Hillrise Research
Published in

Hillrise Research

AMA Highlights: Animoca Brands

By Daniel Dal Bello, Director.
July 27, 2021–15 min read.

On Monday 19 July, we welcomed Yat Siu, Chairman of Animoca Brands — an influential player in the blockchain-enabled gaming space into the Hillrise Group Telegram chat for an AMA.

Animoca Brands are well known for their involvement in many of the most popular blockchain-enabled games and gaming platforms including The Sandbox, F1® Delta Time, Gamee, Alien Worlds and more.

We were curious to learn more about the Animoca Brands business, their in-house development experience, and future strategy!

In this post, we have compiled key questions and answers from the event.

Daniel Dal Bello
Welcome Yat, thank you for joining us! We’ve been very much looking forward to this conversation as over the past 12 months our fascination with the convergence of blockchain technology and gaming has continued to grow.

Could you please start us off with an introduction to yourself and Animoca Brands? We would love to hear about your personal conviction for blockchain-enabled gaming and where we are heading.

Yat Siu
Sure, I’m Yat, Chairman of Animoca Brands and we have been building in the blockchain space, specifically on NFTs since late 2017/early 2018.

I myself have been in the gaming industry for over 3 decades having first worked at Atari, in the 80's so I have had a little bit of video gaming history and bought my very first virtual item for cash in the late 80's in what was known as a multi-user dungeon i.e. MUDs back in the day.

So I have always had a specific relationship with virtual goods and their relative virtual value but for the longest time, this was not something that was actually possible until blockchain came about because we can now truly own our digital assets.

As a result, we started investing heavily in the space, back when NFTs were literally just held by tens of thousands of people max and today we have invested in over 75 blockchain/NFT related projects, many of them you may have heard of such as Dapper Labs, Opensea, Bitski, Axie Infinity and of course our own The Sandbox, F1® Delta Time, Gamee, Quidd and a whole host of other awesome NFT projects out there.

A brief history of some of what we did in the NFT space in the last 3–4 years.

Daniel Dal Bello
On the back of being a more “traditional” gaming company, Animoca became one of the first public gaming brands to embrace blockchain several years ago. Since then a lot has changed with several acquisitions and many more investments.

What is the high-level strategy for Animoca? How much of your resources are split between in-house development and looking outward for external investments?

Yat Siu

As you can see from this diagram (below) we are very globally distributed.

Animoca today employs over 400 full-time staff dedicated to blockchain gaming and NFTs.

From a purely operational sense, you could say that 80% of our resources are deployed towards our own projects such as SAND, REVV, GMEE, TOWER, LYM and many more projects that we have developed in-house as making investments doesn't require as much manpower.

But the relationship, network effect, and value of our portfolio are probably worth at least 1/3 and perhaps maybe even half of what we do and we like that approach because we want to make sure that we can make positive ecosystem decisions because we would benefit also from the ecosystem network effect.

For instance, we were the lead investor of Axie Infinity back in 2019 or Dapper Labs before NBA Top Shot, or OpenSea all of these companies are now worth a whole lot more than before and benefit the overall ecosystem.

We will continue to progress along the same way as we grow/acquire and invest/promote the ecosystem.

Daniel Dal Bello
For us at Hillrise, our interest and excitement about gaming has largely been built on some of the overarching concepts of Web3, like ownership.

When we talk about ownership in the gaming context, we are talking about owning in-game NFT assets or in-game currency (tokens) that are held in player wallets rather than on centralized servers. If the game goes down, you still own your assets.

How critical is this digital ownership concept to you in the success of blockchain gaming? How can we seamlessly integrate these concepts into existing games and more importantly, introduce them to a legacy gaming audience?

Yat Siu
In our opinion, this is *absolutely* critical because without true digital ownership you cannot have actual property rights and all the benefits of ownership and the related equity/capital cannot apply.

When you look at this, we consider that you need a secure and immutable layer of trust that establishes ownership, otherwise, you cannot trade, you cannot use it elsewhere, you can’t do anything without permission.

