What NFTs and Gaming means for Enterprise Adoption | KBW2023

afternoon everyone I hope you guys are staying hydrated having fun uh who has learned something new this past two days raise your hand yeah there we go all right guys uh I have the pleasure and the honor to sit to next to some gaming Legends who have done incredible work over the course of their career um Robbie Justin would' love for you guys to introduce yourselves and then we'll dive right into the conversation for sure um I'll I'll keep mine short uh I'm Robbie I'm the co-founder of mutable uh I've been in the blockchain space since 2014 uh and we became obsessed with nfts in 2017 and built the first ever onchain multiplayer game we realized pretty quickly uh that paying $200 in gas fees to battle your opponent was not interested and started working on building a scaling platform so other people could build web3 games uh today immutable is over 300 people around the world uh we have over 200 well-funded games building on our platform uh and are the biggest platform for for web three gaming uh globally we've raised over $300 million from TC 10cent bcrafty experience where you don't even know you're using nfts under the hood hey okay it's already on cool okay hey um yeah I'm Justin so uh basically I've spent my my career focused on how technology can connect people in new ways so my first company uh I started was called Zinga it's a mobile game company we started off building social games on Facebook uh way back in 2007 pioneered the business model of Premium games so the idea of buying the objects in the game and making the game up front for free um that was a new idea 15 years ago now it's it's sort of the dominant business model it's expanded the the games industry a lot and there's a ton of parallels between that and nfts so naturally when uh nfts got kicked off and I met teams like uh a mutable team actually um when things were just first start getting started I got involved in in a bunch of projects and now I've got my own project that's trying to figure out what's the next wave of nft adoption and how what does it mean for uh the art of game creation so yeah really glad to be here uh shout out to Justin one of the best advisers ever um started helping out me very early and is definitely part of our success today uh one thing to not is these two gentlemen are also some of the kindest human beings so they're incredibly a student to what they do but they're also great humans um let's dive right into it guys right now there is definitely some tension between traditional gaming closed World gaming and web 3 gaming we're seeing a lot of like questions whether nft should be part of these games whether MMO should be even be built on blockchain like what is your take right now on that tension and who's going to win uh I always love this question because the first thing I ask is everyone talks in the blockchain space about whose bags do you own when you evangelize a particular product everyone's aligned with a blockchain or a game who owns the bags of protecting the $150 billion that's spent in a completely locked database it's the existing incumbents uh and the services and ecosystems built around them because of course there's a huge incentive in in some way ways to sort of protect the system that they're currently massive beneficiaries from and I think this is the way that any form of change is it's well studied you know Clayton Christensen The innovator's Dilemma you know disruption has to occur through this Paradigm and you know even free-to-play gaming uh Justin knows this better than anyone it faced huge backlash when it it was first being generated and it took those first hits in order to prove why this model was actually better um and you know gamers are one of the most fickle audiences in the world they will complain about every single thing you put in front of them but at the end of the day you just have to build an exceptional product or game that lots and lots of people use um the reason I'm so passionate about this and the reason I think this will be the sort of inevitable Paradigm that takes on is it is a much fairer way for players to own their property I think we've been sold this basically complete lie which is just because something is intangible you shouldn't have economic property rights attached to it you should no longer be able to sell it and actually that makes zero sense there should be no reason why tangibility and intangibility should be the differentiation between you have 100% of economic value and you have nothing instead it's just the system that has sort of been created by default um I think the inexorable trend of how gaming is evolving is you already have games competing for who has cheaper inapp transactions that are identical clones of each other the next stage is how do you actually just make much fairer value for everyone you see the shame shift in Creator economics with app stores with uh streaming with basically paying fair value to people um so that's why we this is sort of inevitable and and why it's so important yeah I totally agree on that and I think Gamers aren't stupid uh one of the things that people didn't understand about premium was that uh it was just a much better deal and if you look at over time just the value that Gamers get from the amount of money they spend uh it's better than most forms of media and the amount of time you can spend playing free games right now without ever spending a penny um I mean you'll you don't have a life long enough to get through all the content that already exists right so this this idea that it's become more expensive when these these payments have become optional is actually not true and the people who play the games understand that I think there's there's some associations that people have been a