Animoca Brands’ Yat Siu on why Asian companies may have the edge in blockchain games

Yat Siu, Executive Chairman of Animoca Brands, helped open our GamesBeat Summit Next 2022 event by talking about the obstacles blockchain games face to gain more momentum. And while explaining that, he also noted how Asian game makers may have an advantage over those in the US and Europe when it comes to blockchain and crypto games.

Siu tried to cut through both the hype and negativity about how blockchain games will become mainstream and disrupt traditional games.

He was interviewed by James Zhang, CEO of Concept Art House, in a fireside chat in a preview of our GamesBeat Summit Next 2022 event. He noted that CNBC called Siu “Mr. Metaverse” for investing in hundreds of Web3 companies and driving the adoption of blockchain games.

Survived the crypto winter

Sius’ company has 380 startups in its portfolio, as Animoca Brands has a huge interest in NFT games. Zhang asked Siu how companies will weather the crypto winter.

“Well, for one thing, I don’t think about this as much as winter. I mean, it’s obviously kind of chilly. If this is a winter, then 2018 to 2019 was an ice age. We’ve been through this together.”

He noted how close to $3 billion has been invested in blockchain games this year already.

“It’s a great time to be a gamer,” he said. “Perhaps valuations are not as high as they were nine months ago. But you can still raise money if you’re a great studio with a great concept.”

He added: “I think of this as an economic development. The Metaverse/Web3 is like the building of a new nation. If you look at the growth of Korea, it is one of the most prosperous nations in the world. But for 30 to 40 years ago it was a military dictatorship. There are 3.4 billion people playing games who still have no ownership of the assets they have built up over time. If you think this is a better internet, that the DAOs and blockchain tokenization and Web3 and the open Metaverse are the future, so I think we’ll be fine.”

Challenges blockchain faces

Siu said the challenges are known, such as the onboarding process that makes it difficult for beginners to establish cryptocurrency accounts. People often don’t understand why they need a cryptocurrency wallet to play a blockchain game in the first place. Gaming companies need to integrate it if they want to enable crypto payment and crypto asset ownership.

Some companies have opted for “Web 2.5” with a combination of crypto payments or fiat payments (such as US dollars) for non-fungible tokens (NFTs), making the run easier by keeping the assets for you. But Siu said it doesn’t teach people about decentralization and what it means to actually own your assets, if you have someone else maintain and control them for you.

East vs. West

The biggest challenge is that players seem to accept blockchain games in the East, in Asia, but not in the West.

“A strong vocal minority largely rejects the idea of ​​- not ownership per se, but – non-fungible tokens and crypto in general. And so that’s another obstacle,” Siu said. “I think Western gaming companies are really struggling with, for the most part, is that they can’t get the customers on board.”

As Animoca Brands is a global company, it has been affected by this just as much. But Siu said he empathizes with his Western counterparts. He noted that an early narrative from critics was that free games abused many players in the West, as games in the West espoused the idea of ​​being merit-based, as opposed to a “pay-to-win”. ” game that sometimes thrived in Asia. The fear was that putting strong financial instruments into a game would distort the game in favor of wealthier people.

“I think the bigger narrative is really the fact that people, especially young people, in, say, America, have gone very anti-capitalist in their thinking,” Siu said. “If you look through the lens of the landscape of America politically, the fact that socialism actually has a strong political agenda today. But that was even unthinkable maybe five to seven years ago.”

And so groups see crypto as a tool for the rich and that crypto games are extremely expensive to start playing. They are also seen as pits to cheat you out of your money. Politically, Siu believes that the environment is different in Asia where young democracies accept capitalism and property rights. It probably also has to do with the fact that many of the games so far haven’t been that fun, and if there are big budget blockchain games in the works, they haven’t arrived yet.

“I think that’s the opportunity,” he said. “If you remember last year, a lot of the biggest game companies, including companies like EA and of course our good friends at Ubisoft and so on, have always said they’re going to get into this space. And for the most part, it’s been a full-scale retreat this year.”

Regulatory risks

In China, the government banned anything related to crypto and that has stopped these games from gaining traction there as well. But Siu said it has created an opportunity for smaller startups in the blockchain space to gain a foothold in the market before the big corporate giants arrive.

“I think this is the beginning of a really interesting redrawing of the world of digital entertainment and digital property rights,” Siu said.

