a16z gaming investment partner Arianna Simpson talks about the future of Web3 games and the metaverse

Author: Dean Takahashi, VentureBeat

Original Title: 《Arianna Simpson talks the future of Web3 gaming and the metaverse》

Translation by: DeFi Dao

Arianna Simpson is a general partner at Andreessen Horowitz (A16z), one of the top venture capital firms investing in technology, gaming, and cryptocurrency.

From her perspective, Simpson has a broad vision for investment prospects, which has led her to invest in various cryptocurrency and gaming companies, including Irreverent Labs. She believes in the decentralized power brought by blockchain technology and is confident that it will lead us into the metaverse.

It is well-known that A16z has a $600 million dedicated gaming fund and a $4.5 billion cryptocurrency fund. Simpson is deploying this capital, but we are also in the midst of a cryptocurrency downturn and a backlash from core gamers against NFTs. Compared to a few months ago, this makes the venture feel riskier. However, Simpson is experienced in this field. Ten years ago, while following talent in the space, she "fell down the crypto rabbit hole." She has experienced multiple crypto winters, and in an interview with GamesBeat, she stated that A16z is prepared to take a long-term view of the market.

I spoke with her to gain insights into the intersection of cryptocurrency and gaming, her views on gamers adopting non-fungible tokens (NFTs), why players should earn from games, and why A16z founders Marc Andreessen and Ben Horowitz see opportunities in this space and are doubling down on investments in specific industries. Despite the market experiencing multiple rollercoaster cycles, this belief has not changed.

GamesBeat: When did you first become interested in this field? How did you get into cryptocurrency and gaming?

Arianna Simpson: About ten years ago, I fell down the crypto rabbit hole. I first became interested in this field in 2013, after traveling in southern Africa. I spent time in six countries, including Zimbabwe. I saw the consequences of the hyperinflation they experienced. It had clearly destroyed their economy and forced them to turn to the dollar to stabilize it. This forced them to take drastic measures.

When I returned to the U.S., I was discussing this with a friend who mentioned that Bitcoin was related to deflation rather than potentially leading to hyperinflation. This set me on a long journey. Clearly, the space now is more than just Bitcoin. But that was the initial catalyst. The deeper I went, the more interesting I found it. It is such a rich design space that brings together many fields, from cryptography to game theory to computer science, and so on.

The gaming field is actually one of the cores of the fund I oversee. Before joining A16z, I founded a fund called Autonomous Partners. I have been very interested in the gaming scene. I made many investments in that category, including blockchain projects like Mythical and Flow. I connected with the Dapper Labs team. They proposed the idea of integrating NFTs as part of the gaming experience, which is commendable, and of course, many other teams have adopted, expanded, and built on this idea.

I have been deeply involved in the NFT and gaming space for a long time. It is incredible to see how they are really starting to attract mainstream attention. That was the phenomenon of 2021. I am very excited about where we will go from here. The reality is that we are still just scratching the surface. We believe that web3 gaming can be a huge catalyst for bringing tens of millions or even hundreds of millions of people into the web3 space. They are very well suited for it. Gaming environments often lead technological trends. We have seen this time and again. The ability to bring people into a lower-risk environment and educate them on the principles they need to learn to thrive in this ecosystem is really exciting. I continue to feel very optimistic about the future of this category.

GamesBeat: I know A16z also has an early cryptocurrency background, but are you surprised that a large venture capital firm like this would get involved in something like cryptocurrency? How do they see it as the right thing to focus on?

Simpson: This company, particularly Marc (Andreessen), Ben (Horowitz), and Chris (Dixon), deserves credit for being willing to take on the enormous risks at the time and fully commit to the space. Most VC peers did not do this. Certainly not at that time. The willingness to set up a dedicated independent fund and take equity is one of the reasons I wanted to join A16z. I wasn’t looking for a job, but it certainly set them apart from most VC peers.

The company’s belief in this category over many cycles and years is, I think, unique among large venture capital platforms. It allows us to work with the best founders. Founders want to know that their investors have confidence in this space. They are not going to enter and exit the category based on the market conditions of any given day. Of course, Mark, Ben, and Chris saw it early on. That’s why I wanted to join and be part of it.

GamesBeat: In terms of the initial appeal, was it the argument about decentralization, or were there other factors at play that made it seem like something to invest in?

Simpson: In our business, we are somewhat passive. We have to see where great entrepreneurs are going. Even in the early days, there were some of those things. Brian Armstrong and Coinbase, and eventually many others. Even so, while it is certainly a novel category, you have very talented founders who are very excited about the technology. Similarly, our investment radar is somewhat driven by arguments, but also very talent-driven. When founders, top founders, choose the crypto space, we have always considered that a key issue to pay attention to.

GamesBeat: You mentioned cycles. Have you experienced two crypto winters? How do you view these winters in terms of cryptocurrency overall?

