85 - The Crypto Gaming Revolution | Arianna Simpson

Arianna Simpson of a16z comes on the Bankless Podcast to explore the insane momentum we've seen around crypto gaming. The product-market fit between the gaming and crypto worlds is palpable. The scaling and maturation of the crypto economy make for a ripe inflection point for an explosion of cultural applications. What does Play-To-Earn mean for the investor? Is ETH money for the metaverse? Arianna's takes offer a huge amount of insight as we dive into the future of both work and play. ✨GET THE EXCLUSIVE DEBRIEF✨ https://shows.banklesshq.com/p/exclusive-debrief-the-crypto-gaming ------ 📣 TracerDAO | Perpetual Pools are now Live on Aribtrum! https://bankless.cc/Tracer ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha 🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger 🦄 UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants ------ Topics Covered: 0:00 Intro 5:00 Arianna Simpson 7:05 Crypto Gaming: Why Now? 10:06 How Big is This? 17:15 Building Infrastructure 20:29 Player Ownership 28:13 Eating the World 31:55 Progression to Play-To-Earn 37:30 Capturing Value 41:27 Isn’t it a Ponzi Game? 48:30 Working in Crypto Gaming 58:08 Consolidation of Resources 1:05:03 Impact on Culture & Industry 1:15:36 The Metaverse 1:20:17 ETH is Metaverse Money 1:27:10 Closing & Disclaimers ------ Resources: Arianna on Twitter: https://twitter.com/AriannaSimpson?s=20 Masters of Doom: https://www.amazon.com/Masters-Doom-Created-Transformed-Culture/dp/0812972155 ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:08Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan John Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, awesome conversation today. What were some of your highlights? And who did we talk to?

• 0:28David Hoffman?

  Yeah, we talked to Arianna Simpson of A16Z Crypto, who has had a particular focus emphasis lately on the crypto gaming side of things, which is what we talked about today. And I think crypto gaming has an extreme amount of product market fit with, I think, the current crypto community. For some reason Diablo 2 is like a shared cultural pastime of almost all of us in the crypto world. And I think we're all very, very stoked to see what comes out of a crypto gaming world, because I think we all believe that the games that come out of an asset-powered game is going to be fundamentally different and I think much more rich and much more fun to play when there's economic assets that are part of the game itself. And so that is the topic of today's show.

• 1:12Ryan Sean Adams?

  Absolutely. Crypto gaming is going to be massive. If you think about this, just in regular gaming, 60% of all Americans play some form of a game. Video game streaming reaches 1.2 billion viewers every year. Fortnite generates 5.1 billion in revenue. The whole industry is expected to surpass 300 billion. But you know what just happened this year is Axie Infinity jumped on the radar. Now it has like 1.5 million players. It's reached a fully diluted market cap of $18 billion, right? So like crypto gaming is here. I think some of these early games have sort of proved this. And what we really wanted to go through with Ariana is like, why? Like, why is this suddenly happening now in crypto? And how does an investor see this? What's the lens?

• 1:57Ryan Sean Adams?

  So we talk a lot about owning games or owning items in a game in these asset-powered games, and how important that is. We talked about the transition to this play-to-earn movement that we're seeing. We talked about employment via gaming and how That's going to shape culture. And finally, we talked about how this all ties into the metaverse and ultimately Ethereum and ETH the asset. And she had some really great takes all along the way. So if you are trying to figure out what the next big thing is in crypto gaming, this is an episode you're going to want to pay full attention to. Before we get to the conversation with Ariana, we want to thank the sponsors that made this episode possible.

• 2:36David Hoffman?

  Living a bankless life requires taking control of your own private keys. Not your keys, not your crypto. That's why so many in the bankless nation already have their Ledger hardware wallets, which makes proper private key management a breeze. But the Ledger ecosystem is more than just a secure hardware wallet. Ledger is the combination of the Ledger hardware wallet and the Ledger Live app. And if you're used to seeing all of your crypto services and favorite D apps all in one place, Ledger is where you want to be. Not only does Ledger let you buy crypto assets straight from the app, but it also hooks into decentralized exchange aggregators like Paraswap, which makes sure that you are getting the best prices on your trades without your assets ever leaving your control. DeFi never stops growing and the Ledger Live app grows alongside with it.

• 3:19David Hoffman?

  So click the link in the show notes to see all the DeFi apps that Ledger Live has. And stay tuned as more and more apps come online. And if you don't have a Ledger hardware wallet, what are you even waiting for? Go to ledger.com, grab your ledger, download Ledger Live and get all of your D apps all in one place. Arbitrum is an Ethereum scaling solution that is going to completely change how we use DeFi. If you've been using Ethereum for the past 12 months, you've probably noticed the high gas fees and the slow confirmation times that have been plaguing DeFi. Too many people want to use Ethereum and it doesn't have enough capacity for all of us. That's where Arbitrum comes in. Arbitrum is a layer two to Ethereum, which means Arbitrum can increase Ethereum's throughput by orders of magnitude at a fraction of the cost of what we are used to paying.

• 4:04David Hoffman?

  When interacting with Arbitrum, you can get the performance of a centralized exchange while tapping into Ethereum's level of security and decentralization. This is why people are calling this Ethereum's broadband moment, where we get to add performance onto decentralization and security. If you're a developer, And you want to save on gas costs and make an overall better experience for your users? Go to developer off chain labs.com to get started building on Arbitrum. If you're a user, keep an eye out for your favorite DeFi apps building on Arbitrum. Arbitrum has been working with over 300 teams, including Ethereum's top infrastructure projects, and will be opening up to all users shortly. There are so many apps coming online to Arbitrum, so you may want to pack your bags in preparation for the great migration to the Arbitrum Layer 2.

• 4:48David Hoffman?

  To keep up to speed with Arbitrum, follow them on Twitter at Arbitrum and join their Discord.

• 4:55Ryan Sean Adams?

  Bankless Nation, we are super excited to introduce you to our next guest. Arianna Simpson is a general partner at A16Z Andreessen Horowitz, where she invests in crypto, particularly, and this is going to be important this episode, on the gaming side of things, all about crypto gaming. Prior to joining Andreessen, Ariana founded Autonomous Partners, which was an investment fund that focused on cryptocurrencies and digital assets. And she was recently just named to Fortune's 40 Under 40. Ariana, congrats on that and welcome to Bankless. It's great to have you.

• 5:29Speaker 02

  Thank you so much. Super excited to be here.

• 5:31Ryan Sean Adams?

  All right, guys, this is our crypto gaming episode. And I know your focus, your specialty is all about gaming more recently in crypto. You've had extensive experience in the other sectors within crypto. And I want to set some context for Bankless listeners in terms of why we're talking about this. I think it's really because crypto gaming became a major force this year, right? Axie, 18 billion in fully diluted valuation, 18 billion with a B, 3 billion annualized revenue at one point in time. People are living off of video games. People are living off of Axie. At its peak, the game that was Axie was generating over 15 million in revenue per day,

• 6:14Ryan Sean Adams?

  1.5 million daily active users. So Axie has just like blasted the door off of this thing. Now everyone sees what's possible. We've got guilds and DAOs like YGG, creating entire economies for employees. We have Loot, which is absolutely blasting off. Now we have the advent of Layer 2. Guys, it feels like time to do a Bankless podcast on crypto gaming. So I want to start, Ariana, with this question to tee us up. Why are you so excited about crypto gaming? And also, why now?

• 6:49Speaker 02

  Yeah, absolutely. I think, you know, if you look at the history of crypto, we've really spent the last few years building the core infrastructure that was necessary in order to start enabling some of the more consumer-facing and application-layer experiences, including games. And in order to support those games, first, we had to build some core infrastructure, whether that was Layer 1 blockchains, or scalability solutions, or a number of other things. And so while that's certainly all still in progress, and we're never really going to be done building things like that, we've now reached a level of kind of functionality where we can build things on top.