When asked if the conflict between players and the big companies will end, Siu said that we can take some lessons from how mobile gaming developed. Major companies like Activision Blizzard faced similar opposition from hardcore gamers about mobile gaming. They didn’t succeed early on as well as home-grown, mobile-first gaming companies, and they eventually had to buy mobile gaming companies. In Activision Blizzard’s case, it bought King for nearly $6 billion.

“The big incumbents have typically been very strong in M&A strategy,” Siu said. “I think that will be their entry point once the market has moved. I think Asia will lead because the Asian audience is much more open to this. So you’re not dealing with barriers (with the market). We really have a user experience barrier to overcome . Asian companies don’t have a consumer barrier to overcome. But in the West, they have a consumer barrier to overcome.”

Siu believes that South Korea is the most active blockchain gaming market, with all major gaming companies following a blockchain strategy, including companies such as Netmarble, Com2Us, Wemade, Nexon and others.

“From a national sense, I would say Korea is probably the most active,” Siu said. “I think every single big game company in Korea is trying to do something there in Web3.”

Beyond that, Japan’s South Korea is also making big moves to invest in blockchain gaming companies.

“You can definitely see a trend where Asia is driving and moving forward,” Siu said.

In the US, however, strict gambling laws in the state of Washington have likely prevented Microsoft and Valve (owner of Steam) from moving to reward-based blockchain games, and other companies have to be wary of whether their crypto tokens can be considered regulated. securities under federal law.

“In the United States, you absolutely cannot live a day in Web3 gaming without looking at the latest decisions and investigations by the SEC (Securities and Exchange Commission),” Zhang said.

Yuga Labs, operator of the Bored Ape Yacht Club franchise, has tangled with the SEC and Kim Kardashian had to pay a large fine for promoting cryptocurrency without disclosing that she was paid to do so.

“So if digital ownership is the power and promise of Web3, how should NFTs and tokens be designed to not be considered securities but still provide value and ownership?” Zhang asked.

Siu noted that different countries have different approaches. He noted that many of the regulatory investigations have focused on the area of ​​fungible tokens, where each token is exactly like another, much like with national currencies, or fiat.

“The main thing it really comes down to is what is the reason you’re buying the asset for,” Siu said. “And if it’s a tool, right? So from our perspective anyway, if you start a game element and you can use it inside the game and you have a ready tool, which I think is happening a lot more these days anyway, then it is quite obvious that this should not be a certainty.”

Play for the unbanked

Siu noted how NFT gaming has been good for countries that have lower gross domestic product per capital, as the ability to earn NFTs and then sell them on a secondary market can be a source of income. He noted that some games focus on financial inclusion, where unbanked players can find ways to play, sometimes through player guilds like the Yield Guild Games.

“It’s a fine balance that you have to strike, but overall I think we’ll chart the right path,” Siu said.

He noted that Hong Kong will come up with a policy on digital assets that provides clarity. Siu said that we can see a shift, where last year it was about games to make money like Axie Infinity, and now there is a pivot to talk about how fun a game is.

He said that game developers should be aware that people play for different motivations, either to make money or for fun. But players who emphasize one of these motivations should not reject games that fit the other. And while some may see play-to-earn as a contracted service model, others may see it as a path to financial freedom.

“The ownership paradigm is, is a more critically important one, when people themselves start to engage in a way where they want to monetize that ownership,” Siu said.

Siu noted that the model around blockchain is interesting compared to free-to-play, where a very high percentage of revenue comes from a very small percentage of players.

“What tokenization does is it enables a way that you can measure the value of the network effect that the free people are playing and then whether they choose to cash out or reinvest into new equity or assets,” Siu said.

He also noted that decentralization from Web3 means that fewer of the profits go to the big platform companies. That money is not plowed back into game developers and back into making better games for players. If you take the user acquisition money and just give it to the player instead, that player will likely put it back into the game economy. It is a redistribution of wealth.

“Even if they only put in 10%, or 20%, it’s still higher than what they would otherwise do,” he said. “It’s a much healthier ecosystem. It’s actually a realignment of incentives.”

Zhang asked how to protect digital ownership from hackers. Siu said a responsibility comes with ownership, and education is the key to that. You need an electorate that forces regulators to come up with the right policies and legal protections, not to mention better security. He also noted that NFTs can come with built-in security where, if stolen, they no longer have the same utility.

“As an industry we need to come together and probably there needs to be some regulation around this,” Siu said. “Is there a restore button? Does anyone have the ability to regain ownership?”