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Yat Siu, chairman of Animoca Brands, believes that blockchain and decentralization will revolutionize gaming. But the mainstream gamers who are supposed to benefit from it haven’t been very receptive so far. I talked with Siu about this problem in a fireside chat at our GamesBeat Summit 2022 event.

Gaming has a love-hate relationship with blockchain games and non-fungible tokens (NFTs). We’ve seen conflict among hardcore games and some traditional game devs on one side, and crypto enthusiasts and blockchain game pioneers on the other side.

And that conversation is only going to get louder. In the first quarter, we saw 128 blockchain game companies raise $1.2 billion at lofty valuations, and we heard some game entrepreneurs complain that it was hard to get funding for other kinds of games. As those companies and the ones that got funding last year bring their games out, we will find out if the critics are right or the true believers will see success.

While Sky Mavis’ Axie Infinity was an early NFT success, it has a lot of critics. Ubisoft, Discord, Team 17, Troy Baker, esports teams, and GSC Game World have walked back plans related to NFTs. Animoca Brands lost its F1 brand license and shut down one of its blockchain racing games.

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But blockchain games have received a more enthusiastic reception from crypto fans, Asians, mobile gamers, and those who embrace experimentation.

Animoca Brands' team
Animoca Brands’ team

Siu pointed back to the early days of free-to-play games more than a decade ago, when critics said such games were scams and bad for gamers. But now the game audience is 10 times bigger and free-to-play is the dominant business model.

Siu said that Animoca Brands started interest in blockchain in 2017, when Axiom Zen was launching CryptoKitties, an early success with NFTs where players could breed their own cats and sell them to other players. In early 2018, Animoca Brands acquired Fuel Powered, a company whose clients included Axiom Zen, which spun out CryptoKitties to Dapper Labs.

“That’s how it all started. And ever since then, we’ve swallowed the red pill,” Siu said. “We’ve made over 200 investments in this space.”

The company also acquired a majority stake in The Sandbox in 2018. And it was an early investor in Sky Mavis, OpenSea, Wax, and Decentraland.

“The mission for Animoca Brands is really to deliver true digital copyrights to all, which is what we believe non fungible tokens are able to do because, for the first time, we can truly own our digital assets, which was something that we couldn’t do before,” Siu said.

I noted the opposition to NFTs that arose after Ubisoft announced NFTs for its Ghost Recon: Breakpoint game in December and got roundly criticized.

“There’s a little bit of irony there, which I’ll explain maybe later. But the first thing I would point out is that the resistance we’re seeing today is entirely a Western one. And meaning that it typically comes from the U.S. and some European places. But you know, in Asia, nobody has resistance towards NFTs or digital property rights in their games,” Siu said. “And we’ve seen some similar parallels to that actually, when you look back in the early free-to-play days, if you may remember, back in 2011, and 2012, when console game developers and other traditional game developers went into free to play and went into mobile.”

He added, “And similarly, people were disregarding it because it felt to them that it was a way in which more unfair value was being extracted from the end users who were playing the games. Now, I think one of the interesting parallels, though, around where we see today, versus free to play back then is that the world has also changed. Meaning that there is much more inequity than there was 10 years ago. It’s also much more apparent, the Gini coefficients in the world are getting worse. It’s because traditional forms of work are declining.”

I wasn’t sure exactly where Siu was going with this, as it seemed to be getting far away from NFTs.

Animoca Brands' MotoGP Ignition game.
Animoca Brands’ MotoGP Ignition game.

He noted that labor is worth less and capital is increasing in value. And when COVID came, it was clear that not everyone was struggling and suffering together. The wealthiest became evern wealthier, whereas the ones were struggling slipped further behind.

“We have a problem in the world. And so one of the places where people were able to not exist in this fashion, was the video game world,” Siu said. “It’s not so much even escapism. It’s actually a reality. And it’s a reality that is real to the people who are there because the communities are based on a kind of equity. It’s based here on skill or based here on ability. We respect each other. I don’t care if you’re the CEO of a giant company, or if you’re a high school teacher, we can all be together. And we can be friends here. And we are not divided societally through a capitalist structure, which is what game world has given us.”

He said gamming communities are so powerful because they connect people from all societies and classes and create a very diverse framework. Friendships are born this way, as are marriages. One of the problems with NFTs was that, rather than celebrating this culture, people began to think of NFT assets as potentially worth hundreds of thousands of dollars. Players began to worry if this would ruin the gaming universe and make it more unequal like the real world, Siu said.

“Is it going to threaten the space in which I can exist because now I can no longer afford, like in the real world, where everything that I perhaps desire to have I can no longer afford? Is the world of games going to go this way?” Siu said. “I think this is view, which we think is not true at all, has become a little bit of that narrative. And so all other things around NFTs, like the conversations around the environment, concerns around Ponzi schemes and scams and all that simply become ammunition for a narrative that really doesn’t want to create a world where the games world starts to mimic some of the inequities that we see in the physical world.”

A lot of this negative reaction has come from the Western part of the world, I noted. NFT supporters have said that free-to-play went through the same skepticism from gamers and then it exploded in popularity, accounting for more than half of revenue now and increasing the game audience 10 times. The NFT supporters believe the gamers and developers will come around again with blockchain games. We have seen talent move into blocchain games with a number of well-known devs jumping into it. But I noted a lot of game devs are not on board still.

“To the earlier point, what blockchain delivers to the world, and especially to gamers, isn’t a purely technical innovation,” Siu said. “Actually, it is a political one. It’s a human one. Meaning that for the first time the ownership of these assets is decentralized. [That] is actually the true revolution here as opposed to we can do all of these technological frameworks. And we can process data faster in a centralized manner. That’s established. That’s not in dispute. But the problem is, who owns the data? Who controls it? Who has the ability to switch the buttons on and off anytime they want?”

