199 - Are Crypto Games Making a Comeback?

you're going to see it start out International you're going to see most of the users in Asia you're GNA see most of the users in Eastern Europe and then as you kind of build that side of the game the labor side you're going to see the capital side flow in and kind of build the sustainable game economy and I don't think the question is like whether you can build a crypto game that works like there's no rules that say you can't and what we're doing on defi is kind of like an early iteration of a crypto game anyways I think the question is can you build a sustainable economy welcome to bank list where we for the frontier of Internet money and

internet Finance this is how to get started how to get better how to front run the opportunity this is Ryan Sean Adams I'm here with David Hoffman and we here to help you become more bankless the question today are crypto games making a comeback so we did a bunch of crypto yeah I don't know we're GNA find out we did a bunch of episodes on crypto gaming last hype cycle and uh retrospectively it was a little bit early David but uh hey that's what we say front running the opportunity right yeah I think so and uh this time

we got cheap block space we got better wallets we've got games that are maybe actually fun to play we've got Vance Spencer and Michael Anderson on the podcast from framework they are investors in crypto gaming they're on the frontier here and they're here to make the case for why the time for crypto gaming is now crypto games are making a comeback a few things we talk about what's the state of crypto gaming as we head into 2022 number two why our guests think now is the time for crypto games to take off number three which chain is going to win all of this crypto gaming activity is it salana is it

Avalanche is it an ethereum Layer Two there's actually a pretty compelling answer here number four we talk about this one simple trick to Route Around iOS store and Google Play Store our current Gatekeepers on the crypto gaming market and number five if everything they say comes to pass the big question is what does this mean for our assets what does this mean for ether for defi tokens for layer 2 block space David you're sticking your finger in the air pointing to to the sign up why is this episode significant to you uh I think um

just adjacently the story of framework uh Vance Spencer's like bullas for defi episode 10 I think with us really early was one of the strongest articulations for Defi and that's where framework as a VC firm like cut their teeth and also made a killing right investing in things that you you will be familiar with back when it was super contrar in post 2017 Ico Mania things like a synthetics chain link that just rocketed out of the bare Market of 2018 to 2019 and so this is

where framework got their start and now is a very large VC firm like a large assets under management large uh like hundreds of millions of dollars and I think the story of like how Vance and Michael like went from defi in the last bull market into gaming was because that they they had such a strong performance that they were like well now we have so much capital and we need need to deploy it into a sector and right now the rest of crypto is not large enough for us to deploy our sector so we need something larger to deploy it to and they came to

the conclusion of gaming not not exclusively but gaming is something that they have been investing in for their their thesis for a number of years now because gaming is like a way bigger industry than crypto uh and so that could actually absorb some of the ve Investments that they need to make in this space and now two years later some of these Investments are starting to bear fruit this is my quick like tldr history of framework from my perspective uh and I think it makes sense if when we get to the part of like why gamers in crypto people are like really similar if

you believe that thesis it makes sense that gaming is the next big Frontier for crypto uh if that story tracks with reality then framework will have themselves set up because Gamers like Vance said they're always online they're familiar with digital digitally native things uh they've got techn technical chops they've got computers uh and so all of these ingredients are coming together uh if you believe the thesis that Vance brencer and Michael Anderson are about to make you very bullish on and most importantly maybe there's three

billion of them out there Gamers out there that could become a crypto users guys we're going to get right to the episode but first we disclose both David and I own some IMX tokens and of course you got to know Michael and Vance they are venture capitalist so they have a fund that invests in crypto gaming so of course they're going to be bullish on crypto gaming a particular set of assets guys let's get right to the conversation but before we do we want to thank the sponsors that made this episode possible including our number one recommended crypto exchange the way you get into

crypto that is opening an account on Kraken go check them out bankless Nation I couldn't be more excited to introduce you once again to Vance Spencer and also Michael Anderson for the first time who lead framework Ventures longtime Bank list listeners should be familiar with Vance we've had him on the show a couple times this is Michael's first time on the podcast but they're both at framework Michael welcome Vance welcome back it's good to have you guys thanks for having having us hey uh we want to dive into a topic we haven't talked about in a while but I think uh it's going to be an important topic it's gone