Simpson: Over time, the length of the cycles has definitely increased. Back in 2013, there were multiple cycles within a year in the crypto market. Then, of course, that timeline has stretched out. The most important part is to focus on the technology rather than getting too caught up in the cycles. We have seen that many of the best companies—whether in broader technology, cryptocurrency, or web3—started during periods of market instability. We see this as an opportunity to focus on technology. One of the challenges of cryptocurrency is that there is a stock market, which early-stage startups do not have. That can be distracting. But in reality, periods of low price activity can be a great opportunity to focus on building.

If I compare our current situation to the 2018 recession, in terms of actual building, we are in a completely different universe. In 2018, a lot was going on, a lot of layer 1s were being built, a lot of infrastructure was being built, which is more important than applications. Infrastructure has to come first. There is not much that one can do. Now we are in a completely different place. Many protocols have launched. Hundreds of applications are available in real-time. Games, wallets, all sorts of things. In my view, that is the most important progress. We have seen tremendous advancements.

We also released a crypto state report that you may have seen. We used data to map out the various parts of the cycles. While they may seem like chaotic volatile cycles, they are actually very predictable. Each part of the cycle has its specific role, especially the periods of price increases that attract people into the space. They attract investors. There is a lot of enthusiasm. When the tide goes out, some people will leave, but they may not be builders anyway. They may be speculators. A lot of core talent stays in the space. This allows us to prepare for the next wave of building and ultimately appreciate as more value is created. But the cycles are very important. The most important thing to focus on is building technology, which clearly does not happen overnight.

GamesBeat: It’s interesting that you can be confident about the developers entering the space. They either have a cryptocurrency background or a gaming background. That’s a good thing. If there’s any uncertainty in the category, then these great teams, veterans, seem worth betting on. When did you start to see this happening, that people from the gaming side realized this was something they wanted to get into?

Simpson: This wave really picked up in 2021. Before that, there were already some founders from more traditional gaming backgrounds expressing interest in NFTs and web3 gaming. But in terms of when it really started to reach critical mass, that was early 2021. We have certainly seen it rise from there. Just mapping the talent migration is very exciting. While not everyone, the proportion of founders in the gaming industry expressing interest or actively building web3 components into their games has dramatically increased. Similarly, we think this is an important trend to watch. Since then, we have been investing in many of those teams.

GamesBeat: I think this will put pressure on other sectors of the industry, which is interesting. CEOs of big companies feel the pressure to say, "Don’t leave, we need to explore this space too." When I interviewed Bobby Kotick from Activision Blizzard, he said one of the reasons they sold to Microsoft was that they were having a hard time attracting talent, retaining talent, and hiring the thousands of people they needed to commit to making games. It’s interesting that this particular trend in blockchain gaming could come back and affect the mainstream.

Simpson: Oh, yes. We absolutely believe that whether it’s publishers or large game manufacturers, the entire concept of gaming and revenue will have a significant impact on traditional gaming entities. We believe that players should capture some of the value they create. While these models still need some iteration, and we haven’t found the perfect architecture for everything, the core idea that players should share in the value created by building these worlds and communities is a very important concept.

Now, as players become more familiar with the fact that this is a new paradigm, we believe it will put greater pressure on more traditional entities in the gaming world to adopt more favorable models. They won’t all have the same model. This can take many forms. But this core idea is crucial.

GamesBeat: One area I’m confused and skeptical about is who the gamers are. Throughout 2021, I kept thinking that blockchain gaming would be the stepping stone to the metaverse. You can apply all these technologies to aspects like asset identity and interoperability, which are necessary components for creating the metaverse. But then we encountered that backlash in December, where gamers opposed Ubisoft’s NFT plans in Rainbow Six. They also began to vocally oppose other announcements about NFT games aimed at traditional gamers.

So, who likes NFTs and who hates NFTs? It seems that in some markets, Asians have embraced this experiment, just like they did with free-to-play games, while traditional gamers in the West, the hardcore gamers, feel betrayed by free-to-play games. They think loot boxes are the whole deal. I’ve observed the entire market and seen how free-to-play games occupy more than half of gaming. It has permeated every game from mobile to consoles, and the number of players we have is ten times what it was in the past. These, to me, are good things. But for that vocal minority, they see free-to-play and now blockchain games as evil.

It’s strange to see the Philippines being the first to embrace play-to-earn (P2E). I don’t know which is more important—the users who embrace it or those who don’t. I can see that if there are mainstream characteristics among the players who are embracing it now, then it’s just a matter of time before NFT games become mainstream. But if these gamers have quirks—they are crypto enthusiasts looking to avoid taxes by putting money into NFTs—then this behavior represents a small group rather than the mainstream. Perhaps it will never become mainstream. If it’s just those who pay $10,000 for a piece of land in a virtual world without blinking, then that activity won’t become mainstream.

