On The Brink with Castle Island - Aaron McDonald (Futureverse) on Metaverse Technologies (EP.576)

Episode Date: November 21, 2024

Aaron McDonald, the founder of Futureverse joins the show. In this episode we discuss: Aaron's professional career and the path that led him to founding Futureverse. How he has built the company through a mix of organic growth and acquisitions. How blockchains and digital currency interact with Metaverse technologies. The future of virtual worlds and gaming technologies. The L1 and L2 blockchain ecosystem and how Futureverse has built their platform. To learn more about Futureverse visit their website.  

Today on the podcast, I sat down with Aaron McDonald, the founder and CEO of Futureverse. Futureverse is a New Zealand-based company that is building products at the intersection of several technologies, including artificial intelligence, Metaverse, and public blockchains. This was a fun conversation, and we touched on some topics that are non-financial in nature that are capturing the attention of brands and consumers. I think you'll enjoy this one, so without further ado, here's my conversation with Aaron McDonald. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures.

Guest and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of mortgage. and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac,

the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Concentred Easy. And print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin. All right, Aaron, thanks so much for joining us today on the podcast. This is going to be a fun one.

I am really looking forward to it. So why don't we just start off with what is Futureverse? Well, Futureverse is a global media tech company that is building deep tech at the intersection of Web 3, immersive content, or people might call the Metaverse, and artificial intelligence. We've got three bits to the business, some really great protocols that help deliver on the idea everyone that has in their head about interoperable content. We have some really great generative tools that help people build the worlds that they imagine. and then we work with some of the world's biggest brands and IP to take that technology and deliver new consumer experiences to onboard their users into Web3. Super interesting. And how did you even find yourself leading a business like this?

It's a tale. I'm a country boy from New Zealand. I grew up on a rural community, worked my way through life but got interested in technology pretty early on. My dad got us an Amiga 500 computer and took myself out a program. So I always had an interest in what the future of technology looked like. I started as an engineer in my first real job in the telecommunications IT space, spent time in the technical domain, climbed that ladder, then went across into sales and then into product and then into business leadership and corporate venture and then jumped out into startup world, maybe 12 years ago and really got fascinated by Web3 technology around 2015. I'd heard of Bitcoin. That was interesting. Double spend problem. That's quite a cool problem

to solve, making value online ownable, but didn't get inspired until I got deeper into smart contracts when Ethereum came out. Through some providence or happenstance, I had a good conversation with a friend of mine up in Zieg, Dr. Luca Muller, talking about smart contracts and stuff in 2015. He introduced me to a whole bunch of folks up in Crypto Valley. And I jumped into Web 3 around 2016, started venture building, incubated. accelerating companies that were in this space, and particularly trying to solve usability and make this Web3 technology accessible to your grandma.

So we thought that was the first step in adoption. Did well there, got some companies come out of that that built some really cool stuff in the protocol and infrastructure space, and then started to think about how do we get users to come on board, and we chose content. So started to do the same thing, venture building, incubating companies that were building in that Web3 content intersection, started doing generative AI content around 2019, starting to explore how that would play out.

Around 2021, we got approached by Barvin from Dan Tapiro's TNT Fund, who'd been looking at what we're doing in the ecosystem and said, hey, why don't you roll up a bunch of these companies and make something big that we can get behind? So we spent a year and a half doing that transaction, rolling up, merging, acquiring 11 companies to create Futureverse. It's incredible. What a story. You don't see a lot of roll-ups these days in the crypto space. You're really a pioneer in that respect. It was interesting.

I think just in the space overall, I think it was Forbes or Fortune. Our PR team approached them with a story around this. And they said, look, this was before we did any major announcement of the thing closing or the funds raised or anything like that. And they said, look, we don't typically report without those details on a roll-up. And then we saw an email trail from the journalist back to the editor, which had said, when have you seen an 11 company roll-up happening? And he was like, fair enough, print it. Yeah.

Put it out there. It's going to be a fascinating business to manage. How do you think about just segmenting the focus areas of the overall holding company? So we made the deliberate decision to integrate as much as possible. So we took the first six months, I would say, to organizationally integrate, bring the people from 11 teams into one team to have that teams coalesce around similar ways of working, to take the product and technology streams from there into building one platform, took another six months. So merging those things, people and product and processes about a year's work. And then from there, setting that ship out there building for the last, let's call it,

nine months has been really fantastic. Even during that period of amalgamation, the team shipped over 30 products and experiences. So we had some magic in that process to be able to do all of that social and people integration and process integration and technology integration, but still get stuff to market. So as an entrepreneur in the space, you have no doubt had to answer this question before, but I'd love to talk about just why blockchain and why you need one for these products. Maybe you could bring that to life with a few examples in your portfolio. So our mission is to make owning content as valuable and as real as owning a Bitcoin.