dormant for a while and this is the topic of of crypto gaming I can tell you we've explored this thoroughly though okay and it was probably most like um two years ago let me let me read you some episode titles to get us kicked off here the crypto gaming Revolution this is with Ariana Simpson the emerging met this is where the folks at G Galaxy Ventures web 3 gaming 101 Amy woo the dawn of crypto gaming we had Robbie on what's real about crypto gaming this was all like two years ago when it felt like the crypto Nar uh gaming narrative was like really taking off and you know if

you remember that time axi was hitting like all-time highs and it had grown from like I don't know 10 million dollar in market cap to multiple billions uh since that time things have really quieted down and I want to find out from you guys uh do games still need crypto like why like what's the story with games and crypto has it died is it is it set for a Resurgence give us the take we'll start with you Michael I mean I think the the thesis here is really simple um if you have two games and they're the exact same game the same

gameplay the same game mechanics one of them is in a digital ecosystem like a PlayStation or an Xbox or or a computer that we're used to playing and have been for the last you know couple of decades the other is the exact same game played on the exact same venue but you actually own parts of the game whether it be your characters or resources or attributes within the game and you put that up against anyone who's you an avid gamer and you say do you want to play this game or the other game the one with ownership or the one without I think just about everybody would say okay if

it's the exact same game and I'm gonna enjoy it the exact same way I want ownership and I think we haven't what we've been waiting for and and taking it back to what you were talking about Ryan is you know two years ago we didn't really have any fun to play games there were there were sort of like random number generator based games with two-dimensional artwork um and what's happened since is there's been multiple years hundreds of millions of dollars invested into games and game ecosystems that have been developing and justdating and are now kind of set to launch um you know and games are you know really

really you know massive markets but they're also really hard to build and so I I'm excited just because you know we've been waiting and investing and building and it's kind of time for that to come to the Forefront so Michel let me uh let me take the skeptic take for for just a minute because we we starting this podcast on maybe a skeptical kind of lens and I don't think we'll we'll we'll conclude there but we got to start there because there's a lot of questions you said that if you give any two games one game you can sell your assets you have ownership of your assets Gamers will prefer that rather than the other right that was my thinking too I I legitimately thought this I think I

still think this and yet we haven't seen that played out because if you call that thing an nft right now we we've seen The Gaming Community kind of rebel against this I I must have watched like an hour and a half half long video about how nfts and games are just like it's the end of gaming uh Gamers like consistently all sorts of threats I know Gamers like to complain but there's there's a consistent chant of we hate nfts so it seems like if you call them nfts might be in trouble maybe there's a a branding problem and then there's also this other this other accompany thing

which is like some Gamers will tell you now if you start monetizing it it becomes too real for me and it becomes more like a like a job and you actually take the fun I I go to games to escape these have been two two of the persistent I think themes from from Gamers is one is this anti nft thing they see it as exploitative maybe and another is like if you inject economics into it then it becomes like a job and I start to lose the the virtual you know escapism element of my games what's your take on that I've got a take on it so like

asking the uh you know the people who play or who like go to Kotaku which is like a game rating website who play like super intense games like dark souls or Final Fantasy asking them if crypto gaming is real or the right thing to do is like asking traditional Finance if defi is is interesting it's just it's just like not the right segment it's not the right job to be done the real answer of you know like who's it's not about like if crypto needs gaming or if gaming needs crypto it's what users want and I

tweeted this out a few days ago but you know when I was early in the NBA Top Shot Discord it was filled with people trying to turn $5 into $10 or people trying to turn their time into any amount of money and if you think about like the crypto use cases that we have today like defi is like a power user segment nfts are kind of this whole other thing games are really the only thing that can fulfill this need of like you know I've got some money I've got some time I'm trying to play a game I want to have some ownership and sure like the people who play like Gears of