The P2P capital benefits are critical to this, in our opinion.

Imagine if you wanted to sell your house but you could not produce the title deed? What is the value of that house?

The same is true for assets inside games, if you cannot prove that you own it and have the property and are entitled to transfer or to obtain its benefits, it is, in effect, not worth much.

In our opinion, gamers already understand virtual asset ownership better than most so we think the integration is easier for gamers than most.

Virtual Goods alone in the existing non-blockchain gaming world is already $100 billion.

Daniel Dal Bello
I agree, that’s why this concept is so exciting… it just makes sense.

Yat Siu
These are rental economics, imagine what this might look like if they turned into one of ownership, this is what we believe will be a significant opportunity for everyone involved.

We think the secret to onboarding is not solely focused on a user-friendly experience but one of delivering value, if the value is there the complexity of onboarding may not be as much of a challenge as we think it is, and Axie Infinity is proving this point.

Hundreds of thousands of players want to play, most have never owned any cryptocurrency before or even know fundamentally how the blockchain works but, they play it for a living. Other games like F1® Delta Time have started to prove this out as well .

Raymond Reijnders
How do you see bots impacting in-game economies? It’s something we see in more and more games, and with increased sophistication.

Yat Siu
This is a great question, there are a great many people who may argue that bots are bad but I think a more nuanced view is necessary, much like the physical world where automation is prized, the metaverse will have the same effect. Meaning that the best games will go beyond mechanisms that bots can always do better.

That being said, blockchain has, in effect, more mechanisms in place that can ensure that for certain games the rules can prevent bot activity as we foresee the level of chain integration to be at the hardware level right down to input.

In short, just how blockchain can scale trust, it can also scale verification of activity so that we can have a skill-based activity that is virtual and trustless.

But bots have a place, if people can create bots that can be more efficient then it requires the economy to react accordingly, if it fails to do so it may not deserve to be around in the first place because it may not be the best strategy to try to “beat” bots.

In our Sandbox for instance, creation is a critical component of gameplay and promotes free and creative production that is not easily reproducible by a bot and is very individual.

Raymond Reijnders
Thank you for the explanation! Hardware-level chain integration could be amazing… this reminds me of hardware bans that some of the larger publishers enforce.

Daniel Dal Bello
One of the big topics of discussion around Animoca this month has been your recent fundraise. You have raised a total of ~$138m USD at a pre-money valuation of $1b. Congratulations!

This was supported by some incredible names like Blue Pool Capital (associated with Jack Ma), zVentures (Razer), Coinbase Ventures, Samsung Venture Investment Corporation and more.

You mentioned to Bloomberg that this was more strategic than a necessity and will be valuable for acquisitions and other transactions.

What kind of strategic position are you looking at with this raise and how important are these backers that have come to support you?

Yat Siu
We are very honoured to have received this investment from some of the biggest names in tech. So, why is this important for the industry?

For starters, it is a way of onboarding some of the most influential people in the space not already in blockchain, for many large investors this was the first serious blockchain investment, and it is interesting that it did not start with DeFi necessarily.

We always maintained that we felt that gaming/entertainment/culture would be the mass adoption driver to blockchain, to do that though we don’t need just great games and influencers, we also need the worlds most influential capital, especially in technology to be involved.

Collectively groups like Razer, Samsung or Blue Pool have direct or indirect access to millions of potential customers in a way that nobody else can.

The other thing is access to IP, access to talent, access to high-level contacts, they provide that in spades, so we are very lucky to have them. Strategic investors deliver very strategic value to the business!

Jeroen Hoppenbrouwers
We note that you feel as if Web3 is the new internet and that NFTs are something like how the internet was in the late-90's. You have made over 65 investments in the NFT arena over the past 2 years, including Dapper Labs, OpenSea, Axie Infinity just to name a few.

What’s so groundbreaking about NFTs and their potential for the future?

Many unfortunately see it at the surface as simply another fad.

Yat Siu
Our investments have now grown to 75 😊, but yes, we have made many investments and continue to make more as well as grow our own enterprises.

