Of great social and political import
In 1886 Carl Benz unveiled the Benz Patent-Motorwagen, widely considered the first commercial automobile, thus ushering in the age of the horseless carriage. Benz probably did not realize that his invention marked the launch of a platform that would eventually make possible the existence of Uber, Lyft, Grab, gas stations, spare parts providers, repair shops, customization products, car mechanics, and countless other automobile-related businesses that, taken in aggregate, are worth vastly more than the car manufacturing industry itself.
The framework that allowed for the development of this vast platform was not a technical innovation but a legal one: property rights.
From property rights to the automobile economy
The Benz Patent-Motorwagen represents the technological basis for the commercial automobile industry, but it was the guarantee of ownership that allowed other businesses to provide services directly to car owners, with no intermediary required. This allowed the pursuit of capitalist opportunities and spurred innovation as providers of goods and services competed for the business of car owners, building their offerings on top of something (the car) that was already available.
Services can significantly boost the value and utility of a car. Consider for example restoring a classic car, applying an anti-scratch coat of paint, upgrading to expensive seats, or installing top-of-the-line shock absorbers and springs. These and many other services can provide useful and/or social benefits, and their value increases in tandem with the number of car owners — the network effect.
In this manner, the ability to own an asset serves as the foundation for a platform that is far greater than the sum of its parts.
Cars are a platform, and the entire ecosystem of automobile and connected industries and services is supported by car owners — private individuals on a decentralized basis.
All together: the content IS the platform
Back in 2018 we explained that content is the platform, and that NFTs provide a viable framework that enables digital content to (finally) become a true asset: no longer just items licensed to you for use inside walled gardens in purely consumable models, but actual, ownable assets with attached property rights. These assets are owned by a community of private individuals on a decentralized basis, providing the foundation for a massive, world-changing ecosystem. Very much like the early commercial cars did.
This ownership effect applies to any property that we can own — for example, ownership of real estate makes it possible to have real estate agents and brokers, mortgage providers, interior decorators, furniture designers, and many others. In the metaverse, this is easily seen in games like The Sandbox, where creators provide various goods for use by other creators.
We have explained this before, but it bears repeating for extra emphasis: NFTs represent a paradigm shift for the online world because it is now possible to truly own your digital assets in a decentralized and scalable manner.
The tree that took four years to bear metaverse fruit
2022 will be the year when, propelled by NFT gaming, hundreds of millions of users will enter the nascent open metaverse. I’m referring not to the proprietary commercial nightmares being promoted by big tech or to existing highly controlled walled garden game worlds, but to an open, decentralized network of systems and environments connected by the all-important concepts of ownership, interoperability, and community governance.
Four years ago, here at Animoca Brands we determined that NFTs and digital property rights were a perfect match for gaming. 2018 was the year when we acquired a fledgling project called The Sandbox, and supported and invested in Sky Mavis (Axie Infinity), OpenSea, and Decentraland among others. Since then we have been promoting our vision of the future, and I don’t mind saying that at times it was pretty hard going.
But today the space has grown by leaps and bounds and Animoca Brands is proud to have played a role in nearly every significant milestone in the development of true digital property rights via NFTs: from our early support of Dapper Labs (NBA Top Shot and CryptoKitties), to our sales of the most valuable NFT of 2019 and the most valuable game NFT of 2020 on OpenSea, to the dawn of the play-to-earn economy.
We were there for the development of Axie Infinity and of the gaming guild models spearheaded by YGG (see Why we invested in Yield Guild Games), and, of course, we have extensive (and growing) investments in many NFT and GameFi companies.
This past year, despite its tumults, has greatly boosted our optimism about the future of the open metaverse, which we have no doubt is going to have important economic and social implications.
Toward a new capitalism
Our capacity as both an operator and investor of blockchain products allows us to glimpse an opportunity that goes far beyond just another capitalist endeavour principally concerned with maximizing profits. No, we believe that we have a chance to develop the framework for a more sustainable, more ethical, and more equitable capitalism.
Web 3.0 makes it possible for all participants to create and own a portion of the digital worlds that form the open metaverse. This means not only benefiting from your creations and property, but also sharing in the network effect of the greater whole, which allows the value of your assets to appreciate when the entire ecosystem grows.
Like classic capitalism, this ownership encourages innovation, entrepreneurship, and risk-taking but, unlike classic capitalism, the outcome can benefit all participating stakeholders. The net change in wealth or benefit need not be zero.
The end of zero-sum
This concept of mutual benefit is best illustrated by a quick rundown on how we build on blockchains. Let’s use two popular blockchains as an example: Polygon and Flow. We are creating various new experiences on Polygon (e.g., REVV Racing, Crazy Defense Heroes, Arc8) and on Flow (e.g., MotoGP™ Ignition, Olympic NFTs).