• 7:31Speaker 02

  And so I think the fact that, you know, that's the point that we're at now, is what's enabling a lot of these gaming and entertainment experiences, obviously first and foremost Axie, but the whole ecosystem around it too, to really start to flourish. And if you think about, you know, why this matters, I think the critical piece is crypto has always had a very high barrier to entry. It can be a little bit daunting, you have to be fairly technical. And gaming, I think, occupies a really unique space in the sense that it's allowing people who might otherwise say, "Oh, I don't know how I would get into this, you know, what's a transaction, what's a hash, what's either scan",

• 8:16Speaker 02

  you know, all these things, to start playing around with it in a way that's a lot more approachable and fun, frankly. And so what we're seeing is that it's really opening the floodgates for a whole universe of new crypto users. And that, to me, is incredibly powerful, because at the end of the day, if crypto is to realize the vision that we've all kind of hoped for and been working towards over the last few years, it really needs to have mainstream appeal. And so games, I think, have opened that door, and are bringing in users who were not sort of, they're net new users to crypto, I guess. And so, once people come in, start playing games,

• 8:59Speaker 02

  See, you know, the fun, the potential economic upside, um, you know, uh, the communities, so many positive things that can be found in these experiences as people play around with it. Um, you know, then they start to percolate out into other parts of the crypto ecosystem. And to me, that's, you know, that's the most exciting thing because as a builder in the crypto space, what you really want is people to use your products and services that you're spending all this time building. Um, and so, you know, games are a really powerful engine for increasing the number of those users.

• 9:33David Hoffman?

  Ariana, when you said that we've kind of already figured out this core infrastructure and we can now open up to more commercial applications, that actually is like, starts to get my hair to stand up because it's been so long in crypto where we've been at this like infrastructure level and opening up the world towards the commercial layer is like something we've always been like saying, like, hopefully this time will actually come where like crypto people will just become normal people. So with this, with this like new era in crypto where we are now getting into like the broad commercial applications, especially with gaming, how big of an unlock have we just met? Like with the unlock of crypto gaming, like how big is this? I guess it's a question of total addressable market. But with the current size of crypto, at least with population versus what could be unlocked

• 10:17David Hoffman?

  with gaming, what's like the comparative magnitude of these two different things?

• 10:21Speaker 02

  I mean, I think that TAM is nearly all people on the planet, which I know sounds crazy, but is actually very realistic in the sense that we're increasingly all online all the time across the world. Internet penetration, obviously, is continuing to rise. Like the, the, the universe of people whose lives will be touched by crypto in some way, shape or form, um, I think is pretty much all people on the planet. Obviously, that's not, you know, yet today, but it's happening over time. Um, and I think when you start to think about, um, you know, enabling that, obviously, some of the issues we've seen on the infrastructure

• 11:03Speaker 02

  side are kind of a key gating factor. Um, the demand for throughput on blockchains has been rising at an incredibly fast clip. And I think if you look at, um, you know, how full are blocks on Ethereum as a proxy for that, obviously, uh, you know, we, we have a real issue there. Gas prices have been out of control, et cetera. And I think one very clear, um,

• 11:28Speaker 02

  Data point about the fact that demand is really actually very hard to forecast until you lower those transaction fees is what happened with Axie, as you mentioned, and moving over to their Ronin sidechain. So, you know, Axie had been doing fine, decent growth, whatever. They switched over to Ronin and the graph goes vertical. And I think, you know, that's a really interesting phenomenon because you can't, you don't necessarily have a good measure for the demand that exists but isn't being captured until you lower those barriers to entry, bring down transaction costs,

• 12:13Speaker 02

  and just enable people to play a game or transact in a way that's costless or close to it. And so, you know, I think what we're seeing is that there's so much interest in, you know, interacting with crypto in a variety of ways. And so, as the barriers to entry from an infrastructure perspective continue to fall, we just expect that the number of experiences that people are able to have in crypto is going to continue to grow at a super, super fast pace.

• 12:46Ryan Sean Adams?

  I think this is a really like important point, right? And so like I remember the Axie circumstance that you're talking about very well. Like in 2019 and 2020, we were writing about Axie on Bankless, but it was like this niche game, super like esoteric. It was not mainstream at all. It was very sort of, you know, crypto gaming in this very small niche. And when they did launch the Ronin sidechain, as you said, like that's when they were able to scale up to 1 million plus users and more. Now they have the largest Discord server, larger even than Fortnite. And that kind of surprised me. But like, I think people miss the point. They look, it's kind of like cellphone adoption, you

• 13:28Ryan Sean Adams?

  know, like 1980s, you had these brick cellphones. Only a few people had them. They'd have them in their car, be traveling.

• 13:34Speaker 02

  With a nice antenna on top. Oh, yeah.

• 13:36Ryan Sean Adams?

  Exactly. It's like. No one's going to have like cell phones was the thought at the time if they look like that. But when you like bring down the costs and when you make them more compact and you create a, you know, mainstream access for these things, now they're everywhere. Everyone has a phone. I mean, internet bandwidth is the same way. So it does really seem like layer two and sidechains and cheaper block space is a massive unlock for crypto gaming. And it feels like, um, I gotta say, even being in crypto, I don't know about you, Ariana, but like the Axie thing caught me by surprise. You know, I was just like, I was expecting slow incremental growth of the type we've seen over the last couple of years. But then, as you said, when they released, you know, their sidechain,

• 14:20Ryan Sean Adams?

  I don't know, earlier this year, it was like February or March, just absolutely insane level of adoption. That caught me by surprise. Did it, were you surprised at all about this?

• 14:29Speaker 02

  I think it caught everybody by surprise, really, including the team. Um, you know, you can never, it's one of those things where, you know, 10 year overnight success kind of situation where, um, you know, I have a lot of respect for the team at Axie, the team at YGG, some of these teams that have been really grinding for years and years, um, building their vision of, you know, a crypto game ecosystem and the metaverse. Um, and for a long time, it was very unpopular. Um, you know, nobody, crypto was down. Um, it wasn't obvious that any of these things were really going to take off. But, um, you know, kudos to the folks in that ecosystem,

• 15:11Speaker 02

  who I think really helped each other get through the crypto winters and, um, continued to build their vision, despite the fact that for a long time, there wasn't really much in the way of external validation. By the way, I think that's like a key story throughout the history of crypto. It's like, you know, we were, myself included, honestly, everyone thought I was a lunatic to, to move into the space in 2013 when I did. But, um, you know, I think there's, what inspires me about this space is really the fact that people have had such interesting and creative visions.

• 15:47Speaker 02

  For how the tech can be applied and just continue to work and build against those ideas, even when it wasn't obvious, or there wasn't really, at least in the short term, any kind of obvious financial upside in doing so. And so I'm always delighted when, you know, when folks end up doing very well financially, because I feel they've been slogging, you know, for many years to build. And I think that's, at the end of the day, kind of what this is all about.

• 16:16David Hoffman?

  Before we dive into the more intricate details about asset-powered gaming, is there any other conversations around like the infrastructure improvements that have allowed this crypto gaming world to evolve? Not just like scalability, is there anything else that is like really important infrastructure to allow this sector of the crypto world to blossom?

• 16:35Speaker 02

  Well, you know, I think, I think there have been a few different approaches to tackling some of these problems. Obviously, I think what the Dapper/Flow team has done in building a blockchain that was really designed and optimized around gaming and entertainment use cases has been really powerful. And I've been very excited to see kind of what's happening in that ecosystem as well. Obviously, Polygon has also really taken off and is enabling a number of games. Zedrun runs on that, a number of others. So, you know, I think there's, this problem is being tackled, both as a layer one issue, as a layer two issue, and in a few different ways.

• 17:19Speaker 02

  I do think a massive part of the story is about scalability. So, you know, you said beyond scalability, but I kind of always end up circling back to that because I think games are interesting in the sense that,

• 17:33Speaker 02

  although some of the in-game assets are now becoming very valuable, so security remains kind of an important consideration.

• 17:41Speaker 02

  You know, speed is paramount and cost being low is also paramount because you can't have to spend $50 every time you do something in the game. That's outrageous, you know? And I think a lot of the people who accumulated ETH or other crypto assets early, you know, have quite a lot. And so they're more willing to pay what would be an absolutely outrageous amount of money to do something in that context than you would be in normal life. Like, for example, when I minted my YGG Guild badge, I think I ended up paying nearly $100. And if you think about that, that's like, kind of outrageous. And, you know, I

• 18:25Speaker 02

  would certainly not be willing to spend that much as a transaction cost for most things. But, you know, you're like, oh, it's for the development of the ecosystem. And so you just kind of go along with it. But, you know, if we really want to make this a mainstream thing, obviously, that's not sustainable. And so I think, I think we're definitely moving in the right direction with all of this. It's just a matter of, it takes a little bit of time. These are really hard problems that are being solved for the first time. And so it's obvious that it's, it's not going to be solved overnight.

