Tokyo FinTech
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Tokyo FinTech

Growing blockchain adoption through games

Yat Siu, Co-Founder and Chairman at Animoca Brands, spoke at the Tokyo FinTech Meetup on June 26, 2019, about how games will drive blockchain adoption.

Let me talk about the games industry, and how blockchain is going to change the games industry, and what the financial implications could be.

Broadly, blockchain adoption today is somewhere where the Internet was about 30 years ago. We see a lot of parallels, because back in the day, if you remember, it was really difficult to get online. You had to know DNS, you had to know TCP/IP, you had a to buy a modem, you had to understand all these different routing tables, and if something did not work, it was terrible. And today, blockchain is kind of similar. You have to know how to use Metamask, you have to handle your wallet, you need to manage your private keys. 90% of the potential users drop off in the first five minutes. That was roughly the same experience back in the dial-up days. So there are some parallels. But we also think that there are some similar, life changing developments at the global scale, and games will drive adoption.

We are a medium-sized public company in Australia, probably the only public company that is focused on blockchain games today. But we think in three years this will be completely different. So hopefully, we are right about that. We have been growing very fast, and our share price has appreciated 1,500 percent. We have done about 17 blockchain deals and investments so far, most of them together with Lucid Sight. Most recently, we started working with Major League Baseball. We announced the acquisition of Stryking, which is a fantasy football (soccer) franchise, and we were also the ones who did the high profile Formula 1 deal.

Today, the games industry is anywhere between a 130 billion to 140 billion dollars market. It is bigger than the movie industry, it is bigger than the music industry. So it is a nice space to be in.

Broadly speaking, games has a problem. Games’ problem is 6.2% annual growth. It used to be 30, 40, 50%. Right now, the global games industry is a slowing space. So even though it is a 130 billion dollar industry, it is struggling to grow further. The smartphone growth has happened. There are 2.3 billion gamers, which of course is a lot more than there were 10 years ago, but how do we grow from here?

One of the biggest issues that we see in games is player conversion. The average conversion rate is 1.5%. Only few players pay for the games they play. And these players drive a 130 billion dollar industry. Let me give you a historical example. Lineage has been one of the most successful games, they had revenue of about 1.8 billion dollars since their 1998 launch. But despite the huge commercial success, the services were shut down. In your lifetime, probably 95, 99% of all the games you played have been shut down. At the end of the day, these games are run only by a single company, so they can shut the games down.

So what happens in our industry, is that every time you invest thousands of dollars in a game, when the game shuts down, you lose everything. That is the walled garden effect of the game industry. What would happen, though, if you used blockchain as permanency driver? Would you then be willing to spend more? That is a something we think will happen, and this is where non-fungible tokens (NFTs) come into play.

In the same way you can show fungible utility, you can also show non-fungible utility, meaning every item is scarce and rare. So if I give you digital sword, for instance, I can assure you that that sword is the only one out there. Now, what is interesting, just like in the real world, because every item is unique, what is recordable starts to become important.

To give you one example, we have things like a coffee mug, and it might be worth 10 dollars. But if it was used by Mick Jagger, it is probably worth more. And if Mick Jagger actually made the mug, it is probably worth even more. And you can see how that actually translates into the real world. A tennis racket that Roger Federer used is more valuable compared to the same racket bought in a store, even though the latter one is less likely to break as it is brand new. The former is worth more based on its history.

When you think about it this way, every item suddenly has attributed value, because it is recorded permanently on the blockchain. The sword, the lance that won the championship in eSports, that belonged to the champion, these are all things that now become permanent, and more importantly, cannot be deleted.

So what happens now is, all the items inside the game, even if the game dies, your assets do not, they will stay with you. And you can maybe move them around or do something else with them. With Crypto Kitties, for example, games started to emerge that took advantage of these assets, because people thought “Well, I already own the kitties, why don’t I actually make something out of it” And interestingly, there was an increase in value, because the utility increased. So the concept starts changing the flow in terms of “is the game valuable because the assets, or are the assets valuable because of the game?”

One of the examples here, which had some controversy, is when we sold the first virtual Formula One car three weeks ago for about 130,000 dollars in Ether. Why would someone pay that amount of money for a virtual car? In this particular case, it does not even have utility, since the game is still under development. It is actually just the first car. If you believe in blockchain, and if you believe that this is definitely never going to go away, then you know one thing for sure — stats aside, and of course this is a super car, this is the very first F1 car on the blockchain, ever. There can never be another number one. You know that to be certain.

In the digital world. for gaming, that was impossible. And if you think about it in that context, some people say, well, maybe a few thousand dollars does not sound that crazy. Because 10 years down the road, it will be worth more. No matter how many millions of F1 cars come out, this will always be the number one car. Whether we agree that it is worth 100,000 dollars, that is a different question. But what you cannot deny is that it is the first car. So that is that is one of the areas where a lot of value is created.

With digital scarcity, this is fascinating, because if I want to use this car in my game, I have to pay for it to the actual owner, not to the game company. So the game company will end up making money from the transaction, but it would not actually make money from selling thousands of these cars, or even hundred of thousands of these cars, which is the traditional way games have been played.

If you look more broadly, the collectibles space is a 370 billion dollar industry, The most expensive collectible, of course, is the Honus Wagner baseball card, that is 100 years old, and most recently sold at an auction for even more, for 3 million dollars. So this is a space that we think will increase exponentially through blockchain, because of the fact that there are over 2 billion gamers, and they are spending so much time.

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Norbert Gehrke

Passionate about strategy & innovation across Asia. At home in Japan. Connector of people & ideas.