World War Web3
(This is an aside from the main thread on Fortis. On occasion, I meander into foreign pastures.)
Narratives are a powerful tool.
When they’re well crafted, they take a messy, chaotic dough of inedible context and bake it into the sweet bread of a consumable story. A good narrative is understandable, relatable, and transferable. The listener comprehends, believes, and wants to tell others.
The world (and particularly Silicon Valley) seems to be increasingly driven by narratives. The simpler and the grander the better. Big, bold, and beautiful. Death to nuance. Shades of grey are an insidious blight that threaten the orderly partitioning of the world between believers and those poor lost souls that just don’t get it. You’re either about to change the world with us or you’re an archaic luddite that hates progress.
As far as I can tell, the ideal narrative for the modern age is one that:
- Proposes a radical re-ordering of society
- Forces a clean division between the initiated and the scorned
- Can be expressed in 280 characters (though 1000 may soon be acceptable)
This structure is desirable because it enables the storyteller to gain the greatest amount of traction among the broadest group of people and turn them into zealots quickly. Conversion. Radical narratives stand out from the crowd. Particularly when they appeal to commonly held grievance. The breadth of the vision and the forcefulness of its delivery is directly correlated with the tightness of the community that can develop around it. There’s a reason there’s not a lot of scale influencers with moderate positions.
The downside of this structure is that the narrative it produces tends to be brittle. It lacks the nuance to withstand scrutiny. Thankfully, that’s not much of a problem since one side is rarely considering the points of the other side. The world is so polarized by believers and non-believers that the pragmatic middle ground is a nuclear wasteland between the entrenched positions. The wise moderate bunkers up. Poking your head out is liable to get you nuked from both sides.
Narrative wars are a zero sum game. There can be no neutral parties. Can be no thoughtful interlocutors. No mediation. No peace.
There are many narrative wars being waged at any given time, but this post is just about one: World War Web3.
The Narrative
Web3 is a tidy piece of narrative.
It simultaneously suggests progression and inevitability. It focuses on the technology that people are more intimately involved with on a day-to-day basis and leverages a natural assumption that it will continue to evolve, with one version giving away to the next. It touches on a natural fear that our technology might ultimately move past us and that missing this shift will prove to be a regret.
Tomorrow is coming. It’s inevitable. Smart people are ready for it today or get left behind.
You’re Web2? Wow. That’s sad. I bet you find TikTok confusing.
I’m Web3.
That’s a lot of narrative weight in just four characters.
And that’s just the branding. The full narrative (but still under 280 characters) manages to cover a much broader set of real estate. It provides the broad strokes of what this new Future of the 3rd Web will look like, and just how transformative it will be. It tells of a future where society is fully reshaped and nothing will every truly be same again. It also provides a set of defining pillars that allow a community to form, organize, and proselytize.
I’ve written this one up and, while others may use other phrasing, I think it’s a fairly reasonable representation of the constant stream of content pushed my way on this topic:
There’s a lot to unpack here, but I’ll start by saying this: it’s a really fascinating topic to think about. As a rather ardent pragmatist cursed with a deep love of pursuing impractical possibilities, Web3 is the sort of thing that gives me the warm fuzzies. There are aspects of this future that I want to be true, or at least that I would want to experience on some level to decide whether I want it to be true.
But that’s beside the point.
What’s important here is the narrative and its structure. At its root, it’s designed to force an ideological split. This is a debate between people that accept the next phase of Human society will be dominated by a transition to a decentralized digital existence, represented by the metaverse, and those who do not. To adherents, those who do not accept this inevitability of this evolution are unfortunate misguided souls.
The centrality of the metaverse to the narrative is mystifying to some, but it makes logical sense in the context of the other pieces of puzzle. The metaverse is a necessary next step because Web2 is already a lost cause. There is no way to undo the ruin of our current digital landscape. It has been dominated by rent-seeking corporations that utilize their centralized monopoly power to make it extremely difficult for any individual to reap their just rewards for their contributions to society. Individuals cannot be owners in Web2. There is no future in this barren landscape.