• 18:55Ryan Sean Adams?

  Well, so now we have one of our first, like, success cases of crypto, you know, in Axie, and that that growth is undeniable. And I think it's kind of like, it's, it's hard for people to say, as they said many times during the bear market, like crypto gaming is not a thing. It'll never take off. There's no business model behind this. None of it makes sense. Right? So now I think we want to shift the conversation to, like, why crypto gaming? The superpowers of crypto gaming? So I think many Bankless listeners have played their fair share of video games, like David and myself included. And one of the things I think all of us will know about the video game is you can't own your own

• 19:35Ryan Sean Adams?

  items in the game. You don't have sovereignty. So the centralized game maker essentially has license and access and they own all of the actual items in the games. You can't lend them, you can't Borrow against them, you can't like rent them out, you can't really do anything. You can't sell or trade them very much unless it's exclusive to this like permissioned in-game economy. So let's talk about that as kind of a killer app for crypto gaming number one, and maybe it's the most important one. I don't know what you'd say about that, but the ability to have asset-powered games where players own their items. What do you think it means to be an asset-powered game and for players to own their own items, Ariana?

• 20:20Ryan Sean Adams?

  How important is that?

• 20:21Speaker 02

  Oh, I think that's critical. And I think it's, it applies to games, but it also applies to crypto as a whole, if we zoom out a little bit, in the sense that the whole idea of what we're trying to do here in this space, in my mind, is to reclaim power, wealth, et cetera, from some of the platforms that have historically been rather extractive and distribute it back to the community, the people who are actually participating in these ecosystems. And I think the incredibly powerful thing about what's happening with this in crypto is this is the first time that we have a way to make the economics of it work.

• 21:03Speaker 02

  Historically, there was not an obvious way to incentivize people, and so you were kind of missing this critical component of how this might actually be operationalized. So the interesting thing in my mind is, in games, you know, generally speaking, as you said, the financial upside went not at all to the user. So you would spend, you know, hours and hours and hours of your life building up, you know, your, your in-game persona, or acquiring assets, or, you know, doing all kinds of things, and you would really have nothing to show for it, other than the fact that you had a great time.

• 21:44Speaker 02

  So what's happening here is you have the ability to also have a great time, but actually have some, participate in the upside of the community. And so I think that's super powerful, because all of a sudden, you know, playing games doesn't just become... Fun, but it also becomes work. And I think that's a really interesting construct where if you look at, for example, what YGG is enabling in the context of Axie and also other games, you know, people are now beginning to work in the metaverse.

• 22:22Speaker 02

  And so the fun is there, but there's also a kind of broader financial and work-driven narrative. And I think that's, that's, you know, only enabled because crypto has become part of the experience. This wouldn't have been possible before. And if you look at some of the games that are becoming popular now, the fascinating part is they're not trying to keep their players captive. You can cash out and that has historically not been the case. And I think the thinking was primarily that, well, if we let people cash out, then they'll, you know, leave the game without, you know, they'll cash out and then that'll be the end

• 23:07Speaker 02

  of it. They won't continue to play, will lose value, there'll be value leakage. Whereas in reality, what we're seeing now is that, sure, some value does leave, but the loyalty that is bred by allowing people to be, you know, willing participants, but not captively held in the ecosystem is actually much greater. So while their take rate might be much smaller, their overall growth can be so much larger that they end up, you know, netting out ahead financially as well. So it's just a really interesting construct that I think, you know, it's almost like

• 23:52Speaker 02

  the new generation of games are not operating from a place of fear where, oh, we need to keep our players or else like, you know, everything, the wheels will fly off everything. But rather saying, okay, this is an open, free market economy. You can participate if you would like. If you don't, you can leave and maybe you leave and then come back later, whatever. It's up to you. And, you know, again, I think, I think this idea that players would only stay if they were held hostage effectively is being proven not to be correct. And I think over time, traditional gaming companies will have to, and I think, by the way, this is happening a lot more quickly than anyone would have suspected.

• 24:33Speaker 02

  I remember saying about six months that I, six months ago, that I thought within two to three years, like 90 plus percent of gaming companies would be crypto gaming companies. I think we're now talking on the order of months. You know, if, if I, yeah, I mean, it's crazy. We, we obviously have a traditional games practice at the firm and we also have a crypto native fund. And so, you know, we have a good lens on what's happening in both of those ecosystems. And the percentage of

• 25:08Speaker 02

  companies or new game studios or what have you that are coming in with crypto as a significant part of their strategy has gone from like zero a year ago to like, okay, not zero, but like very few to almost all. So it's, it's really interesting to see that transition. And by the way, I think some of the, you know, the AAA studios, et cetera, some of the more entrenched entities in the gaming world are not going to move that quickly. But you can't ignore the speed at which some of these things are growing and the passion of their communities. And so, you know, if I were there, I think I would be

• 25:52Speaker 02

  very much thinking about, okay, do we, do we buy a team? Do we, how do we reconfigure? But I think honestly, it's, it's very politically challenging inside, inside some of these bigger organizations. Like, how do you transition your whole business model? You know, it's, it's terrifying, but I think if you zoom out. And look at what's happening in the ecosystem. It's going to become table stakes that people want more ownership in the games that they're playing. They want to participate in the upside. And it's also not just financial upside. It's it's you want to feel like you're a part of the community and you actually have some form of ownership in it. And that is, you know, has historically not been the case,

• 26:37Speaker 02

  but it's becoming more and more the de facto common situation in crypto. And so I think that's what's what's very exciting.

• 26:43Ryan Sean Adams?

  I mean, just a quick side comment on what you said. I find it hilarious. You know, Andreessen's whole thing is like, you know, software eats the world, right? It's really, it's like crypto is starting to eat entire other industries. Right? So like you talk about the crypto fund, maybe starting to chew off some of the the gaming fund within A16Z, right? Or, you know, at least melding the two ideas together. The same thing is happening with fintech. We were just talking to Kathy Wood from Arc Invest. And she said, hey, there's more and more, you know, cross pollination between like what we're trying to do in the fintech side and crypto, because now crypto is DeFi. And so does fintech just become kind of DeFi? So it's like crypto is starting to eat the world. Side quest there.

• 27:27Speaker 02

  Oh, no, I think about this every day. You know, we, I think, as a firm are constantly reevaluating what steps should we take to best serve the entrepreneurs in the community? And so for us, you know, the whole firm transition to being an RIA in order to, at least in part, invest more freely in the crypto ecosystem. You know, we've, we've taken a number of steps in that frankly are, I think, unusual, or at least as far as I know, have never been done before in order to kind of stay current and be able to, as I said, serve the entrepreneurs as best as we can. And I think what we're seeing is exactly what you said,

• 28:12Speaker 02

  which is, you know, there used to be.

• 28:16Speaker 02

  Internet funds, right? If you look back at the dot com or whatever, I'm starting an internet fund. There's no such thing as an internet fund now. It's just called a fund. Okay?

• 28:24Ryan Sean Adams?

  Yeah, it's everything.

• 28:25Speaker 02

  Exactly. And so I think of crypto as very much the same in the sense that eventually it just becomes a piece of everything. It's a part of the stack. It's a way of enabling certain things, powering certain things. It's not its own category. And so, yeah, over time, I think obviously that a lot of things will need to be reconfigured. But by the way, that is an incredible success case for crypto. Like, this is what we've all been hoping for and working towards for the last however many years, because at the end

• 29:05Speaker 02

  of the day, like, what could be considered more successful than becoming a part of everything? So to me, that's definitely a big success case.

• 29:16Ryan Sean Adams?

  Over time, every fund becomes a crypto fund. That's the prediction we're making on Bankless here.

• 29:22Speaker 02

  Oh, yeah. No, 100%. I, yeah, absolutely stand by that.

• 29:25David Hoffman?

