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A16z Game Investment Partner Talks about Web3 Games and the Future of the Metaverse

2022-07-19 22:00
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Blockchain gaming trends and revenue concepts will have a significant impact on traditional gaming entities.

Original title: "Arianna Simpson talks the future of Web3 gaming and the metaverse"
Original author: Dean Takahashi, VentureBeat  
Original Compilation: The Way of DeFi

Arianna Simpson (Arianna Simpson) is the general partner of Andreessen Horowitz (A16z), A16z One of the top venture capital firms investing in technology, gaming and encryption.

From her perspective, Simpson has a broad vision of the investment landscape, which has led her to invest in various cryptocurrencies and games, including Irreverent Labs company. She believes in the power of decentralization brought about by blockchain technology, and she also believes that it will lead us to the Metaverse.

A16z is known to have a $600 million dedicated gaming fund and a $4.5 billion cryptocurrency fund. The Simpsons are deploying the money, but we're also in the midst of a crypto downturn and resistance to NFTs from hardcore gamers. That makes the business feel more at risk than it did a few months ago. But Simpson is experienced in this field. She “fell down the crypto rabbit hole” a decade ago when she was following talent in the field. She has lived through 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 to her to gain understanding on the intersection of cryptocurrencies and gaming, her thoughts on gamers accepting non-fungible tokens (NFTs), why gamers should Gaining money from gaming and why A16z founders Marc Andreessen and Ben Horowitz saw an opportunity in this space and doubled down on industry-specific capital to invest in this market. This belief has not changed despite the many roller coaster cycles the market has gone through.

GamesBeat: When did you start working on this Field of interest? How did you find out about cryptocurrencies and games?

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

When I got back to the US I was talking to a friend about this and he mentioned that Bitcoin was about deflation rather than potentially malign inflation. This took me on a long journey. Clearly, the space right now isn't just about Bitcoin. But this is the initial catalyst. The deeper I go, the more interesting I find it. It's such a rich design space that brings together fields ranging from cryptography to game theory to computer science and more.

The game field, which is actually one of the cores of the fund I am in charge of. Before joining A16z, I started a fund called Autonomous Partners. I'm already very interested in the game scene. I have made many investments in this category, including blockchain projects Mythical and Flow. I connected with the Dapper Labs team. They deserve credit for coming up with the idea of NFTs as part of the gaming experience, and of course many other teams have adopted, extended and built on this idea.

I've been into NFT and gaming for a long time. It's been incredible to see how they're really starting to grab mainstream attention. This is the phenomenon of 2021. I'm really excited about where we're going from here. The reality is that we are still only scratching the surface. We think web3 games can be a huge catalyst for bringing tens or even hundreds of millions of people into the web3 space. They fit perfectly. Gaming environments tend to set technological trends. We see this time and time again. It's really exciting to have the ability to get people into a lower-risk environment and educate them on the principles they need to learn in order to thrive in this ecosystem. I continue to be very excited about the future of the category.

GamesBeat: I know A16z has an early crypto background as well, but you'd expect a big VC like this to get into crypto the way it does Surprised in some ways? How do they think this is the right thing to focus on?

Arianna Simpson: This company, especially Mark (Anderson), Ben (Holloway Tess) and Chris (Dixon), deserve credit for their willingness to take huge risks at the time and put their all into the field. Most of their VC counterparts are not doing this. Of course not at that time. The willingness to set up a dedicated segregated fund and take a stake is one of the things that made me want to join A16z. I'm not looking for a job, but it does make them stand out compared to most of their VC peers.

The firm's belief in the category over many cycles and over the years I think it's really unique among the big VC platforms. It allows us to work with the best founders. Founders want to know that their investors have confidence in the space. They don't move in and out of the category based on market conditions on any given day. Of course, Mark, Ben and Chris saw it early on. That's what made me want to join and be a part of it.

GamesBeat: In terms of initial traction, was it the decentralization debate, or did other factors play a role in the draw? Is this something to invest in?

Arianna Simpson:In our business, we have It is somewhat passive. We have to see where great entrepreneurs go. Even in the early days, there were some of these things. Brian Armstrong and Coinbase and eventually many others. Even so, while it's certainly a novel category, you have very good founders who are very excited about the technology. Likewise, our investment radar is somewhat argument-driven, but also very talent-driven. When founders, top founders choose the crypto space, we always think this is the key thing to consider.

GamesBeat: You mentioned deals. Have you lived through two crypto winters already? How do you feel about these winters in terms of crypto in general?

