say, okay, anime is becoming a universal art style that is accepted everywhere.

There's not that many art styles that actually scale worldwide. There's the American photorealistic style that we're all used to. There's the Nintendo, anime, Partoonie Partoonie look that's been accepted everywhere. Chinese games, they tend to use a lot of Chinese history in their art. That's a big reason why it doesn't scale.

So, like, Genshin Impact is made in China. It's the biggest game, but it looks Japanese. It's made in China. Korean games kind of have like this Korean fantasy look to them, too. They usually have trouble scaling out. And European games just look like American games. pretty much. So you talk about, if you want it like a billion people to play your game, there's really not that many looks that get a billion people excited. You're between,

in my opinion, kind of the Japanese art style and the American photorealism. So that's why we pick that. We're really going to focus on Japan. We did 2022 just because it matched the year, but it was more about being a small collection. We wanted it to be very, very small and exclusive. Not 10,000. Could just be a very, very small group of people because we wanted to really get those people excited about what we're doing at the company and have them enjoy the ride along the way as we get to releasing games and stuff like that. Just have like a smaller fan base. We wanted people that were more intimate type of thing with just really hardcore fans of limit break. And then we of course released it for free, which is not new.

people have definitely done free before. We did it on purpose. They are very different than what's been done before. But we gave it away for free and they were really popular. As a result, we had an instant community built around us by doing that instantly. And there could have been more efficient ways to build that community, definitely. We're going to keep getting better and better at that over time. The people who got those for free are like so excited about us.

really excited. They look at everything we do. They want to be on the Discord. They propagate it. Yeah. And that's the point. It's like, why wouldn't you want an army of people making memes online all day, using your stuff as profile pictures, promoting the things that you do? Because like, look, the biggest problem in video games is that 99% of them fail. 99%. It's probably worse than that free to play. It's probably like 99.9%. And the number one reason why they fail is because nobody knows about them. That's the number one reason why. Nobody ever hears about them. They're not good at marketing. They don't have any money. It's not differentiated enough. And it could be like a great game. If you played it, you're like, oh, I like this game, but it just never takes off.

That's what happens to almost every game, but literally 99% of games come out. So why wouldn't you want to take some of your in-game assets, give them away for free, rally a community around a developer, have them waiting for you, whatever it is that you do, have the people who didn't get for free asking for the next thing that's free, because there's a ring of those people, too, that are just like, I wish I would have got it. Will you do it again? Just get everybody excited about what you're doing. Frankly, that's the hardest part about making a game, is getting anybody to even care about what

you're doing. And that's why free to own is going to destroy free to play. That's the real reason why. It's because people care because they have ownership of the things that you're putting out for free about whether you're successful or not. How do you think about the future of the supply demand balance? If everyone agrees that free to own is the future, why doesn't it just face the same problem of in a sea of free NFTs? No one knows which ones are which. Absolutely. There's going to be tremendous competition. But in the meantime, free to place dead. And I don't mind that. I'm like a wartime CEO. I don't mind going to war. And by the way, one, I'm very, very good at making money on free apps. I'm maybe one of the best in the world at it. So I have no problem with that.

Let's all compete on that. Two, there's not many people that are good at it. So as we push the market that direction, yeah, there'll be a lot of people doing it, but there won't be that many people good at it because it's very, very hard. Three, the existing people that sold their land and made their $70 million now, that's an anchor around their neck. I'm sorry, that era, like, yeah, you made a lot of money, but that's not where we're going. Where we're going is a sea of free NFTs with three billion people with active wallets because they got their NFTs for free.

And some of them might be valuable to someone else. I don't see it as an issue. It's actually net positive. If everybody started giving everything away for free, what would happen to Ethereum would be insane. In my opinion, that's what's going to ultimately make Ethereum is free NFTs. In my opinion, that is the core use case of Ethereum is NFTs. It's the thing that can scale that everybody will end up having. Ethereum is that medium of exchange between all of those NFTs for everybody on Earth.

