a16z Roundtable record: Where is the way for Web3 games?

The following is a transcript of a conversation about NFT gaming with Aleksander Larsen, co-founder and COO of Sky Mavis/Axie Infinity, Gabby Dizon, co-founder and CEO of Yield Guild Games, and Jonathan Lai, partner of A16z, which took place At an event hosted by A16z during GDC 2022.

Jon: Thank you all for joining. I’m Jon, a partner at a16z. Today we are talking about a topic that is close to us, and a topic that everyone at GDC cares about, is NFTs, Web3 and their impact on games. So, I’m honored to have two prominent figures in the Web3 gaming industry join.

Aleks Larsen, co-founder and COO of Sky Mavis, the company behind Axie Infinity, and Gabby Dizon, co-founder of Yield Guild Games.

let’s start. Aleks and Gabby, we’ve heard a lot over the past year about how NFTs and Web3 games are going to revolutionize the way people play, and how the industry evolves, let’s break it down into the details. First, from a player’s perspective, what things can we do today with NFTs or other Web3 infrastructures that were not possible before?

Gabby: As players from developing countries, the Philippines has always been one of the launch countries for games because there are a lot of people who like to play games and are very socially active, but people are not always able to because of the time they spend in the game and energy for real-world rewards. Now with game NFTs, people can own their assets and then participate in the game economy. So it’s a huge change for people from our country and other developing markets that can participate in the gaming economy such as Axie Infinity. It enables people to own digital assets that have their own value in the form of NFTs, such as Axies or tokens. It really changed the way people looked at gaming. I think almost 2% of Filipinos will play Axie Infinity, so it’s a huge game changer for the whole crowd.

Aleks: I think one of the things we’ve seen with Axie is a higher level of engagement and retention, and people are also more concerned about this part of the asset. When we look at what an NFT actually is, it’s part of your digital identity. So, I really believe part of the reason we made Axie and Sky Mavis is we want people to have their own data, and when you start an online journey, especially young people, a lot of it is in-game. Whenever you play a game, I firmly believe that you should have what is yours.

This makes sense to a lot of people, and it’s not just about monetary value. It’s about the emotional connection people have with these game assets. In the past, if the game was closed, your data would disappear. Now, at least you have some tangible proof of, “Hey, I did do that in that game.” That makes sense. So, for me, it’s really important that it wasn’t possible before. So while money is what attracts people, I believe they stay for something else and make them unique.

Jon: Very interesting, the first thing you mentioned is ownership, these are the concepts of digital assets that no one can take away from you. If the game closes, if Axie Infinity closes tomorrow, your Axie will still be in your wallet. You can trade them, they have some intrinsic value. The rebuttal we get from Web2 developers is that digital ownership may just be a policy change for existing games by Web2 game developers. For example, in World of Warcraft they could just allow people to trade accounts with gold; in Diablo there was a real money auction house for a while where people could buy and sell weapons and armor they found in the game. If you can go one level further, what is so special about Web3 and NFTs besides the ability to own and trade your digital items?

Aleks: It’s actually about what I mean by identity. Players spend years finding game assets in games like World of Warcraft. The items they acquire are valuable to them because of the time it took to acquire them, not the sale value. If they then quit the game but want to come back later to prove to someone that they did all these cool things, not sure if they were there. Game developers can easily delete these game assets.

Gabby: Yes, NFTs are digital properties. You can build your own games entirely around these assets, and owning NFTs transfers the concept of digital ownership to the digital world.

Jon: From a developer perspective, if you’re developing a game now, how should you think about NFTs and explore Web3? We’re seeing a massive migration of game developers from the Web2 world to Web3. What is motivating them? What’s so exciting?

Aleks: We talked to a lot of game developers and they were curious, “How did this innovation happen? What is the dual-coin model? What is SLP?” To be honest, a lot of it was just about experimenting, trying to figure out this What can new technology bring. For game developers entering this space, they have to look at tokens very, very carefully. I have emphasized to many entrepreneurs, especially those trying to raise funds by selling tokens, how important these tokens are. Because this is the liquidity that players have immediately, or the liquidity that investors have immediately, is something you have to maintain over the long term as a game studio or developer.

Instead of selling NFTs for a small amount of cash, you can actually reward early community members and connect them to your community by giving them NFTs. When you sell something to a player, they will feel that you owe them something; but when you give the player something, they will feel that they owe you something in return, and the gratitude is very strong. This is how you can start building core members of your community.

Gabby: My take on the difference between Web2 and Web3 is that you really start with assets as the base layer – NFTs are the base layer for your IP, intellectual property. Instead of thinking about the game and then thinking about what assets can be put, what are the underlying assets themselves? Let’s take Yuga Labs as an example. You have BAYC, and then airdrop from there to get MAYC. So, you actually create your world from these assets one by one. When you have the base asset, you think, create three months of gameplay, six months of gameplay, or two years of gameplay for my community. This means that all of these use the same underlying asset layer to reward your community with not only different experiences, but different assets that they can earn by holding your underlying assets.

Jon: I find Yuga Labs and what they’re doing with ApeCoin really fascinating because I think it’s a great example of building games from the bottom up. They basically gave the community a set of primitives, the NFT itself, and told them, “Hey, we want to build a universe around this.” Then they gave the commercial rights to the NFT holders. How do you reconcile this with traditional game development models? When you have a centralized game studio, an organization like Sky Mavis, making sure games are fun to play, no cheaters, etc., do you feel like these approaches are inconsistent? How are they reconciled?