little bit confused by they see you know the 69 million doll ble sale they hear it's an nft and then they think of their favorite game where like they're buying a premium item already and they think wow these are going to get really expensive and that's just not the case that's not like what most people are looking to build that's not really where this is headed um but they will come to understand the the advantage and every one of us probably has a hobby where you bought something and with no expectation of of the thing that you bought going up in value but later uh you want something new in that hobby you bought a guitar it's time to sell it and get a new one you can actually get some of the money back I think we're going to see a lot of that sort of things start to happen and for people who are spending ,000 doll a month on games already um and they have the option between spending a$ thousand dollars that goes into a black hole and 70% of it goes back into Facebook ads to go get new users in the game or to retain some of that value and even sell it and get back some of it after we don't need play to earn to be better than the existing model it's just it's just not true so people need to feel that value and then they'll start to get it I I love Justin you touched on it I wanted to talk to this because you also touched on it Robbie on the the tangibility and tangibility play to earn was a huge conversation like 12 months ago right actually Infinity took over the headlines people I think some people were making a true living on play to earn and exchanges is that going to come back how what is that a phase and is that a tangible thing that's going to stick in web3 gaming yeah it's been happening for a long time right so play to earns or the idea that these economies are scarce is is an old one and there was World of Warcraft gold farming and actually like I ran into some very very early bitcoiners who were taking our poker game back in 2007 playing it on Facebook mining a bunch of chips essentially and selling it to to other people using eBay and of course we had to stop it from happening because if we didn't then we would be considered online gambling at the time um but like this type of thing has been going on for for a long time right and as long as there's a way for some people to put in labor to to give value to somebody else who doesn't have the time and and wants to exchange it for money I think it's going to continue to happen so whether or not it's sustainable in the sense of like a game economy is sort of a separate question but there's always going to be some Market of people who are willing to trade their time to create value and some people who are willing to trade their money to save time right and I I think that that's at the heart of it what about you Robbie how do you feel about this so I think um play to earn as a concept is dead you can ask anyone and and and that's the the kind of ubiquitous opinion I think play and earn or variance thereof are sort of where the industry is is headed I think the games need to be intrinsically fun and need to be intrinsically sustainable um and then there's this question of how you create sustainable economies the deeper question though is how do we create a Playbook so anyone else can easily create a successful three game and actually again Justin sort of told me this story first but uh social gaming only really exploded once you know Farmville and Mafia wars perhaps people played this in this room I know I was obsessed with them back in the day were created and Mafia wars was reskin 10 or 15 times the same underlying game design and leveraging of the social graph on Facebook in order to grow they had a you know a version of for for young girls that was like a hair salon and we need that moment in web 3 had axian being a sustainable version of an economy we would have 100 successful clones today and we'd be well on our way to this becoming the default Paradigm for asset ownership instead it didn't and what we need is this you know hit that proves out this is how other people without having to hire 10 PhD economists can very easily create sustainable economies that's the reason why at immutable we do immutable publishing and Studios where we actually create these economies for our own games so that we can share all of that IP for free with the games building on our platform all right let's go into the next one going to be a little Hot Topic that's been both navigating the nft community and I just found out today that it's a really hot topic in gaming as well and speaking of economies let's talk about Creator royalties right what does Creator royalties look like in gaming and why are they so important yeah I I'll jump in so look I think the the thing about creators is they're the really the life blood of this space um and you have to think about it not like just how are we competing Within blockchain with each other as creators and as uh people who are running businesses in the space but also how do we make blockchain competitive with other Technologies and I think this is where a lot of the conversation has been lost so if you were in these Clubhouse uh rooms you know a few years ago when people were selling the idea of nfts to artists they were telling them you're going to get royalties and perpetuity that was part of every single pitch to every artist and every Creator and that was a very powerful pitch it got a lot of them to pay attention it got a lot of them to come into the space and the same was true for a lot of these game develop ERS because from their perspective um they it's a over100 billion dollars a year that's being spent in these games they're already making and so if you're telling them you're going to sell an item directly uh to the user the way you already are and in many cases