If you own a Bitcoin and it sits in your wallet and it's controlled by your keys, you own the entirety of it. And that's the unique property of Web3 technology that is valuable for any application. It's the only thing that's valuable, really, is being able to give a user ownership of something of digital value. And if a thing isn't doing that in Web 3,

it's superfluous. And for content, that promise was something that people really grasped. They were like, yeah, I spend a lot of time loving the stuff that I own that's digital, whether it's an avatar or a piece of art or some in-game item or whatever it happens to be. There are three and a half billion gamers in the world building intangible value for themselves every day through their time or money that they invest in this stuff.

So we want them to be owners too of that thing that they value. Generally when it comes to content, that is not true. And I think that's a big reason why a lot of the external to Web3 people have said it's a scam. because the idea of ownership everyone loves, the practical reality of how Web3 has delivered that is poor. And there's two fundamental things for that. One is ownership of a token has been true. So it can own an ERC20 token or I can own an NFT,

ERC 721 token. But the content attached to that token usually is not bound in the token. That's off somewhere else. So that's the first thing. And then the second thing, particularly when it comes to like immersive content, the thing you own isn't very portable. Bitcoin can go everywhere and it's still a Bitcoin. And that's what makes it valuable.

But if I can't take my stuff with me, then do I truly own it? And I use this analogy and you've heard me say it before. And everyone who follows me will heard me say it a thousand times. But there'll be new people out there that haven't heard it. So I'll say it again. Owning an NFT today somewhat like owning a dog that lives in your neighbor's garage. You can look inside and you can give it a pet if they open the door for you and you might be able to take it for a walk down the street, maybe if you're a good boy.

But actually, ownership isn't real and tangible unless you can take it everywhere. So those are the two things we've been working to solve to make Web3 technology meaningful for content. And why is that important? It's because that content is valuable. It's just as valuable as the tangible things that exist in our world. and in fact, for some people more valuable, they value those digital things higher

than a physical piece of art, for example. And two is, if we imagine that the internet is going to become a more immersive space, and it is that's happening, then that's part of who we are as a person and it's part of the society that we live in. So it's really important that we own our digital selves and the representations of our digital selves

and the data around our digital selves as expressed inside of this immersive internet because otherwise all of the other tenants of Web3 and decentralization, all that stuff, cease to matter if those things aren't part of it. It seems to me in this industry, there's always been great ideas, but those ideas have been three, four, five, maybe even 10 years ahead of user experience and product design, like a very engineering heavy industry we have

and maybe a lack of user empathy in certain categories. How do you think about just making this easier for the users? Yeah, it's a really great observation. was the start of our thesis and journey in the space was we saw this very protocol heavy, engineering heavy ecosystem, which is completely fine and actually quite natural and not only a Web 3 thing. AI went through that to cloud computing went through that to, mobile went through that to the internet went through that.

So that's a natural part of technology evolution. But you have to be really deliberate about how you build things for a given user experience. And what we saw was this really fundamental principle that was great about ownership, but it was very hard to engage with in a meaningful way. And that has led to people designing protocols and infrastructure that requires layers of abstraction that devalue the core proposition of ownership. 90 plus percent of digital assets that are owned by the 3 to 400 million people in the world who own them are not actually owned by those users.

They're held on behalf of those users. So when we started this journey, we said, well, how does the user experience have to look for ownership to be true and for the user experience to be good? And we mapped out a user flow, which was started with UX, was not a common thing to be done at the time. It was started with protocols and engineering. And when you do map how to user experience flow as your starting point, then you start to see where the problems exist, and then you know you have to build infrastructure in a slightly

different way to accommodate for that user journey. And that's what we ended up spending the first five years on was solving that user journey problem. And that culminated in us building the route network, which has been optimized as a core infrastructure for interoperability and user onboarding. And little tweaks to the way that the protocols work in chain can really make a massive improvement to user onboarding and user safety for new users coming into the space. But you have to start with that as a design principle. It's very hard to engineer on top of that. And that's why I think the abstraction happened for things like Ethereum

where the core way the chain works is really difficult to make that happen. And there's been improvements along the way and people are working hard on these problems. But there's always a little bit of friction in that experience because of the way the underlying chain was built. And it was built without thinking first about user experience. So that leads me to my next question, just how do you think? think about the protocol layer themselves. So we've seen various Web3 gaming NFT efforts built on all sorts of different chains. Do you have a top-down view of what's interesting in the protocol category and curious what you guys are building? First of all, we're like multi-proticle, multi-chain massies.