Arianna Simpson: Over time, the length of the cycle will definitely increase. Back in 2013, the crypto market had multiple cycles in a year. And then, of course, that timeline has stretched outward. The most important part is to focus on the technology and not focus too much on the cycle. We’ve seen that many of the best businesses—whether in broader technology, or cryptocurrencies or web3—start during times of market instability. We see this as an opportunity to focus on technology. One of the challenges with cryptocurrencies is having a stock ticker, which early-stage startups don't have. This can be distracting. But in reality, periods of low price activity can be an excellent opportunity to focus on construction.

If I compare where we are now to the 2018 recession, we're in a whole different universe in terms of what's actually being built. In 2018, a lot of things are going on, a lot of layer 1 is being built, a lot of infrastructure is being built, more than applications. Infrastructure must come first. There isn't much a person can do. Now we are in a completely different place. Many agreements have already been initiated. Hundreds of applications are available in real time. Games, wallets, all kinds of stuff. In my opinion, this is the most important development. We've seen tremendous progress.

We also published a State of Encryption report that you may have seen. We use the data to map out the various parts of the loop. While they appear to be chaotic cycles of volatility, they are actually very predictable. Each part of the cycle has a specific role to play, and periods of rising prices in particular draw people into the space. They attract investors. There is a lot of enthusiasm. Some will leave when the tide goes out, but they probably aren't builders anyway. They may be speculators. Many core talents remain in this field. This allows us to prepare for the next wave of construction and eventually appreciate as more value is created. But cycles are very important. The most important thing to focus on is building the technology, and obviously, that's not going to happen overnight.

GamesBeat: It's interesting how you can have confidence in developers who are entering the space. They either have a background in cryptocurrency or a background in gaming. This is a good thing. If there's any uncertainty in that category, these great teams, with veterans, seem worth betting on. When did you start to see that happen and people on the gaming side realize this is something they want to be in?

Arianna Simpson: The wave is really picking up in 2021. Prior to this, several founders from more traditional gaming backgrounds had expressed interest in NFTs and web3 games. But in terms of when it really starts to hit critical mass, that's early 2021. We've certainly seen it pick up from there. Just mapping talent migration is very exciting. While not everyone, the percentage of founders in the games industry who have expressed interest or are already actively building Web3 components into their games has increased dramatically. Again, we think this is an important trend to watch. We've been investing in many of these teams since then.

GamesBeat: I think it's going to be interesting to put pressure on the rest of the industry. CEOs of big companies are under pressure to say, “Don’t leave, we’re going to explore this area too.” When I interviewed Activision Blizzard’s Bobby Kotick, he said that one of the reasons they sold to Microsoft was that it was difficult for them to acquire talent, retain talent, and hire the thousands of people they committed to making the game. Interestingly, this particular blockchain gaming trend may make a comeback and hit the mainstream.

Arianna Simpson:Oh, yes. We definitely think so, and the whole concept of games and revenue is going to have a big impact on traditional gaming entities, whether it's a publisher or a big game maker. We think 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 the players who create these worlds, create these communities, and build so much value should share in that value, we think is a very important idea.

Now, as players become more familiar with the fact that this is a new paradigm, we think this will have an impact on more traditional entities in the game world Put more pressure on them to adopt a more favorable model. They won't all have the same model. This can take many forms. But this core idea is crucial.

GamesBeat: One area of confusion and doubt I have right now is, who are gamers? Throughout 2021, I have been thinking that blockchain games will be a stepping stone to the metaverse. You can use all of these technologies for things like identity and interoperability of assets, which are all necessary ingredients to create a metaverse. But then we ran into that buzz in December, with gamers objecting to Ubisoft’s NFT plans in the Rainbow Six game. [They also] started to speak out against other announcements about NFT games for traditional gamers.

So, who loves NFTs and who hates them? Asians seem to embrace this experimentation in certain markets, as they did with free-to-play games, while traditional gamers in the West, hardcore gamers, they feel betrayed by free-to-play games. They feel like loot boxes are all there is to it. I looked at the entire market to see how free to play accounted for more than half of games. It permeates every game from mobile to console, and we have 10 times as many players as we used to. These, to me, are all good things. But for this part of the loud voice, they think that free games and now blockchain games are evil.

It is strange to see the Philippines first embrace play-to-earn (P2E). I don't know if it's the users who accept it or the users who don't - which is more important? I can see that it is only a matter of time before NFT games become mainstream if there are mainstream characteristics among players who are embracing it now. But if these gamers have eccentricities — they’re crypto geeks trying to avoid taxes by putting money into NFTs — there’s some behavior here that’s a minority, not mainstream — and maybe it’ll never become mainstream. If it was just people paying $10,000 for a plot of land in a virtual world without batting an eyelid, the activity wouldn't have gone mainstream.

To sum up, who do you think is the user who is interested in this right now? What kind of users can take off and grow to tens of millions?

