E40: The Best Web3 Arguments (w/Yat Siu, Cofounder of Animoca Brands)

Yat Siu, Co-founder and Executive Chairman of Animoca Brands, steps cast to defend Web3 against @Eric and @Phil’s vigorous skepticism. @Chris just want to know why gamers don’t get it. Is Web2 fundamentally incapable of grasping the promise of open markets? What is and should be promised to token holders? 

We discuss:

• Laying down Web3’s steelman case
• Why the West still doesn't get Web3 like the East
• Examining the original token sin, where did it all go wrong?
• Do digital property rights actually hold back economic growth?

Transcript

Phillip Black: 0:05

​40 of Game Economy Cast uh, where uh, about game economy, game economics, and uh,

Chris K-S: 0:13

interview a guest. So today we are extremely excited to have Yasu, who is the executive chairman and founder of ANCA Brands. you work in Web3, you are extremely familiar with ANCA brands. In fact, if you work at any major Web3 company, you probably, have some form of investment from ANCA brands. They pretty much have their hand in anything and everything, Web3, especially gaming.

Phillip Black: 0:54

uh,

Chris K-S: 0:55

very, very excited to have ya with us today. Obviously we've got the regulars, Phil over there, Eric Guan as well. And then myself, Chris. So yeah, ya. How are you doing today?

Yat Siu: 1:06

Very good. Thank you for having me on on the show and look forward to having an exciting chat about Web3

Chris K-S: 1:12

If you could just give us an intro on Ani moca.

Yat Siu: 1:14

We're a company that's really, in some ways you could say one of the largest digital asset managers in the world now, just because of the fact that we've made over 570 investments in. In Web3 which of course are a lot of women gaming over 160 of them, but when you think of it, it's very distributed amongst all sorts of other areas. So we've become much more of an, almost an index, I guess you could say, of everything that's happening in Web3. So it's protocols, it's deep n of course, defi, ai, everything else within that as well. And we help them also launch their tokens. We help them launch their products as a publisher. And of course we also manage the asset and, create yield from it and so on, which is, we think part of, when we later talk about, I guess game economies, how we think actually game economies should function in the web few way, which is something that I think may have been missed in the previous years. And that's all part of the innovation I would say. We also have a stable coin, joint venture with standard charter that is currently in the sandbox mode, licensed by the HKMA, which is our central bank here in, in in, in Hong Kong. And, and that's actually a pretty big deal. Still makes it the, I think the only central bank license stablecoin. Currently, at least in sandbox mode. It was just recently approved in our equivalent of Parliament in Hong Kong which is called LegCo. Basically going for commercial launch or at least commercial licensing as of August 1st. So that's exciting as well. And of course, partnerships with, groups like, like the Saudis and like with Neon for instance. And of course, doing incubated projects of our own or companies required like Sandbox, obviously I think a lot of people know us for that. Or like open campus which is our education platform for instance. We are probably maybe one of the largest, if not the largest company that's not an exchange or hedge fund or trading firm in the whole sort of digital asset space. And so I think that makes us a little bit of an outlier, at least for the time being. I think a lot of people think of us as, metaverse and NFTs and gaming, which. It's partially true, but if you looked at our last financials that we had shared I think around three months ago or so, it's about a third of our business. The other third of the business is essentially the sort of asset management and the investment portfolio management side as well and, and the digital asset publishing side. So it's a fairly diverse group at this point.

Chris K-S: 3:20

And then maybe a little bit of history about yourself. I know you've had multiple massively successful ventures before anca.

Yat Siu: 3:26

I started my career really in the eighties with Atari back when it was actually a little bit more of the original form when they were still actually making the BCS 2,600. So I'm just totally dating myself at this point, but I was actually working on this thing called the Atari t, which is essentially sort of, but basically the early I mean it's a computer ago. And and, and basically I was working on that writing MIDI software because I actually have a music background originally. And back in the eighties I grew up in Austria. know, there wasn't really a computer science program back then, so it was self-taught coding. I was basically got into the whole space in sort of the first online experience really, to, on a pre-internet service called CompuServe. that led me ultimately to the us because Atari was like, okay, we want you to have a little bit more formal education in computer science. Halfway through the studies in the us Atari went under in the way that, you know I would know it anyway. So the Atari of today has nothing to do with the Atari of back then. And then ended up having a of bit of a entrepreneurial stint that ultimately led for me. I was working for another company that's no longer around called SGI, so no graphics. And they were working on this sort of thing called VR ml, which stands for Virtual Reality Market Language. It was essentially the VR version of HTML, but this was in the early nineties. And so, so we are already, even if the term

Eguan: 4:43

I, I know about like the virtual boy from Nintendo, but I, yeah. What else was going on there?

Yat Siu: 4:48

it wasn't, it wasn't gaming related. So this was, VML was basically a markup language like HDML, except it was essentially a code or the operating system on WebGL or becomes web a GL and open GL at the time to essentially build a framework for, a 3D operating system effectively on the internet. And everything looked like tron, like graphics and, and the visual of course at the time was and, and the vision was, Hey, we're all gonna be shopping online and doing stuff online basically in 3D and in some ways you could argue as it so happens every time when you have a vision of the future, it came true in a certain way. It just didn't look exactly the way that we thought it would be. And I would say the same is true for everything you'd say. Oh yeah, there's a certain direction we go into. Whether this is where Amazon started or this is where Google started, or this is where Microsoft started, and then eventually you evolve into something completely different because the shape and, and, and the look of the industry evolves in, all these myriad uncertain ways, right? So, I mean, Amazon still sells books today, but, it's not really what the, what's making all of their profits, right? And so I think the vision of, what was VRML and sort of what was OpenGL and what became WebGL, these are things that started really in the nineties as a vision around a sort of a, a sort of an internet based, 3D virtual reality

Eguan: 6:03

But like, what, what did the 3D like screen, was there like a, like a goggle setup.