So I don't see it as like a currency or a D5. platform or whatever. It's an NFT platform. And everyone's going to have one and everyone's going to want one. And yeah, there'll be trillions of these things and most of them will be worthless. But what's the intrinsic value of an NFT anyways? Zero. The gas cost, essentially. One, why would anybody turn down? And two, there's going to be some that are very, very successful that people are going to desire and want despite the fact that there's trillions of them. Can you talk about the creativity behind the extensions of the original Digi collection, you've already rolled out Spirit

and some other things that sort of programmatically combine with the original assets. I think others have done small versions of this, too, Port Aip's did too. But talk through the creativity here and the purpose. The big thing is we're trying to connect to Web 2 between Web 2 and Web 3. We did this adventure ERC721 token, we call it,

essentially allows you to lock up, I'll say, your token, your NFT. and when you do that, you can secure it and then give your token, your NFT permissions to interact with another app. And that other app could be another NFT game, another Web3 game or another Web 2 game. And now you have the real beginnings of the Metaverse. It's not that every NFT works in every game, meaning it's all rendered. Like one gun word, it's like the next game. It's like, no, no, no.

It's about NFT is having permission to go into it. to different worlds and then having that world set up an event for those people. The Digi people, they lock up their token. And then another game has a Digi event. And the only way they can get into it is by giving that NFT permission to go into that event. That event gives them rewards, NFTs, whatever, the event ends. And then the permission ends. And now they're back in the Digi world.

So that's how I see it playing out rather than just everything accepting everything. It would be more about worlds connecting with each other. And you can create much better experiences that way, too, because it'll be more customized experience than popping in and out of every app. Say a bit about the tiering and the fun aspect of, I don't have a better word than breeding some of these NFTs to create new things, like the royal class versus some of the others. The Genesis NFTs, we call them Genesis,

because they create the world, essentially. So we have this very small group of people who are generating the next set of NFTs, the heroes. That's essentially how we've designed the system to work, is that these Genesis NFTs make the future NFTs. As we expand into other worlds and we make our universe bigger and bigger, those NFTs will be better over time, hopefully. So that's essentially the idea. And they still have a very hard to talk about. Future work is very, very hard to talk about because of the way. the legal system here is in the United States, want to have people collect those Genesis entities,

and we want to make them special, essentially. And that's the reason why they're making the heroes and only them. We could have done another free men, but we're not. And is the idea that the holders of the Genesis characters could then control the destination of the things that are created from them, meaning they could sell them, they could. Yes. So they're the propagators.

Yes. Yeah. They're my advocates. And the more interesting things that we do together, the more they're going to advocate for what it is that we're doing. One of the things that jumps out of the conversation so far, you had talked about a year ago, seemingly jokingly that coffee shops would be selling NFTs. And sure enough, that happened kind of crazy. It seems like there was an era, and I think MZ, Machine Zone was one of the most, if not the most sophisticated performance marketer back in the era of extreme targeting that's changed. that's changed now.

And it seems like NFTs are a chance to unlock brand marketing again versus direct response performance marketing. Can you talk about that? Of course. You have these virtual items that cost you nothing to make. Nothing. And they're tradable. They're limited in supply.

You can save it forever. You can give it to a friend. You can put it on OpenC. Why wouldn't you be handing these things out everywhere? Of course you should be. It just makes sense. And that's why I say free to own. So like when people say free to own, like, oh, that sounds like play to own.

Yeah, but play to own implies I have to play it. Play to earn implies I have to play it to earn. Free to own is you just, here, it's free. Now you own it. People discredit how important the messaging is, the branding, the messaging. I'm really pushing it. And other gaming companies have already adopted it to be, which is amazing. Because it's obviously true.

when they say my game is free to own, they get thousands of people saying, give me a free NFT. Isn't that what a game needs? Don't they need thousands of people paying attention to it and hopefully millions? So to me, this is so obvious. Sometimes I wonder why I even have to talk about it

because it's so obvious. I put it out there. It's like, well, I'm right and I won. There's like a death blow. It's just like, yeah, it's over. This is it. This is how it's going to be. And it upsets a lot of the people

who made hundreds of millions. millions of dollars selling NFTs. Because now it's like, uh-oh, people are going to want them free now. What do I do? It's like, yeah, you can't just give them stickers anymore. You're going to have to work harder than that. Can't they update pretty quickly, though? Technically, they could.

The console guys couldn't move over to free to play. They all got smoked every single one of them. The skills that you need are not, you don't just decide that you're going to start doing this stuff. You're going to have to really try to figure it out. You can. You can figure it out, but most of them don't. Do you think that the free to own NFT concept becomes a primary monetization method for other large brands?

Make up an example, Kanye West. Yes. Maybe he doesn't have an army of engineers. Everyone will need one. Will that then become his method of fan monetization? It's going to be everybody's for everything. It's kind of like saying, do you think people are going to use coupons? Everyone's going to use NFTs, everybody.