To have a chance at success, we must start anew. Or, better yet, we must evolve. Web1 was about letting a user read. Web2 was about participating via social networks. Web3 is about owning.
Owning is the key component to Web3. To my eye, it’s the cornerstone upon which the entire edifice is built. A belief in the value of ownership is what makes decentralizing important. It’s what drives the view that a metaverse is essential. Confused? Not surprised. Me too. This is a convoluted puzzle once you start digging in, which is why the simple narrative package has been so crucial.
I’m going to try and break this down into as basic a logic chain as possible. I’m speed running the logic chain a bit — there’s a lot more depth to be mined in all of this — but it’s good enough until I get my Ted talk going:
- The web will continue to evolve as technology does in response to user demand
- Users will demand greater empowerment in the digital sphere
- In this case, empowerment comes in the form of individual ownership over their digital property (data, virtual goods, crypto, etc.)
- To provide this ownership, centralized authorities must be removed and replaced with a decentralized system (this is where blockchain comes in)
- The demand for decentralized systems will be high because people will demand/opt for greater control over their digital property, which cannot exist in centralized ecosystems (because centralized monopolies always try to dis-intermediate ownership — that’s why you need to pay a subscription for seat warmers in your new car)
- Users will make this demand because digital property will have increasingly greater value in a person’s life and losing that value to a centralized authority’s unilateral decision will be unacceptable
- Digital property will have increasingly greater value because society will continue placing greater emphasis on the digital representations
- These digital representations will be of importance because Humanity will spend a significant percentage of its time in the metaverse
- The metaverse will come into existence because Humanity’s demand for diversions from the real world will continue to increase
- The form of the metaverse is likely to be an immersive reality because the technology is within reach and because people will want an alternative to the hellscape of their actual existences
Man. Shit got grim.
I could be overstating things, but that’s the general thrust of the matter as I understand it. And it’s a powerful thrust. It sets up a classic conflict between the status quo and the upcoming generations that desire to break free from the unfair tyranny of it. The Web2 game is rigged, and the smart people will opt out and find a way to create their own game. Frankly, pursuing the next game is even the moral thing to do. People should own what’s theirs.
But beware: The status quo dies hard. The powers that be will spread FUD (Fear, Uncertainty, & Doubt).
Don’t succumb to fear. Sometimes, you will be holding a bag, but, so long as you believe, WAGMI (We’re All Gonna Make It). It’s inevitable.
It’s a powerful narrative.
It’s just a brittle one.
The Believers
The narrative is structured in the broadest possible terms. As articulated, this isn’t about a disruption to a platform or a business model, it’s a wholesale shift in the nature of society and how it transacts. The next version of the web will put all prior versions to shame. Humanity will be fundamentally altered by this change. It’s more than a revolution, it’s an evolution.
I get the framing. When it comes to building a movement, subtlety isn’t an asset. In a situation like this, your lowest common denominator of communication needs to incite a horde to zealotry.
We’re looking for pithy and powerful.
But why is it structured this way? Why does it need to be this broad, this bold? I mean, movements need adherents, but why does this need to be a movement at all? Can’t it just be a business that evolves in response to demand?
Probably. It’s just a lot less exciting for everyone involved, particularly the sources of capital.
In fairness, it all began honestly enough.
At the root of Web3 there’s a group of people with anarcho-libertarian preferences who are largely DONE with the centralized status quo and want to change things. We’ll call them the Maxies. Their sensibilities drove them to conceive of a de-centralized alternative to this status quo, and their weapon of choice is the blockchain. Remove central authority. Trustless. Permissionless. Someday maybe resulting in Stateless (State meaning Nation here).
If the trustless, permissionless world was slower, less reliable, and prone to criminality, then so be it. It was a price worth paying to remove the government and corporations from your nooks and crannies. Power to the people was more important than transaction times measured in nanoseconds.
A lot of the Maxies were debating white papers and building mining rigs before it was cool or there was much economic incentive for it. They were doing it for the love of the game. For the genuine belief that decentralization was required to move Humanity forward. I admire them. I’m not one of them, but I can appreciate a principled purist.