Arianna Simpson: You make a good point that new form factors, new models Usually not accepted by the core gaming community. As you point out, there's a lot of precedent for this. That hasn't stopped some of these models from reaching massive scale, such as free-to-play games. I think the train is heading to its destination station, and it won't actually stop at this point.

There is a group of very vocal people who have reservations about NFTs, and in many cases, their criticism is baseless. They either don't fully understand them, or they just have a very skewed bias. But they are a minority. There are many people who have come to see the benefits of this model and welcome it. I don't think it's a small universe of very crypto natives. In fact, if you look at it - Axie Infinity was the first Web3 game to hit mainstream scale. They attract millions of players. And this isn't just a few crypto insiders. Their scale is huge, and most of their players are new to crypto.

It just goes to show that while there is certainly a lot of room to go from here, we are on the right track. Games are a tool for taking people into space, not something that just appeals to a small group of people for self-reference. There are definitely naysayers, but I think the bottom line, the bottom line, is that there are millions of people who have already shown a very strong interest in Web3 games. That's where we focus and that's where our portfolio companies focus.

GamesBeat: The interesting part of the discussion is also that some game developers continue to resist. Their arguments are sometimes more technical. Like, everyone says it's about decentralization, but why are there so many centralized entities involved here, like OpenSea? If OpenSea goes down, 90% of NFTs will be worthless. If you had some of these discussions with a game developer and they needed convincing, how would the discussion go?

Arianna Simpson: Most of the founders we spoke to were already excited about Web3. Obviously, I'm on the encryption team, so there's a filter before they get to me. But overall, we're seeing a very open mind and willingness to experiment with this new model. Gaming, although some subsectors of the gamer community may be more reluctant to change - gaming is an ideal place to test new technologies and iterations. Many of the Web 2.0 founders who had built games before saw the potential here, and that's what brought them into the space.

Before I got into web3, I had a lot of conversations with founders who had developed major games in previous lives, and now they say, "That's the obvious answer. I Can't think of anything else. It makes a lot of sense. It solves a lot of problems." Having the ability to own your assets - although if OpenSea disappears, that might affect that market briefly, the fact that I still control my sword or Any NFT asset that I own, no matter what, because I own the keys on-chain, that's an important shift. Many savvy game creators understand this. That's one of the factors that got them into the field now.

GamesBeat: As far as things that might be out of the entrepreneur's control, like regulation or what the US allows or doesn't allow, are those things categorized For securities or gambling, or do companies not want to give up some of their revenue streams - do you think we'll get to a market that's freer for blockchain gaming companies than it is now?

Arianna Simpson: There are definitely some regulatory gray areas. For our founders, we've seen that they want to be compliant. They are looking for clear rules of the road that they can follow. Challenges - that's why we've built a large regulatory team designed to work with policymakers and help them step up the pace. We think about this space all day long. They have a lot to think about. Just to help them think about the nuances of space. Web3 games don't need the same regulation as DeFi protocols or other things that are still in the space entirely. What we're looking for is nuanced regulation that makes the appropriate distinctions and applies to what they're trying to regulate.

From our perspective, regulation is critical. You're welcome. From a consumer protection point of view, this is very important. But it needs to make sense. That's why we've 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 that, but I wonder if the big game companies are going to be at a disadvantage in this market. This has to do with their public status. They worry about regulations. They will wait for a clear signal before jumping into this phase quickly. However, some of these startups are valued so quickly that they will outgrow the larger gaming companies. Their usual solution is whoever wins buys who. But when it comes to mobile gaming, developers like Supercell have almost become too big for anyone to afford. Tencent is almost the only possibility. But the winners in the mobile gaming market aren't companies like Electronic Arts. The startups that can move fast and don't worry about regulation are the ones that win in the free game. In my opinion, we have the same opportunity now with blockchain gaming.

Arianna Simpson: Of course. We're investing in a lot of these upstarts, as you describe. We think they have the ability to understand the technology from day one. They are very native to encryption, native to web3. They see the positives that this space can bring. Also -- and I think this is an important concept -- it's not just about putting a game that might exist off-chain onto the blockchain. Instead, use the specific design constraints and opportunities afforded by the blockchain architecture as a novel canvas for how to design different forms of gameplay.

For example, the field of on-chain gaming is very new, but very exciting, because it's really -- I mean, you're doing Battle the game world, not just assets. You integrate the blockchain into the game. This logic is on the chain. Smart contracts are a key part of the architecture. All of these combine so you can't create the same game as you would off-chain. But you get a new, very compelling experience that's clearly Web3-native and crypto-native. We think this category is driving the possibilities of Web3 gaming, but I hope we'll see more of that soon.