In summary, what do you think the users interested in this now look like? What kind of users can scale to tens of millions?

Simpson: You raise a good point that new forms and models are often not accepted by the core gaming community. As you pointed out, there are many precedents. This hasn’t stopped some of those models from reaching scale, such as free-to-play games. I think this train is heading to its destination, and it won’t really stop at this point.

There is a very vocal group that is skeptical of NFTs, and in many cases, their criticisms are unfounded. They either don’t fully understand them or just have a very biased perspective. But they are in the minority. Many people are starting to see the benefits of this model and welcome it. I don’t think this is a small universe of very crypto-native people. In fact, if you look at it—Axie Infinity was the first Web3 game to reach mainstream scale. They attracted millions of players. It’s not just a few crypto insiders. They are large in scale, and most of their players are crypto newcomers.

This just shows that while there is certainly a lot of space to grow from here, we are on the right track. Gaming is a tool to bring people into the space, not just something that attracts a small group of self-referential people. There are certainly detractors, but I think the most important thing is that millions of people have already shown a strong interest in Web3 gaming. That’s where we are focused, and that’s where our portfolio companies are focused.

GamesBeat: An interesting part of the discussion is that some game developers continue to resist. Their arguments are sometimes more technical. It’s like, everyone says this is about decentralization, but why are there so many centralized entities involved, like OpenSea? If OpenSea goes down, 90% of NFTs will be worthless. If you have discussions with game developers and they need to be convinced, how do those discussions go?

Simpson: Most of the founders we engage with are already excited about Web3. Clearly, I’m in the crypto team, so there’s a filtering process before they find me. But overall, we see a very open attitude toward this new model and a willingness to experiment. Gaming, although some sub-industries of the gamer community may be more resistant to change, is an ideal place to test new technologies and iterate. Many founders who previously developed games in Web 2.0 see the potential here, which is why they are entering the space.

Before entering web3, I had many conversations with founders who had previously developed major games, and now they say, "This is the obvious answer. I can’t think of anything else. It makes sense. It solves a lot of problems." The ability to own your assets—while if OpenSea disappears, it may temporarily affect that market, the fact is I still control my sword or any NFT asset I own, no matter what happens, because I own the keys on-chain, is a significant shift. Many savvy game founders understand this. This is one of the factors driving them to enter the space now.

GamesBeat: As for things that may be beyond the control of entrepreneurs, like regulation or what the U.S. allows or doesn’t allow, whether these things are classified as securities or gambling, or whether companies don’t want to give up some of their revenue streams—do you think we will reach a market that is freer for blockchain gaming companies than it is now?

Simpson: There are definitely some regulatory gray areas. For our founders, we have seen that they want to be compliant. They are looking for clear road rules they can follow. The challenge—this is why we built a large regulatory team aimed at working with policymakers and helping them accelerate their pace. We think about this space all day long. They have a lot to consider. Just helping them think through the nuances of the space. Web3 gaming doesn’t need to have the same regulations as DeFi protocols or other things that are still fully in that space. What we are looking for is nuanced regulation that can make appropriate distinctions and apply to what they are trying to regulate.

From our perspective, regulation is crucial. No question about it. From a consumer protection standpoint, it is very important. But it needs to be meaningful. That’s why we built a large team and spend a lot of time in Washington, D.C., working with regulators and policymakers on these topics.

GamesBeat: I don’t know if you agree with this, but I wonder if large gaming companies will be at a disadvantage in this market. It relates to their public status. They are concerned about regulations. They will wait for clear signals before quickly entering this phase. However, some of these startups are gaining value so quickly that they will outpace large gaming companies. Their usual solution is who wins buys who. But in mobile gaming, developers like Supercell have become so large that no one can afford to buy them. Tencent is almost the only possibility. But the winners in the mobile game market aren’t companies like EA. The companies that can move quickly and aren’t worried about regulations are the startups that are winning in free-to-play games. In my view, we have the same opportunity now in blockchain gaming.

Simpson: Absolutely. As you described, we are investing in many of these newcomers. We believe they have the capability to understand this technology from day one. They are very native to crypto, native to web3. They see the positive aspects that this space can bring. Additionally—I think this is an important concept—not just putting a game that might exist off-chain onto the blockchain. Rather, using the specific design constraints and opportunities provided by blockchain architecture as a novel canvas for how to design different forms of gameplay.

For example, on-chain gaming is a very new but exciting field because it really—what I mean is, you are in a game world on-chain, not just assets. You are integrating blockchain into the game. The logic is on-chain. Smart contracts are a key part of the architecture. All of this comes together, so you cannot create the same game as off-chain. But you can achieve a brand new, very engaging experience that is clearly Web3 native and crypto native. We believe this category is pushing the possibilities of Web3 gaming, and I hope we will see more soon.