The Maxies are a small group, but their grievances with the current order, when properly packaged, can resonate with a broader group. Getting that broader group on board with their particular solution is where things get a bit screwy. That broader group doesn’t care about decentralization — not in the way the purists do— but they do really hate how the current financial system doesn’t seem to be working for them very well. They were promised a life better than their parents, and it doesn’t seem like that outcome is coming to pass, what with all of these Great Recessions, pandemics, and student loans. Mostly Millennials who can’t buy houses and Zillennials who can’t afford rent. We’ll call them the Opportunists.
The Opportunists don’t really care about the nature of the solution, they just want an alternative to the status quo that provides a path to financial independence. They want the possibility of getting rich, ideally quickly and with relatively low work. If that happens while sticking a thumb in the eye of traditional institutions, then that’s sw33t so long as it doesn’t jeopardize their gains. This is about money, not piety.
The problem is that it’s fairly difficult to deliver that outcome to the Opportunists without a proper vehicle. One that’s accessible, thinly regulated (or at least thinly enforced), and capable of margin fueled trips to the moon.
Accessibility proved to be the stumbling block. No one understands WTF a distributed ledger means. White papers are not accessible. Anarcho-libertarian screeds are charming, but they just don’t pack much punch to those that aren’t already initiated. The value proposition needed to be simplified. Cleaned up. Made understandable.
How about a chart?
Ah. Much better.
Chart go up. Money go up. There may be some bumps along the way, but it’s always heading in the right direction. Who doesn’t love a sure thing?
There are a few points on this chart that have made for some extremely compelling story telling. Where the buzz reached a broader and broader group of people. The massive run-up toward the end of 2017 was particular notable. People were getting rich. Lots of people. Probably one or two that you knew or at least sorta knew or had maybe heard your cousin talking about during Thanksgiving dinner.
That graph was the opportunity to bridge the gap between Maxies and Opportunists. It made an abstract concept with complicated goals simple, tangible, and relevant: Get rich.
And so a great compromise of narrative occurred. A deal with the devil as it were: the soul of decentralization was traded for critical mass. The blockchain became an economic enterprise rather than a political one. A great swarm of people began to search for “how to get crypto, go to moon” and almost none of them were reading Satoshi’s white paper. They were vaguely aware of the anti-centralization roots, but they wanted the fruit of the tree more. They wanted crypto. Ideally as easily as possible (which generally meant centralization).
Everything proceeds from there. Once a sufficiently large audience indicates a desire to mine for gold, the ecosystem responds. Some sell picks and shovels. Some sell maps to mother loads. Some sell fool’s gold. Some sell places to exchange gold nuggets for silver bars. Some just invest to help all the other somes do something. These are our friends the Middlemen (investors, entrepreneurs, con artists, etc.).
As more people become co-opted into the narrative, they become emotionally invested in it. They adopt, push, and amplify the narrative that seduced with great fervor. Why? Because the alternative is horrifying. Accepting that the narrative was overstated means that they’ve pledged fealty to a false god and in so doing placed themselves in an even worse position than if they had just gone along with the BS system that they felt they couldn’t succeed within. Sunk costs are annoying to accept.
Arguments about a lack of use cases aren’t persuasive, because use cases were never the point. The point was to get rich. The use cases were just fig leafs to justify the speculation. They’re disposable.
Crypto crashes are just winters, because believing that their escape pod out of the status quo is doomed is nihilistic.
This isn’t about reason. It’s about hope. Hope for a better tomorrow.
Hope that we’re all going to make it.
And so they push. And push. And push.
The Unbelievers
The Unbelievers, are, well, skeptical about all of this.
They come in many different flavors, but if I were to lump it all into one neat explanation, I’d say they’re the equal and opposite reaction. When blockchain and crypto were curios inhabiting the fringe of society, there were still Unbelievers, but it wasn’t a very glamorous pass time. The Maxies just aren’t very fun to poke fun at because they tend to be fairly open about the tradeoffs they’ll embrace in order to affect a fundamental shift in societal norms. Their viewpoints are political in nature, backed by a fairly well formed and durable ideology.