  Ron and I definitely both got shocked when you updated your timeline from years to months with regards to crypto or gaming companies becoming asset-powered gaming companies. But I think upon further reflection, it kind of makes a lot of sense, because the world of gaming is very, very community-driven. Like, game studios make games for their communities. And when they make design choices that the communities don't like, the communities let them know. And they let them know, like, you don't want to piss off your gaming community. You want to make them very, very happy. And so like, with regards to like, the game theory of all of these crypto or gaming companies turning their games into asset-powered games, it makes a lot of sense because of like, you know, if we don't, the community will might go elsewhere to where the assets actually are. And so I kind of want to zoom out and

• 30:10David Hoffman?

  take a long-term historical perspective as to like, sort of the models behind player acquisition with the worlds of gaming. Way back when, you were playing a game, they would come in like the CDs with the crystal cassette cases. You had to spend like $20 to $30 to buy the game, and then you get to play the game. And then that evolved into more of a freemium model where the game was free. It was something like a massive multiplayer online game. And you would join the game for free and then you could buy your way into items, buy your way into skins. But the cost of player acquisition dropped so that the company could make more selling them in-game items, in-game assets, which again are not crypto assets.

• 30:50David Hoffman?

  And now we've kind of gone even further where like the cost of a player joining the game went from thirty to sixty dollars down to zero. And now it's going even negative with crypto asset powered games where like now the game is paying you, right? You are earning real assets in the game. Can you talk about that progression? And kind of how that relates to like the game theory behind all of these gaming companies turning into crypto gaming companies? And how that relates to the dynamics of player acquisition?

• 31:19Speaker 02

  Yeah, I mean, I think the history that you just described is super fascinating. I remember reading a few years ago for the first time, I think it was in Masters of Doom, which by the way, I highly recommend. It's a great book.

• 31:31Speaker 02

  About kind of in the early days, how you would have, you know, you'd have a program that was written in the back of a magazine. And you would literally have to type in the entire thing to download something. Or you eventually could get a CD mailed to you and you would separately mail them a check. And it was kind of the honor system where you would, you would either mail cash or a check and then you would get a game in the mail. And I was just like, oh, my God, people used to be so good. I still believe people are good, but.

• 31:57David Hoffman?

  Is Masters of Doom, is that about like Doom? You know, the first shooter shooters, the original?

• 32:02Speaker 02

  Yeah, exactly.

• 32:02David Hoffman?

  That's cool.

• 32:03Speaker 02

  It's John Carmack and, oh, he's the other co-founder's name is escaping me. But yeah, anyways, it's a great book and, and it really describes kind of the early history of the development of video games. And yeah, it's just fascinating read. I remember I basically read the whole thing in 24 hours, couldn't put it down. But yeah, I mean, I think if you look at the, the history of games, you know, more recently, it's been very driven by, if you look at like mobile games or games in, in Facebook even, you know, you really were dependent to a large extent on your ability to successfully monetize via.

• 32:51Speaker 02

  Well, not monetize, but really get downloads via ads. And so if you lost the ability to do that in a cost-effective way because Facebook changed their ad rules or something else happened, it became more competitive, et cetera, then that was, you know, that was a real issue for driving continued user growth. And I think what's fascinating about some of the play-to-earn games, if you look at, you know, Axie, for example, the majority, something like 90-plus percent of their players successfully refer other people to the game. And so all of a sudden, you know, that is no longer, and that's organic, by the way,

• 33:34Speaker 02

  because if you look at what that game and then, you know, on top of that, things like YGG and some of these sort of guild communities around providing scholarships for playing this game, empower, you want to tell people about it because all of a sudden it's improving your life in a meaningful way. And so you want your friends and your neighbors to also be able to do the same. And so I think that's really turned things around. Games are no longer like something that you try to get your kid to stop doing, but it's actually, you know, a really positive force.

• 34:15Speaker 02

  And so that, to me, is what's driving a lot of the organic growth. Now, obviously, you know, the rate of that growth will fluctuate over time. And, you know, if it were to continue at the pace it's going, all people in the world will be playing crypto games in very short order. But in general, like, the underlying power of this new system is the fact that, you know, the users are able to participate in it. And I think the wonderful thing about some of the guilds, YGG in particular, as kind of the leader in this, is that they're bringing down the financial barrier to entry so that

• 34:58Speaker 02

  players who are willing to invest the time in a game are able to begin. And, you know, they're taking down whatever walled garden might otherwise exist. And so I think they're providing a really valuable service for some of these game economies. Not to mention for the players.

• 35:19David Hoffman?

  I want to get into the economics side of crypto gaming because where there is crypto, there is economics. But before we get there, and you've talked about this a couple of times, but I want to just make this explicit here and talk about it more directly. How does the play to earn model, which is the crypto gaming model, change the structure of who actually captures the value in this new ecosystem?

• 35:41Speaker 02

  Sure. Well, you know, I think the best way to think about it is that it's similar to a regular world economy in some sense, in that there are different types of participants who perform different roles in this economy and, you know, are willing to contribute different things. In some cases, you know, if I am someone who doesn't have a lot of money, but I have a lot of time, then I'll be willing to play a game, earn the token rewards, and then sell them in the open marketplace to somebody else. Now, I might sell them

• 36:24Speaker 02

  to, I'll just use Axie as an example, I might sell them to a breeder. You know, if I've earned SLP, I might sell it to a breeder who will then use it to generate upside by, you know, breeding their Axies. Or, you know, I might be a participant who is just willing to come in and pay to get started because, you know, I come from a wealthier place or whatnot. So, you know, different people are willing to contribute money or time or whatever. And so in that sense, it's very similar to a real economy. If I have a lot of money and not a lot of time, I'll probably hire somebody to do things for me. And, you

• 37:08Speaker 02

  know, I think, I think that's perfectly normal and very reasonable and actually allows, it's no different than, you know, say a mechanical Turk or something like that where you're hiring people to perform work for you in some sense. And so, yeah, I think it's interesting because we generally don't think about game economies as parallels to real economies. But in reality, They very much are. And so as more and more of our lives become digital, we're spending more and more time in various sorts of digital worlds. There's no reason why work shouldn't also increasingly transition into the metaverse. And I think that's what we're seeing.

• 37:53Ryan Sean Adams?

  Yeah, this is so fascinating. We've got a lot of questions to talk about kind of the new workforce. As you were talking, I was thinking about, you know, so many people in the Philippines are actually like playing Axie as their job and earning living wage, earning better wages than they could through other means of employment in their local economy in the Philippines, which is absolutely amazing. You know, crypto's always been talking about like banking the unbanked, right? Well, who knew it would actually come about through working inside of these metaverses, these gaming type economies? I think that the lens that you just shared, Ariana, is like so crucial for us to understand this because every game that's been created before crypto has been a closed economy, right? What crypto enables is an open economy.

• 38:38Ryan Sean Adams?

  And so like games have to think totally different. It's not really about revenue, is it? It's about GDP, which is an economic measure, an economic metric, rather than kind of a business metric of revenue. And like the GDP that some of these open economies can throw out is absolutely amazing. But I still want to address maybe a criticism that some might make on this economic model. It's basically that it's like maybe a common criticism of crypto. Isn't this whole thing a Ponzi scheme? Isn't this a Ponzi game that we're playing here, right? Like, what are you talking about? Where's the actual value being created, right? We create this game and then the players themselves value it. And then the asset prices go up, but all we're creating are these assets.

• 39:23Ryan Sean Adams?

  And the way the economy, I guess, achieves any form of GDP or revenue is through asset inflation, right? So like, where is the actual value that's being created here? Is this kind of just a Ponzi game all the way down?

• 39:37Speaker 02

  No, it's definitely not. And I mean, I think The key part of the equation is that it needs to remain fun to play these games. Because the success of the system is to some extent predicated on the willingness of some percentage of the members of the game community to put money in to buy new things. And by the way, this is not dissimilar to any other game where it's like, oh, I'm buying skins. I'm doing this, that and the other thing. The way Fortnite continues to exist is that people are willing to put money in. Otherwise, it too would collapse.

• 40:17Speaker 02

  So, you know, it's not that this is in any way a Ponzi scheme. It's that you need to make sure that over time, there's enough desire to continue to play the game for fun reasons that people are willing to invest into it. Now, I think how that happens is continuing to build out interesting, creative game experiences. And I think the cool thing about some of these worlds, digital metaverses, is that you can have all different kinds of things that you can do in them.

• 40:56Speaker 02

  And so it's an infinitely rich canvas for building new games, new experiences, new whatever, in a way that, you know, continues to bring people in. And, you know, I would argue that frankly, some of these economies are just as reasonable, if not more reasonable than, you know, the US economy. In the sense that, how do we have dollars? Well, we print more. And so how is that any different than, you know, having inflation in some of the game economies? It's really not. You have a lot of the same principles at work, which is what I just described, where some people are willing to put in money, some people are willing to put in labor, et cetera.