Yat Siu: 6:07

no. There were, there were no goggles. No, it was, it wasn't goggles. No, no, no. So you have to imagine for SGI, back, back in the day, what was SGI trying to do? They're trying to sell as many workstations as possible. Their workstation's competitor was Sun Microsystems, which if you might remember, was really the internet machine of their time. And SGI had a little bit of internet envy. Kasan Microsystems was the system at the time. And so in order to run this 3D internet, if you will SGI launched this thing called SGI Web Force, and that was essentially a tooling kit, which had the 3D modeling tools and authoring tools, whatever, that you could sort of publish stuff on the internet. That was sort of the idea back in the day. And so, so, so, actually we built some of the very first modeling tools in that area. And then we were acquired by SGI. And and so the side story of that is because I had a brief stint there. I was the only Asian dude on the team, and they're like, oh, we need to go and do something in Asia. And you seem like the right guy for having never lived in Asia or worked there ever before.'cause I grew up in Austria, this was, this was a sort of nineties style business planning and this was also a time when nobody wanted to leave where they were living. So, so working overseas at the time was considered like hazardous and difficult and whatever. So I had a stint in Japan, then ended up going to Taiwan. And I came to Hong Kong and a couple things happened in Hong Kong. My father is originally from Hong Kong, so I got permanent residency even though I didn't know what that was at the time, which meant that I could live and work here without needing a visa. I couldn't get my email as in they didn't have a compus of note. And so I started Hong, one of Hong Kong's very first ISPs which for those who may service provider,

Eguan: 7:41

Oh, come on. We're, we're not that young.

Yat Siu: 7:43

I. I don't know, man, you guys Yeah, I know. But anyway just, just, just making sure. But anyway I sort of a nice, as one of the Hong Kong's very first ISPs and then basically started making roots in Hong Kong. Fast Forward, led this information ultimately to a company called Outplace, which is one of Asia's first cloud computing platforms, which was later sold to IBM, which became part of Lotus Notes. and in between from that, I had we were also doing gaming, but really the roots of the gaming business wasn't because I had a history with Atari, but it was also because we had, a lot of email users and this was, we're now talking early two thousands. But we couldn't make any money from those users really. cause, people weren't really paying subscription. I mean, if you remember things like Hotmail was entirely free. Yahoo Mail was entirely free. Advertising revenue models wasn't really very strong. we actually thought about what's the what's the revenue model where we could actually monetize our audience? It turned out to be gaming. So we did some very early online games, initially back in 2001. 2002, worked with brands like Hello PD and so on. And when IBM acquired the business, they effectively said, look, we want the enterprise business, but we really don't know what to do with your consumer gaming business. So we kept that and eventually the sort of roots of that in a way evolved into what would become the original ANCA and then eventually ANCA brands.

Chris K-S: 9:00

Starting off with a, maybe a broader question. You were there during the massive expansion of, of the early internet or I guess mid game internet, but pretty much before all of these applications that really blew the lid off of tech and Silicon Valley. So you've, you've got that background of what does it look like to live through and. A, a world altering technology. And you saw Web3 and obviously it caught your attention. You worked on early ISPs Hong Kong. You you sold product to IBM. We ask most of our guests. This, I think it's a gives us a good idea of, of where you're coming from'cause everybody has their own answer. What is it that you see as especially in the context of gaming, what is it that you see that Web3 brings that can't be done with web two or that's new that, that innovates on web two video game economies, monetization whatever it might be.

Yat Siu: 9:50

I mean, I think this is a the very simple answer to this is digital property rights or effectively introducing. The sort of actual property rights in the digital realm, right? And, and by that I mean that you actually have ownership and the benefits of that ownership that can then be created and innovated on top of the same effect that we see in the physical world. And our thesis is that effectively, if we all have actual ownership in this new internet, which is essentially Web3, whether this is through gaming or other, other, other systems doesn't really matter. It's more like, gaming we think is a great onboarder, and we believe that gamers would have a more natural propensity the stand and appreciate digital ownership because it's, a closer, a closer let's call it, look to it. It's if you was, if you would argue. There was a kind of skew amorphic design around Web3 sort of adoption. And you could argue that gaming was probably the most obvious one because hey, a

Chris K-S: 10:44

Yeah.

Yat Siu: 10:44

that is mine would appear to be more, more sensible than saying, Hey, I own Bitcoin, which is something like that, which is Of digital property, but might not be easily understood around that. So the paradigm that is different in Web3 and to be understood and appreciated is that what it does, it makes everything into a capital asset because it gives it a property component. that's something that the original internet didn't Ian Internet really democratized access to information and basically created sort of yeah, sort of, a different model you could say. And in, in the Web3 model, everything essentially becomes capital asset,

Chris K-S: 11:19

Yeah.

Yat Siu: 11:19

effectively everything is ified as well. Which has, in many ways very visceral reactions. And to us, we think that when you think about what Web3 does, not only does it turn everything into financial asset and into a capital asset, it would also ultimately have the effect that everyone will become financially more literate in the way that the internet made everyone more digitally literate. That's the paradigm shift that we see,

Chris K-S: 11:42

Yeah. So, so obviously for context, I work at a Web3 company, star Atlas. I'm very, very entrenched in Web3. So I asked this question with, the most possible I, love Web3. I want it to succeed. But, I think you would look at the daily active user numbers and you would look at some of these projects, especially in the last six months, and all these failures and all these companies are like, we're closing our doors. We're going out business. And I completely agree with this ownership property is probably the distinguishing, factor that Web3 gives us. But then you look at the data and you go, well, I guess gamers don't really care about ownership. Do they care about ownership? If they care about ownership, they would care about these assets that we're trying to sell them. But for some reason, gamers who are these extremely, you tell a gamer that, hey, you can't buy a physical copy. And they go crazy and they say, I want my physical copy. But then when you say, Hey, you can like own this digital thing and it, it's really truly yours, they go NFTs. It's

Phillip Black: 12:35

Well hold on. Let's, let's talk about property rights.'cause I think that's what we gotta, we gotta talk about first. What do you mean by property rights? So if I buy NBA top shot, I'm certainly not getting copyright. In fact, copyright is something that an NFT can't give me. Only a legal system can gimme that. Now, that's, that's a claim I'm making. But an NFT can't really confer much that the legal system doesn't first sanction to, begin with. Do you think that's fair? Like what, what is it that this, what is it that this form of capital asset in particular, why does this have digital copyrights that like a steam item couldn't

Yat Siu: 13:08

So just to just

Phillip Black: 13:09

Correct?

