Hong Kong-based Animoca Brands is aggressively growing its portfolio of metaverse holdings, through a flurry of deals.
In February, the company completed its acquisition of indie game developer, Grease Monkey Games – the name behind games, Torque Burnout and Torque Drift. It also led investments in Brand New Vision - the platform that is taking fashion into the democratised blockchain universe of “Web 3.0”; play-to-earn games, SIDUS HEROS and CafeCosmos; “massively multiplayer online role-playing game” (MMPORPG), Elumia; and a handful of others.
In addition, Binance Labs, the venture capital arm and incubator of Binance announced a $1.5 million investment in one of Animoca Brands’ play-to-earn mobile gaming platforms, GAMEE.
Animoca Brands itself has attracted capital to continue funding its strategic acquisitions and investments. Backed by the likes of Liberty City Ventures, Soros Fund Management, Sequoia China and Winklevoss Capital, in January, it raised $358.9 million with a pre-money valuation of over $5 billion.
Since its first investment in Dapper Labs in November 2018 - the company responsible for taking blockchain games mainstream, with CryptoKitties – Animoca Brands has made over 150 investments in non-fungible tokens (NFTs), or related blockchain companies. Since, its investment mandate has further evolved to consider all things related to Web 3.0.
In this interview, the company’s co-founder and executive chairman, Yat Siu speaks to FinanceAsia about the firm’s investment strategy, whether NFTs are caught in a bubble, and he shares his thoughts on the crypto market cycle.
Q: How do you approach investment?
A: We invest through our balance sheet, and from the stance of building out the ecosystem.
We view token infrastructure - such as Ethereum or Flow – almost as resources, or commodities. Sure, investing in Ethereum three or four years ago would have made lots of money, but cashing such tokens into fiat renders re-entry very expensive.
We approach token investment with what’s akin to a fuel hedging strategy. We want to build in the metaverse, and this requires operating capital - we need to own the resources and build on top of them to develop the new digital world, as opposed to cashing out.
We view the investments we make as seeding the future ecosystem. Web 3.0 is all about the shared network effect, because we will all participate in it through shared ownership. In this sense, it makes no sense for us to try to control it. As such, we have to explore how to grow the space by investing in the talent that can make it happen in a distributed and decentralised manner. It’s like building a new society with a new economy.
Q: What would you like to add to your portfolio?
A: We’ve made over 150 investments and counting. We want at least to double that, but if we do our job right, we can probably exceed this target.
We're excited because virtual property rights allow us to propose new things on top of others, and this may lead to the emergence of new business models that we can’t currently imagine. The play-to-earn or guild gaming model is a great example of this and is reason for the success of Axie Infinity, for example.
I expect that a very large portion of our new investments will be in new ideas that we haven’t yet contemplated.
Q: What are your ambitions for 2022?
A: We’re hoping to onboard at least 300-400 million new users of decentralised gaming this year, including what we call play-to-earn or NFTs. This means in relative terms, that we hope to increase user adoption by 10-15 times compared to where the industry stood last year. It's a big number and we're making investments to help drive this growth.
Q: What is your vision for the metaverse?
A: We think the real metaverse must come with ownership.
Currently my view of what Facebook and other companies are pushing forward, is a centralised metaverse. Those who participate in it are renters or tourists. The benefits of this virtual landscape are only accrued by the owners of the network: the Facebooks, Amazons, Googles and Tencents. Everything is built upon terms of service, and individual ownership is an illusion.
This is where digital property rights and blockchain comes in, disrupting the centralised metaverse through the offer of true ownership.
Q: How will your metaverse coexist with what others are building?
A: Our belief is that ultimately, the closed ecosystems that some companies are building will fail, and the metaverses they’ve created will be forced to open up.
There’s a parallel with global trade - the network effect of global economies is simply too great: once you’re connected with an open source, you simply cannot compete in a closed manner – unless of course, your scale and weight is so large, that you can literally replicate an open infrastructure within your closed ecosystem.
I think that the closed metaverses will eventually become virtual North Koreas. The only way that they will be able to grow is by opening up.
My broad hope is for this, because it's better for the users, and it's ultimately better for the companies, too.
Q: Which Asian markets are leading these developments?
A: I think Hong Kong has the advantage as a nerve centre. Its capitalist structure position as a financial hub lends well to understanding blockchain and digital property rights.
South Korea is also proving to be a hotbed for this in terms of innovation and flexibility and driving change in the tech space.
China is interesting because on one hand, many believe the region to be against the development of cryptocurrencies, yet they're still encouraging companies to develop a blockchain. So clearly, there is a recognition that blockchain is important, but there is a question mark around how to approach it.
Additionally, we should consider how blockchain games like Axie Infinity or REVV are changing the lives of people in like the Philippines, or Indonesia - these are becoming hotbeds of innovation, too.
Q: Are NFTs in a bubble? And will we see more regulation of them?
A: Generally speaking, I think we can expect regulation across things like fungible tokens, as governments wrap their heads around them.
For NFTs, the talk has been less about the specific regulation of entities, because at essence, they are a form of digital property. Instead, it’s around their fractional ownership, which typically would require regulation.
If buying a NFT involves fractional ownership, then it could be deemed a security and the security laws and financial rulings around what constitutes a security could be applied.
If financial ownership comes into play, then it would be considered a financially regulated product, regardless of whether it is a token, a share, or unit trust. In my mind, they are the same thing.
I think many are fascinated by NFTs and as such, demand for them over the next year, will continue to grow. Perhaps it can be said that people engage with digital collectibles such as NFTs more naturally than more “classic” forms of cryptocurrency.
Q: What’s your perspective on the crypto market cycle?
A: If you look at it from our lens, what has been witnessed recently isn’t what we would deem a collapse. Even just one year ago, Ether stood at around $900, so it’s all relative. People who entered the space in November might view the recent cycle as having collapsed, but it wouldn’t be the same case for someone who had entered the crypto market nine months earlier.
Also, because the pace of development is happening so quickly, we’re moving through cycles rapidly, too. We used to think of bubble cycles in terms of years, but now, they run in months. Currently I feel we're in the middle of another such cycle, which has struggled in terms of pricing volatility, but on the other hand, is experiencing lots of new users enter the market.
I think that the fundamental thing is that, despite all the volatility and some negative media rhetoric around cryptocurrency, the numbers of people joining the metaverse and participating in blockchain games, is rising.
Q: Animoca Brands is also building a vast online metaverse through its subsidiary and decentralised gaming platform, The Sandbox. Teaming up with tycoon Adrian Cheng, actors Stephen Fung, Shu Qi and other Hong Kong talent, Mega City is a new cultural hub where land NFTs can be acquired. Can you talk us through the project – one where physical Hong Kong heavyweights have entered into a virtual world?
A: The ability to own virtual real estate is something that I think more naturally aligns with a younger generation. It is also relatively more affordable than physical real estate. And if you believe that the space is going to grow, then this game constitutes a way to participate in such growth and development.
The thinking around it is to build communities. And with Mega City, I think we've managed to ignite the beginning of hopefully, what will become a strong Hong Kong community.