• 41:41Speaker 02

  And so I think, you know, obviously, the rate of growth is not going to always stay consistent. Like, there will be periods of sort of stabilization. But again, like, look at the real economy. Sometimes there's periods of crazy growth and sometimes it's sort of, you know, muddles along for a little bit. So, you know, in my mind, this is definitely not...

• 42:01Speaker 02

  Not a, an unreasonable paradigm for an economy. Now granted, I certainly think that the failure mode for a lot of these worlds is screwing up the economic mechanics. And so I think that that's going to be one of the biggest challenges for Axie and some of the other metaverse type games, or even just games in general, because you know, there is real risk that if you fiddle with some of the economic principles, you could end up causing some unanticipated and maybe adverse economic effects in the game economies, which by the way, is also the same as the real economy.

• 42:45Speaker 02

  So you know, it's, it's a challenge, but it's definitely not insurmountable. And so I think the teams that are building the most in this space are really pushing forward the thinking and what we know about how some of these economies work. And by the way, if you look at who many of these teams hire, they're literally real economists. Like, no, I'm serious. Like, yeah, a lot of, a lot of sort of game economy people studied economics. And it makes sense, right? Some of these economies are so complex that you really have a very close mapping to what you would see in kind of the real world economics.

• 43:29Speaker 02

  So I think it's super fascinating.

• 43:31Ryan Sean Adams?

  It's gotta be way more fun.

• 43:32Speaker 02

  Yeah, yeah, for sure, for sure.

• 43:33Ryan Sean Adams?

  It's gotta be way more fun than going and becoming a central banker, right? With your economics degree.

• 43:37Speaker 02

  Totally, exactly. It's like, the fun ones go become game economists. Yeah. No offense to anyone who's a real economist, but yeah.

• 43:45Ryan Sean Adams?

  Yeah, absolutely. Well, they're all real economists, right?

• 43:48Speaker 02

  Yeah, totally.

• 43:49Ryan Sean Adams?

  For what you were just saying.

• 43:50Speaker 02

  Real world economists, let's call it that, yeah.

• 43:52David Hoffman?

  When you shop for plane tickets, you probably use Kayak, Expedia, or Google to compare ticket prices. So why would you limit yourself to just one exchange when you trade crypto? When you make your trades, you want to make sure that you're getting the best possible price on your trade and that you aren't paying high gas costs that you could have otherwise avoided. That's why you should be using Matcha. Matcha routes your orders across all the various DeFi exchanges on Ethereum, Polygon, Binance Smart Chain, and gives you the best possible prices without taking any commissions. Matcha has smart order routing that splits your order across multiple liquidity sources if Matcha sees that it gets you better pricing. Trading on Matcha is super easy because it pulls the liquidity for me into a single, easy-to-use platform. Matcha also allows for you to make limit orders on chain,

• 44:36David Hoffman?

  so you can set and forget your DeFi trades, and they will go through automatically while you're away. New to Matcha is an integrated fiat on-ramp, so you can purchase crypto directly with your credit or debit card and have that fiat be instantly traded for any token that has liquidity. When you're making a trade, head over to matcha.xyz/banklist and connect your wallet to start getting the best prices and most liquidity when you trade your crypto assets. Banklist is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries,

• 45:20David Hoffman?

  just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswap ecosystem is the Uniswap Grants Program is now accepting applications for grants. We have been saying this for a while, and we'll say it again. DAOs have money, and they are in need of labor. If you think that you have something to contribute to the Uniswap DAO, apply for a grant to Uniswap. Just look at the size of the Uniswap Treasury. It's almost $3 billion. This mountain of capital is looking for labor. Do you have something of value to contribute to the Uniswap DAO? No matter how big or small your idea is, you can apply for a uni-grant at unigrants.org and help See your Uniswap in the direction that you think it should go.

• 46:04David Hoffman?

  That's exactly what we did to get Uniswap to be a sponsor for Bankless, and you can do the same for your project. Thank you, Uniswap, for sponsoring Bankless.

• 46:13Ryan Sean Adams?

  So we're talking about kind of the the superpowers of crypto gaming, and we've established two. You know, the first is players own the items, asset-powered games you can have now. Second, this play-to-earn movement. And you just went through the history of we've seen play-to-buy, then play-to-win in gaming, and now we're at kind of play-to-earn. So let's dig more into this, I guess, third superpower that we're kind of unlocking, which is employment via crypto gaming. You've mentioned YGG a few times, which, as I understand, is kind of an employment guild for crypto gaming. Maybe we could talk a little bit about that. But just like high level, so Ariana, not a day goes by where I don't receive, because we've done podcasts on Axie, we've done like written stuff on Axie. And so I get a DM from people saying,

• 46:57Ryan Sean Adams?

  "Hey, take a look at my Axie resume. I'd love to go work for you," right? I'm like, scholarship me is kind of, I think, a term that's used. And I'm not deep in the Axie world myself, so I don't know what exactly they're talking about. But I can see there's a ton of, these are essentially job applications, right? To come work for the Axie economy and for an individual to sponsor these scholarships and these workers in the Axie economy, right? So can we talk about this move to employment in crypto gaming? Like, for people who aren't in to this right now, don't know what's going on, what is actually going on with crypto gaming? What is YGG doing in this space?

• 47:36Speaker 02

  Yeah, maybe it'd be helpful for me to kind of take a step back and describe a little bit of the history of how we got here. So in terms of the the YGG story, a gaming entrepreneur in the Philippines, Gabby Dizon, who has been kind of a leader in the games community in Southeast Asia for a number of years. Saw that during the pandemic, so many people had lost their jobs. And he realized that, given Axie's model, he could loan out his axes to other people who could then play them and earn SLP tokens, which could then be converted into local currency.

• 48:19Speaker 02

  And so he started doing this, then teamed up with Beryl Lee, who is his co-founder, together with their third co-founder, who is anonymous Owl of Moistness. Let me tell you, that was an exciting background check when we ran that.

• 48:39David Hoffman?

  Crypto's the best.

• 48:40Speaker 02

  Oh, I know. I love it. The best. I encourage everyone to go check out on our blog, the YGG funding announcement, because it is literally my favorite photo that we've ever posted of a team, because it's Beryl and Gabby and a stuffed animal of an owl. Very cute. Anyways, so.

• 48:57David Hoffman?

  And Ariana, I think we haven't actually named YGG, which is Yield Guild Games.

• 49:03Speaker 02

  That's right.

• 49:03David Hoffman?

  And like, yeah, we all know YGG on the call, but like, it might be useful to actually imply what this thing actually is.

• 49:09Speaker 02

  Yes, exactly. So, yeah, so basically, YGG, as I was saying, emerged out of this lending of in-game assets to other people motion. So Gabby would basically, you know, Gabby and then later the YGG team would evaluate a person on their ability to kind of play the game successfully and then loan out these assets so that the person could play the game with them. Because, for example, in the case of Axie, which is kind of where they started, you need to have a team of three axes at least in order to start playing. And the cost can actually be fairly prohibitive. Like now, you'd have to spend, this was not the case at the time, but even then, you know, it was a substantial amount of money

• 49:54Speaker 02

  for many people. Now you'd have to spend well over a thousand dollars to put together like a starting team kind of situation. And so, you know, by doing so, by lending out these in-game assets, they enabled a whole class of people who would not otherwise have been able to start to play the game to do so. And so they take a small cut of the earnings of their scholars. And the rest is kept by the scholars. And the cool thing is that this has been so successful that now many of the people who started out as scholars are actually now also participating and giving their own scholarships to other people because they've been able to buy their own assets and continue to play the game with their axes.

• 50:38Speaker 02

  So it's super cool. The exciting thing is, you know, it's enabled people to, in many cases, make it through the pandemic. I mean, there are literally

• 50:47Ryan Sean Adams?

  Wow.

• 50:48Speaker 02

  Yeah, I mean, so many people who'd lost their jobs literally credit YGG with getting them through. And even more broadly, you know, many of the folks who have started playing are now making many multiples of what they were in their jobs previously. So it's, it's really, I mean, the stories are just so heartwarming. They're doing such incredible things for their communities. And, you know, I think they're, they're just at the beginning of their stories. I mean, right now, a lot of the activity is concentrated in the Philippines, but they've really started a movement that is spreading kind of across the world.