Why is it so groundbreaking? For starters it delivers for the first time the ability to truly own your digital assets and your digital life and build digital equity. We are often asked, why is this important? Is our digital life really important, why do I need to “own” it?

To those I say; if your digital/virtual life is not important, imagine what your life would look like if, one day, you were digitally de-platformed and you could not be on Facebook, not use Google, not use Twitter, and not be on WhatsApp.

Would you be able to enjoy the same liberties and economic opportunities? Are you able to be as social or make friends? For most of us, being digitally de-platformed is the equivalent of having been stripped of our rights and dignity because we have significantly less potential as a result. In summary, our digital life is critically important but we don’t own any of it, we exist on other’s terms of service.

We are living in digital feudal kingdoms today and all of us are digital serfs.

So, the value of owning digital assets through blockchain is that actually what is valuable in this world today, really guided by virtual and meta concepts is data. In the end, those who own the data own the new digital capital and that is encapsulated with the digital property rights that is NFTs.

This is not a concept specific to a specific blockchain, every person in the space understands that data is important and is the future.

The question becomes — who actually owns that data? Who gets to benefit from the data and the knowledge and the network effect that is derived from it?

Daniel Dal Bello
It’s a shift from centralized platforms to true ownership which is really exciting!

Yat Siu
Indeed! For us, NFTs represent that because they are open digital assets that can store and contain and pass through the benefits of the network effect and the data ownership to their respective owners.

You can see this today for artists and creators who get a cut of each transaction for their original works and the benefit is shared by the creator, and the seller as well as the buyer all transparently and on-chain. As just one simple but common example.

Raymond Reijnders
Your position with Animoca as a developer and investor in nascent tech and new games is a little different to some of the big gaming giants — Tencent, Sony, Microsoft etc. and their attached networks of publishers and development studios.

It’s a matter of time for these development studios and publishers that are already well-accustomed to in-game economies and currencies to adjust, and notice that there is a lot of value in ownership for the gamer themselves.

If we talk purely in the context of in-game currencies, if we threw in a blockchain wallet to hold that currency, then conceptually there is not much difference to how many popular games operate now.

Do you perceive a competitive threat from these big incumbents moving into blockchain?

Yat Siu
All incumbents struggle with one major thing around new business model innovations that could potentially disrupt their own business models, especially if they continue to be successful with them.

And, that is the Innovators Dilemma. Even if they understand what may be happening the ability to make changes, historically, is slow and difficult because it disrupts everything, it’s better to try and maintain things as-is for them. If you look at mobile gaming, it took almost 5 years for the big game studios to actually enter mobile gaming.

So, while big incumbents will naturally move to blockchain over time we have a first-mover advantage. If you look today just in the gaming space how much bigger it has become and how many of them were formed just in the last decade due to mobile, many of them even larger than the biggest game studios of the past.

And also true for UGC gaming and metaverse gaming like Roblox. Isn’t it amazing how despite the growth of Roblox (and Minecraft) none of the big game companies has come out with a rival product?

Roblox is a 40–50 billion-dollar company. It did not just “suddenly” appear, it was built right there in front of everyone to see, and it has a market cap larger than EA!

So — certainly incumbents can be a threat but history has shown us that it will take a while for them to get there, that is our opportunity for companies like us.

Raymond Reijnders
You’ve previously stated that ‘content is king’, but to our understanding, you argue that content lost its natural path to the consumers in Web2 due to the excessive discovery costs. This brought about a dynamic where key distributors such as Netflix, Spotify, and Steam decide what content reaches you, and how.

Content released outside of the aggregated selections decided by distributors struggles to find an audience.

You’ve also spoken about blockchain as a path to solve this, but we’re not entirely clear on what that path actually is.

Could you elaborate on how exactly you see blockchain technology and NFTs as a potential solution to this content distribution problem?

Yat Siu
One of the very first big pieces of our thesis on blockchain gaming and NFTs was precisely this paradigm shift articulated here. The emphasis on how, with assets, content is the platform that makes content truly king because discovery and its related network effect become embedded within the asset itself, i.e. the content.