Maxies are the sort that will say: Yes, that would be worse in that way, but who cares, it’ll be so much better in the way that matters.
Idealists are annoying to argue with.
When the Opportunists entered the picture the game changed. Opportunists are not political actors, they’re economic ones. Their actions stem from a desire to accrue capital, rather than ideology. They will adopt Maxi viewpoints, but it’s typically a superficial thing in service of justifying buying another $500 of Doge coin. They’ll also accept narratives from the Middlemen as well, and Middlemen can be quite crafty at dressing their narratives up with a lot of the words and concepts used by the Maxies to make everything seem copacetic. Opportunists will also accept narratives from each other because the best way to go to the moon is with friends.
And the Opportunists and Middlemen, both being highly motivated by financial outcomes, will spend an inordinate amount of time trying to increase the value of whichever rocket they’re trying to launch. This comes in the form of a constant onslaught from all angles on the inevitability of the outcome they’re betting on. Media plays along because who doesn’t love a spicy narrative with some big names and some eye-popping wash-traded numbers attached? Social networks amplify the most inflammatory aspects, as social networks tend to do.
Unbelievers get annoyed by all of this. Not just the overreach, but also the inconsistency and incoherence of the narrative as expressed by Opportunists and Middlemen. At times this annoyance rises to the level of moral outrage. It sort of depends on who you are talking to and how grandiose of a counter-narrative they want to run. Are they just poking fun or are they clutching pearls and worrying about the children?
They see the crypto-narratives as flimsy and fake things. They point out all of the failures. All of the inconsistencies. All of the places where the Maxies have said one thing but the Opportunists and Middlemen are doing another.
They gleefully point out the Middlemen and Opportunists are centralizing everything.
They highlight every crypto crash.
They sadly shake their heads when another fraud is exposed.
They right click and save jpegs.
They assemble their own community of people that are opposed, for one reason or another, to the great swarm of Believers that so persistently proselytize their beliefs. They are Unbelievers. They just want everyone to get off their damned lawn and out of their Twitter feed (but also not entirely because they have YouTube channels to maintain).
Schadenfreude harvesting is a dirty work, but someone has to do it.
And so World War Web3 rages throughout the realm. The Believers versus the Unbelievers, with a swath of bewildered and occasionally annoyed Indifferent betwixt the two sides. And all of our sweet, innocent Twitter and LinkedIn feeds must pay the price.
The Collateral Damage
So. Why am I writing about this?
First, because I too desire to taste the sweet nectar of internet points. Second, because World War Web3 has had a rather toxic impact on the industry I’m most personally invested in: video games.
If ownership is the cornerstone of the Web3 future, then video games were always going to get drawn into this affair. There are few ways you can provide value for an object that exists purely online that is more powerful than a virtual world. Virtual worlds establish meaningful context for objects, which creates community value, utility value, and a scarcity framework that can support a fairly robust total value proposition to players (free-to-play and MMOs are built around this). That’s a desirable setup if you’re trying to make people care about jpegs.
That’s great. I’m all for the expansion of virtual worlds and how they interact with players. Ownership can be just one more tool for making a game resonate.
My issue comes with how the Web3 narrative interacts with the industry.
It all starts with the money and the incentives it creates.
The Money
After the performance of A16z’s first crypto fund (which could be conservatively categorized as absolutely bonkers prior to the recent crash and still bonkers after it), there was something of a stampede by LPs (pension fund managers, school endowments, family offices, etc.) interested in gaining their own crypto exposure. If A16z was going to the moon, they wanted to as well — their capital allocation model demanded it. It gets a bit complicated here, but capital allocation under the Yale model embraces a certain amount of speculation in a balanced, diversified portfolio. As a result, a few percent of hundreds of billions of dollars suddenly was looking for a home in crypto, and quickly.
It was a truly breathtaking expansion in available capital — I’ve never seen anything like it.