We're a big believer that a key part of decentralization is having healthy tension and competition between protocols because we end up with like one monolithic. system, we get trapped back in the problems we're trying to solve. So we're optimizing for interoperability. We're trying to make it possible for people to choose where they want their things to live, but for applications to find it easy to bring those things together. So that's our mission, is to support that. In terms of protocols out there, I think there's only been a few that have caught my eye over the years that I think have fundamentally looked at the problem in a different way. having been involved in this since 2015 at least, so coming up to 10 years,

I've been around for most of it, not all of it. There are people that are certainly more veteran than me, but I've seen a lot of it. I've talked to a lot of the teams and the founders in this process. I've invested along that way, so I've had a lot of deal through my door. And almost universally at the protocol layer, at least for a long time, the exciting thing that people were doing was it's faster or it's cheaper or we're using this other programming language. that generally became what evolved out of the protocol races.

And it was like, oh, this is the new roof of coffee consensus. Yay. Well, does that fundamentally move the needle on anything that's meaningful to use? Probably not. But along that journey, I think the things that I saw that definitely go into that category would be if you start really early on, and this would be a little bit controversial, I think the way that the XRPL ledger was designed was really interesting. and some of the principles behind that are interesting principles.

They were thinking about faster, cheaper, of course, because that is part of UX, but just the idea that there was a universal way to do things in chain. I mean, that developers could build to a certain standard for a Dex, for example, or some function that existed chain-wide. So users would get the same experience, even if they went from app to app to app. I think that was really interesting innovation. The next one on the list would probably be substrate. I really think that they really thought hard about how interoperability was going to play out

and how application-specific infrastructure would work in a decentralized way. And we actually use substrate as a core to the root network because of that. And then probably more recently along the journey, I think the team at Suey, they definitely thought about a different way to build infrastructure. that has some of the elements of what we're trying to do at Futureverse and on the Root Network, although I think we're a little bit further ahead in our thinking about how that plays out, but philosophically very similar. So those are the ones in my mind.

In terms of what we're doing, the Root Network really is trying to do that job of making it possible to own your stuff anywhere, but have it appear everywhere and make the process of onboarding into Web 3 really simple and safe. I remember I used to work in the radio industry long before I was in this industry. And we used to have these PowerPoint decks that we would prepare for the board. And it was just time spent on various platforms. So what is the average person spend listening to the radio per day versus television? And every year radio was going down, I'd imagine if you did one of those slides today,

virtual worlds would actually be really high. So I wonder if you could speak a little bit about just what people are doing in some of these virtual communities. There are something like 3.5 billion video game players in the world. So it's a decent slug of the world's population that engage with this content. About half a billion on any given day logging into an immersive gaming environment. So bigger than the population of most countries around the world live in the metaverse, you could say, or at least spend part of their time on it. So it's definitely something that's growing. It influences the way people behave in the real world, seeing trends that start in immersive experiences expand into popular culture offline as

well. And conversely, the other way, some ginormous percentage of the purchasing choices of younger folks comes from what they do in digital spaces like Roblox or Fortnite, and particularly in fashion and apparel. Something like 80% of preference choices is affected by what happens in those spaces and what they put on in those digital worlds. So our macro view is the metaverse is just the internet evolving a bit and doing two things. One, becoming more immersive, more of these immersive spaces. And if you look through history and my history and technology, every generation has their internet interface. Back when the internet started and I was really a technician building dial-up infrastructure, it was the web browser on a PC. And then that evolved into.