Yat Siu: 13:09

when we say a property right, it doesn't necessarily confer a

Phillip Black: 13:13

Yep. I.

Yat Siu: 13:14

to be clear, in the physical world, it's the same thing. If I own a house, I own the house. That doesn't mean I own a copyright to the design of the house, right? Just to be, just to be clear, right? So, so this distinction, so what blockchain does is it creates proofs, right? And so the proofs in itself becomes the evidence that you have an ownership of something. the societal proof around the protection is a legal one. For instance, if someone steals your bitcoin. that someone stole your Bitcoin, can say, I can prove the Bitcoin is stolen because look at the blockchain. That's the proof. the Bitcoin in and of itself is legal tender, depends on the legal system and where it's being adjudicated from, right? So instance, you go to the police and you say, someone took my Bitcoin or that is my Bitcoin. Then a court which has happened says, actually we know it's your Bitcoin because there's a proof around that. And in a way, when you think about sort of original copyright, right? Even in places like the US you don't have to prove that you trademarked it or patented. If you can prove that you were the originator, the first originator of the work, you can still lay a claim around that under US copyright laws. So there's, there's, there's elements around that. And just to sort of, and I'll touch copyright because I think and patents and trademarks because I think it's a very important topic. But the property itself is more the proof that you have it. all the elements around it to say, okay, it really belongs to me. Which then comes with the authentic layer as well because then you layer on top of these things. For instance, you know what makes NBA top shot potentially valuable is the fact that it is an authentic piece of a certain type of athlete moment that someone may appreciate and it's sanctioned by that. And the blockchain makes it valid, right? In the same way that you'd rather have a real Rolex as opposed to a fake Rolex most of the time. And generally speaking, you do that because it's authentic. And if someone shows up with a fake Rolex versus a real Rolex and you can't necessarily distinguish the two of them, there's clearly a difference in terms of prestige and status if you could do that. And that's one element. And that doesn't mean copyright. That's more status, that's essentially symbolism, that's market value. And we do this all the time. Like for instance, when I was stuck during COVID giving a US example in the US I stayed at a friend's place. In Menlo and literally, Menlo is a pretty expensive area in the Bay Area, but then I'm walking five minutes across to Atherton, like literally walking across the street. And real estate prices are like double okay, right? And what's a and there's no copyright or trademark a patent that happens there. That's just simply the cultural and symbolic capital that comes into the status that's conferred and the proof around that. That's kind of one way, one way to look at it. But what it means is that it becomes a capital asset and you have the freedom to transact and sell it if you want. And there's a value implied based on the societal sort of aspect around it. Now, going to the other topic, which I think is much more relevant, which is around copyright and trademarks and so on, right? So first of all. That type of virtual property. So it's important, the reason why I wanna talk about it,'cause it's a virtual property, right? It's not physical, right? And I think a lot of people who are critical around, sort of, NFTs as an example sort of because it's virtual and it's not so-called real for, forget that actually the largest valuable system in the world today is entirely based on ideas as in trademarks, patents, the biggest companies in the world. In fact, I think Wipo estimates something like$68 trillion of market value is created entirely through the intellectual property world. The biggest companies in the world are all IP based companies. Half of America is essentially employed by people whose primary business is around intellectual property or trademarks or patents or trade secrets type of work, right? And it's entirely virtual. And what made it possible was a very, very old act back in the day called the statute of Anne, which was originally an original copyright act that essentially protected the rights of authors against publishers to say, we say. author now has the actual rights to this and then can commercialize it. Yes, it was a legal system, but it was because of that system that then you had the ability for Jane Austen and got all these famous sort of, authors to emerge because now they had a way in which you could protect the organ. The key thing is now you could also do things that were not just capitalist, entrepreneurial, but maybe rebellious and, and something different because there was something worth going at risk for. Oh, there's a pot of gold on that side. So maybe I'll write something that might not be so popular with the church because Sure, I might potentially get burned at the stake, but hey, I might make a lot of money, example, just to say that there was now something worth going for and, and the capitalist system we live in today is on the premise of. a risk, right? But the risk reward seems to be for me to go, off the edge. And some people like Elon Musk go very far off the edge. And then there's some other people somewhere in between. But the point that there is, there's a balance sort of, there's a market metric around that, that determines that. And of course you have to, you have to believe that is for

Eguan: 17:56

Like when we talk about digital property, right? There's this unique difference between physical and digital property. In that the physical object, it's, you have a house, you can't just copy paste the house, right? But you can copy, paste an idea, an image, some digital asset, right? That's the thing about data. It's very easy to copy and paste and but we still need to protect the original music, copyright and whatnot for the reasons you described, right? Intellectual property law needs to incentivize creators to innovate because that technology or, artwork can, be benefit society as a whole. You need the property market mechanism for that. Yeah. I thought I read some of your work some of your like articles and stuff about ditch property rights and stuff, very great stuff. You mentioned John Mock alot, right? And this, in, in modern liberal capitalism, right? One common theory is that property rights. Supercharged capitalism, because once you have property, you have ownership, you have an investment stake, there's incentives to improve. There's, you can trade for mutually beneficial gain, and then all of a sudden economic growth goes whoosh. And that, and that's awesome. And I, I generally, I believe in that as well. But, thinking about it, it's not obvious to me how well this translates to the digital space. You mentioned intellectual property law, and Yeah. Some, some amount of intellectual protection, property protection encourages innovation, patents and whatnot. But if you look at it the protection is actually much weaker compared to the physical world. Like you, if it's your hat you die. You can destroy the hat and do whatever you want with it. If you write a book, you get it for it was supposed to be 20 years, Disney has changed it to 140 years or whatever. But and I think most people believe that, and, and you've got all these patent squatters, right? Like these, like, biotech companies who like patent just sequences of DNA and no one else is allowed to do research on this sequence of DNA. They're not using it, but they just got the patent in it, are squatting on it. and so I think the general consensus, at least prior to this AI art fiasco is that intellectual property was far too strong in the US and that companies like Disney or these biotechs were actually abusing intellectual property. And that the optimal ec, the economic optimal level of intellectual, intellectual property protection was lower, like at least significantly lower than that of physical property. I hear crypto people talk about in a digital property, they just assume it's like physical property. You have it, you keep it, you don't have to pay taxes on it, you don't have, you don't have to buy insurance on it. You don't have to, report it to the government.

