🎙 85 - The Crypto Gaming Revolution | Arianna Simpson

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 yeah we talked to ariana simpson of a16z crypto who has had a particular focus and 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 if 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 uh

you know economic assets that are part of the game itself and so that is the topic of today's show absolutely um crypto gaming is going to be massive uh 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 axi infinity

jumped on uh the radar now it has like 1.5 million players it's reached a fully diluted market cap of 18 billion dollars right so like crypto gaming is here i think uh some some of these early games have sort of proved this and what we really wanted to go through with uh ariana is like why like why is this suddenly happening now in crypto and how does an investor see this what's the lens 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 ethi 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 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

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infrastructure projects and will be opening up to all users shortly there are so many apps coming online to arbitrarium so you may want to pack your bags in preparation for the great migration to the arbitrary layer 2. to keep up to speed with arbitrary follow them on twitter at arbitrom and join their discord bankless nation we are super excited to introduce you to our next guest ariana simpson is a general partner at a16z and jason 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 in 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 thank you so much super excited to be here all right guys this is our crypto gaming episode and i know your focus your

specialty is all about um gaming more recently in crypto that you've had extensive experience in in the other sectors within crypto and i want to set some context for bank list listeners in in terms of why we're talking about this um i think it's really because crypto gaming became a major force this year right axi 18 billion in fully diluted valuation 18 billion with a b three billion annualized revenue at one point in time

people are living off of video games people are living off of axi um at its peak the game that was axi was generating over 15 million in revenue per day 1.5 million daily active users so uh axi has just like blasted the door off of this thing now everyone sees what's possible we've got guilds and dowels like ygg creating entire economies for employees we have loot which is absolutely

blasting off now we have the advent of layer two guys it feels like time to do a bankless podcast on crypto gaming so i want to start ariana with this question to t us up why are you so excited about crypto gaming and also why now yeah absolutely i think um 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 um 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 one 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 and so i think the fact that um 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 axi but the whole ecosystem around it too to really start to flourish um 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

um and gaming i think occupies a really unique space in the sense that it's allowing people who might otherwise say i don't know how i would get into this you know what's a transaction what's the hash what's either scan 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 um 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

see you know the fun the potential economic upside um you know the communities like there's just 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 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 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 uh 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 in like getting into like the broad commercial applications especially with gaming how big of an unlock have we just uh met like with the unlock of crypto gaming like how big is this i guess i guess it's a question of total addressable market but with the current size of crypto as at least with population versus what could be unlocked with gaming what's like the the comparative magnitude of these two different things 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 side are kind of a key gating factor 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 our blocks on ethereum as a proxy for that obviously uh you know we have a real issue there gas prices have been

out of control et cetera and i think one very clear data point about the fact that demand is really actually very hard to forecast until you lower those transaction fees is what happened with axi as you mentioned and moving over to the ronin side chain so um you know axi had been doing fine decent growth whatever um they they

switched over to ronan and the graph goes vertical and i think um 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 and just enable um enable people to play a game or transact in a way that's costless or close to it um and so you

know i think what we're seeing is that there's so much interest in you know interacting with crypto um in a variety of ways and so as the barriers to entry from an infrastructure perspective continue to fall um we just expect that the number of experiences that people are are able to have in crypto is going to continue to to grow at a super super fast pace i think this is a really like important point right and so like i remember the the the axi

circumstance that you're you're talking about very well like in 2019 and 2020 uh we were writing about axi on on bank list but it was like this niche game super like esoteric it was not mainstream at all it was very sort of you know crypto uh gaming in the in this very small niche and um when they did launch the ronin sidechain as you said like that's when they were able to scale up to one million plus users and more now they

have the largest discord server larger even than fortnight and that kind of surprised me but like i think people missed the point um they look it's kind of like cell phone adoption you know like 1980s you had these brick cell phones only a few people had them they'd have them in their car they'd be traveling it's like nice exactly it's like like no one's going to have like cell phones uh was the thought at the time if they look like that but when you when you like bring down the costs and when

you make them more compact and you 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 2 and side chains and cheaper block space is a massive unlock for crypto gaming and it feels like um i i gotta say even being in crypto i don't know about you ariana but like the axi thing took 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 years then as you said when they released you know their side chain i don't know earlier this year's like february march just absolutely insane level of adoption that caught me by surprise did he were you surprised at all i think he caught everybody by surprise really yeah uh including the team um you know uh you 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 axey 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 gonna take off but um you know kudos to the folks in that ecosystem 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 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 move into the space in 2013 when i did but um you know i think there's what inspires me about the space is