War or Final Fantasy like they're not going to want the nfts but the people who are playing Candy Crush which is frankly most of the gaming Market the people who are overseas who don't have the same access to you know Economic Opportunity like those are going to be at least the first cohort of people that try and use these games and you're going to see it start out International you're going to see most of the users in Asia you're gonna see most of the users in Eastern Europe and then as you kind of build that side of the game the labor side you're going to see the capital side flow in and kind of build the sustainable game economy and I don't

think the question is like whether you can build a crypto game that works like there's no rules that say you can't and what we're doing on defi is kind of like an early iteration of a crypto game anyways I think the question is can you build a sustainable economy and that's kind of like where the discussion gets more nuanced and more interesting like I don't think anybody wants to recreate axi it's just like Financial Napal for retail just doesn't work what you do want though is something that looks and feels like a game that you might play where you earn some money but you also really like playing it um and that goes

on in perpetuity and that means probably less reflexive token economics but it doesn't mean taking them out as as a whole MH I think that that's a lot of just what the resonated with me in the the early days of of gaming like every single game establishes its own economy right and there there's like the idealized like every you get ownership you get sovereignty as a player you you have your own assets and this is one of the reasons why the idea around crypto gaming kind of took off way way back when I'm wondering if you I'm hoping you guys can kind of just like download us

on the undercurrents that have been flowing in the crypto gaming space over the last two years because most people including myself have been largely like tapped out of it uh and Michael I think a bit of your answer was like yo building a game is is long and hard so it's going to be a while until the games come to Market uh but I think we're starting to see some games come to Market so if I had been tapped in for the last two years uh and I would imagine this space has been dominated by devs game devs building Dev stuff doing game Game Dev stuff uh how have they

been interfacing with crypto what does it mean to be a crypto game versus our expectations that we were left with with post axi Infinity like what what are the undercurrents that are being established by some of the game devs right now yeah yeah I mean so I think there's kind of two ways of looking at this there's sort of the the financial Capital um and the amount of money that it takes to actually build a game and then there's the technology and maybe I'll start with the tech and and we could talk about the financial side but the tech side you know within any ecosystem um right now

within crypto within web 3 it's exceedingly hard it's much harder than what your average application is whether it's you know you're using it for payments you're using it for defi you're using it for any of you know the different ecosystems you have to be pretty knowledgeable about metamask or whatever wallet solution you're you're using you have to be knowledgeable about what network you're on you have to bridge assets over it's an exceedingly difficult process even today and you know at the end of 2023 gamers are not going to be able to put up with this gers are also not going to be able to put up with any sort of system where every single time they need to do a transaction on they have to pay a little

bit of gas even if that gas is one cent or one tenth of one penny that's just not going to be something that's feasible so the two major improvements I would say on the technology side are account abstraction where you don't actually have to pay the gas yourself as a user and then having the the ecosystems where you're abstracting away the blockchain elements via a unified wallet experience and you know historically you know when we talk to game developers the the biggest impediment to growth for them uh or their forecasted growth is what they

call the wallet wall where you get hit with this metamask or wallet connect type ecosystem when you just go to sign up for the game it has to be as simple as username password email password just like every other application and so we have solved over the last few years there a number of solutions that have gone out and solve this this problem whether it be infrastructure providers or you know wallet Solutions themselves or games who have taken it upon themselves to build these Solutions into their ecosystems but I I i' say that is

sort of the the clearing of the path of opportunity for these games to actually get real usage actually get real Gamers and then you know to to take it to the financial side you have to have tens of millions of dollars just to be able to build these games you and we can talk about it further but um you know we're recording this on the eve of when alivium is is going to announce or going to launch their open Beta via the epic game store I mean they've spent tens of millions of dollars and they had hundreds of people building this game over the last three years the there's sort of a a an opportunity that if you

want to have a game you had to go back two years with all that Capital with all that time and all those people and build it and and I think that's you know just one thing that is a blocker for anybody who hasn't been able to do that when it comes to games there's just like a massive Spectrum right where there's like the AAA games that require a pretty fancy GPU built by some of the studios that we all know and love and I think this is kind of where eluvium is or in the sphere of of like you know very elegant graphics with a lot of development time and then there's on the