Yat Siu: 20:06

\So first when it comes to physical property, the protection is still a legal system, And the legal system, which I would argue blockchain provides a mechanism for that. But take that aside for a moment. If that legal system is overthrown, let's say like a, when a government disappears and a new government appears, actually all that physical land that you appear to have is gone, right? And and that's precisely the reason why, you know my, my parents left China because we have this little thing called the cultural revolution and basically land appropriation and all that kind of stuff. And I think a lot of and I think this is by the way, the reason why in Asia. Things like NFTs and property rights and capitalism is much more alive and well.'cause in living memory, have experienced a time when that did not exist at all. South Korea's economy was actually smaller than North Korea, for example. And, and so this is true for that region. And I would say one of the reasons why in the West particularly people dislike NFTs and property rights and so on, partially because capitalism hasn't worked for them. So it's a little bit of that. But I think the other thing also is the fact that I don't think they appreciate what life was like.

Eguan: 21:11

Yeah. No, no. Hold on. I'm, I'm not disagreeing with any of that. I think liberal democracy is great. But what, the thing I'm questioning is does the same theory around physical property rights, John Locke, economic growth and all that apply to digital as obviously Yeah.

Yat Siu: 21:24

I think absolutely. I think absolutely. But but there's a very important thing because not every, but in the physical property rights, we are not applying sort of some of the. Provisos that Locke has put in place, right? Which is, his famous proviso around essentially sort of, your, your natural property rights is that you need to leave enough and good that is left in common for others. Locke meant to say, and I think this is the problem we have in the world today, what he meant to say with this was that you can make all the value you want in your land.'cause back then it was about the labor, not of your mind, but of your hands, right? And you can pluck as many apples as you want from the tree, but you need to leave enough for others as well. Because if you don't have use of that tree, then, don't monopolize all the trees, so to speak, which is the issue that we have in the physical world, Around that. So, so, so the intellectual property rules are much more closer aligned to that principle because they have an expiry of their property rights, right? The whole idea is to say, look, you've done all the work and you own that property for right, for 30 years, 50 years, 20 years, whatever the law says, right? And then afterwards. You it to the public domain and you work and do something new. And that, I think, is much more in the, in keeping of Locke's idea, because he's saying you can monetize it. But then afterwards it's probably good. Like pharmaceuticals would be a good example of this, for instance, right? Like, if I, I can monopolize a certain amount of money that I can make for having spent billions of dollars in research, but after I've made billions of dollars more, or maybe tens of billions more, whatever that ratio might be, I agree

Eguan: 22:55

intellectual property protection is significantly weaker than the physical property protection. Like if I have this bookshelf right here that this doesn't go to the public domain after 50 years, right? This is just mine until it rots, or I destroy it or trade it, right? So like that 50 year patent window is significantly weaker compared to just traditional physical goods ownership.

Yat Siu: 23:16

Yeah, but I, it's your shelf, I mean, the shelf in and of itself, if it

Eguan: 23:25

it seems like society believes the optimal level of intellectual property protection lower than that of physical property protection

Yat Siu: 23:32

I don't think, I don't think, people believe that. I think intrinsically people believe that they own their house. I get that.'cause they're in their environment and so forth. However, when it comes to the actual numbers, the most valuable thing is intellectual property rights. And the companies are pursuing and trying to protect and extend their intellectual

Eguan: 23:49

right? So don't, don't get me wrong. Intellectual property is super duper valuable. Incredibly valuable. Like you said, I think most believe intellectual property production is too strong and we need to weaken it, right? And yeah.

Yat Siu: 24:01

But. And I think there's an element around that, as I said earlier in the lock-in example, that there's certain type of, which is where open source is an interesting example where, you basically give out certain sort of, sort of intellectual property, if you will, for others to build and compose on top of. But let's go quickly on the blockchain example here, because when, and this is where I think blockchain is interesting, if I own an NFT of its value, it's the same as owning your bookshelf because the bookshelf doesn't confer you copyright or trademark rights or trade secrets. It just confers you the ownership of that one particular bookshelf that is yours through the fact that you've owned it and you can prove that you've owned it and maybe there's some markings on it or wear and tear that makes it more uniquely yours. Well, that's an NFT. If I own a bored ape, remember I know 3,800 or something that is your bored ape and it's not anyone else's, and you can keep it forever provided that, Ethereum is around forever and as a blockchain it's continues to exist, which the whole decentralization makes possible, right? Then theoretically, that object is yours forever. It doesn't mean you have copyright, although in the case of board ifs, you have

Phillip Black: 25:03

But I can get rid of that too though, right? This is what I think is the benefits of blockchain, That I, I actually think it violates what you're talking about with property rights. Because I can I can contract anything, In a property. Like I can make an NFT sole bound, I can remove your property, To buy or sell again, an NFT by making it soul bound, I can put a call option I'm saying that this NFT.