These products obviously generate sales revenue, but that’s not all. We are stakeholders, validators, and contributors for the blockchain themselves via the holding and staking of their tokens (in this example, the MATIC token and FLOW token). This means that when our products generate sales and attract more participants into these blockchains, those chains’ tokens appreciate in value. We also generate more of those tokens through staking.
To simplify, all parties benefit from the mutual shared network effect active on the entire blockchain. This benefit is not restricted to us or any one entity selling products on the network, but is distributed throughout the entire value chain, including the end users, the entire blockchain and all of its native products, and of course Animoca Brands and our shareholders. We do this with all the blockchain ecosystems we support, such as Hedera, Harmony, and various others.
The shared network effect of Web 3.0 has the potential to end the classic capitalist zero-sum game business approach because growth originates from and benefits the very communities that, traditionally, have been the target of exploitation by capitalist institutions: the consumers and wage labourers that serve as the driving force of the network effect.
In the open metaverse, any ordinary end user can be rewarded for time and money invested (via true ownership and control of digital assets), or by creating something original (such as a new game experience in The Sandbox), or by composing on top of an existing asset (similarly to how a manufacturer of after-market car seats is composing on top of an existing car).
And, of course, the entire field of GameFi — including the massively appealing play-to-earn movement — also provides incentive and rewards across the entire value chain.
The open metaverse presents us with the opportunity to benefit all participants, putting an end to the traditional zero-sum way of thinking.
The customer-owner
The most valuable resource in the world is data. Every time you use any online service, you produce data — whether by uploading a photograph, browsing for goods or information, engaging with existing content, or any other activity. Service providers monetize your data in various ways, often to your annoyance (for example, by selling your profile to advertisers).
As the originator of that data, you should be able to benefit from it, but you can’t because it does not belong to you — it belongs to the platforms where you generate the data, and you must consent to give that data away if you want to use their services. The platforms have grown rich by harvesting your data and leveraging the network effect that you and a legion of other customers have contributed to.
Like the petroleum that ultimately provides energy for your car, data is not valuable on its own — it has to be extracted and processed before it can be useful. But data should still be subject to property rights. If you suddenly discovered that your real estate property was rich in oil, you might be a little upset if an oil company set up an oil drilling operation on your land without compensating you.
And yet that happens with our data every day. But what if we could own and benefit from our data? Welcome to the open metaverse, because that’s precisely what we’re trying to achieve.
Digital property rights and participation in the resulting network effect are not only an important precedent for true data equity, but they also offer a solution to one of the world’s greatest problems — inequity — and lay the foundation for an unprecedented wave of creation and innovation. Consider how Carl Benz’s invention revolutionized the entire planet, except that this change is going to be moving at the pace of digital: exponentially faster and bigger.
In simplified terms, every customer also becomes an owner.
One of the most powerful effects that web 1.0 achieved was the fair distribution of knowledge. For example, Internet connectivity allowed farmers in distant locations to fairly assess the value of their commodities, helping them to obtain fair compensation for goods.
Blockchain enables something very similar to be done with our data, except that we don’t need to extract natural resources from the physical world — we create data simply by having an online presence. This most valuable of resources is created automatically by our activity, meaning that we have the capacity to create our own equity.
And we should be able to own it.
An equitable new year
It is hard to convey just how excited we are at the opportunities and possibilities that lie ahead on the road to the open metaverse.
We do not for one moment believe that this is a task that one single company can achieve, and that is why our corporate strategy over the last few years has been not just to develop our own metaverse offerings (like The Sandbox and the REVV ecosystem of racing games), but also to seed funding in the broader community. We have invested in over 150 companies that we hand-picked on the basis of their ability to contribute to the open metaverse and the shared network effect.
Our approach is not to own the open metaverse — it can’t and should not be owned by any one entity — but to create a participatory and collaborative environment based on important concepts such as openness, equitability, user ownership, property rights, and a nonzero-sum approach.
The open metaverse is like a new country or a new society. It’s interesting to note that countries and societies that do not provide strong property rights (see a ranking list here) tend to be economically worse off. Better property rights lead to higher economic growth.
Just like in the physical world, online societies that lack stable and lasting property rights will have significantly lower economic potential than societies that guarantee these important rights to all their constituents. We believe this is where the metaverse is headed, and that’s why, ultimately, closed metaverse offerings will not be as successful.
With the metaverse, we have been blessed with a rare opportunity: not only are we building in an exciting new space, but we are also in a position to help shape it, to steer it away from centralized structures and toward truly open ones.
I thank all of our shareholders, partners, ecosystem participants and other supporters for your confidence in Animoca Brands and I am deeply grateful to all of our talented teams working on this thrilling new future. May your 2022 be open and equitable!
Yat Siu
Executive Chairman and Co-Founder
Animoca Brands