There's going to be trillions of these things. They're going to be everywhere. This is going to be so annoying because they're going to be everywhere. But as a result, you're going to move a lot of consumer spending from credit cards to eth, and it's going to be crazy. It's going to be something like nobody's ever seen before. So that $20 limit, everybody designs products around, goes away. Things just change in a really big way.

Ethereum is the real metaverse. It's the digital world blending in with the real world and these digital products unlocking things in the real world and vice versa. So yeah, everyone's going to use it. It's like the new email or something like that, the new mailer in your mail, the new countdown timer, the new sign up for when this thing comes out. That's what it is. We already see car manufacturers use it, clothing company.

Like everybody uses it. It's going to go to everything. It's going to go to, like I said last year, coffee shop, 7-11, whatever. I was thinking recently about the interesting marketing strategy of what I would call the equivalent of a concept car. that Mercedes might invest, God knows how much money to create some, not production, but incredibly cool thing to expand people's mind and to build their brand. That is fundamentally an investment in the brand, not in selling the next S class or something. Talk about that more writ large

beyond gaming. Does this mean that the whole world's marketing spend is going to shift more from Facebook ads to spectacles that expand people's brand impression in a sort of general but not specific way. But you can move that spectacle into digital property now. You end up with these interlocking digital ecosystems where the NFT forms access from one place to the next. And that's very, very powerful. And if you're not a digitally native designer like business type person that thinks about virtual economies and how these things work, you're going to struggle. It's going to be really hard because it's not going to make sense to you. But I can see entirely new brands building extreme brand loyalty through these entities and getting everybody so excited that they want to go to the thing that replaces Starbucks.

They prefer it because they're part of that community in a more meaningful way than just an email sign-up list or a push notification on a phone. Like I said last year, I don't think it happens overnight because there's not enough people that understand this stuff, like how to even think this way. But if you're a young person, you're going to want to think about media, any kind of consumer good, experience service, and thinking about how do you integrate NFTs into those things and create a loyal community around your business or product. This may be an overly specific question, but it seems as though so far every one of the really successful and enduring NFT projects is like an actual person character or some sort of anthropomorphized. ape or it's people-centric or character-centric. What's going on there, even something like loot, which was a flash in the pan, going away? It was free marketing on social media. People use those as PFPs. They called them PFPs. They didn't call them JPEGs. They called them profile picture projects. Right. You could have just said image project. But it was important that they were called

profile picture projects because you would buy them and you would make it part of your profile. then other people would see it and say, oh, I want one of those, but there's only 10,000 of them. So essentially, calling them PFPs was the thing that made them big. Otherwise, they would just be drawings. That was important for NFT 1.0. That was the marketing. NFT 2.0 was join our club. So it was like a PFP plus a club.

It's not just a PFP. It's also a little bit more. We'll send you a pack of stickers or something. Something like that. And then the third one is a more interoperable virtual experience, which is where we're going through gaming and through crossover gaming and all kinds of different things that we could do with these things. But it's more software-driven, modern approach to Web3. Do you think we'll see success away from characters when we studied magic?

I think the most expensive magic card was a black lotus or something. It wasn't a character. It was an item. There's been a few. There's been a few key. They function as keys that have been successful, very successful. Like proof collective keys, they sell for like 50th or something like that. And those are like membership NFTs. Those have already worked several times. Not as frequently as PFP projects have worked.

Memberships have worked already several times. So they'll continue to work. And then for items, the reason why you don't see Black Lotus is because there's just not a big Web3 game yet. Just why. there are mystic axes and Axi Infinity that have sold for nearly a million dollars. We've seen some of that. And an Axi isn't really like a PFP style drawing, I guess, image. It looks like a character.

And that's worked. So my rule of thumb is if it's worked twice, it's going to work three times. If it's worked once, it'll probably work twice. If something's worked 100 times and you don't get it by then, you're just never going to get it, probably. And then someone else is going to make a billion dollars and you're going to say, why wasn't that me? You're going to say, how come I didn't do that? One of the most intriguing things to me watching this and sort of having the benefit of

a combination of the inside and the outside view is watching your Twitter strategy. On a relative basis per follower, you've got like a crazy amount of fervor happening around you. I'm just curious to hear your thoughts on it. Like, why have you created such a fervor? and how much of it is intentional and strategic versus just kind of messing around? We announced limit break two months ago and nowhere really paid attention. And we kind of purposely did it that way.