other end of the spectrum the mobile player Candy Crush uh where is web 3 crypto gaming assets interfacing on this spectrum more or less is it like lumpy uh is ovium kind of a special case is it more to what Vance was talking about where it's further down on the cheaper game end of the spectrum if I'm allowed to call mobile games kind of the cheaper end like where where's the distribution here so alivium has uh a mobile app game that is kind of like a version of like Sim city/ like Clash of Clans um and

that's for kind of the Casual enjoyer of the game then they have the Overworld which is kind of like GTA on an alien planet but you're mining resources and you're mining characters that you can then play in the arena which is kind of like the classic Pokemon Arena Battle um games are going to start at kind of every end of the spectrum generally like we've seen people who are just building the the mobile fast casual side we've seen people who are just building the super intense you know like crazy like Dark Souls Final Fantasy uh like GTA

like Overworld um we've seen people start with just like a TFT battler I think that you know eventually you're going to need all three as a game to address these different audiences and to make your economic Loops make sense um but I think the key thing is just like the IP needs to be compelling like if you're playing you know uh Clash of Clan or like you know let's say Cy crushed with a token there's not really a lot of expansiveness to that the game kind of ends and starts like right kind of in your in your pocket like there's not anything that would compel you to use or

transact with that asset um and in many ways it kind of mirrors like the birth of ethereum like what what is ethereum it's a community of developers we built really strong IP around the core values around the functioning of the system around the mini games that exist on chain and that's kind of what I think the best games are going to do as well like I think you know Lum started from a perspective of like what would Pokemon look like like if it was web 3 um and you have you know the characters you have the mining you have the Sim City Builder you can Loop it all together with the economics the token is the thing that unifies everything just like

eth the asset does to the ethereum network and the developer Community that's what's going to make these games stand out I don't think it's necessarily the best game wins I think there's a certain quality threshold that you need to get to but the thing that's going to make these things like massive interesting economy is the IP um and to Michael's Point like let's think about you know whose opportunity this is you needed to have started building you know a few years ago if you're going to launch in the next year there's probably 10 teams that have done that uh you need to have a couple hundred million you

know of those 10 teams there's probably five who've done that and then you need to actually have really compelling IP and a strong token economic flywheel of those five teams there's maybe a couple and so I think a lot of our thesis with you know how at least web 3 gaming plays out initially is that there's going to be a huge first mover Advantage just like there was with D5 um and and you know some of that is because you're going to have the ability to bootstrap the economy but another part of that which is different than defi is like the next wave of people who are going to chase you are probably going to launch in like two to three years so there's

going to be like lumpy success in web 3 gaming but it's going to Spur you know this like multi-year process of games getting funded getting built and then launching um so that's kind of how we think it'll play out all right can can we talk about like the the the impediments or the blockers so far and like just update us kind of the again the last that David and I probably left this was more in the axi era right you're still kind of playing with your metamask browser and you just was kind of clunky and all these things tell me about a modern experience like something

something like Al alivium so first of all it's in the Epic store right so it's in the epic games store so that is like much more native than something like axi ever was from a distribution perspective and then tell me about like the wallet experience if I'm just a Casual Gamer I just don't know anything about holding my private keys or like metamask what's my experience and then if you if you could tell us about kind of the front- facing experience and then also like for the crypto native who's listening to this uh what parts are actually crypto so when you said alium has its own kind

of asset that's like eth for its own economy what is that an erc20 is that on some layer 2 somewhere is that on its own side chain and we're talking about like these nft assets like where are they sore could you just walk through what a modern game like eluvium actually looks like right now yep um so first off alivium is built on a mutable X which is a which is a application specific blockchain built by starkware and I think this is kind of the the example of the abstraction becoming you know the real important

component of the of the tech stack most people who play alium should never even know you know what a mutable X is or that it's built on starkware the way that you enter into the ecosystem is another product called passport that is built by the immutable team and think of passport is truly your passport across all the different games that are built on the immutable platform and the immutable platform has the Stark uh starkware instances of the games that are built on top of them olivian being one of them they also have a ZK evm