Yat Siu: 25:23

But you can't do that. No, but you can't do that if it's already if it's already, if the token is already released with a certain type of rule around it, you can't change it unless the consensus mechanism changes, which requires, and so this is the whole reason why decentralization is, is really powerful. If you are going to make a change, for instance, like a rollback, right? As an example, let's say someone stole some as it's actually, that's actually what happened with Ethereum, right? Ethereum Classic was this whole Dow hack if for, and, and what happened was is that someone took this money so-called inappropriately and there was this big fight in terms of so what I mean that the original smart contract rules say that this is yours and whatever. And they decided, and yes, it's a bad thing. violate the principles of what was Ethereum Classic. And so what they did was they did a fork and essentially they, they, they forked out into a new system. And we, that's why we have Ethereum Classic and we have technically Ethereum 2.0, which is Ethereum we know today. And that's an example of where the community, through a consensus mechanism said, you know what? We don't like this. We want this to go and look this way. That is not that different from, I guess when a government has a, a vote right? And does a referendum and says, we want this and we want that. And yes, if there is a referendum right on, on chain and says all board aids need to be sold bound now, and we have to roll back the agreements. Then that was the will of the people, which is a whole democratic framework around it, whether we think it's tyrannical or not. That is actually how, constitutions and democracies work today as well. If there's a majority vote that goes in one direction or the other. So I think, I don't think it's actually it's not something that you can arbitrarily do, unless of course you create a backdoor that's a different story, but then it's not your property. That's it's kind of like, like the difference between, let's call it certain kind of stable coins versus certain kind of cbdc. Right?

Phillip Black: 27:04

So what would you, what would you say is the most interesting game use case you've seen that plays with these property rights? Like if property rights are one of the things that we should really advocate for coming from the Web3 space, what's the best use of this you've seen so far? I.

Yat Siu: 27:17

Well, I mean, I think one of the companies that continues to innovate on, and I know they've gotten a lot of flack, but actually they're doing okay, right? Is is actually infinity, right? I mean, they've started really, really early with some of those defi priers, back with the two token system. It's one of our earliest portfolios and I think what they've done quite well there is. Around sort of, building better game economies over time, right? In terms of building communities around them. And of course you own the Axe and the start also the land sales. Sandbox is another example of, and let's call it the representation, but the problem about Sandbox is that the game is still running in seasons, so it's not perpetual. So it's it's, it's still, they're running an alpha season still, right? And so, so the result, it hasn't had the perpetual sort of continuation, but you can imagine what that would look like if you have Roblox or you have Minecraft, for instance. Basically having a property right around that. And right now the property in a way for Minecraft is a server. I run the server, it's my server, right? So that's the translation of that property, right? Even though it's rented maybe on Amazon, But effectively it feels like it's your environment here essentially on chain. You own this land and you can develop on it. And I would say the best representation of that is. The here's my land and this is how I'm advertising it. And if it has attention, then people get to see it. However, in terms of the sort of game use cases right now, it's mostly still in the area of things like, versions of skins or items you own. And I think, we talk about the business model in Web3. I, one of the things that we discovered is that many Web3 companies, in fact most of them gaming companies Using Web3 assets and selling them in a web two way meaning that their tokens is like virtual currency and skins for, lack of sort of, differentiation are essentially NFTs. But the way they sell them are exactly the same. And so this is part of the challenge that that I see is that they've created Web3 framework, but not a Web3 business model. It's kinda like a crypto exchange. A centralized exchange is not a Web3 business. It's a web two business dealing in Web3 assets. And so the way that what we however discovered and like last year we had a very profitable year, but what we are doing is we have become our own market maker for our own games. and so what happens is, is you make a clip of the fees of the transaction volume instead of selling more tokens or selling more NFTs. Now that is a innovation that's possible in Web3 that you cannot do in web two. because it doesn't exist.

Phillip Black: 29:41

can't steam tax, steam anyone who has a marketplace,

Yat Siu: 29:44

First of all because what they're doing internally is they don't have a trading system and the assets in there don't actually have monetary value that have third party markets. It's a closed system and the, and, and there's no property right. Ownership for these items that you can move them around to, to have discovery of that market. You could say. And, and just to be clear, I'm not saying that because if you look at, for instance, Counterstrike skins, you could say there's a market and people are trading and it's centralized and closed, but steam sort of a counter rank isn't actually being role here.

Eguan: 30:17

so to clarify for Phil, I think, has a marketplace where anyone can make trades, but when Yasa market maker, that means the the game, they're actually facilitating the trades, keeping the price

Phillip Black: 30:27

correct. But there's, but there's still, there's still a delta between buy and sell, which is them sinking currency out of the economy, which triggers you to make an additional So it's true that when they extract money from a trade, when they take margin that isn't storable value, that they can then flip it's money that they are destroying, um, because they want you to trigger purchase. So they're taxing in some way. It's, it's true that it's not, it's not real

Eguan: 30:51

when they take the transaction fee? Is that

Phillip Black: 30:54

So you need to buy FIFA coins to participate in the FIFA economy. And open up packs and then with Pax you put them on the marketplace. When you put them on the marketplace, you can buy and sell. Uh, It's not a market maker, as you mentioned. It's players buying and selling to each other, and there's a delta between the buy and sell. That is the margin that EA will take and compound essentially.

Yat Siu: 31:14

Yeah, but they're using it to burn the currency for utility in the currency. They're not it's not a market in the sense that there's a liquid aspect to it.

Phillip Black: 31:21

Correct.

Yat Siu: 31:21

they wanted to tokenize it. Now, this is the thing you could argue in a way, it's like a virtual RWA, right? Where you're basically taking that currency and then you tokenize it and you created a market. here's the point, which is that there is no such thing as risk-free business, just to be clear, right? And so, so meaning that you could tax it, but at the end of the day, if you wanna make money on it, you gotta put capital at risk. If you're a market maker, you have dollars on the other side, And then you have, and you have the asset, asset, whatever that is on the other side.

Phillip Black: 31:49

Hmm.