GamesBeat: Do you think the technology stack of blockchain game companies will become simpler? Now it seems that it is still complicated. They have a lot of options around which chain to use and other things. Do you foresee that part getting easier soon? Or will web3 become a fundamentally more complex set of technologies?

Arianna Simpson: For game creators, I hope it gets easier soon . You're right, we see founders who want to develop games need to make a lot of decisions like where to develop. In some cases, this also informs how they design the actual game. For example, Irreverent Labs chose to build on Solana. This comes with a series of decisions. We're also an investor in Mysten Labs, which I think is very well architected 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 an increasing number of powerful, technically sound options. There is still work to be done, no doubt. We are still in the infrastructure building phase. But that is the case whenever there is a new field of technology. Build tools are required. The infrastructure track needs to be consolidated. It needs to be tested in actual combat. In this regard, this is happening. It just takes a moment.

GamesBeat: Through decentralization, this also has the opportunity to change the relationship between gaming and the big tech companies, from which middlemen in the industry have been taking a cut a cup of soup. How appealing is this aspect of the opportunity?

Arianna Simpson:Of course. Being in control of your own destiny is very important and very attractive.

Digital Earth Surrounded by Blockchain and Decentralized Web3 Code< /blockquote>

GamesBeat: Do you think games are won not just by the blockchain, but by the metaverse as opposed to any other type of crowd? Whether it's a big tech company or a business or a brand.

Arianna Simpson: I think there's a lot of overlap in all of these categories you mentioned. They are not exactly the same, but there is overlap at the edges. We believe some of the same important pillars are at the heart of several of these concepts. We recently published an article on what we believe to be the seven essential elements of the metaverse. Things like openness and decentralization are important to what we believe will be the end state of the Metaverse. Obviously, a lot is trying to launch closed metaverses, but we think the opportunity belongs to having an open metaverse.

Again, people are launching games with closed ecosystems in a more traditional form. We see opportunities at the heart of Web3 games that are open and provide more ownership to the gaming community. There are definitely some similarities and some overlap. In some cases, you'll see games exist in virtual worlds. The lines are a bit fuzzy. But right now they're all very experimental, but very exciting categories that are pushing the frontier.

I also think that we see web3 components as an important element in the metaverse and web3 games. I mean Token as part of ownership, persistent digital identity, decentralization, all these important concepts are very native to Web3. These are integral to both the metaverse and the game environment. This is where some of the similarities and overlaps come from.

GamesBeat: If this battle is to be fought between Web3 fans and haters, the decisive seems to be how much great game development we have Examples of those who entered and achieved great success. Companies like Mythical or Forte come to mind. Paul Bettner's company, Wildcard Alliance. They are all very focused on making great hardcore games with NFT utility. But I also recall who wins in free games, and it's not Grand Theft Auto that gets put on the phone. Between the guys at Axie Infinity and the guys who made these hardcore games and brought them, who do you think deserves the most attention?

Arianna Simpson: We invest in Web3 native, novice game founders, as well as in traditional games The founder of the world has a long and prestigious history. I don't think it's a relationship of one to the other. We look for someone who understands what makes a great game and has enough understanding of Web3 technologies to see both opportunities and constraints. This is 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 don't prioritize one type of founder or one model. Instead, we're looking for key insights into what makes a great game, and the support teams that we believe are top notch and deliver a great gaming experience.

Rahul Sood and David Raskino are co-founders of Irreverent Labs.

GamesBeat: Do you guys have a lot of expertise in different parts of the company, or do you all become more multidisciplinary and learn something about the Metaverse, Knowledge of encryption and blockchain?

Arianna Simpson : We are all generalists in the crypto and Web3 space, although some of us People tend to specialize in certain areas of the stack. I'm more concerned with the application layer, consumer virtual worlds, Web3, games, etc.

GamesBeat: I think people will expect me to ask you what's on your mind as we head out of this crypto winter, but I don't Knowing if this is necessarily important to your game plan.

Arianna Simpson : We really have a long-term view. Having been in this space for a while, we've seen cycles come and go. In fact, they are very difficult to predict. My job is to find great technologists and help them build their businesses, not short-term forecasts. Unfortunately, I can't help there. But the good news is that we recently announced our $4.5 billion fund. That speaks to the size of the opportunity we see here and the fact that we're very excited about the future of the category.

GamesBeat: Is there anything else you want to comment today?

Arianna Simpson : We think Web3 gaming is one of the most exciting categories. It was amazing to see how powerful their engines were to take people into space. I've talked to a lot of people who said, "Oh, my first exposure to cryptocurrency was because I started playing Axie Infinity." That's a great way for people to learn about technology and what it can do. I'm looking forward to seeing what else is new in this category.

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