instance that they're starting uh that they're launching in January that's where most of the other games will be built and then they'll have the opportunity for games that get big enough to actually have their own app chains but you know once again this is like what type of database is your favorite social media application using nobody should actually ever know that they just care about the product and the experience itself the passport is the unifying layer of value that connects across all of these different game ecosystems and once again it's sign up email password username password and you

put money or value into that passport experience where you can then use that to go off and buy or or you know transact um but in the ovium case you're not actually ever do doing anything if you don't have to if you don't want to and so I personally play the city Builder I can start playing the city Builder without ever having to buy anything or spend any money I can just start farming resources and then build up over time if I want to expedite the process I would be able to buy something speed up the building speed up the

process earn more resources in that process but that's you know kind of the the normal experience that you would expect with any digital game if I was to go on to the epic game store right now and download any game it' be user email uh username email password to sign up it would be you know me putting in my credit card just in the same way that you have with passport um or I could fund it from another source and then you know start playing and start buying things so the passport is kind of like a wallet for uh crypto the passport is exactly it's a wallet that connects

across all the different games within the immutable ecosystem and and we're talking about immutable right now just because olivium is is topic theour but um you know there are other ecosystems that are building you know games and and um you know other platforms other blockchains that have similar type products okay so so the experience for the the typical gamer is going to actually feel very similar to like traditional games then right there's not going to be this this wallet wall this crypto learning curve that we've we've seen in the past with this generation of games that you're saying no no high gas

fees either like actually G actually was on L1 you know for for a while right and then they they did their side chain there was a hack all sorts of things right and and you know they built the L2 and then they built the bridge and then the bridge got like you know we're like so far away from that point like it was just a complete song show for a long time and to to kind of like the opener that you put to us you know you've done all these podcasts about crypto gaming and you know they were early and we're definitely guilty of that we were excited about it um but like you can't

really judge it yet like we haven't seen any games launch okay and so like you know you have to defer your judgment I don't think you can be bearish on Webster gaming I think you can just say it hasn't happened yet but we haven't had any games launch and we have all these things the UI the lowcost blockchains the ability to abstract them away like the the proof points get stronger as we go on okay now now link this so now the Crypt native kind of understands this right so I understand the backing of of how this works it's on immutable so it's a layer two you got this passport thing but it's basically

like like a wallet and you own all of your own assets whether that's all the tokens in these ecosystems or the the nfts like skins and items all of these things right so I I get that now for the gaming you know individual who is just like new to crypto okay tell me guys how is this why what benefits am I getting from the blockchain underneath all of this all right so like I can kind of get that same experience with with other games like it feels I mean how do I feel the ownership of my own assets can I go

take these assets and like bring them into another world can I like go onto like ethereum layer one and like I don't know sell them in a Unis swap market like if I want so now talk to the gamer and what are the the benefits of being on a blockchain rather than a central database frankly just the the marketplace capabilities of being able to sell these different assets and it it could be you know openc where you're selling these and in sort of like that style of marketplace it could be you know a mechanism that's built specific

for the games that we're talking about but or maybe there's a un pool where you have you know a fungible asset or a fungible type asset like resources in a game that you're able to go off and and make markets for but really the it's the same way that we look at any you know digital asset that is in your metamask right now or an nft that's in your metamask right now it's you have ownership because you have agency and you have the ability to sell it it's not and I think one of the biggest misnomers and and um points of confusion is the ability to say I'm going to take this

asset from one game and bring it into the digital ecosystem of another game the there that is such high complexity um that's never going to happen never going to be a value proposition I think that um you know being able to you know use a an NFL character in uh you know ovium maybe that's like kind of interesting but like nobody really cares about that um and so for us ownership really just means the ability to sell these assets uh or or make a market for them um and and that's how you kind of

imbu the sense of ownership um and it's and it's exactly the same way as you would have with defi tokens or any other asset just there's an interesting implication here that I want to get to and then you know I bet David has a bunch of questions here but it's like one is what does that turn a gamer into does that turn a gamer into like um I somebody's working like it like could Gamers think of this as a job I mean you you mentioned developing economies and developing countries and that was certainly something that was uh