Aleks: In a sense, the Sky Mavis approach is actually hybrid. What are they doing when I’m watching Yuga Labs? They are giving away the commercial rights to use BAYC in various things. It’s great – you can unleash your creativity. As game developers, we are trying to gradually decentralize. At Axie, users can get significant monetary value, but if they want to participate more deeply in the ecosystem, they need to make an agreement with us. In our case, we are trying to align the incentives with those who hold the underlying token (like AXS). The revenue generated is either returned to the players or goes into our treasury, which then benefits the token holders.

Now, with ApeCoin, I have a stronger opinion on it because I am not bullish on currency tokens. I believe tokens need to have a clear way for people to capture some kind of value, whether it’s a flow of funds or a management platform, just using them for trade is not something I think will make the price go up, that’s actually the point of a lot of things where. I’d rather focus on, especially if you’re going to issue a token, why should people hold it? Make people want to hold your assets long term, not just as currency.

Gabby: It’s really hard to make games, but the NFT and Web3 communities have given a lot to them. One of my favorite examples is RTFKT and CloneX, which started out as a bunch of NFTs. But then they launched another NFT, Space Pods, which is like a physical 3D space that people can decorate. A lot of people actually came in as creators and were decorating their own pods, or even learning Blender to do so. So make your community feel like, “I’m the real owner of this economy and I can co-create with developers.” Of course, you can set some boundaries there. There is a core gaming experience that only developers can create.

Jon: One of the challenges we face in Web3 today is that there aren’t that many players. As a personal example, two days ago I beat Ayrden’s Circle, a top-selling AAA console game. They recently announced that 12 million people played the Ayrden Ring last month. However, as far as I know, no blockchain game has accumulated 12 million players, let alone monthly active players. What do you think it would take to achieve this level of success in Ayrton’s Ring in blockchain gaming?

Aleks: Right now at Axie, we have about 1.6 million daily active players, and it’s still a game that doesn’t have any app stores. You can’t download the game on iOS, the only way to get it on Android is to download the APK directly. Having said that, what happens when we can lower the barriers to entry even further? As a developer, it’s not about making a lot of money, it’s about giving something in return, because gamers are forever taken for granted and are actually exploited. They are squeezed to the extreme, especially by mobile game studios.

Aleks: As a mobile game developer, we went down this road and found out that the worst is actually not the game developer, but the middleman. is how you have to spend money on advertising. Now, what’s possible with blockchain games is that you can market directly to consumers by putting tokens into it, which is why Axie Infinity was able to gain so many users in such a short period of time. By the end of last year, we had grown from 36,000 to 2.5 million now. By further reducing barriers and allowing people to play games for free, that’s what it takes to hit those numbers.

Gabby: We created YGG based on the Axie community. The community discovered that basically, with this dual login system, you can actually lend NFTs to other people without giving up wallet access. If I give you access to your username and password but not my blockchain wallet, you can play games, experience games and earn value without trusting whoever owns your assets. So we’ve been doing this since 2020, and now this has really exploded in Axie Infinity in the Philippines and the rest of the world. We are built as a community of players, or run as a DAO (Decentralized Autonomous Organization). Assets for different types of games are being purchased right now, and we’ve now purchased assets for over 40 games. Whether it’s a card game, or a strategy, or an RPG, we now have the assets to allow players to enter and enjoy these games, and start playing without having to buy an NFT. Of course, if they like it so much, they might buy something afterward.

You can see that YGG has seen tremendous growth, and a lot of it is in developing regions like Southeast Asia, India, Latin America, etc., where people play these games and earn extra income. But I think we will see an evolution similar to the World of Warcraft guild with bank accounts. The guild itself may buy a castle or a kingdom, and it will produce buildings. People will come in and harvest resources. So having this guild layer on top of digital assets gives you new game primitives like never before.

Jon: Gabby, on the topic of DAOs, maybe it’s just a moot point…is DAOs today basically Web3 game publishers? If you’re developing a new Web3 game, you want YGG to look at the token design, look at the game design document, and sign it. That way, your community, your academics, and fellowship administrators will all know that this is a legitimate program and that they should invest their time and money. Do you think DAOs have really become too powerful from this perspective? Because they have effectively become the gatekeepers of future Web3 games and dApps in general, even outside of games. How do you see this as you build your company and grow?

Gabby: That’s a very good question. I think the way to win and create value in Web3 is very different than it used to be. Before, if you had something proprietary, you wanted to lock it up and charge for it, which is why Facebook and Google have grown so much on top of their algorithms. In Web3, the way you grow is through compound network effects, which means that if YGG comes in and helps with game launch, token design, and asset purchases, we won’t gate it, and won’t let other guilds in. We’re actually setting up the design so that hundreds of other guilds can come in, enjoy the game, and have a thriving economy. We actually reduce the network effect by gatekeeping, which reduces the value of the work we do. This is indeed the core difference between Web2 and Web3 in terms of value creation.

Jon: And one last question is that there are a lot of Web2 developers in the audience who are curious about cryptocurrencies and want to learn more about Web3. What general advice do you have for them? How should they start?

Aleks: To be honest, NFTs are fundamental elements that can be used as building blocks. If you do it right, you can gain a lot of experience. But you need to start with the basics, and don’t get caught up in all the hype around funding until you’re ready.

Gabby: Understanding the difference in community values ​​in Web2 and Web3 is critical to creating games. Community has always been valuable in games, right? But in Web3, they can actually make or break your game. So, joining a DAO, joining a community, joining a guild, and voting on some proposals, or experiencing the game from a DAO perspective, really gives you an idea of ​​how powerful the digital asset network effects that the player community has.

Jon: Thank you all for joining us.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a16z-roundtable-record-where-is-the-way-for-web3-games/
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