We didn't make a big deal out of it. We didn't do any press. We just said we got these investors. Just left it at that. Nobody really paid attention to it. Then we did this venture beat arc where we announced that we raised $200 million, which is a lot of money. I knew we were going to get a lot of attention that day.

So I decided to spend it on going after paid mints essentially and say, okay, well, I'm going to have everybody's attention today for today only. And I probably didn't do it in the most artful way. But it definitely worked. But I said, all right, I'm going to end paid mints today. That's what I'm going to do. I'm going to try to level set the industry in my favor, which is free, something I know how to do. I don't have a big fan base like these other guys do already. They'll still be able to. They'll be able to put out another mint and make another $50 million, $100 million. They'll be able to do that

for a while. But not forever. Honestly, I think a lot of people were cold water, basically. It's like somebody raises $200 million and you kind of expect them to say, come work for us. We're really cool. And I said, no, this is over. I couldn't have predicted response. I would have got. But the reality was, I was right. I learned a hard lesson is that NFTs haven't been doing well lately. They don't exactly want somebody new coming in saying, this old way is over. They want their old NFTs to do well. That's not a very popular message if you're kind of holding some stuff that you wish would do better. But over the weeks, like I said, I've already seen a dozen companies adopt strategy. And I've had a lot of people privately message me and say, I wish we did into the pavement.

I wish we would have done it for free. It's better. I know I'm right and I know it's right. And I know it's inevitable. So I kind of just like leave it alone now. Kind of push it, but I won't push it too hard. I had one day to kind of change things. That's how I saw it. I had one day to do it where everyone was going to see what I was talking about. $200 million is such large number. Like everybody's going to say like what the hell is going on. Right. And ultimately, Like I said before, this is how we get 3 billion people on Ethereum. I want the 60,000 people that own NFTs that are using Ethereum every day to own my

NFT. That would be great. But that's not where we're going. That's not where we raise the money that we raise. That's not why we're building what we're building. We want hundreds of millions of people, not tens of thousands. And if we achieve that, we'll be the biggest gaming company on Earth by far. I won't even be close.

To me, as someone who's been doing this for 20 years, I know I'm right and I know it's obvious. I know I'm going to have a lot of competition, a lot, because they're going to see it work. I already know there's several companies just getting ready to just try to eat us alive. I already know that's happening. Is that why the $200 million? Is functionally that effectively a defensive raise?

No, it's opportunistic because the LTVs of a crypto player are so insane in comparison to Web 2. Look at it. A few thousand people are willing to spend 50 million in a day on a land sale. That does not happen in Web 2. That is impossible, actually, literally impossible on Web 2. There's no way to do it. It would never work.

Even what Kevin Rose did with Moonbirds, he had 10,000 moonbirds that he sold for $7,000 a piece. Oh, what? first of all, in a game that's impossible. Let's keep that in mind. You actually can't even do that in the game. There is no gaming platform on Earth where you could do that. You can't do it on console.

You can't do it in mobile. You can't even do it on PC with Stripe. They're not going to let all those purchases through. You're going to get chargebacks. So you literally can't even do it. So you have an art collection membership thing that they're doing at Proof at 7,000. thousand apiece. Okay.

So if you're a business, that's pretty cool, right? Like you're making a business and you're looking at that as like, geez, that's amazing, right? So the old trad,

fintech stuff is kind of irrelevant in comparison. Why would I ever even want to make something on credit cards if I could work on E? I'm pretty influenced by Mark Finkis. We were very young kids competing against him in 2008, 2007. In the early Facebook days, he was the only one who took it seriously.

And he would go out and say, I'm going to raise more money than anybody. I'm going to do more marketing than anyone because this is going to be huge. And the people who you're competing with were kids like us. And we were just three of us in a room. And it was kind of like, what? It was almost like Zinga's going to win, guaranteed going to win. That's how it felt. That's why we made an iPhone game.

Zinga was so dominant already that we were like, well, they're not on iPhone. So let's go do mobile games because we started on MySpace. And we thought about going to Facebook and we just thought it was pointless because Zing is going to win. And they were right, actually. Everybody could always do better execution when you look backwards. But they were right. He was right. And I was wrong.