incredibly popular during the kind of the axi uh blowup days there stories of you know people in the Philippines who basically made their income uh from playing axi all day but it it started to like turn into like uh a job for many people rather than rather than kind of a game it well how do you guys see this this Fusion do you think that that plays a role in things when you introduce economics and the ability to kind of sell things I mean that starts to sound a little bit like the the real world and like like after all if we said before I mean I feel like um maybe life is a game

everything's a game I mean what what are we doing I'm going and I'm collecting like um you know tokens and you know currencies and defi is that a game like I don't know this this gets this gets complex uh pretty quickly but what's your take on that does this shift the type of of game player and the experience at all when you introduce like real world economics here it's a similar form factor to ethereum like from a highly speculative economy we've built something that's sustainable we built kind of these mini games on chain like whatever you want to call defi whatever you want to call nfts

like we've built the sustainable economy and I'm sure some people do it for fun some people do it for work uh but it doesn't kind of work without both of those character types like you need people who enjoy it then you need people who are trying to you know get value or or get work out of it and again it comes down to can you build a sustainable economy and you know one way of doing that is building something around Financial Services another way of doing it is building it around entertainment and consump of digital Assets in a non-f

financialized way and so for the gamer it's basically the exact same premise as traditional gaming you're going to play a game that you like and maybe after everything you know it's not just you giving the game developers thousands of dollars maybe you get something in return and you can make money on a micro level off of the assets that you've generated and at a macro level if you want to buy the token of the game it's akin to owning a share of of a of a stock like you get a direct upside participation in the game that's pretty interesting for developers it's a

different proposition idfa which is the apple retargeting of ads which drove most of the business models of free-to-play game developers that's been killed as of last year most gaming Studios saw their revenue Trend down 30 to 40% and there's more competition than ever because these games are easier and easier to build so you need some sort of new monetization even if you can kind of stick with your existing IP which is what you're seeing a lot of game developers in Asia do crypto is just the best monetization known to man if you can earn you know 2% on every fungible token transaction on every nft

transaction like immutable or like alivium does like that gives you a whole different Vector for not only monetization but redistribution via token to the community and you know like when you get to the point of like finger pointing saying you know those aren't real Gamers those are just people that are like working that to me is like an immediate indication of like okay we're doing something right um and the initial player base is going to be people from India people from from Asia people from Africa Eastern Europe like you go in these discords those are the people and that's fine and that'll be kind of the

initial like if you think of it as like labor if they're like working or if they're enjoying it those are going to be the first people to play it but they're going to be the earliest participants as well and I think that's kind of beautiful that in no other gaming F function like are you able to partake in the actual game success uh and this is hopefully something that's a bit more egalitarian the the only thing I'd add um is that I think you know the 2021 era of web 3 dming the original sin was that speculation was basically the only thing that you had and I think that speculation is a necessary component but

it needs to be balanced with a funto playay ecosystem high quality games uh whether that's you know an alium type AAA quality or just something that's really engaging and addicting in in the way that most digital games are but the other element which I think we haven't really touched on is is it really hard to win and if you have the ability to have it be really high really deep in terms of how far you could take it and how far you can go that's going to make it a game of skill or at least closer to

skill and that's where you start to see all of these variables start to coincide in a way that we just haven't seen yet and and so you know we've only seen one aspect which is speculation and and I'm excited for the others let me ask let me ask you guys question David and Ryan what's the best argument against crypto gaming oh God you're asking crypto Bulls to argue against crypto stuff um best argument against crypto gaming is well I could give you an answer in in a variety of different respects like a we haven't even figured out like wallets yet like

smart contract wallets account abstraction wallets like uh but I guess you could route around that just like okay you just have a centralized wallet do all that stuff for you and then all of it then like then you can take assets later um the best argument I I would say is going to be something along the lines of uh crypto gaming is not uh is all going to be Zero Sum because somebody if if somebody's making money right which means somebody else is losing money uh which means like how do