NFT.London Halloween Treats - A Twitter Spaces on the Future of Gaming with CEOs of FaZe Clan, Mythical, Sortium & Metagoons!
Bits of Signum | 10.31.22
We had the pleasure of hosting Lee Trink, CEO of FaZe Clan, John Linden, Founder/CEO of Mythical, Marc Seal, Founder/CEO of Sortium, and DJ Wright, Founder/CEO of Metagoons. Twitter says that 30k have tuned in, which is exciting, because we were inspired that the original Web3 vision we came for in 2018 will be instrumental in the next generation of gaming and esports. It was refreshing given all of the (justifiable) negativity around NFTs over the last year or so. While William Entriken, lead author of the ERC-721 standard for NFTs, warned of the many rug pulls and scams that could occur over these initial years, many people sadly still fell prey to them. We still believe this tech, whatever we end up calling it, has the potential to unlock more power and value capture for creators, property rights for owners, and a more even playing field in the media and social media ecosystems. For this Spaces, we wanted to ask our simple question from 2017 - will hundreds of millions, if not billions, of players touch NFTs in games and what will that look like?
Bottom line - there are a lot of gaming and entertainment “firsts” among this group of thought leaders, and I'm grateful that we had the time and space(s) to dive in and learn!
Racing Into the Metaverse
We covered many hot topics in the news herein, kicking off with big news from Mythical last week - the new Nitro Nation World Tour which will be out Q2 2023! At Signum Growth, we have always envisioned CARS as one of the first big categories that would attract players in the metaverse - just like in real life. The way we express social capital and identity has changed dramatically over the last 20 years. For hundreds of years, we were only in a physical world, and one's home was the center of social capital and identity. Think of the social circle surrounding one’s home. One could either invite people into the circle or travel outside of the circle. People would invite guests over for dinner parties – there was China on the table and art on the walls. And a radius from the center of this circle might allow people to express social capital and identity by leaving to walk their dog, to wear certain clothes or jewelry, or to drive their car many places!
John Linden, who said they started Mythical with the mission of democratizing game economies, asked us to envision this - car brand A (let's call it “Ford”) comes into Nitro Nation, potentially as a sponsor of an esports brand like FaZe. The community can come in and play the game in a special branded car and top players could even win virtual cars. As other gaming communities decide to do the same, voila - an esports tournament is born between two groups using assets that each own and helped create!
Another game that is coming out of Mythical next year, in partnership with the NFL, is NFL Rivals. John explained that it's not just another Madden. It is something completely new and it is all about fan engagement and tapping into digital identity (again, social capital) in GenZ. Players can build teams, get recognized for their managing skills, and even interact with real football players. We loved the example that John gave of his kids sharing their Spotify playlists with friends - to show who they are. This is about a new way to engage with GenZ. Mic drop. Kai Henry, Chief Strategy Officer at FaZe, chimes in, “Dude, you are killing it, John. You had me at Millennium Falcon ride (John formerly ran Seismic Games, acquired by Niantic, which built many successful games, along with a Millenium Falcon ride.)
As a side note, an early look at a related phenomenon of esports and games within games can be found in Fortnite. Epic Games, publisher of Fortnite, acquired Psyonix in 2019 and its popular cars-plus-soccer themed game, Rocket League. Now, a player can be in Fortnite and head over to a Rocket League stadium, within Fortnite, to watch others playing Rocket League. Perhaps one day soon, we will be able to dive somersault into the game, hop in our car, and now we are in the Rocket League stadium. (See related thesis on Epic - Fortnite is just one street in the larger neighborhood.)
Why the Original Web3 Ethos will Break Down Traditional Walls
Lee Trink, CEO of FaZe Clan and formerly President of Capitol Records, started the discussion describing FaZe, a natural seat at the GenZ table, which views the world through a broader internet culture lens. First, it’s important to understand how the current game and brand models work: there is a hierarchical relationship between media companies, creators, and, at the bottom, the community. Even though the community is what makes a company what it is, and even though creators garner their audiences, the companies are in control and the creators are often unable to contribute to the design of the games that they play or the apps they use. As we have discussed before, NFTs are a good representation of the concept of stakeholder capitalism – the users own the assets and build the value chain, while they simultaneously earn value from it, instead of simply acting as a worker bee for the benefit of outside investors.
With this new era of Web3, we are rewriting the rules around games. Developers must decide how NFT refund policies work, rating systems, and all the other myriad of factors which are different by geography. This matters a lot with respect to IP. Lee believes that luckily, these walls are being broken down fast.