already making revenue or uh you can use a new technology to do it then what's really appealing about Creator royalties is they also get access to the secondary Market that they didn't previously have and when you pull that away um actually it's like pulling away one of the biggest selling points for why people should really be paying attention to to blockchain as as an incumbent and so um I think the the biggest macro thing um to me about this issue that I and the reason I hope it gets solved at a broader scale and I know a lot of people are working on it is because I think that the ability for us to grow the space is bigger when we can charge less for nfts UPF front um and free nfts are like the most marketable version of an nft and it's very hard to make a business built on free nfts when there are no Creator royalties and so like what we learned with premium and a lot of other things and services on the Internet is the marketing value of something that's free is not like 20% better than something that costs a dollar it's like a thousand times better and so the ability to give away free nfts to many wallets and people who've never been on boarded with crypto and then to later monetize them in another way is is pretty related to this idea of Creator royalties and so we've definitely hindered our ability to grow as a space when that problem is not fixed um so I I hope people can see like it's a very complicated situation with the the marketplaces but uh when when it comes to our biggest growth lever as a space I think it's it's really important yeah I I think royalties are inherently Pro ecosystem and and pro- interoperability because they allow creators to attach a price to usage of that property or intellectual property in multiple contexts and they also create economic incentives for that and the reason we're so passionate about royalties for game studios is precisely this problem of economic alignments I always give the example of you know Magic the Gathering Counter-Strike GO uh are both two good examples of games with huge secondary market economies that the primary issuer or the the company really can't tap into uh in the case of csgo obviously valve has this essentially database they run and and they can kind of control that with impunity but imagine a world where mag at the Gathering didn't have to create $30 million of cards every year and sell them and make all of their old cards less valuable because instead they could just take 2% of every single trade of the 20 billion dollar of estimated MTG cards floating in the world today and suddenly their incentive is just make the ecosystem bigger grow volume and in perpetuity make the game more successful um that is a fundamentally aligned business model where their incentive is the exact same as their players um so that's the reason why we're so prior royalties I think this sort of the the issue has been fraught by product limitations um the reason why open seers had to make their recent decision is it's very very hard to compete when you have this race to the bottom and other marketplaces are offering you know zero royalties the the blurs of the world the X2 y2s of the world we actually think that enforceable royalties at a protocol level is necessary in order to support a safe ecosystem for marketplaces a safe ecosystem for games to create royalties Gabe Laden the founder of machine zone is incredibly passionate that you know royalties are a much better Paradigm to game design and they're so important for game developers to be able to monetize so actually one of the main reasons game developers use immutable today is we have enforceable royalties protocol wide um we know it's really meaningful for our marketplaces because they can't be undercut um so it's it's something we're super passionate about speaking of rear creative royalties what do you guys think about the The Narrative that's going on right now that a lot of our ecosystem and a lot of the ecosystem in gaming has been very heavily boted like how do you combat those elements where you can actually want to incentivize users versus users who are creating bots right to actually play the games and things of that nature so like the vanity metrics are not necessarily the things that we want to look to yeah well I think there there's certainly no vanity metrics on on players um that anyone's really sort of shutting to the rooftops right now um I think the the more appropriate one is as soon as you have an economic incentive like play to earn it's going to be botted you know my opinion is with AI you're going to have human level sophisticated agents that can play games pretty much generally uh without specific training in at least 5 to 10 years so you know this idea of civil resistance is a very difficult one you can't make a game too complex that an AI won't be able to beat it in 5 or 10 years um we obviously have some really unique solutions to this we have worldcoin where you can scan your retin and maybe that will mean you can earn digital value in games uh more efficiently um our approach is a little more you know you have to assume that Bots will exist and makeer economy designed to to be robust to them um but we also have things like you know kyc and immutable passport where we can kind of build out to Futures where Cil resistance might be really important for games um because it certainly is for for a lot them what are your thoughts Justin yeah it's one of the hardest parts about this space right there's so many different types of actors and everybody has different incentives um and I think the game industry we've we've always had like some set of issues like that but never at this scale and never with people with this much capital and sophistication so um I mean it's been anti-che and all these things have been part of the game