Yat Siu: 31:50

as a market maker, we are always taking capital risk with real money. So basically, if we make a mistake, we lose money, right? And that's no different than, Hey, let's make a game and we think it's gonna do well in three years time. And that's also a capital risk. It's just a different type of risk, but still risk, right? So what happens in these closed markets? Because there's no element of risk taking over actual capital assets in play. It's not a true market. It can't be. And it wasn't designed for that purpose because it was really designed for people to buy more currencies for this type of utility in action. From, let's say, Fiat dollars into their currency, but it was never meant to be as an exchange between that this would look very different and they would have to put actual dollars at risk in their marketplace to make money from that, which they're not set up to do, but I'm not. But what I'm saying is that if you build a web, if they integrate Web3 natively in your systems, that's actually what they would have to do. And they would generate essentially money directly from their economy by basically becoming the market makers and the marketplace for their own game economies if they tokenize it all. But of course, it also means that now they become an open market, and it's like open sourcing your environment, which is again, risky because now you're at the whims of an external market, which is speculative. And this is the part where I think most companies are uncomfortable in gaming, particularly in the West, because it's something that they don't understand and can't really control. they're really very socialist planned economies as opposed to free market economies by design. And that's, it's working for them, so why would they feel like they have to change? I think that's the opportunity for smaller companies because yes, it's risky to be part of an open market. It's like you joining the dollar economy and you're basically subject to the fluctuations of external market forces. But at the same time, you also get to partake in the international markets from day one because you don't have the audience, right? So, so you can, you can be North Korea or you can be in a way, China before, or Russia as a closed market, or you can join the global economy and sell to everyone in the world and sort of navigate around those duration.

Chris K-S: 33:52

So I, I want to quickly dig into this idea of prices and, and exposing yourself to a larger market. And how that ends up practically working out, or at least for, in my experience what I've found is that commodities markets that are specific to the game for example, in my, in my game, we have a a whole commodities market for fuel, carbon, copper ore as well as ships. What we've found is, that we have so much more ability to implement fiscal and monetary policy on those assets. Hey, this price is, too weak or it's, it's decreasing. We can adjust we can have a pretty significant and, economically and statistically significant impact on that price. What we find we have basically no control over is actually the cryptocurrency in the broader financial market. From my perspective, trying to make the

Phillip Black: 34:40

But you

Chris K-S: 34:41

a company that relies on that cryptocurrency is where we're getting a lot of of value. Having so little control over that, yet almost

Phillip Black: 34:49

know.

Chris K-S: 34:50

control over the commodities markets, it's infuriating. I'm curious how have companies that you, I mean, you get exposure to a lot more companies than I do that are doing all these very similar things. Have you found that they have had success monetizing that thing

Phillip Black: 35:04

that uh.

Chris K-S: 35:05

over versus that thing that they have less control over? Namely alt coins Web3 gaming tokens which have not had a good last six months or so?

Yat Siu: 35:14

Yeah so let's first talk a little bit, I think we, we need to talk a little bit about sort of what tokens really are, at least from our lens. And, tokens effectively from our lens are a, a sort of a form of a store, of a network effect. In the same that we, by the way, we think the same, same way of currencies, that they're actually social and, and have network effects in themselves. And so what that means, just like commodities, the attention that a token gets is reflective of the sentiment of, basically, a market. So when gaming is down macro, so the reason why gaming tokens is down macro in including Web3 and also in in, in many other areas. Like, when you talk about companies laying off and gaming industry, it has more to do with the fact that the gaming industry sentiment is down. Why is it down? It's down because post COVID gaming has been flat and slightly declining. It's been down because pricing and gaming has stayed f largely the same. Over the last three to four years, while, the US dollar has been basically printed in the trillions of dollars, more so in real money terms the cost of milk has gone up, the cost of labor has gone up, but the cost of games has not. And that's changing now, with Nintendo pushing the envelope and obviously I think GTA six next year will definitely push that. But the point being that, gaming has had a tough three to four years, and that's reflected in the overall market, which is then reflected also in token prices. And that has a lot to do with the fact that, the people who buy the tokens new. And so our lenses, and maybe not everyone agrees, but our lens is that the gaming audiences, if you wanna talk about Web3 gaming specifically, is now expanded because of tokens, because a new type of gamer is engaged with your product that is the token holder. He's not necessarily the person who plays the game, but he's still part of your ecosystem. And I think this is one of the distinctions and lessons we certainly have learned or believed to have learned. I think many other companies might still not like, or maybe even refuse to accept that the token holder is still a part of your game, but he's not the one playing the game. It's like a new meta, as it were. It's kind of like, when free to play gaming happened, there was a whole new meta layer of freemium business models and freemium design that came into making games more profitable or more manageable than it was when it was subscription based, or when it was basically a, a sort of full, full sort of traditional sort of, buy console game and, play 40 or 80 hours or, or whatever number that would be. So that's that's kind of the, the big difference there that you basically have this new, this entirely new audience that is now a almost like a kind of investor, but he's part of your game. He becomes the amplifier of your product. Because now he has a stake in you. And then he basically promotes that. And what happened is that in, if you look at the volume of these tokens, I mean if you look at for instance, San Token or moca verse or Xi or those guys, right? Combine those three tokens are trading, I don't know, 200,$300 million a day, sometimes less, sometimes more, right? That doesn't come from the people who play the game, that comes from people who are speculating and buying and trading the token. But as they do, so, they also provide, let's call it energy and attention to the project, which is a different form of attention, but it's still attention. And that to me by the way, is why if gaming becomes popular, as a meta, right? Then actually what will happen is gaming tokens increase as well. And therefore, and because of that sort of investor attention, this is not that different from, last year, if you look about ai, AI was all the

Chris K-S: 38:28

Yeah.

Yat Siu: 38:29

And AI tokens have done much better than gaming tokens. But when you talk about dus. gaming do use, I think last year it was close to 7 million daily active players. Yeah. Small number compared to web two gaming. But when it comes to basically what's happening in blockchain and crypto, it's a, it's definitely larger than anything we've seen in Ai, crypto, but yet the prices don't match it. It has nothing to do with the utility. It has much more to do with investor

Phillip Black: 38:53

It isn't it?

Yat Siu: 38:54

will eventually narrow, but not, we're not there yet.

