Animoca Brands co-founder Yat Siu writes: The Path to a New Capitalism

Author: Yat Siu, Co-founder and Executive Chairman of Animoca Brands

Original Title: "Cars, Ownership, Capitalism, NFTs, and the Metaverse"

Translation: Gong Quanyu, Chain Catcher

In 1886, Karl Benz launched the Benz automobile, widely regarded as the first commercial car, marking the beginning of the horseless carriage era. Benz may not have realized that his invention signified the launch of a platform that would ultimately enable the existence of Uber, Lyft, Grab, gas stations, parts suppliers, repair shops, custom products, mechanics, and countless other car-related businesses. Overall, the value of these enterprises far exceeds that of the automotive manufacturing industry itself.

From Ownership to Automotive Economy

The Benz patent motorcar represented the technological foundation of the commercial automotive industry, but it was the guarantee of ownership that allowed other businesses to directly serve car owners without intermediaries. As goods and service providers competed for car owners' business, building their products on the existing asset (the car), this created opportunities for pursuing capitalism and stimulated innovation.

Services can significantly enhance the value and utility of a car. For example, consider restoring a classic car, applying a scratch-resistant coating, upgrading to expensive seats, or installing top-notch shock absorbers and springs. These and many other services can provide useful social benefits, and their value increases with the number of car owners—network effects.

In this way, the ability to own assets as the foundation of a platform far exceeds the sum of its parts.

Cars are a platform, and the entire automotive ecosystem, along with interconnected industries and services, is supported by car owners—decentralized private individuals.

In Summary: Content is the Platform

As early as 2018, we explained that content is the platform, and NFTs provide a viable framework for making digital content (eventually) a true asset: no longer merely licensed items for use in a walled garden under a pure consumption model, but actual, ownable assets with property rights. These assets are owned by a decentralized private community, laying the foundation for a vast, world-changing ecosystem. Much like the early commercial vehicles.

This ownership effect applies to any property we can own— for example, real estate ownership enables the existence of real estate agents, mortgage providers, interior designers, furniture designers, and many others. In the metaverse, this is easily seen in games like The Sandbox, where creators provide various goods for other creators to use.

We have explained this before, but it bears repeating: NFTs represent a paradigm shift in the online world, as it is now possible to truly own your digital assets in a decentralized and scalable manner.

A Tree That Took Four Years to Bear the Fruit of the Metaverse

The year 2022 will be a year when hundreds of millions of users enter the nascent open virtual world, driven by NFT gaming. I am not referring to proprietary commercial nightmares driven by large tech companies or existing highly controlled walled garden game worlds, but rather to open, decentralized systems and networks governed by concepts such as ownership, interoperability, and community.

Four years ago, at Animoca Brands, we identified that NFTs and digital property rights were a perfect match for gaming. In 2018, we acquired an emerging project called The Sandbox and supported and invested in Sky Mavis (Axie Infinity), OpenSea, and Decentraland. Since then, we have been promoting our vision for the future, which I don't mind saying has sometimes been difficult.

But today, this field has made tremendous progress, and Animoca Brands is proud to have played a role in nearly every significant milestone in developing true digital property rights through NFTs: from our early support of Dapper Labs (NBA Top Shot and CryptoKitties), to selling the most valuable NFT of 2019 and the most valuable gaming NFT of 2020, to shining a light on economic revenue.

We helped develop Axie Infinity and the gaming guild model led by YGG (see Why We Invested in Yield Guild Games), and of course, we have made extensive (and growing) investments in many NFT and GameFi companies.

The past year, despite being tumultuous, has greatly enhanced our optimism for the future of the open metaverse, which will undoubtedly have significant economic and social impacts.

Towards a New Capitalism

Our ability as operators and investors in blockchain products allows us to glimpse an opportunity that far exceeds another major profit-maximizing capitalist endeavor. No, we believe we have the chance to frame a more sustainable, ethical, and equitable capitalism.

Web 3.0 enables all participants to create and own a part of the digital world that constitutes the open metaverse. This means you can benefit not only from your creations and properties but also share in the larger overall network effects, which will increase the value of your assets as the entire ecosystem grows.

Like classic capitalism, this ownership encourages innovation, entrepreneurship, and risk-taking, but unlike classic capitalism, the outcomes can benefit all participating stakeholders. The net change in wealth or income does not have to be zero.

The End of Zero-Sum Games

A quick overview of how we build on the blockchain can best illustrate this mutually beneficial concept. Let’s take two popular blockchains as examples: Polygon and Flow. We are creating various new experiences on Polygon (e.g., REVV Racing, Crazy Defense Heroes, Arc8) and Flow (e.g., MotoGP™ Ignition, Olympic NFTs).