industry for for a long time I think in this space um part of the reason that it's it's really a bigger issue right now is because some of these Gam games haven't hit real scale yet and so I do think if you actually get enough players in then this becomes less of an issue because probably there are a lot of things you can do to make sure that you're rewarding people who are actually have gameplay patterns that are more likely to be real and that will get more challenging over time um but you can reward people for lots of different things and things that like computers wouldn't necessarily be better at and so U my hope is like game design is one of the ways to solve this but I'm sure there's Technology Solutions too yeah man I wanted to speak to this one right here we're we saw I believe Daniel just Activision right lizard to join Yuga Labs uh to really focus on the gaming element of other side um what do you think is going to be the forcing function for the EAS the activ visions of the world to take web 3 seriously what's going to be that forcing function yeah I think I think we'll see two approaches so I think you'll see a lot of experimentation and we're auditing this today um we've already announced some of these big big studios we've got some coming up where they're genuinely really interested in making sure that when this does become the next dominant Paradigm for how games develop they know precisely how to build successful games they're not going all in they're not putting you know Call of Duty on the blockchain tomorrow uh but they do want to be ready so that when the industry takes off they know how to move um and then I think you actually have sort of slightly different triaa players who are very much wanting to be at the Vanguard and popularizing this I think a lot of those game studios are here in Korea I think some of them are in Japan uh where they view themselves at at the Vanguard of free-to-play shift at the Vanguard of of gaming uh and they see this as the next sort of Paradigm Shift where they can be the ones innovating and and sort of you know at The Cutting Edge of this thing so I I I think you have the hedging model and then the the genuine Pioneers both are useful and and we want to be you know ushering in both of those yeah there's been a um a number of companies that have been focused on it that have surprised me that they've actually they're starting to ship things so like U my my former company Zinga is is actually minting something relatively soon and I think that the timing surprised a lot of people um I think ultimately these platform shifts are opportunity right and Activision is the biggest so maybe they'll be the last and usually what tends to happen is like people like Robbie succeed enough where they can't ignore it and then eventually people have to come in late and they have to buy some companies and that's kind of how the cycle typically works but I think the way that a lot of people are thinking about it is if you're not lucky to be one of those giant companies right now where you can continue to to uh you know ride with the existing business model you have this is like a very disruptive technology and actually it's it would cannibalize a lot of revenues for some of the players depending on how they rolled it out so they're not exactly looking to and this is the thing people forget that the opportunity with games is that people are already buying over hundred billion dollars worth of virtual Goods every year um and so there's no question like music and in these other industries of like what's the business model how how is this going to work are people going to buy these things they already are buying this and this will become more compelling once they're properly uneducated and the infrastructure is there um but that doesn't mean that the companies that are making the majority of that money are necessarily incentivized to to give up some of it right now because it's going to change the Dynamics of their business a lot and so I'm sure some of them that are more incentivized that understand history will will see it as opportunity that it is will'll have some successes and then everybody else will be um you know playing catchup and that that tends to be the shape of the industry every 10 years or so uh going back like 40 years at this point so it's probably going to be the same here all right I want to talk about two topics um and we're going to go in them in order but first I would love to talk about IP and AI and how like that's going to disrupt a lot of creation World creations right like real time rendering things of that situation and then this is a topic Justin that you and I would touch based earlier uh yesterday with navine about privacy on the blockchain and that concept because a lot of gamers are Anon you know a lot of the most successful Gamers we don't know who the they are you know what I mean like then and that's by Design um but let's talk about Ai and what AI is going to do to the threat of Ip and real world creation and in gaming what are your thoughts on it uh I think in the long run IP is probably dead and uh some form of enforceable IP and and sort of uh royalties is what's necessary in order to make sense of a world that's going to be so overrun with uh high quality AI generated content that can be produced for zero dollar um so the the most significant shift that I think AI is doing is you know the fundamental principle of a business commoditize your compliments um the compliment to gaming and entertainment is the stuff that you are gaming with or entertained by that is the 3D models it's the 2D art we've seen the most significant shift ever in the history of cost structures in uh content in the last two years forgot unchain one of our trading card games we used to spend a million dollars