The metaverse is coming in the form of The Sandbox.
The metaverse is coming in the form of The Sandbox.

He added, “It’s again companies. How many companies change the rules on their players every day? What value does the player have spending in these games? It is none at all right? And yet, the gamers actually create value for the game itself. One of the criticisms of blockchain developers” is that decentralized finance will pervert the gaming ecosystems to be all about money.

“Well what? Your games are all about money anyway. Who’s making all the profit? In fact, you’re being extracted as a player every day,” Siu said. “All that blockchain really does is to provide a transparent way in which you understand what the value formation is, and that you can then claim a stake in it. You can say, ‘Hey, wait a second, my time is worth 100 bucks. Well, if my time is worth 100 bucks, shouldn’t you pay me something for that? But this is something we don’t understand. How many gamers today take a look at the corporate books of EA, or Activision, and see what profits they have and how profitable the company is? They play the games, and they enjoy them. But they don’t understand that these companies are making incredible amounts of money off of your time.”

Siu believes that we need more financial education about this. Game developers may also lack some of this understanding, he said, as they get paid a salary to do their work. And in return, the developers think about how much money they can contribute to the company that they work for. To realize what is possible takes a mind shift, he said.

“Once a game developer, no matter where he (or she) is, whether it’s web 2 or anything, is thinking in the framework of ‘How do I deliver the best value to my players? How do I actually even make them money?’ I actually think it’s an unbeatable argument,” Siu said “Because that’s what you offer them. At least you know that you’re offering them fair value for your time. What we’re asking for is not that you may necessarily make a lot of money (as players). What we ask for is that game firms the world over are going to finally treat their players fairly and equitably.”

I noted that so much of this is wrapped up in trust and who you trust. Do you trust the game developers to do what they say will do with their blockchain games? Do you trust the current game publishers? Do you trust in the NFTs? The technology, the currency, the cryptocurrencies?

He noted some economies like Eve Online and Second Life have lasted for a long time as closed ecosystems, built on trust. Roblox als has a closed ecosystem with its players too, he said. It took them decades to prove they can be trusted.

“With blockchain, you can start with trust on day one because at least you know that you can’t alter or change what has been minted and what has been produced,” Siu said. “You can also easily audit if (the publisher) is trying to cheat the system. If any of those companies like Roblox were to make changes in the way that they issue items, for instance, you wouldn’t necessarily know unless Roblox gave a disclosure or someone saw it inside the game. But if it is done on chain, it is fully transparent. And it is this transparency that matters, the fact that someone who has perhaps central power might be like a benevolent dictator, do the right things. However, there might be a few things where they go if you just do a little bit here, and there, you can make a little bit more money and nobody will know.”

Those publishers are tempted to optimize for profits and they go down a slippery slope.

Animoca Brands wants to be the leader in blockchain gaming.
Animoca Brands wants to be the leader in blockchain gaming.

“Absolute power corrupts absolutely. Nobody starts off with having bad intentions. It’s the fact that you hand all this power to one entity that eventually they begin to abuse it because it suits them,” Siu said. “They self rationalize. And what blockchain really does is it opens up that trust, it makes everything auditable. It makes everything accountable to others, which is really, if you think about it, what the best functioning democracies do. You are accountable for your actions. It is not that you’re necessarily intentionally doing something harmful, but if you do something that might not be right, then at least others will immediately know and react and call you out for it.”

I noted the current NFT presales that sell assets ahead of the game launches are akin to Kickstarter campaigns. And we’ve see Kickstarters that both work well or rip off players. It seems like they raise money and then we have to wait a long time for the quality games to arrive. Those quality games will help NFT games hit the mainstream, but that will take time.

Siu noted that one key difference between Kickstarter games and NFTs is that you get ownership with the NFTs, whereas Kickstarter might get you a copy of a game to play for a time. That is, Kickstarter is like renting, and NFTs are more like owning. If you put money into an NFT, you can potential get your money back or more than that by reselling it.

As for getting more adoption, that can come through a variety of ways.

“But I think starting from the game developers — and, again, indie game developers should understand that this is an incredible opportunity for them to create the games that they love,” Siu said. “One of the issues that indie game developers are struggling with is they have to make games that appeal to a mass audience because only a mass audience can make enough money, which means you’re cutting corners to some levels of your creativity. Perhaps, but more importantly, you also have to abide by the rules of the platforms. Like what does Google want? What does Apple want? What does Steam want? So at the end of the day, once you chisel away at what everyone else wants, how much of the game is being built about what you really want, right?”

He said that if game developers can get their money upfront through NFT sales and form communities with players who are willing to invest in their games, then they can make the games they want to create and not have to worry that the game won’t have millions of players.

“I think if indie game developers embrace this, they will have the freedom that they seek,” Siu said. “And as a result, they will create fascinating and amazing game experiences that consumers themselves will say, ‘Hey, that’s a new innovation. I haven’t seen something like this.’ It’s very hard to make an innovative game today because of the fact that platforms may not like it, because it’s not what might sell a lot. And this is the problem about diverse choices and creativity. If you can only produce things that might appeal to the masses, then you’re not going to get quality or new innovations or new ideas from that space.”

Another argument on the consumer side is that first-users can get access to free assets, or free NFTs, in the beginning. They can eventually make money off those assets and in the meantime they become the viral element to make the game more popular.

“This is a way in which you can really use the energy of the community to create a sustainable framework where 90% or 95% of the value goes to the players,” Siu said. “And whereas the business just by having five or 10% of the volume of the transaction is more than just sustainable. So these are really attractive business models that I think gamers and game developers need to understand better and, once they do, I think they will embrace this more fully.”

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