I was the kid who was scared. I was the kid who was wondering if it was real or not. And he had the bravery to say, no, this is real. And I'm going to raise more money and I'm going to spend more money on marketing. And this is going to be huge. I learned that lesson and now I'm 42 and I look at this and I say, this is the exact same thing all over again. Except this time around, I'm not going to be the scared kid who thinks like, well, maybe I'll

make a few people. Be the warlord this time. Yeah. I'm not going to be the scared kid that says, oh, maybe I'll make a few million dollars and that'll be great. No, this is a real thing. This is big. And we raised a lot of money, but I want to raise billions.

I don't want to stop here. Like, I want to keep going because it's obvious what's going to happen next. It's obvious. And so we've got to execute and make it real. So now is your question of hiring the right people, figuring out the right marketing plans, building a great game, scaling. What do you think will define the legendary marketers of the next 10 years? Knowing how to get hundreds of thousands of people excited about your digital products,

digital products, branding is, this is cool. You know, Kim Kardashian wears it versus here's a piece of our business. this, our world, our virtual world, you own it now. We're going to go do this next. We're going to do that next. And then all those people are on your team. It seems hard to me, it's probably just lack of imagination, but in your context, building a digital world and a literal game that is fun to play makes a ton of sense. If something entitles me to enjoy myself more and for longer or in a different way, I get it. Where I struggle is the coffee shop, is the crossover from something digital, the NFT, to something real world.

Do you think that it will be as powerful in that context? Depends on how interoperable they are. If you say, this is my cafe and here's a membership, I think that can work. Here's a back room that's cooler where you can hang out and you sign in with your NFT. Discount or we save your order for you or a ton of different things or you get to vote on what our menu is next week or whatever. Not necessarily those are good ideas, but there could be a million of them. It's not so simple. I think that will scale. It will scale. And it will work to an extent. But I think that if these things can blend with other virtual worlds, the cafe does an event with the barbecue place,

members get something special over there that week. And they had these networks of interlocking businesses doing cross-promotion with each other, managing these virtual spaces and how they connect with the real world, then you have something very, very powerful. That's more of game-like thinking than it is somebody who runs a cafe. That's a good startup. You're going to want to like share communities. You don't just want to like dominate and own one. You want to share. You want to partner and you want to make membership, if it's just membership, exciting. Do you think we'll see more token mediated media experiences? Everything. Absolutely. Token. Gay-Dated. You have to own these two podcasts, NFTs, if you own both, it unlocks this collab between the two of them

or something. Any kind of business scheme that you could come up with would probably work if it's cool. And that's actually the hard part. It's like making it cool. I think if you make it really cold and it's just X plus Y, it becomes too much of a math calculation. You're just doing ROI calculations. It can't be so simple.

Actually, if it gets to the point where the ROI becomes the thing that everyone's thinking about, you're screwed. It has to be more about the experience and what you're doing and how it's changing all the time. That's what it has to be about. Capture some imagination and some emotion. I save $2. It cannot just be that to take it a step further. It's exciting that some emotive responses, some imagination will fuel the most successful of these projects. And it brings to mind something you and I were texting about the other day, which is the insane surge in these AI models being open source, staple diffusion being the one that I think has really caught the public imagination. Say a bit about your impression of watching these technologies proliferate alongside what you're doing.

These things are crazy powerful. They feel like magic. Creative people are really scared. So they look at these things and they say the knee-jerk reaction you often see is like, well, they're not as good as like if a person did. But I'm only saying that because it's close. If it was terrible, they wouldn't say anything. So they get very defensive. For somebody like me, it's great because I can't draw. There's all these really cool stable diffusion extensions. And I saw one in Photoshop where you just like draw a stick figure and it'll turn it

into like amazing drawing. You just draw a stick figure and then you type in what you want it to be and it'll look really good. That's great for me because I can't get the pictures in my head out. I can't get them out of my head with my hands. It's going to change communication. I think it's more of a translation tool than it is an image. image tool. We use words and letters and characters, written language as hacks because we can't

tell you what's in our head. So we've got to translate images in our head to words and then turn those words into an image in your mind, which is very, very hard to do. That's why we have writers because it's hard to do. And only a few people can actually do that. Can turn words into an image. Stable diffusion is like the ultimate writer. It's the ultimate. It's the ultimate author. It turns words into images that everybody can understand. I don't need to speak a specific language to understand it. Language is almost like a, it's like a mistake. It's like a temporary thing that gets replaced by machines that can make images. And the images will be much more efficient than communicating what we're thinking. So when I see it with stable diffusion,