• 51:32Speaker 02

  And so I'm super excited about where they're heading. And it's, it's just such a clear, tangible way in which crypto is improving people's lives. You know, we've been talking about, oh, crypto is going to make everyone's lives better. And I think a lot of the, the, the pushback from people outside of crypto is like, okay, like, give me an example. And in my mind, there are really no better examples than what's happening in this, in this area. So, you know, so we're thrilled to be involved and I'm super excited to kind of see how they expand. At this point, they're, you know, they're getting, they're really hitting their stride in terms of being able to scale the model. And I think the other piece that's very important is that a lot of what's happening here is

• 52:16Speaker 02

  becoming a beachhead for providing access to other kinds of financial services from people who have not historically been served in the sense that, in many cases, a person's crypto wallet that they're using, you know, to earn their tokens as they play these games is the first Financial service contact that they've ever had.

• 52:41Ryan Sean Adams?

  It's their first bank.

• 52:42Speaker 02

  Exactly. And so it's incredibly cool because then you have the ability for other kinds of financial products to become relevant and and to, you know, give access to folks who haven't really had access to other kinds of financial services. And so, you know, it it starts with a game, but then it becomes way more than that. And I think that's what's really cool.

• 53:06Ryan Sean Adams?

  Ariana, I think I found the picture you were referencing. Is this it?

• 53:09Speaker 02

  There it is.

• 53:10Ryan Sean Adams?

  Is this them?

• 53:11Speaker 02

  How good is that picture?

• 53:13Ryan Sean Adams?

  So we got the the three founders, including the owl of moistness here. Did I get that right?

• 53:18Speaker 02

  You got it. You got it. That's right.

• 53:20Ryan Sean Adams?

  This is an official A16 post, I think you guys put this in. So that had to be a lot of fun to explain to the compliance team and investors and everybody.

• 53:29Speaker 02

  Oh, yeah. Oh, yeah. It's funny. You just kind of have to roll with the punches in crypto. I love it. I mean, I I think this kind of stuff to me is just like the essence of the space and why I say that I'll never be able to do anything else in my life because what am I going to do? Like, sell bonds after this? Come on now.

• 53:48Ryan Sean Adams?

  No, everything else is boring after crypto.

• 53:52Speaker 02

  So, yeah, yeah, I love the space. I think it's just there's so much creativity and and so much. I think one thing I love is that crypto tends not to take itself too seriously in some respects. And I think that allows for a lot of creativity and innovation that

• 54:12Speaker 02

  would be difficult in other spaces where people are more concerned about being wrong and stuff. And I think the fact that everything is open and composable and you can just kind of start building stuff without needing to make a grand production about it or get a lot of, you know, get. Some sort of access or permissions or whatever from a centralized gatekeeper is one of the things that allows people to be so original and just to build things in a way that's that's fast and iterative. And I think that ends up being a really positive driver for the speed of innovation in the space.

• 54:53David Hoffman?

  Ariana, one concern I have with this whole, if there is the viability of employment by these individuals, that means there's opportunity. That's why these individuals are there. And I'm worried that we might watch the same path of like, working for an in-game economy, working for something like Yield Guild, as we saw with the whole yield farming phenomenon in 2020, where it started off very democratized and everyone had more or less equal opportunity. And then over time, it became more and more consolidated into the hands of a few like, well, well-capitalized yield farmers, who we kind of labeled as liquidity locusts, as they had no alignment. They just went from farm to farm, sucked it dry and

• 55:36David Hoffman?

  moved on. And we know that there's this world of bots in the world of Web 2 for engagement on platforms like Instagram, Twitter, Facebook. And I'm worried that like, we might be able to see that same bot farming operations might be applied to any sort of in-game economy that comes out of the cryptosphere. Is this a worry that you have as well?

• 55:55Speaker 02

  Well, I think it's definitely top of mind for the folks who are building these games and these experiences to make sure that they're very difficult to game. And so I think part of that will just be solved through technology by continuing to make changes and add enough complexity whereby it's very difficult to actually sort of be extractive only and not be a solid participant in the community. I think the other piece of it is that now that some of these models have been shown to work.

• 56:34Speaker 02

  People will be more willing to rebuild something similar that is not problematic or that allows some of these issues to be solved. So if a particular game economy is no longer serving its users, they'll just leave. And that's the whole point of what I was saying earlier. You know, these are at-will participation economies. And so, you know, I think the community will be very willing to say, hey, you know, this isn't working for us. We're going to go somewhere else. And so I think there's a pretty strong

• 57:13Speaker 02

  incentive to make sure that things are kept in a state whereby everyone is benefiting. And granted, you know, over time, some folks might benefit more, or some classes of folks might benefit more or less. And the game teams, I think, will tweak their models in order to make sure that things continue to work. So, yeah, I agree. It's definitely something to be mindful of. But I think it's a very solvable problem and we'll continue to work on it over the next few years. But I don't think it's any reason to stay away from the space or anything like that.

• 57:51David Hoffman?

  I think one reason why it's easy to have such strong conviction about this coming world of crypto gaming is that we've seen early premonitions of it before. Guilds in World of Warcraft were people in chat rooms that would go on raids together so that they could, you know, defeat the boss and come out with a cool shiny new in-game object. And now Guild Guild literally calls itself a guild, but we also might call these things DAOs. So how do you see the intersection of DAOs and crypto gaming blossoming as this world expands?

• 58:22Speaker 02

  Oh, boy. The structure gets really complicated really fast. Because if you look at YGG, it's a DAO of DAOs, which like even for me, who spends a lot of my time thinking about both DAOs and games, starts to sort of bend your mind. So. Maybe it would be helpful to take a step back and frame DAOs first in the sense that DAOs in my mind are really organizational units similar to the LLC or the C corp, which people tend to be a lot more familiar with. And they're organizational units that generally have a financial component. So there's a wallet or something. And then a

• 59:03Speaker 02

  community that organizes around that to make shared decisions about what to do. And that might be buy an NFT, or it might be, you know, make a different, take a different action of some kind. But in general, it's a way for people to organize around a shared objective, and generally have some shared control over assets of some sort, which might be ETH, or it might be, you know, in-game assets, or it might be NFTs, or it might be whatever else. And so it seems very natural to me that DAOs would map very well, as you said, to kind of

• 59:42Speaker 02

  these communities of people in gaming, because sometimes, especially by the way, as costs have risen dramatically around some of these in-game items, you know, you might want to own a Mystic Axie, but you don't necessarily want to own it on your own. And so you might pool together your assets with other gamers and purchase one, for example. In the case of YGG, you know, they really have a broad base of participation from members of their community. And so I think a DAO is a very natural fit for what they want to do. So I think eventually, most organization

• 1:00:26Speaker 02

  that happens on the internet will happen through DAOs. It's kind of, I think of it as like a crypto native LLC structure kind of thing. And so it's interesting now because we're seeing DAOs crop up in all different Areas and people say, oh, well, you know, DAOs are X and it's really like you can't. I mean, it's like saying companies are X. It's really broad, you know? It's more of a tool and a structure that allows you to do something rather than a category unto itself. And, you know, we're just seeing that flourish now. Things are being developed that use DAOs at their core in a whole host of different categories.

• 1:01:11Speaker 02

  So, you know, games is one such category, and I think it's a very natural fit. But I think we're going to continue to see much more expansion from there.

• 1:01:18Ryan Sean Adams?

  Let's talk about broader cultural issues because if you're right on this, Ariana, I think this could have a significant. Well, there you go. So we know this is going to happen then. I shouldn't even phrase that as if you're right. When you're right, Ariana, about crypto changing things, it's going to have an impact on culture, right? A major impact on culture. So when I was a kid, I played a lot of video games. My mom didn't like it so much, you know? If I was grounded, I'd get grounded from video games. David was sharing a story with me before this podcast as we were talking about it. And David, your mom used to hide the power cord from you, right?

• 1:01:56David Hoffman?

  Yeah, she would yank my power cord to my computer. Yeah.

• 1:02:00Ryan Sean Adams?

  And there's like this impression.

• 1:02:02Speaker 02

  Surely you must have had a backup. I would have had a stash.

• 1:02:05David Hoffman?

  Literally the next step in the story. She didn't know I had a backup.

• 1:02:08Ryan Sean Adams?

  Does mom know this?

• 1:02:09David Hoffman?