NFTs will enable new types of gameplay:
In-game marketplaces for a variety of items, even cross-IP, can be possible.
Cross-game storylines: Players of one game may have the opportunity to bring their in-game items into another game to unlock certain rewards and test out a new game. Side note: this is very different from the 2018-2019 mantra that gamers will take their guns from Call of Duty to Fortnite, which was never going to happen. (We used to say that it was akin to taking the plot of a movie and putting it into another movie. Why would you do that even if you could?)
Another method of distribution could be something akin to Reddit’s Avatars (more on this later), where games could sell or give away their goods to platforms to gain users who later test their game.
The Reddit Phenomenon - Words Create Worlds
We had a great discussion around the Reddit phenomenon - who knew that NFTs would take off in Reddit? The platform is rewarding Reddit users with free NFTs - Collectible Avatars - based on their Reddit Karma, or their points for comments and posts. According to Polygon_Analytics on Dune, over the last three months, it has prompted 2.8 million of Reddit’s 50 million DAUs (~6%) to claim a Collectible Avatar. The process is simple - either upload your own photo, build a non-PFP avatar, or claim your NFT, and then your blockchain wallet called a Reddit Vault, built on Polygon, appears - voila!
Our group concluded that there may be some good clues into what works by simply looking at the language they are using - “digital collectibles” as a term is so much more palatable to the average person than “NFT” which is unintuitive. DJ at Metagoons has been pointing out that we need more “digital collectibles” and other words that make it easier for gamers and people in general to understand what this is and merge onto the highway. Marc Seal from Sortium raised an example of a project that introduced the term “NFT” and saw engagement drop off a cliff.
Side note: the Reddit process concludes with instructions on keeping your private key somewhere safe - this last detail could make this entire phenomenon go pear shaped but at the very least, it seems to be very positive that Reddit is educating and onboarding the mass market.
10,000 PFPs: Rarity or (Increasing) Income Inequality?
Marc Seal brought up the point that the early NFT 10,000 PFP launches were ironically counter to the ethos of inclusion. In fact, the average person can’t even get access to most of these highest value NFTs. John Linden chimed in that 10,000 of anything in a game will (hopefully) be infinitesimal if a game successfully reaches millions of people. The key in games will be relative rarity. Another interesting point was that games economies that work will not be like what we’ve seen so far with NFTs, because if rare items are impossible to achieve, completionist players, or those who play games to get all the achievements, will be unhappy. “Completionism” is a big aspect of traditional games, which doesn't really exist in NFT/Web3 games as they are more about speculation.
As we have been saying, many of these mini economies have income inequality baked in, which wasn’t at all why we got excited about this space five years ago. In a recent discussion with Philip Rosedale, creator of Second Life, he saw our ‘income inequality’ and raised it to ‘increasing income equality.’
According to Mythical, the types of digital assets that have worked in Blankos, the company’s first NFT game experiment, are: 1) collabs; 2) limited runs, either time or quantity; 3) season passes that require players to grind through the game, and; 4) cross promotional (e.g., with Twitch E3).
Apple Claims Another Slice of Everything
Another big topic was Apple’s updated Terms of Service guidelines for mobile apps, which, for the first time, dipped into revenue claims on likes and other boosts within social media, and also mentioned NFTs. While the headline of allowing NFTs in games accessed through iOS is positive, they are not allowed to unlock anything. Big picture, this is anathema to Web3 and the purpose of a multi-dimensional asset that unlocks all sorts of experiences over time!
Still, the group generally viewed the Apple NFT headline as a net positive, because the industry is so young and fledgling that it needs more (legitimizing) headlines. We can read the full details later! As someone who is in the trenches, I often forget that we are at time 0 and we need to start with some simple validation of the technology.
John Linden mentioned that Mythical has a pulse on Apple and Google, and his opinion was that Apple is not trying to block the use of NFTs in mobile games, but rather it is attempting to curtail mass-market sales of goods through NFTs (e.g., e-books that circumvent the app store.) He called it a “great first step.” Also, understandably, the platforms want to be in these entertainment platforms, while anonymous, non-custodial accounts are very scary in this backdrop. Perhaps, we should be thinking about Web2.5 for now?
Rebekah Keida, Kai Henry, and DJ Wright all chimed in on the idea that all of these processes should be easier and more natural. DJ commented that what Reddit, Disney and Apple all bring, most importantly, is adoption. Yes, Apple is taking a large cut, but not as large as Roblox, and this move is necessary. DJ raised an interesting idea - could Apple launch their own wallet? On the idea of UX/UI, how powerful could a brand like Apple be in onboarding players as a custodian? Akin to Reddit bringing 3m users (see more above) to experiencing ownership with private keys, Apple is a company that could make waves with an NFT wallet or similar key-storage system.