The offer from Pensions Funds to VC Firms was simple: Embrace the Web3 narrative and you can raise an egregious amount of capital at a ridiculous pace for your next fund. The scrutiny on your partners, investment strategy (to the extent there is one), and proposed deploy rate will be light.
The offer from VCs to Entrepreneurs was simple: Embrace the Web3 narrative and you can raise an egregious amount of capital at a ridiculous valuation for your next round. The scrutiny on your team, product roadmap (to the extent there is one), and proposed burn rate will be light.
As a developer, failing to embrace the narrative shuts off the spigot of funding tied to it. The teachers’ pension fund wants NFTs, and you better give it them. Blockchain is the future and your next video game was just a way of easing the transition to this inevitable outcome. Play ball and get paid. Or don’t and don’t.
An idea that was entirely non-fundable as a free-to-play game (which has a proven market value greater than any other segment of games by a wide margin and considerably easier design problems to solve) was instantly fundable as a Web3 pitch. It was a great frenzied mania as VCs raised funds as fast as the university endowment manager could sign the checks. The only thing that slowed the process was the pace of fund deployment, which could be solved by increasing valuations and lowering standards. Which happened at an equally breathtaking space. Because, ultimately, if the future truly was Web3, the worst thing you could do was not invest in the winner. So better to just invest everywhere.
And, well, here we are.
Billions have been invested into a segment of games that is incredibly difficult to design for, has no demonstrated scale audience, and no proven, sustainable business model. That isn’t to say it won’t eventually generate solutions to these gaps, but it is to say that the scale of investment happened well in advance of even a theoretical market framework that could deliver reasonable returns on that capital. This issue was largely ignored due to the availability of ICOs, token sales and other ways of bringing liquidity forward, but all that does is transfer the bag to the players. That’s all well and good until the enforcement actions begin or the players stop playing ball.
It was too much, too fast, and it hurts our industry.
The Damage
I believe there’s a role for ownership in games — largely because there always has been a role. I have a closet full of Magic cards to back it up. I also have a Microsoft GamePass subscription. It seems to me that both are capable of co-existing in some level of harmony. Sometimes it’s fun to own, often I’m indifferent. To my eye, ownership is a reasonable option, not an inevitable evolution.
But the nature of the narrative doesn’t allow that. It forces polarization. It removes the room for thoughtful discussion on how ownership will continue to evolve as a concept within virtual worlds and replaces it with a borderline religious howling match between Believers and Unbelievers.
- Believers: The metaverse is the future. Where players will finally own their goods, which will travel through interoperable virtual spaces via the blockchain. Web2 is a predatory license-based horror house operated by monopolistic tyrants. It will die.
- Unbelievers: The future is great content, and Web3 produces bad, auto-generated content or no content at all. No one cares about ownership, they just want to be entertained and not have to deal with people shilling their NFTs. Web3 is a predatory ponzi scheme. Everyone involved is going to jail or should be.
Trying to straddle the middle has few benefits because this polarization has extended to our audience — they’re Believers or Unbelievers too. The audience picks sides, with some percentage absolutely refusing to consider content produced on a model outside of their preferences. This stunts the growth of emerging opportunities and often requires a wholesale shift in demographics for the industry to evolve (as we’ve been seeing with mobile/free-to-play that last 4–5 years). People are always going to have preferences, but when those preferences escalate into flame wars, review bombing, and general toxicity, no one wins.
As a company, if you say you’re considering Web3, then you’re casting your lot with the Believers and your company is suspect amongst Unbelievers forever more (for the record, Fortis isn’t considering Web3). You cannot be pragmatic about this debate, you must be dogmatic.
And the problem with all of this is that it fragments the industry. The talent must pick a side of the divide — do they want to be known as a…Web3 Designer? The ramifications are real, as those who lived through the early dawn of free-to-play saw. The AAA/Free-to-Play divide was similarly fierce to Web3. The end result for our industry was a schism in the talent pool that resulted in us learning at a much slower pace and our games evolving at a much slower pace. Things have shifted in the last five years as more of AAA moves into service design (in order to scrabble together a reasonable hope of profit margin), but there was a lot of time lost. Talent pools that didn’t have this same level of schism out performed (China in particular).