when I was a mobile engineer and mobile product into mobile app experience. That evolved another step in the context of mobile into social media as a platform experience for viewing the web. And the generation that's coming into their adult hold now have spent their life in immersive spaces like Roblox and Fortnite. So that's their internet, just like I grew up with those other internets. They grow up with that immersive internet and that's the internet they're going to want to expect. The second thing is the Metaverse is really about this idea of convergence and that's

been a journey that's progressively been happening as well, which is, and Tencent call it immersive convergence. That's what the version of the Metaverse is. Probably the best example of an application of the Metaverse is WeChat. People think Fortnite, but actually WeChat because it's a somewhere I can go to do everything. And that consumer experience has been condensed into one very simple journey, frictionless journey between all of those everythings. My identity works everywhere, my money works everywhere, my data about who I am works everywhere. And so when we look at the metaverse as a theme, that is what's happening. We had distinctive silos. Media was one of those. The media and telecommunications were two very separated things. They even had their own

physical networks back in the day. And those two things got smashed together to form social media. Social media completely obliterated both of those other things and became this new converged version of that. Social commerce is doing the same thing to e-commerce. The fastest growing segments of commerce are in TikTok, for example, or platforms that are taking that social media experience and expanding into commerce experiences. So e-commerce ceases to be a thing by itself anymore. It's part of this immersive social commerce.

It's a more immersive selling than a website too, because you've got this real person behind the scene that's talking about something and you can interact with the product. That's the metaverse. So that progression is something that's happening more and more and it's unstoppable. It's super interesting to think about what money looks like in the metaverse because there's one world where all of these different metaverses are countries and they have their own version of a currency. There's another maybe thought experiment around, well, these things are digital cities and maybe there's some sharing of a common currency or maybe even stable coins play a role or something like that.

How do you think about that? Well, first of all, there is no A-Metiverse. There's only the-Metiverse. If you're a-Metiverse, you're just a video game. The-Metiverse is about that interoperability. It's about the thing that exists that I can go into and out of. So if you think about the metaverse in that context, both of those things have to coalesce somehow.

There has to be the ability for me to take value with me into something else and for that thing to accept or recognize it. and there needs to be ability for that thing to monetize and create value in its own right. And actually, that lives in our world today. I have airline miles that I can spend inside of my booking of an airline ticket, and I can spend it a store down the street. So I think you can have this world where both of those things are true, and the infrastructure in the middle will make that seamless to the user,

automatic swaps or these kinds of things that are transparent to users. And that was one of the design principles in the root network. We actually have this thing called in any token gas economy. So you can be in app A and that's your world and it has its own token and you never need to know about the network. You can pay using that native token. And if you decide to go out of there into app B, you can do the same thing there. Or if you want to use the underlying universal token, you can. So I think that's one of the powerful things about Web3 is that you can get that atomic fungibility between things that can exist in their own right.

so you don't have centralization of power, but they are interoperable, so you remove the user friction. That's fascinating. So you guys are doing a ton of interesting things with brands, and I'm really curious how that comes about, first of all, in terms of them finding you, you finding them, but also your perspective on what type of brands should be looking at this type of thing? We've been able to create relationships with some of the biggest IP and brands in the world. And that's a mix of us having the tech to back up our talk and also having people in our business that understand those industries, understand the sports industry well, that understand and come from Hollywood and understand the entertainment industry well, and being able to

engage with them in a meaningful way that is not just transactional. I think that when the first round of NFT came around, most of the relationships were quite transactional. They saw an opportunity to grab some cash over in this wacky wheel. over here, but it wasn't part of their core business strategy. But out of that, they saw some opportunity. They learned some things. And that evolved their thinking internally. And they then said, okay, well, how do we go and find partners that are very capable

at delivering on that, that have some scale that we can trust, can put our brand behind and they're not going to fall off a cliff. And that really do get the value of customer experience or brand experience. So we've been able to get in, show that with some brands. and that's expanded the pie of people who want to talk to us and created a snowball effect. So I think mix of capability in terms of technology and people has helped us get there to answer the first part of your question. And the second part of your question, I think every brand has to be exploring this,

experimenting with this, doing stuff with this because this is the future of the internet. Money will live on blockchain rails. IP and value will live on those same rails just in the same way that money does. Users will interact with it every day. So if you think your business is going to exist in the future, you should talk to someone who knows their stuff in this space. And we're seeing that. It's much more strategic conversations. It's not here's a piece of IP, go and do some stuff with it.

It says, how can we integrate your technology into our core platforms? And we did deal this week with someone who's bringing 10 million users as part of their core digital offering to us. And that's part of a multi-year strategy and plan to build brand and value. and IP and customer experience. And I guess the cool thing is there's always brands that are willing to be at the forefront, even back to second life. There were a number of brands that were super early on that trend. And I think it definitely has moved on from experimentation and being early into,

we want this to be part of our business and making that a core pillar of strategy outside of the hype cycle. Do you see it going the other way where you have content and ideas that are just born digitally native that go the other way into the movo studio domain and television shows. I think that will always happen. It's rarer that it does than it should be. And I think it's going to get harder to truly break through than it ever has been because generative technology is making it so much easier to produce more content.