These products clearly generate sales revenue, but that’s not all. By holding and staking their tokens (in this case, MATIC tokens and FLOW tokens), we become stakeholders, validators, and contributors to the blockchain itself. This means that as our products generate sales and attract more participants to these blockchains, the tokens of these chains appreciate in value. We also generate more of these tokens through staking.

To simplify, all parties benefit from the mutually shared network effects active across the entire blockchain. This benefit is not limited to us or any entity selling products on the network but is distributed across the entire value chain, including end users, the entire blockchain and all its native products, and of course, Animoca Brands and our shareholders. We utilize all the blockchain ecosystems we support to achieve this, such as Hedera, Harmony, and various other ecosystems.

The shared network effects of Web 3.0 have the potential to end the classic capitalist zero-sum game business approach, as growth derives from and benefits communities that have traditionally been the targets of exploitation by capitalist institutions: consumers and wage workers as the driving force of network effects.

In the open metaverse, any ordinary end user can be rewarded for their time and money invested (through true ownership and control of digital assets), or by creating original things (such as new gaming experiences in The Sandbox) or composing on existing assets (similar to how aftermarket seat manufacturers configure existing cars).

Of course, the entire realm of GameFi—including the highly attractive P2E movement—also provides incentives and rewards throughout the value chain.

The open metaverse offers us the opportunity to benefit all participants, ending the traditional zero-sum mindset.

Customer Ownership

The most valuable resource in the world is data. Every time you use any online service, data is generated—whether through uploading photos, browsing products or information, engaging with existing content, or any other activity. Service providers profit from your data in various ways, often to your annoyance (for example, selling your profile to advertisers).

As the originator of that data, you should be able to benefit from it, but you cannot, because it does not belong to you—it belongs to the platform generating that data, and you must agree to relinquish that data if you want to use their services. These platforms become wealthy by collecting your data and leveraging the network effects created by you and countless other customers.

Just like the oil that ultimately fuels your car, data itself is not valuable—it must be extracted and processed to be useful. But data should still be subject to property rights. If you suddenly found your real estate rich in oil, and an oil company drilled on your land without compensating you, you might feel somewhat frustrated.

However, this happens to our data every day. But what if we could own and benefit from our data? Welcome to the open metaverse, as this is precisely what we are striving to achieve.

Digital property rights and the resulting network effects are not only an important precedent for achieving true data equity but also provide solutions to one of the world's biggest problems—inequality—and lay the groundwork for an unprecedented wave of creation and innovation. Think about how Karl Benz's invention transformed the entire planet, except this change will develop at a digital pace: exponentially faster and larger.

In short, every customer also becomes an owner.

One of the most powerful effects achieved by Web 1.0 was the equitable distribution of knowledge. For example, internet connectivity allowed distant farmers to fairly assess the value of their goods, helping them obtain fair compensation for their products.

Blockchain can accomplish something very similar with our data, except we do not need to extract natural resources from the physical world—we simply create data through our online presence. This most valuable resource is automatically created by our activities, meaning we have the ability to create our own assets.

We should be able to own it.

A Fair New Year

It is hard to express how excited we are about the opportunities and possibilities on the road to the open metaverse.

We do not for a moment believe this is a task any one company can accomplish, which is why our corporate strategy over the past few years has been not only to develop our own metaverse products but also to provide seed funding for a broader community. We have invested in over 150 companies, carefully selected based on their ability to contribute to the open metaverse and shared network effects.

Our approach is not to own the open metaverse—it cannot and should not be owned by any single entity—but rather to be based on openness, fairness, user ownership, property rights, and non-zero-sum approaches.

The open metaverse is like a new nation or a new society. Interestingly, nations and societies that do not provide strong property rights tend to perform worse economically. Better property rights mechanisms lead to higher economic growth.

Just like in the real world, the economic potential of online societies lacking stable and enduring property rights will be far lower than societies that guarantee these important rights for all voters. We believe this is the direction of the metaverse's development, which is why ultimately closed metaverse products will not be as successful.

With the metaverse, we have a rare opportunity: not only are we building in an exciting new space, but we are also able to help shape it, transitioning it from a centralized structure to a truly open one.

I thank all our shareholders, partners, ecosystem participants, and other supporters for their trust in Animoca Brands, and I deeply appreciate our talented team dedicated to this exciting new future. May your 2022 be open and fair!