really the fact that people have had such interesting and creative visions for how the tech can be applied and just continued 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 um and so i'm always delighted when you know when folks end up doing very well financially because i i feel they've been slogging you know for many years to

to build and i think that's at the end of the day kind of what what this is all about before we dive into the more intricate integra uh details about asset powered gaming is there any other conversations around like the infrastructure improvements that have allowed this crypto gaming world to to involve evolved not just like scalability is there anything else that uh is like really important infrastructure to allow this sector of the crypto world to blossom

well you know i think um i think there have been a few different approaches to tackling some of these problems obviously i think what um 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

that run runs on that a number of others so um you know i think there's this problem is being tackled both um as a layer one issue as a layer two issue and in a few different ways um 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 are interesting in the sense that um although some of the in-game assets are

now becoming very valuable so security remains kind of a an important consideration um you know speed is paramount and cost being low is also paramount because you can't have to spend fifty dollars every time you do something in the game that's outrageous you know and i think um a lot of the people who accumulated east uh or other crypto assets early um you know have quite a lot and so they're more willing

to pay what would be an absolutely outrageous amount of money to 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 a hundred dollars and if you think about that that's like kind of outrageous um and you know i i would certainly not be willing to spend that much as a transaction cost for most things but um 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 um 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 um 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 well so now we have one of our first like success cases of crypto you know in axi and that that growth is undeniable and i think it's kind of like it's it's

hard for people to say as uh they said many times during the bear market like crypto gaming is not a thing it'll never take off there's no like um 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 super powers of crypto gaming so i think many um bankless listeners have played their fair share of video games like david myself included and one of the things i think all of us will know about the

video game is um you can't own your own items in the game you don't have sovereignty so the centralized game maker essentially has license and access and uh they own all of the actual items in the games you can't lend them you can't borrow against them you can't um 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 what do you think it means to be an asset powered games and a game in and for players to own their item their own items ariana how important is that 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 the space in my mind is to reclaim power wealth etc from some of the platforms that have historically um 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 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 um you know generally speaking as you said the 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 um 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 um so what's happening here is you have the ability to also have a great time but actually have some uh 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 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 axi and also other games you know people are now beginning to work in the metaverse and so the fun is

there but there's also a kind of uh broader financial and 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 um 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 um and i think the thinking was primarily that well if we let people cash out then they'll you know leave the game without um you know they'll cash out and then that'll be the end 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 uh

willing participants but not captively held in the ecosystem is actually much greater so while their take rate might be much smaller um 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 um you know it's almost like 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 feel 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 um and you know again i think i think this idea that players would only stay if they were held hostage effectively as being proven not to be correct um 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 uh i remember saying about six months that i said six months ago that i thought uh 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 um you know 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 um you know we have a good lens on what's happening in both of those ecosystems and the percentage of um companies or new game studio 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 um so it's it's really

interesting to see that transition um and by the way i think some of the you know the aaa studios etc some of the more entrenched entities in the gaming world are not going to move that quickly um 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 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 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 feel like you're a part of the has historically not been

the case 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 i mean just a quick side comment on what you said i find it hilarious you know andreason's whole thing is like uh you know software eats the world right and 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 defined so does fintech just become kind of defy so it's like crypto is starting to eat the world um just a little side quest there yeah oh no i think about this every day you know we um i think as a firm are constantly re-evaluating

what steps should we take to best serve the entrepreneurs um in the community and so for us you know the whole firm transition to being an ria in order to at least in part um invest more freely in the crypto ecosystem you know we've we've taken a number of steps in um that frankly are um 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 which is you know there used to be 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 the fun okay yeah that's everything 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 it's a part of the stack it's a way of um enabling certain things powering certain things um it's it's not its own category um and so yeah over time i think obviously that a lot of things will need to be reconfigured um 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 of the day like what could be considered more successful than becoming a part of everything um so to me that's that's definitely a a big success case over time every fund becomes a crypto fund that's the prediction we're making last year oh yeah no 100 i yeah absolutely stand by that brian and i definitely both got shocked when you uh updated your timeline from years to months with regards to crypto