  I have told her this story, yeah.

• 1:02:11Speaker 02

  Now hopefully you're old enough that you can manage your own power cords.

• 1:02:18Ryan Sean Adams?

  So, but like there's this impression that if people are immersed in video games all day, right? Like it's not real work. I mean, how do you get paid real work for digging the games? Video games are sort of a waste of time is the impression. In fact, just in the recent news. Super fascinating to me. China has crackdown on video games. They did this in 2019. Now they're upping the crackdown. And so China has now barred online games for anyone under the age of 18, if you're a Chinese citizen, from playing on weekends and limited their play to just three hours on most weekends. You can't play during weekdays. You only get three hours on the weekend. What's interesting to me is like, I feel like I learned so much about crypto just from playing video games.

• 1:03:03Speaker 02

  Yeah.

• 1:03:03Ryan Sean Adams?

  Like in my childhood, right? Whether it's just like something simple like Mario collecting coins, right? Like, what is crypto? We're just collecting coins, aren't we? Or whether it's something like, you know, a Diablo where you're leveling up and you know, you've got characters or something like Civilization, all of these things taught me how to prepare myself for a more virtual future. So I guess my question is, do you think that even China's action, for example, in barring, you know, people under 18 from playing games, is this essentially like barring people from a super important component of the future economy? Are there more benefits that we realize from gaming in general than the critics realize? What's your take here?

• 1:03:44Speaker 02

  Oh, I definitely think if I were to sit down and, you know, I just know this anecdotally, but if I were to actually sit down and, you know, ask all the smartest people I know, and by the way, most successful people I know, whether they played games, the answer would almost unquestionably be yes in nearly all cases. And I think, I know this because I've had many conversations to this effect, that almost all of them would say that they learned so much about strategy, about collaboration, about how to achieve

• 1:04:24Speaker 02

  a given objective, given some set of constraints, you know, from games. So I actually think it's a super important tool for development. So I definitely don't agree with China's decision to do that. I also think it's incredibly difficult to enforce, so very curious to see how that goes.

• 1:04:46Speaker 02

  There's a lot of things China does I don't agree with, but anyways,

• 1:04:50Speaker 02

  I think the the main issue is just that,

• 1:04:55Speaker 02

  well, one interesting thing to note is that now it's no longer, you actually can have your work be a game. So that's a fascinating development because, you know, I think many parents, if they had seen their kid actually like bringing home real money from playing a game, would have had a different perspective. And I think it's quite possible that, you know, down the road, there becomes a larger universe of people who play games professionally. And then, you know, maybe that's 20% of the population or 20% of the game population. And then 80% of players are just sort of more amateur, do it for fun.

• 1:05:39Speaker 02

  And so they're the ones who are putting in more money than what they're taking out. And so that's kind of how these economies end up up growing. But from my perspective, you know, the the new model of play to earn definitely kind of flips this idea that games are a waste of time a little bit on its head. But I don't think they were a waste of time to begin with. So, you know, it I guess it's all in the eye of the beholder in that sense. But from my perspective, it's very obvious that there are tangible learning and development benefits that come from games.

• 1:06:12Speaker 02

  And so, you know, I don't think that games were ever the the one to demonize to begin with.

• 1:06:17Ryan Sean Adams?

  Hear that, Mom? Ariana is never wrong, and she says that games were useful the entire time I was playing them as a youth.

• 1:06:25Speaker 02

  There you go.

• 1:06:27David Hoffman?

  And the world of gaming has already just a massive cultural force already. Like before we integrate a bunch of like financial components into it. And esports, especially in the last five, 10 years, has absolutely exploded onto the scene and, you know, drawn more attention and more eyeballs than any American sport that we have here. Or I think even soccer, I don't know, you might have to fact check me on that one. But still, gaming was already a cultural revolution in of itself. And now we have a revolution in gaming coming on with crypto gaming. So Ariana, how do you see esports as like a subset of the whole gaming world being changed due to adding like a financial layer to these games?

• 1:07:03Speaker 02

  Yeah, you know,

• 1:07:05Speaker 02

  I think esports are interesting because

• 1:07:10Speaker 02

  There are definitely a lot of the same principles at work as you see in other kinds of crypto gaming. I'm starting to see a little bit happening at the intersection of crypto and esports, but I don't think it's quite hit its stride to the extent of what we've seen in other parts of crypto games. So, you know, my lens on it is it's something I'm watching closely. I literally have a book on esports somewhere around that is on my reading list for the weekend, but I don't think it's yet kind of reached its aha moment to the extent that other parts of the ecosystem have. But, you know, if

• 1:07:53Speaker 02

  there's any people building really exciting stuff out there, we're super excited to take a look. So, let me know.

• 1:07:59Ryan Sean Adams?

  Well, I'm curious, just we're talking about kind of, you know, esports is a major force right now, but you mentioned earlier that major gaming studios would actually enter into crypto. I'm curious if you've got some inkling on how they might enter, how that might evolve. So, the epics of the world, the blizzards, the activisions of the world, are they having strategy meetings right now and being like, hey, guys, what's our crypto plan? Because we really need one. And how do you think they'll enter in what ways?

• 1:08:25Speaker 02

  So, they are having those meetings. Now, what comes of them, I think, is still an ongoing question. There's a few options for them, and I think, by the way, this is similar to what we've seen whenever there's been a new paradigm shift in technology, a technology subsector on the whole. You know, they have the ability to build something themselves, or to buy it, or to partner with somebody else. And so, as far as I know, most of the current efforts are focused on the either partnering, or maybe on the buying,

• 1:09:06Speaker 02

  but we haven't really seen much of that happening yet. But as I was saying earlier, I think it's a very politically challenging thing to propose or orchestrate in some of these larger Organizations because when you have kind of the the golden goose, it's very difficult to want to say, oh, hey, you know how we've made like billions of dollars to date? We're just gonna not do that anymore and we're gonna try this crazy new thing. That's a very challenging proposition from sort of an organizational politics perspective. And so I think in many cases, you know, this, this goes back to the innovator's dilemma.

• 1:09:49Speaker 02

  In many cases, this won't be acted upon until there's a real existential threat. At that point, it might end up being too late for some of these organizations, but, you know, I, I don't think that they've necessarily felt the full pressure of what's to come yet. But as users start to see that there is a new option, that there is a world in which they can be rewarded and actually own the items that they've built up or acquired or whatever in these games, they will demand the same in more traditional games. And so at that point, it's like, well,

• 1:10:34Speaker 02

  if you don't want your users to leave, then you'll probably have to start listening to what they want. And so in my mind, like, over time, there'll be more and more of a shift towards users having certain expectations and makers of games being kind of forced to,

• 1:10:52Speaker 02

  you know, cater to them because otherwise users will leave. And so I think that we're just kind of at the beginning of that transition period, but I do think it's happening.

• 1:11:04David Hoffman?

  I want to switch gears here, but also maybe not actually. How does this conversation fit into what we're all trying to figure out is the metaverse? How is this relevant to whatever the metaverse is?

• 1:11:14Speaker 02

  Well, you know, I think at its core, the metaverse is a virtual world of some sort. So most crypto games are virtual worlds of some sort. And there's generally, you know, people are saying, oh, what will the metaverse look like? I think the great thing about the metaverse is that there doesn't need to be just one. And so people can exist in multiple virtual worlds that serve them well for a particular reason.

• 1:11:48Speaker 02

  But they don't have to choose one and commit exclusively to that. So you can be a participant of multiple metaverses. And that's fine. That's great. So I think what we're going to see in terms of development of these categories is there's going to be different ones organized in different ways around different shared purposes with different communities. And users or, you know, people will be able to flow between them based on what they want at a particular time or, you know, their preferences. And I think that's a super powerful concept because, you know, in a world in which you

• 1:12:29Speaker 02

  can't necessarily move to a different country because, you know, there are border controls or whatever else. We have the ability to create a much more open set of digital worlds powered by the internet and crypto. And I think that's sort of the direction that we're heading. So yeah, we're spending a lot of time in that category. I'm super excited to see what people come up with. You know, I think as investors, our job is not necessarily to be the creative ones, but just to find and support the most creative entrepreneurs across the space. And we're seeing some really interesting stuff in that area. And yeah, it overlaps with gaming in various ways.