Creative industries thrive on a certain fluidity in ideas and mediums, and polarization has the tendency to force outcomes that calcify into stagnation. AAA has suffered enormously from this. Given the exciting pace of evolution in games at this moment in time, it’s a terrible place for us to be in.
Personally
The monolithic nature of the Web3 narrative combined with the forcefulness of the presentation just weakens it in my eyes. I find the chain of logic on the Web3 side fairly unpersuasive in its totality but fairly interesting on any number of individual points. I’m open to the possibility of continued evolution of value propositions for players in games (my career has been spent thinking about this), but I’m fairly skeptical it has to come in precisely this packaging.
I’ve spent a long time studying ownership in games, largely because it ties into a motivation I’m deeply interested in: collection. Every time a version of ownership has popped up in the industry in a product (Eve Online, Entropia, Second Life, Ultima Online, Diablo III, etc.), I’ve watched it, even when it’s not “true” ownership by Web3 standards. My general conclusion is that most people feel like owners of their accounts’ possessions even when the accounts are subject to a license. Moving toward “true” (which I take to mean you can transfer, buy/sell and cash out at will) is an incredibly costly and risky proposition for both developer and player. There’s value to it, but it’s narrower than you’d think.
It doesn’t mean it’s a non-starter. It does mean that your game got a few orders of magnitude more difficult to design and run than your standard free-to-play economy (which is already wildly difficult to run well). Here’s a few of the incredibly interesting issues as I see them:
- The number of people that tolerate having their virtual goods priced is low. The Diablo III auction house was an example of this. When a game relies on the toasty feeling of getting a sweet loot drop, few things are more disappointing than realizing that thing you farmed 9 hours for is worth $.03. For most, their entertainment is about escapism, and nothing ruins that feeling more than reducing it to numbers, particularly low ones.
- In order for ownership to matter, people will probably need to feel like they’re making an investment. You need reasonably high resell price floors. Price floors are incredibly difficult to reinforce at scale. Generally, you need to maintain scarcity (for example the reserve list on MTG) but it comes at a cost of ever increasing entry price for later players. This caps the accessibility of your game versus a free-to-play model, which allows you to price against individual demand rather than market price.
- An investment model in a game economy is incredibly difficult to design. You generally lose access to linear power creeping as a natural progression model because players who bought in early don’t like seeing their investment devalued. Horizontal expansion space is hard to do indefinitely due to the limited scope of core play mechanics. There’s only so many axes of progression available before you’re just adding entirely new games in — we see people already doing this by moving from character collection and into land sales in their Web3 games. The massive expansion in Magic: The Gathering card text is another example.
- Games are global, but the value of people’s time is local. This came up in Axie Infinity with the value of Smooth Love Potion and gold in World of Warcraft. The value of farmable goods in your game will always normalize at the value of the cheapest local wage rate with access to the game. This means massive inflation in your farmable economy, with few good solutions for combating it (I think I could write a book about this, it’s a super super interesting design problem in Web3).
- Logistic issues like AML, tax compliance, etc.
There’s another couple of dozen, but this blog is already outlandishly long. I think I’ll just leave it by saying: I really wish I could have these debates with people without it degenerating into a Believer/Unbeliever battle. Most of my attempts have been met with prickly responses as people tend to suspect that I’m not an honest broker and I’m actually some nefarious agent from the other side of the divide. There’s endemic fear that acknowledging the strengths of the other side and the weaknesses of your own will be weaponized against you. It’s been a bit depressing to see a bunch of my friends drink the kool-aid one way or another and stop engaging in the discourse.
There has never been a more exciting time to be in games. The possibilities are nigh on endless if we can just get some of these dogmatic narratives and shitty incentives flushed out of the creative pipes. The alternative is stagnation leading to calcification on a creative and professional level. Getting the discourse going between the sides would be a healthy start.
In the end, together, we can all make it.