GamesBeat: Do you think the technology stack for blockchain gaming companies will become simpler? It still seems quite complex now. They have a lot of choices to make regarding which chain to use and other things. Do you foresee that part becoming simpler soon? Or will web3 become a fundamentally more complex set of technologies?

Simpson: For game founders, I hope it will become simpler soon. You are right; we see founders wanting to develop games needing to make many decisions about where to develop. In some cases, this will also inform how they design the actual game. For example, Irreverent Labs chose to build on Solana. That comes with a series of decisions. We are also investors in Mysten Labs, and I think its architecture is very good, specifically for gaming and entertainment use cases. It has a very different programming model designed for this use case.

The good news is that founders have more and more powerful, technically sound options. There is still work to be done, no doubt. We are still in the infrastructure building phase. But that’s how it is with any new technology space. Tools need to be built. The infrastructure track needs to be solidified. It needs to be battle-tested. In that regard, that is happening. It just takes a little time.

GamesBeat: Through decentralization, there is also the opportunity to change the relationship between games and large tech companies, which have been taking a cut as intermediaries in these industries. How appealing is this aspect of the opportunity?**

Simpson: Absolutely. It’s very important and very appealing to take control of your own destiny.

GamesBeat: Do you think gaming wins not just through blockchain but also through the metaverse, rather than any other type of entity? Whether it’s large tech companies or enterprises or brands.**

Simpson: I feel that all the categories you mentioned have a lot of overlap. They are not exactly the same, but there is overlap at the edges. We believe that some of the same important pillars are at the core of several of these concepts. We recently published an article about what we believe are the seven fundamental elements of the metaverse. Things like openness and decentralization are important for what we believe will be the ultimate state of the metaverse. Clearly, many are trying to launch closed metaverses, but we believe the opportunity lies with an open metaverse.

Similarly, people are launching closed ecosystem games in more traditional forms. We see the opportunity in Web3 gaming at the center, which is open and provides more ownership for the gaming community. There are certainly some similarities and some overlaps. In some cases, you will see games existing in virtual worlds. The lines are a bit blurred. But right now, they are all very experimental, but very exciting categories that are pushing the frontier.

I also think we view web3 components as important elements in the metaverse and web3 gaming. I mean tokens as part of ownership, persistent digital identity, decentralization—all these important concepts are very native to Web3. These are essential in both the metaverse and gaming environments. That’s where some of the similarities and overlaps come from.

GamesBeat: If this battle unfolds between advocates and detractors of Web3, then what seems decisive is how many great game developers enter and achieve great success. I think of companies like Mythical or Forte, Paul Bettner’s Wildcard Alliance. They are all very focused on creating great hardcore games with NFT utility. But I also think back to who won in free-to-play, and it wasn’t just about bringing Grand Theft Auto to mobile. In the comparison between the people in Axie Infinity and those creating these hardcore games and bringing them to market, who do you think is more worth watching?**

Simpson: We invest in Web3-native, newcomer game founders, as well as founders with a long and reputable history in the traditional gaming world. I don’t think this is a relationship of one versus the other. We look for people who understand what makes a great game and have enough understanding of Web3 technology to see both the opportunities and limitations. That’s what I described earlier. It’s a different design space. This means that in some ways it may be better, and in others, it may be more challenging. We are not prioritizing one type of founder or one model. Instead, we are looking for key insights to understand what makes a great game and the top teams that can deliver an excellent gaming experience.

GamesBeat: Do you have deep expertise in different areas of the company, or have you all become more multidisciplinary, learning some about the metaverse, crypto, and blockchain?**

Simpson: We are all generalists in the crypto and Web3 space, although some of us tend to focus on certain areas of the stack. I am more focused on the application layer, consumer virtual worlds, Web3, gaming, and so on.

GamesBeat: I think people would want me to ask you what your thoughts are on when we will emerge from this crypto winter, but I don’t know if that’s necessarily important for your gaming plans.**

Simpson: We really have a long-term view. We have been in this space for a while, and we have seen cycles come and go. In reality, they are hard to predict. My job is to find great technical founders and help them build their businesses, not to make short-term predictions. Unfortunately, I can’t help with that. But the good news is that we recently announced our $4.5 billion fund. That speaks to the scale of the opportunities we see here and the fact that we are very excited about the future of this category.

GamesBeat: Is there anything else you would like to comment on today?**

Simpson: We believe that Web3 gaming is one of the most exciting categories. It’s amazing to see how powerful the engine is that brings people into the space. I’ve spoken to many people who say, "Oh, my first exposure to cryptocurrency was because I started playing Axie Infinity." This is an important way for people to understand the technology and its capabilities. I’m looking forward to seeing what new things this category has to offer.