I say, okay, here we go. We're finally going to be able to turn words into images and have real communication now. I almost want to replace or modify what you see with these AR glasses with with Google translate. You go there, you're in Japan, and someone speaking Japanese and you see the English words, I would almost want to pair it with stable diffusion and have a picture that goes along with it. Somebody says, turn right, I can have an arrow or something. You know, I can have a visual that makes more sense than maybe what a bad translation says. Is the ultimate proof point of all this the fact that memes do such a better job of communicating certain ideas than words? Picture say a thousand words, right? That's true because they're better than words. It'll have big,

big impacts on art and gaming. It's really exciting for gaming. The next step is animations and 3D models, which is already happening. That's going to have a big impact. And at the end of the day, if everybody can make art and everybody can make games like marketing and awareness is once again going to be the biggest problem that everybody has, as everybody can draw now and everybody can write now and everybody could do all those things. Maybe just go there even deeper on distribution. I kind of ask, what will define great marketers? And you said, understanding of NFTs, but assuming everyone understands NFTs. What's after that? What's after that? Like, what is great distribution? That's way too broad

a question, maybe, but. Great distribution is aligning the community with the product, with the same incentives. That's what great distribution is. That's what NFTs do. Instead of, drink Coke because it makes you dance really cool on a bus or like it's like drink Coke because you own a Coke NFT. That is way, way, way more powerful. That's what I see. I see aligning incentives across capitalism and the consumer. That's what I think NFTs can do.

And it's going to take a lot of creativity to do it. And I don't have all the answers for everybody. But I do see it in games fairly clearly. I think everybody does. Like in games it's pretty obvious. It's just that we haven't seen a big game besides Axi. So there's a lot of people waiting. But there's enough there from my free-to-play background where I can look at and say,

oh, this is obvious. This is definitely going to work. I think it's fair to say last time we talked to a year ago, you had a fairly grim view on like the general state of innovation. I still do. It seems like on the digital side, at least, it's unbelievably exciting. I was thinking about how come we don't have like new bleach? If you look at your household items, it's the same stuff that people were buying like 50 years ago.

And those are the most important things. Those are the things you use every day. They don't get any better. Nothing changes really. Like it's just all in the digital world because it's all imaginary. That's why it's a great environment to just make stuff up. You can make it real like NFTs kind of make your imagination real in a lot of ways. That's what's so powerful about it.

It makes the digital world real to an extent. That's why they're so powerful. That's why they matter so much. But if you go back to 2019, do you really feel like you're living in a much more advanced world or less? Well, my friends and I have this, again, image communicating a thousand words. I live in Greenwich, a suburb of New York City. And the Metro North is the train connector between the two that everyone takes, that commutes

to the city. And if you look at the old train schedules from 1995, from the early 1920s, the train now takes longer to get to New York than it did in 19. 1995 by four or five minutes. And it's basically the same as it was like 100 years ago. And my friend and I, Bill, I always joke about this. I was just like, can you believe that this is the case? Like, this is insanity.

I said this last time I'll say it again. The digital world advancing faster than everything else is a very bad sign. It's not good. You can't have all the innovation. And this is me as a game guy. But you can't have all of the innovation going into digital worlds. We live in the real world. We don't live in the digital world.

We can't just keep making the digital world the thing. It's not going to work. It's not going to work. But it makes sense because there's scale there. You can make money worldwide instantly. It's very obvious why everything's getting pushed into the digital world. But it's dangerous. Everything getting pushed there.

It's very dangerous. I agree with you that it doesn't seem versus 2019 or 2015 or whatever that really much has gotten fundamentally better. But I am definitely an optimist, seeing things like Booms Supersonic or Clover building, you know, like new building technologies. That's sort of bringing us back to the 80s, though, like a quieter version of the 80s. Right. Which is a big deal.

The fact that it's quieter is a big deal. I continue to hope and believe that we will retest some of these things. But why when you can make an NFT? You see the problem? That's why I always say about going to Mars. No one is going to Mars. We're going to VR Mars because we won't know the difference anyways. You see my point?

If VR gets so good that you don't know that you're not on Mars, then why do you need to go to Mars? When we talked last time, we were sort of at like near peak optimism about Web3 and crypto. Now we're not maybe at peak pessimism, but. I'm not pessimistic about Web3. Everything's going into the virtual world. Web3 is going to be the most important thing there is because of that. But I'm not saying that's necessarily like a great thing. It's still true.