So that is making the perception of the value of content lower and also harder to establish as a long-term franchise. and generally very consumable here today, gone tomorrow. So building a new long-lasting, world-recognized brand is a hard thing to do. Harder than it ever has been. It's always been hard, but I think harder than ever has been because the next possible thing just came up two seconds ago and the next thing after that came up two seconds later.

So in that world, our thesis is that already established IP are the ones that are going to continue to win for a while. That makes a ton of sense. So if you think about the early days of the internet, you had the question of how do you regulate this thing, if at all, at the country level? And that's something that the crypto industry has certainly wrestled with over time. And I think in the U.S., that hasn't always been the clearest path. It's been 50 different states if it involves money transmission.

And we still don't have a federal framework. But how do you see this playing out with your business since you just operate effectively everywhere, wherever the internet is? We live in New Zealand. We're a New Zealand company. Actually, we have a pretty good regulator here, and our regulation is fairly modern framework that is technology agnostic. And we've had great conversations along the way with the regulators about where different things fit in, what things are different kinds of assets and how they should be treated from a regulatory point of view. In the content domain, which is primarily where we operate, there's a thing called evaluated service provider framework, which applies equally to an NFT as it does to other video game content, which is the right way to regulate.

regulate on the basis of what the thing does as opposed to the database that sits behind it. So we've been able to make sure that along our journey, we've followed those practices and policies and processes, and at the same time, educate regulators on that journey as well. We've worked with government down here to bring in new legislation, like the Digital Identity Trust Framework for Decentralised Digital Identity, and participated in the working groups that they've set up around crypto to give an industry perspective and explain some of the underlying technology to select committees and stuff like that.

So you've always taken quite an active stance and we're lucky to be in a country that has been pro-technology and pro-innovation with reasonable regulatory guidelines. Any business that's operating in multiple markets, whether you're in crypto or not, the legislative framework is always fraught because let's say just building video games,

there are different rules in the EU versus in the US versus in Asia versus in China. So you've got to be cognizant of a non-homogeneous regulatory landscape. And I think the view that that's a uniquely crypto thing is wrong. It's just part of doing business in a global world today. Certainly a lot of the same challenges were present during the early days of the internet. So I totally agree with that. Go and try and build a traditional fintech insurance tech company, for example, and try and be a multinational company doing that. You're going to have the same problems, whether you touch crypto or not. 100%. Aaron, so this has been fascinating.

and definitely a space I'm very, very interested in. What's on the horizon for you guys? What's the next year it look like in terms of building out this company? So like I said, good 12 months of condensing the teams and the products into one team and one platform and now are like really starting to get into the application layer. And that's really exciting. But for people, because they can see all the stuff behind me now coming to life. One of the tent pegs inside of our ecosystem is the Readyverse, which owns the rights to Ready Player 1.

and made in conjunction with the author Ernie Klein and Dan who produced a movie alongside Steven Spielberg. So that's the popular culture's story of the Metaverse that everyone knows. So we're really excited that we're getting to the point of end of bringing that experience to market and getting people to start to engage with that application and the IP that we're bringing to the table around that that they love and can take and do new stuff with. So 2025 is a whole schedule of rollouts around that. we've got some really cool generative AI technology coming out.

We've been working on two bits of that over the last year, 20 or so of our researchers and PhDs building really great music model called Gen and a really great 3D model called altered state. So doing that second layer of the business in terms of allowing people to be the creators of these worlds and experiences. And from a protocol perspective, we've done a lot of the hard work this year. So it's ready to start that user adoption cycle. and bringing on some of these really big brands and franchises and sports teams and stuff

to start to leverage that technology and experience that onboarding journey is the really exciting thing for us. I told you, I thought you were a one-of-one company. I can't think of another company that even looks anything close to like this in our industry. We've heard that a lot and we're really excited to show the power of bringing all of these things together and I think the model for us is being more Apple-esque. How can you create this cohesive end-to-end capability that delivers on that user experience? and shows people the way that that can be done and they can build on top of that innovation too.

Awesome. So where can we send people to learn more about the company? Jump to our social channels on X at Futureverse or Futureverse.com and that'll get you started. There's a great community out there in Discord. If you want to jump into some of the games and experiences, they can teach you about what's going on there as well. Incredible. Well, thanks so much for doing it. This was fun. Thanks, man. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.vc.

To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com or just click on the tab in our website. Thanks for listening.