And that the desirability to use it or add utility will grow as the network effect grows from within those assets. In the physical world, we already have such paradigms in a sense because we allow for P2P business economics. Allow me to illustrate.

In the content world where distribution is, in fact, queen and famously she wears the pants because, after all, without discovery, your content cannot be found you rely on the discovery platform to set the exclusive rules of how it is enjoyed, used etc.

In the physical world, if I bought a car and I wanted to paint the car blue I need to seek permission. If I want to hire a driver, hire a mechanic, build a road, sell fuel, I need permission because we don’t own it and therefore are unable to create direct relationships with the asset itself. That is possible now because content = asset with NFTs.

So if I own an asset someone can build and construct services (loans, fractionalization etc.), or utility (games, benefits, membership) on top of it in all sorts of ways and the discovery takes place because of your ownership of these assets not because someone told you to find it in a central place like an App Store.

CryptoPunks anyone? And frankly, any strong NFT product has a network effect that attracts others to build and utilize on top of it without needing platform permission. In the physical world, you can think of it as the discovery effect of brand power.

We desire, for instance, to have a Rolex or to use a Rolex in a campaign because it utilizes it, Rolex is, in fact, a network effect and is a platform by itself because it symbolizes something special.

Rolex does not need to be on the App Store to be seen, people want that Rolex and to be associated with it and will build experiences or utility for it based on who wears it and how they use it and which locations they use. In that sense, the asset/brand is the platform and with NFTs all content become assets.

Daniel Dal Bello
You’ve partnered with Brinc to collaborate over an NFT Accelerator, bringing your experience and resources to one of Asia’s leading accelerators.

Can you talk to us about the goals of this program and the role it will play in your future operations? What impact will this have on the Animoca Brands ecosystem and network?

Yat Siu
Heard it first here, this isn’t public yet 😉 but watch the news tomorrow on this!

Our goal ultimately is to bring NFTs to all and to help onboard, as many new creators and developers into the NFT ecosystem and we are aware that not everyone understands this world.

The accelerator is here to help solve that.

Raymond Reijnders
As a final question, what are you looking forward to most for Animoca and in the blockchain gaming space in general over the upcoming years?

What are your expectations? — Do you think blockchain tech and NFTs will reshape the (economic models) of the traditional gaming space in the (near) future, or do you think it will remain within its own niche?

Yat Siu
We are super stoked about the future of gaming/the metaverse because of what NFTs and blockchain can deliver.

We are looking forward to continuing investing in and building out the ecosystem through what we are doing with our portfolio and assets, loosely described in this diagram with brands, gaming, and utility assisting in discovery.

Our view is that this is a complete shift that is — in effect — like a revolution but in the digital asset space as significant as when society moved away from feudalism and introduced property rights to everyone.

Here’s what really interesting to ponder on.

In the current gaming industry, the free to play (majority of gaming revenue) comes from a conversion that is an average of 1.5%. In 2020 for mobile games alone almost 80 billion dollars was generated by a paid conversion audience of approximately 1.5%, if you increase that conversion to, say 15% that is an equivalent market increase of 10x which would turn gaming into a trillion-dollar space.

We believe digital ownership will do that to games and so we’re very excited about how this is playing out and you could say early signs have already started to be seen in this space already when you look at Axie Infinity, The Sandbox or even F1® Delta Time. Because we’re moving from rental economics to one of ownership.

Daniel Dal Bello
Thank you very much for your time and the detailed answers. Looking forward to keeping across your movements at Animoca as you continue on this year, thank you!

Yat Siu,
Thank you, everyone, for your time!

Hillrise Group supports ambitious Web3 startups with early-stage venture capital and fundamental research.

Animoca Brands is a global leader in digital entertainment, gamification, and branded blockchain gaming.

Connect with Hillrise Group
https://hillrise.group
https://hillrisegroup.medium.com
https://twitter.com/hillrisegroup

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Hillrise Group

Hillrise Group

Hillrise Group is a blockchain-native venture capital and consulting firm supporting emerging Web3 startups.