It's still going to happen. I think you'd mention that there are two other games, maybe you're even an investor in them, or at least respected what they're doing. What do you most admire in some of the adjacent stuff that's getting built in your world? Castaway is one I think they use as an example. Oh, yeah, Dayton.

Dayton is, he's one of these Gen Z kit. He just works so hard. It's really cool to interact with him. He's determined. it's becoming more and more uncommon in my opinion. But what was great about him is like how much he's been pivoting. He just pivots relentlessly to find the thing that works. Like he saw what we were doing free.

He did it for free. And then it worked for him too. So he's just pivoted everything into that model now. You've got to have that desire to win to kind of abandon what you're doing to change. You should be willing to work on something for six months and then just throw it away in one day and do the new thing. And a lot of people aren't willing to do that. He is. So it's cool.

He's a lot younger than me. It reminds me a lot of myself when I was his age. And he's going through a lot of the same problems I went through. So it's cool to see that. What do you think are interesting options for game mechanics that get released by Web3 technology that weren't possible in Web 2? You're building a Web 2 game, I know. What we just released with the Adventure token is huge.

It allows you to do a permission, crossover event between games, essentially. So if you wanted to be featured in a game right now, you would have to go to the company. This is very common in Japan. So in Japan, they have these crossover events. They do it better than anybody else in the world. And it's like a real business over there. And they have agencies actually that manage brands coming into games for the companies. They set up the calendars.

They say, well, Spider-Man is going to come in this month and the next month. And it's run through this agency. The gaming companies get the calendar. and then they start making content ahead of time and they plan stuff out like a year in advance, essentially. In the new world, we have smart contracts where I can ping a company and say, hey, here's my assets, connect to this smart contract,

and those assets will come into your game. So now you have a much more fluid world instead of like an agency-driven marketing thing. You can have IP holders giving access to different IP programmatically through these smart contracts. and they can guarantee that they have access to it, and they can build really cool virtual experiences around that in a way that they couldn't do before.

So interacting from right now at games, you have two games, they're both virtual worlds. Interacting between the two of those right now is done through phone calls and emails and meetings. That can move over to a smart contract world, and that'll create a lot more interesting interaction between virtual worlds that were not possible before Web3. That's just scratching the surface in my opinion.

But that alone is non-trivial. That's actually a really big deal. To go from 60,000 to hundreds of millions or billions of people, I'm curious what you think needs to happen on the rest of the infrastructure side, specifically like how these people get their ETH to begin with and where they keep it. They won't get ETH first. They'll need a WALET first. They'll need a wallet still.

They're going to need a wallet still, but they're not going to get ETH first. They're going to get an NFT first. And that NFT could turn into ETH. That's where they're actually going to get their first. ETH from. Oh, fascinating. From the NFT. All right.

That's very interesting. Yeah, I reverse the order. Yeah, reverse the order. The NFT has no value. It costs zero to make. ETH has value. But I can still turn that NFT into E if it's managed properly. Does that make sense?

So the world's going to get its first ETH from an NFT. And they're going to get the NFT for free. So wallet seems like the key technology then. Yeah, well, and the thing that's holding everything back is mobile wallets. It's Apple's wallet. It's Google paid wallet. Once Ethereum gets integrated into that wallet, it's over. Instant adoption worldwide.

That's the real gate right now. But remember, people are really into these games. They're very, very into these games. And they're willing to spend a lot of money on free-to-play games. I don't think it's going to be that big of a jump to convert players, not the world, but players from free-to-play to Web 3. That's the real target audience to move over. Everybody else is a lot harder because you've got the wallets and stuff.

But remember, these people are willing to play games for four hours a day. They're all their friends are on it. They want to have all the items inside the game. You already have all the motivation there to get them to move over to Web3. It's all there. I think it's a fascinating place to close our discussion that onboarding is the inverse, I think, of what many have expected, that you were waiting for everyone to get some so they can buy some stuff, when in fact, they're just going to get.

get some stuff and then maybe that'll turn into Heath is a fascinating closing thought. I've been so fascinated watching you build this business and have learned so much in the year since our first discussion talking to you. I really appreciate your time today and everything you've taught me. Thank you. I appreciate it too. If you enjoy this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter. Colossus Weekly, where we condense episodes to the big ideas, quotations, and more, as well as share the best content we find on the internet every week.