a year on 2D art illustrations um now we spend $40,000 thanks to Mid journei and AI Gans and that cost structure has rolled out across the industry next is 3D models after that it's AI characters and full you know mods and maps and I think that most successful companies in gaming over the past 15 years have been platforms which have leveraged the easier access people have to to create any form of ugc part I I think that works really really well with the incentives we're creating in web 3 where you can you know allow people to take Clips on uh the assets that they've created the mod for where you can create you know royalties attached to this thing where people are really incentivized to create high quality content and those platforms can become the most successful you know in the long run um to to quote from Jeff Bezos their margin is our opportunity and I think web 3 is is taking this enormous margin that has been taken from creators game developers everywhere and is creating a far more powerful set of incentives which is ultimately just going to win out I think that's actually at the heart of what you're building with with Playco and story verse yeah yeah it is and actually um it's interesting because like this has happened also several times in this industry like you see something like Unity it wasn't that long ago that every major game Studio was rolling their own game engine can you can you imagine like everybody had a several hundred person team in their company that was just building a worse version of unity um this is not like 20 years I don't think any analogy in the blockchain yeah yeah this is yeah like five I mean really stopped like five years ago is when they finally really started shutting all those teams down um and I think what we're seeing with AI is like again the same thing more efficiency more access but usually with these things comes a new customer and what Unity did was not only did it mean that Electronic Arts not have to build their game engine internally anymore it also meant that a four-person game Studio was now fundable to make a game that looked kind of like the Electronic Arts game and so the question um to me with AI is like what is the fundamental unit of a Creator uh and and do we see in the shift not just efficiencies for the existing companies and a leveling of the playing field but also a new definition of what it means to be a game creator um and I think you know unity and unreal are engines that are made for professionals they're made for teams and there are a lot of those teams out there right now and a lot of people with those skills and I think what we're probably going to see is a level of content creation um that comes from people who are more like Tik tokers and so that's kind of what we're excited about um at story vers is how do you connect the lines between the IP that people own inside of the web 3 uh experience already stuff like board apes and crypt punks pudgy Penguins things you have commercial rights to and those are difficult for you to go and do anything with so on our site you can license in the IP you own as an individual and then creators can come and work with your IP to build actual games using a lot of these tools and tools we've built in house and the idea is that uh we can have creators that build games that stand on their own much like artists have now come online in the blockchain so you think about um this idea of art selling on the chain it's a brand new idea for the internet we didn't have an internet native business model for art for about 30 years um and then art came online and now we just think it's normal and so no matter what you think about the prices in the art industry we did not have a solution for artists to engage in e-commerce in a meaningful way until about three or four years ago with nfts and now it's forever changed this is the same cycle that went through uh games with premium was we didn't have a way to price games and sell them online in a way that made sense on the internet then freemium came along and then you had 15 years of huge huge growth um so I think we're going to see this in other places and I think um game creators could be like the next wave of you know it's it's becomes more and more about the individual and the patronage to to the person and what they can do with these new tools that's a really awesome take guys um so one thing that at nft now we believe in is that privacy is a fundamental human right um and it's very challenging on the blockchain when it's such a public Ledger um gaming in itself you know it's become hundreds hundreds of billions of dollars being pumped in and you now start seeing Gamers lives change right like you're starting seeing pools of money you know being in the tens of millions of dollars very serious amount of capital uh being brought forth and you start seeing stardom and fandom really become a thing right like you're starting to see Pro Gamers have same if not greater Fame than some aess Hollywood celebrities right like in the cult followings but let's talk about anonymity and privacy in gaming and why it's so important and how are you guys choosing to protect that privacy and that anonymity that has been a Cornerstone of gaming right like you've know you're known by your handle you're not known known by your government name you're not known by your ID how are you guys addressing the Privacy issue that inherently the blockchain doesn't have yeah so I think the the thing about blockchains is they're not Anonymous they're pseudonymous um I think that's a feature and a bug um and unless you're going to some sort of like you know privacy based uh ZK solution which you know we we we could definitely roll out I think that is going to be the nature of open blockchains and it's it's part of transparency um for us coinciding