Marc Seal agreed that the details behind the headline weren’t great but overall, he also concluded that it was positive. When he was at Topps, similar to Mythical, they started with custodial wallets and didn't receive any pushback from users. However, Marc also brought up concerns over gated walls within app stores and providers like Apple v. Android. A future where Apple NFTs and Android NFTs can't play together or move from one phone to the next is the antithesis of a major pain point that NFT technology aims to solve.
Royalties
In the past few months, the NFT space has been faced with the harsh realization that royalties aren’t enforceable through the most common NFT standards alone - ERC-721 and ERC-1155. Currently, royalties only function at a marketplace level. Therefore, as the market grows, if one moves an NFT from a marketplace like OpenSea to another marketplace, the artist would be required to program royalties on the ever-increasing number of marketplaces. One project that we advise called MyNFT attempted to solve this problem of royalty permanence by building their own standard, EIP - 2665, which enforces payment to be made before transferring the token. Their first application, Cryptograph, was about giving forever to the creator’s charity of choice.
When the NFT art scene first took off, the few marketplaces that existed were aligned with the ideals of artists. Creators could set royalties, collectors would pay them, and the marketplaces would take a percentage. Now that more participants have entered the NFT space, the ethos of buying NFTs for the sake of collecting them shifted into buying NFTs to flip them, and thus both platform fees and mandatory royalty payments have been chipped away. Also, in the case of games, the volume of transactions will be much higher, and some in the industry are asking if it really makes sense to be paying a cut of every movement to an artist or brand?
Reactions from the group -
Mythical - John says the royalties are absolutely critical. Without the royalties, you lose all of the brand support. This isn't about flipping assets. It's about new forms of BD, new sales models and new forms of engagement with your brand. Without those, it falls apart.
Sortium - Marc says royalties immensely empower the continued support of content that is created because it provides an incentive for content creators to make new content and support the old content. Look at Web2 content that dies along with the cash flow stream. Sortium believes we are in the middle of a big shift in content and as we start to add value to content and interact with it, we will start to see new business models. CosmoGene is Sortium’s first experiment in using AI generative characters and new engines. We have seen the tech in action and it is something totally new - it's more akin to gene editing technology from CRISPR than game engines from Unreal or Unity!
FaZe Clan - Lee played devil’s advocate and made an insightful comment, which is core to Web3 ethos - whether royalties exist should be up to the creator. What if an artist can’t take the long road and prefers to get paid up front? Ultimately, it should be their decision. The healthiest version includes them on an ongoing basis, but it is really important to leave that decision to the creator. Note: from a gaming perspective this could come in the form of an MG (minimum guarantee).
Metagoons - DJ commented that royalties are really important for some minority creators, and they are a big upgrade from Web2. He gave an example of a rapper who made “This is why I'm hot,” It went viral, but he didn't have the IP rights, and others made millions off of the song, while he made almost nothing. This shouldn’t happen going forward and we have the ability to change that - artists should be paid for the work!
In some final thoughts, both Lee Trink and Kai Henry gave some good advice to anyone in the Web2 world who might be listening or reading this post. Lee discussed the concept of “patronage” or being a “patron of the arts,” and the idea that we are evolving away from this. The only way an artist was paid was as part of a system that defined how the artist would be compensated. Web2 artists need a patron to do the work, and it is typically dictated by a company. In the new Web3 world, if you are a graphic artist, you can make money directly from your craft, instead of being paid by an entity. This is a revolution and more power will end up in the hands of artists - companies and entire industries need to rethink their business models. Historically, companies have paid as little as they can to extract as much value as they can, and this is in the past. Thank you Lee - these last words were inspiring, and reflective of one of our mantras - creators and developers to the front of the line!
Kai explained that these 150-year-old businesses are facing a tectonic shift in their business model. A call out to Web2 companies - if you are working with talent, the relationship has to change across the board. This is not just about opening a Web3 division. Kai wrapped the Space with love, virtual hugs and shout outs for everyone in the group. At the core of it all, in that last moment, Kai captured the general Web3 spirit of creativity, collaboration, non-zero-sum-game competition, and an empowerment-for-all ethos, a reflection of why we are all here.
Disclaimer: Angela Dalton, Founder and CEO of Signum Growth Capital, serves on the corporate board of FaZe Clan. She is also an investor in Mythical and MyNFT.