• 1:13:09Speaker 02

  You might have a game that becomes very successful and then becomes a whole virtual world. And then there are other games in that virtual world. Or you might have someone who creates kind of an open-ended virtual canvas where you can create different games from the get-go and allows developers to come in and build whatever, you know, they might be interested in doing, like in the case of Sandbox, for example. So, you know, there's, there's many different ways that you can approach it. And I think multiple universes will always be under development at the same time. And so people have the ability to kind of pick and choose what is the best fit for them.

• 1:13:48Ryan Sean Adams?

  What do you think about this weird thing that we've seen recently with like loot? Where you actually, you start with an asset and then that gets sold, that gets some, you know, social traction. And then the idea is like a metaverse is built on top of loot. So I could bring my loot into like an Axie or a World of Warcraft or a Diablo. Do you think that has staying power or that model? Or do you think we kind of jumped the shark there and it's a little bit overhyped?

• 1:14:11Speaker 02

  I think it's a fascinating experiment in the sense that it's taking the role of the community, which I think has been a very important part of the crypto story, to its like furthest logical extension whereby you are just providing a literal list of things and giving people effectively free license to go build experiences around it. And that's a really interesting point because it means that the community is not just, you know, a voyeur or sort of a passive participant. It's like they literally have

• 1:14:51Speaker 02

  to do everything. But it's incredible to see how creative and willing to pick up the mantle people have been already in just a couple of weeks since Loot was dropped. And so, you know, I don't know if Loot is going to end up being like a big thing in five years' time, but I think it's the first experiment of its kind. And so far, I've been really impressed with kind of how excited and again, just really creative people in the community have been.

• 1:15:27Ryan Sean Adams?

  Let's talk about how this fits into the broader, I guess, crypto economy than Ariana. So we've talked about like these items, these NFTs, many of these get registered on a self-sovereign property rights system, like something like an Ethereum. I think part of the reason we're here today is you tweeted this out, "Can we all agree ETH is money yet?" And then Bankless Twitter jokingly replied, "You realize tweeting this gives you an auto invite to the Bankless podcast." In reality, we've wanted to have you on for a while, Ariana, and discuss these things. But we are definitely proponents of that idea that ETH is becoming monetized through NFTs, through the metaverse. It's becoming an important economic system.

• 1:16:11Ryan Sean Adams?

  Can you talk about how you see the role of crypto systems like Ethereum fitting into this and what the effect on something like ETH the asset might be?

• 1:16:22Speaker 02

  Yeah, in terms of context for my tweet, which was definitely like kind of tongue in cheek, I think historically, if you go back to kind of the early days of crypto, when it was really mostly a Bitcoin-centric community, A lot of the proponents of Bitcoin, by the way, I'm very pro Bitcoin, still have my original coins, generally never, you know, so it's, it's not at all a dig on that, but I think a lot of the initial logic has been proven wrong. And what I mean by that is, I can't tell you how many conversations I had with folks who were like, well, Bitcoin

• 1:17:04Speaker 02

  has a cap supply and therefore it's going to continue going up in price and will become kind of the ecosystem cornerstone. ETH doesn't have a cap supply and therefore it's going to be worthless. And if you look at what has happened, obviously that's not the case. And so I'm sure that if there's any Bitcoin maxies listening, they would argue with me that we haven't reached the end of the story yet. And therefore I'm probably still going to be wrong in 10 years. But, you know, I, I think most of us can agree that, you know,

• 1:17:41Speaker 02

  the, the richness of developers and projects and sort of creativity and innovation that has been built around Ethereum as a platform is staggering. And I think that's what's driving value capture on this chain. So in my mind, if you have something that you can use to buy all kinds of things and interact with different protocols in the Ethereum community, and that's ETH, like, that is serving as a form of money. At its most basic, it's an asset that you can trade freely for other kinds of goods and services in a given ecosystem and

• 1:18:28Speaker 02

  You know, ETH definitely meets that description as far as I'm concerned. So I was kind of tweeted as a joke, but what I really meant was that like, it's obvious that despite in the abstract, it seeming like Bitcoins, you know, characteristics as a financial asset might lead to

• 1:18:53Speaker 02

  better outcomes. In reality, what's happened is that all of the brilliant development that's happening around Ethereum is actually really driving that sub economy. And so from my perspective, it's incredibly exciting to see kind of this whole ecosystem continue to develop. And so I think ETH will be a critical currency, not the only one, but I think a critical currency of kind of the metaverse. And so if you can become like the currency of the metaverse, like that's fucking huge. So to me, that's like a really very big market.

• 1:19:37Speaker 02

  And so I'm excited to kind of see things continue to move in that direction.

• 1:19:41Ryan Sean Adams?

  ETH as metaverse money is a really interesting concept that we've only started to explore, I think. And it's going to be increasingly an interesting narrative to watch. But, but is this really what we're doing here, Ariana? So you said earlier that like, what's the TAM? What's the total addressable market for crypto gaming? And you're like seven to eight billion people, everybody, right? Is that what's going to happen is basically everyone is going to be drawn to crypto in one way or another, maybe through, through crypto gaming. For instance, this could be a big on-ramp for a lot of people. And then are they just naturally going to fall down the rabbit hole of all of the rest? Well, now I have my first, you know, crypto bank account, which is an address. And I have a private key and I have a wallet that works.

• 1:20:24Ryan Sean Adams?

  And now I may as well do my banking in DeFi. And oh, as far as storing my wealth, well, I may as well buy something like Bitcoin or Ether to store the wealth because now I'm interacting this economy. Is this a huge catalyst for adoption for the rest of crypto? What's your take there?

• 1:20:41Speaker 02

  Absolutely. I mean, it's already happening. And the thing is like, as we were discussing, crypto is becoming all the things. And so, you know, It's like, do users want access to the new version of all goods and services in addition to kind of these new digital worlds that we're talking about? And the answer is yes. So if you're coming in, as we said, from a game, and then all of a sudden you have access to credit and you have, you know, your, your new version of a bank account, which is actually controlled by you. You have all of these different

• 1:21:20Speaker 02

  experiences at your fingertips, like, yeah, everyone wants that. And so it's, it's not to say that it's going to happen tomorrow, or that this is going to immediately supplant all the existing versions of everything. But as I was saying, like crypto is becoming increasingly a part of the stack of more and more technology, goods and services. And so it's natural that you know, as people come on to the internet and they start to interact with crypto in certain contexts, they then percolate out into others. And I think that's an incredibly, you know, exciting proposition.

• 1:22:00Ryan Sean Adams?

  Absolutely. Well, Ariana, it's been an absolute pleasure to explore crypto gaming with you. Pretty soon, we'll just drop the prefix and just call it gaming because crypto is going to become all the things. Want to maybe close with this last question for you, and that's this. What's coming next in crypto gaming? So Axie had this massive year, surprising caught many by surprise. Do you have any thoughts on what the next big thing in this subsector of crypto might be?

• 1:22:28Speaker 02

  Well, you know, we've touched on the metaverse, but I think that's really the next frontier. As we've said, we've seen some of these games start to gain a lot of traction in a particular context. But what we haven't yet fully seen is like the development of full-fledged virtual worlds that you can do a lot of different things in. And so I think that is really

• 1:22:51Speaker 02

  the next frontier and one of the areas that has the most promise. Because the more rich we can make these virtual worlds, the more time people are And the one to spend in them and the more ways there will be for people to interact with them. And so I think that's sort of the the next frontier for what's happening in games.

• 1:23:10Ryan Sean Adams?

  The next frontier is building out the metaverse. Arianna Simpson, thank you so much for joining us on Bankless today.

• 1:23:16Speaker 02

  Thank you so much.

• 1:23:17Ryan Sean Adams?

  Bankless listeners, some action items for you. Our advice is that you dig in here. Go play some crypto games. Axie Infinitys, when we talked about God's Unchained, dig into loot and what's going on there. We have a bunch of resources for you in Bankless and pay attention to those economies over time. They are growing. If you have an analyst's mind, you can look at all of the metrics of growth. We also cover this extensively in a Bankless newsletter we call Metaversal, which covers virtual worlds, NFTs and the metaverse. So make sure you hit subscribe on that as well. Risks and disclaimers, as always, none of this has been financial advice. ETH is risky, DeFi is risky, Bitcoin is risky, the metaverse is really risky as we build this thing out.

• 1:24:01Ryan Sean Adams?

  You could definitely lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but thanks for joining us on the Bankless journey.