with privacy is self- custody by default I think it's an incredibly important principle um and we make sure we do that in every single one of our technical decisions IM mutable passport our wallet we just rolled out is you sign up in 5 seconds with email but it is by default self custodial um and and so those are kind of two sides to to the same coin for us um but I I I think the thing is you know if you want to keep your uh wallet private it's about making sure that no um metadata that can attach to your personal name is is ever attached that account which which can be tricky over time so let me ask you cuz you guys do kyc you guys do right optionally optionally got it okay great great so how do you protect that kyc if somebody's saying like hey I want I want to be verified that I'm a human but I want to keep my handle Anonymous and I don't want my kyc attached to my handle I I I think uh if you want to engage in say a regulated game and that game decides it needs to kyc its customers in order for them to be able to trade you're you're not going to be able to participate in that anonymously it's going to be very difficult right there's there's going to be some attachment to your name now that's up to that company to keep that private um but I think that more broadly the nature of wallets and self- custody is that you can generally just interact with the ecosystem permissionless and you don't have to sort of go through those routes so I I I think it's just an sort of you always have to tread this fine line of of Regulation and and what's available versus privacy but yeah that's awesome how about you Justin yeah I mean uh for what we're working on I think it's it's more around security right so like we are working with a lot of people who have like very valuable Assets in the space um we we have Crypt punks licensing is live on our platform we've have a bunch of punks who've licensed in their crypto punks um we have about a thousand Apes who've licensed in so I guess it kind of makes us like the largest IP licensing platform in the space and obviously we don't want to cause any security problems for those people so we put a lot of effort in making sure that we're supporting all the different solutions that people use to check and verify these as assets without causing issues for them so we partnered with token proof and and we're using delegate and you know we'll probably support warm soon so I I I wish there was a part of this process has been educating people on this because it's the first time they they're excited they're like well I can use my board ape for something how are you going to know I have a board a I don't want to connect that wallet to this this thing and so there's some education there but I think um part of that onboarding we're doing for that that layer is going to help everybody because what we're noticing is you know we checked there's a fewer than a thousand Crypt punks who delegated uh to delegate cash and delegate cash is like the most popular solution for this so we're actually going to be onboarding a lot of these these people in the process of giving them their first use case like this so that's really great that's amazing all right guys we have 90 seconds left um this is one of my favorite personal questions it's not gaming related but you guys are incredibly successful entrepreneurs you guys have been battle tested you guys have been taking companies to levels that people dream of you guys are some people's dreams you know knowing what you know today what is a piece of advice that you'd give yourself on Day Zero um I think there's always great lessons on hiring um when you're when you're building your first big company uh that I would definitely kind of take back I think you know keeping a bar incredibly High um which I'm I'm very proud to say we we we do now but there's always kind of early mistakes you make um and then uh again one of the best pie advice I think is just ship with a sense of urgency um which is actually advice you double down on on our first call so I think like that's the most important thing is is just kind of you you don't honestly know how things in the crypto space are going to pan out um one year the Paradigm could be you know eth Killers the next could be Pro uh eth the next year it could be self- custody the year after it could be all you know custodial wallets the most important thing is shipping quickly enough to to iterate yeah I think this is this is a thing that a lot of people um struggle with including myself I mean I think the hardest thing is focus on the extreme near term and the extreme long term at the same time and to kind of ignore like one year and in this space in particular I think that's important if you look at like a lot of the most successful nft projects they are incredibly reactive they're shipping things that are relevant to the day and to the week of what's going on in the space um I think where some people struggle is like the opposite where they they have great long-term Vision but they're not making progress on a day-to-day basis uh improving and working toward and uh actually getting closer to that vision and so what I what I hope to do um you know with what we're doing and what I I think is like the challenge for everybody is like to actually make progress today on something that gets you somewhere durable because at the end of the day like hopefully we're building things that last for a while right and um I know for me like the most satisfying thing on anything I've done is is definitely like things that last for a bit longer um than than even the length of time you're involved and so I think that should be the goal for everybody and that's really what blockchain is all about awesome guys thank you so much give these guys a round of [Applause] [Music] applause