Phillip Black: 38:56

Isn't this the original sin though, of trying to combine a currency like what is a stock into one price signal? Like what I, what I want a token to be. is a stream of dividend payments. that's what I want it to be. And everyone I think wants to get to that. But you, you also mentioned the currency, right? And those things that have different outcomes. Like I want an equity tool or a stream of dividend payments to Go up and I want a currency stay stable. To your point, stable coins are where all the growth is in crypto right now because it's an actual currency, right? Is original sin of all Web3 games? Like shouldn't we disambiguate those two signals?

Yat Siu: 39:32

No, I don't think so. Yeah. No, I don't think, yeah, so I don't think it's the original sin. Maybe what you considered as sin, I consider an opportunity, but let me just, let me, let me just, let me just describe that a little bit. And, and the first thing is that we're, first of all in frontier markets, right? So, frontier markets are always going to be volatile, right? From, it doesn't matter what it is, whether it's a stock, whether it's commodity, it's like saying, Hey, gold was stable 500 years ago. No it wasn't, right. Or, or minerals or equities or stock prices. Like they all go through these waves in, in, in, in those areas, or the.com boom or the AI boom, whatever you wanna call it. There's this volatile period. And then when the market's mature, then eventually they hit a certain type of stability. But, and I think this is the big, I guess the big wouldn't say disconnect or maybe you wanna call it that right? Capitalism. By nature is volatile because they're indicators of where the action is. In other words, if a business does well, capitalism should show you that it does. Well. If a commodity is in demand, our product is in demand, then capitalism will show that. It's kinda like where poly market works, right? Or it's why, people look at markets to indicate essentially information because when you see pricing in anything, it doesn't have to be tokens, just anything, whether it's commodities or stock prices, it drives your attention. It shows you where your, at resources need to be deployed. It makes decisions around, whether it's, for gold for instance, if prices of gold go up, then do I make less jewelry? Do I hold whatever These decisions start to happen? And, and pricing information comes, which is a form of value information, frankly, about where society is. And that's basically what, what tokens do. But at scale with everything else that's happening 24 7. That's why even meme coins, as silly as they are essentially maybe just forms of attention that might only be 30 minutes, five minutes in some cases, or a few days or a week, but they show you essentially where that attention is with something that is really at stake. Provided that, of course they're not heavily manipulated, that's a different topic. But you do have that, that situation. But then you have that sort of, so to your point though, capitalism, is inherently volatile because essentially it shows you where when something's working, when something isn't. And when you look at, for instance, just the workforce and the environment of like how many companies shut down every day. How many companies reopen or you start things every day and when you map it out that way, it's not a, it's not a hey two or 3% unemployment chart. It's like a crazy chart that goes up and down, right? We don't see this, from the government statistics, but actually that's how life is. And then when, what tokens do,'cause they're 24 7, they articulate that hyper much more because that's the nature of that.

Phillip Black: 42:02

if, if you're telling me that tokens are information, right, but what a token is as many white papers will tell me is that it's a gift card, right? And that gift card is redeemable, it's in a coupon for a future goods game prices in the token. So like, if I'm Atlas, I don't know, I, I'm, I'm speaking outta turn for you Chris, but like, you know, I can have some star at for my Atlas token. And what that entitles me to do is entitles me to buy a ship at some point in the future. It is not a stream of dividends, at

Chris K-S: 42:29

the ship is the stream of dividends. The ship provides a stream of dividends.'cause that's the thing you're using to,

Phillip Black: 42:34

you can, literally dividends. Um, who are the, who are the Warwick brothers? The ones out in Australia?

Chris K-S: 42:37

oh, alluvium.

Phillip Black: 42:39

alluvium. Yeah. They were trying to make this a dividend that based on land

Yat Siu: 42:42

I totally understand what you're saying and that has to do with the fact that what we see in the markets today is that if you want to create a market sort of scenario that makes sense for your particular customers.'cause they don't like that volatility, which by the way

Phillip Black: 42:55

Mm-hmm.

Yat Siu: 42:56

what governments do in other brands around essentially by intervening. Okay. And so when you're in an open market, then you have to play in the open market. It's why we have our own market making team. It's not why it's, it's it's, it's to say that if we feel like there's an instability that needs to We have to put our capital at risk to deal with that or

Phillip Black: 43:15

Mm-hmm.

Yat Siu: 43:16

we don't think it's worth it. And so the problem is, and this is the point, what I'm saying around sort of the maybe challenges is that we are in an open market, we are not acting as central bankers in our own game economies, which every other central bank is basically doing, right? I mean, imagine if you didn't have a central bank in Hong Kong or in China or in the US or whatever, right?

Chris K-S: 43:35

This gets at, to me one of the fundamental problems with, for example, especially currently, not, let's call it 90% of the player base or the, the user base. Are these more finance, financial types? They're the ones that are holding the tokens. it seems like it might create a perverse incentive for the ones creating the video game. I I, I think that we have far fewer levers. I. From a design perspective to influence the token price or to influence those those token holders' behavior than we do to influence the game economy. Hey we think that this commodities price is too high. We can pretty much lower it within a 24 hour, period. Pretty, pretty swiftly. So, when you have so much of the values riding on this group that doesn't actually care about the gameplay, they don't actually care about maybe the product as much do you think that that creates a, a perverse incentive from the developer? Oh, we should focus more on this financial component, then we should focus on the game?

Yat Siu: 44:33

I think there are quite a few companies or like startups that have taken that position. Whether that's right or wrong depends on the product that they're building, right?'cause they look at the token narratives and they basically built a

Chris K-S: 44:44

Yeah.

Yat Siu: 44:44

was

Chris K-S: 44:44

Yeah.

Yat Siu: 44:45

only on. Token holders and not on the gamers, right? And then you had the other side

Chris K-S: 44:49

Yeah.

Yat Siu: 44:49

ones who were only focusing on the gamers and not on the token holders, right? And then you have some, some companies that have some fundamentally really like, like by the way, we think that there's some fundamentally really good Web3 game companies whose token prices have been crushed. And we think, you know what, that might be a better opportunity and we should support those guys, for instance. So we see that disconnect, and that has to do with a disconnect of somewhat knowledge, but also appreciation between one side or the other. And again, we're at an early stage of innovating around this. I mean, it's not like, the, the freemium business model in gaming, for instance, took a little while to get into the stride that it has become. And I think we're in that phase right now as well. And is that who you're serving? Now, the reality is that because of token liquidity, way that you can think of the investor class call it is that they are your promoters. They're your supporters, they're your marketers, they're your agents. They might play your game, but they're generally more of that other category and how do you optimize it? And you could see today that Web3 projects are much better at activating their token holders in that capacity rather than necessarily being users of the product. That's one element, but they drive attention to the product, to the other set of users. and again, this is an evolution and we're seeing this happen in real time do we have the perfect answer? No. We don't. But but we're definitely, if you think about the space, there's a lot more tokens than before and there's a lot more things that are working. And I think I wanna just go to quickly highlight this part, which is that a lot of people are like, oh, but look at the prices, what they were, and now what they're before. The volatility of before were token prices were astronomical in some cases. I mean, like, token at one point was like$20 billion market cap. Sure, that's

Chris K-S: 46:25

Why? Why, why should that be? Orders of magnitude larger than Roblox, at the time?

Yat Siu: 46:30

yes. and, and the markets will ultimately find their way, and right now it's a, let's call it more respectable, 800 million to a billion. And that's not bad either, just to be clear here. Okay. Like, so we, we like to draw these perils and say, oh my goodness, look what happened. But actually, and it's like people also

Chris K-S: 46:45

Yeah.

Yat Siu: 46:46

are dead, but NFT sales is still almost half a billion dollars a month. It's just not people, it's just not what people talk about anymore. But, so the, the fundamentals are there, and we shouldn't take a moment in time and criticize that simply because of what it was once, because actually, it's actually humming along as a business. It just doesn't have the same hype. Hype, hype shall we

Eguan: 47:05

I, I wanted to ask you about the Hong Kong stablecoin. I, I think that's a fascinating topic. Just so, so a little, little context for the listener. So, stable coins are crypto tokens that are pegged to some other asset, usually US dollars. Two big ones are USD Coin and Tether. And as ya said, they've been massive in crypto and they're basically functioned like banks, like USDC and USDT functioned, like fractional reserve banks. There's been other models that have been tried and some of them have failed spectacularly, like Terra Luna. That one was a little crazier. Yeah, they called themselves algorithmic stablecoin, but yeah, I'd love to, I'd love to hear your thoughts. Tell, tell us about different types of stable coins and how you guys are doing it with Hong Kong.

Yat Siu: 47:44

okay. Okay so very quickly, Terra Luna was not a stablecoin. It was definitely an interesting experiment that obviously failed spectacularly. But what happened, and again, this I would say, goes down to this idea again, if you understand financial systems and the implications, and to me it sounded like the guys who were behind it didn't quite understand it because was an algorithmic stablecoin stablecoin. It was an algorithmic coin that essentially sold one token to balance another one so that it would all have essentially a dollar parity. But neither of them were backed by something fundamental, which a stablecoin as an RW is supposed to do. But it worked. And the reason it worked is because precisely because it wasn't backed by anything it's doomsday scenario happened essentially because of value of of, of of terror and Luna were just exploding. They said, oh, you know what? We probably need to have some backing. And so they basically went the fractional reserve banking way and said we're gonna go and guarantee that there's at least$2 billion worth of. Bitcoin and stables backing essentially Terra Luna, which had a market cap of, I don't know what was, it was 30 or 40 billion, whatever crazy number that was. And it immediately gave other people on the side an opportunity to say, look, if I'm gonna crash the token, there's no money because essentially ISS algorithmic. However, now I know there's$2 billion on the other side that is used to defend that peg. Let me go and grab that. And that's actually why Terra Lunar collapsed, because it didn't have essentially the collateral to back it. That's basically what happened in the Asian financial crisis as well, back in, back in 97 and 98. And it all sorts of sort of crisis around when we have fractional reserve banking and when banking banks collapse, they don't actually have the underlying assets. And then they need a bailout. And of course, in the case of Teda, there was no bailout. And so they should have never had that that sort of, let's call it, guarantee off the back. It would've as an example right now anyway, it's not a stable coin. The definition of a stable coin is that you're supposed to have one-to-one backing. dollars or certain assets, typically T-bills, right? That basically then have value that is equivalent to the dollar. And if you have redemptions and you have to sell them, and there's balance that we algorithmically, but it's based on real assets that you have. And the biggest ones obviously are tether and circle. And circle had a fantastic IPO just recently. But it's also worth noting that stable coins are strategically very important for the us. The past administration looked at stable coins as more threatening. But the current current regime looks at stable coins in the US as something that will expand dollar haga money because at the end of the day today, I think that the sixth or seventh largest buyer of t-bills in the world and just imagine, right? Like essentially, tether and circle and various stable coins are larger TBI buyers than the Japanese and the German government combined, right? So that's what that is our stable coin. One that's licensed by the HKMA, which is our central bank, and this still makes it to this point, the only central bank, effectively regulated type of

Eguan: 50:33

Yeah, that's unprecedented. How did you, why do you think they were so forward-thinking there? Or like, yeah, how'd you guys get approval?

Yat Siu: 50:38

we worked on this for a couple years. We also did a joint venture with Standard Charter, which is a note issuing bank, which also is notable because it's actually a major bank entering a joint venture with a company like us. That hasn't happened yet in the US for instance. You, you don't, you haven't heard, that happened just yet. So just shows how forward thinking Hong Kong is about this. But there's also a little bit of geopolitics here as well, which is to say, well, look, people know what's happening in the us. People know what's happening on stable coins. Hong Kong is a financial center and a financial gateway for China. At the end of the day, Hong Kong is not gonna sit back and say, well, we're just gonna sit here and let this whole thing just move ahead of us. Because at the end of the day, Hong Kong is the biggest clearing market for rein b for China, it's about 2 trillion a day, and also the largest market for basically Chinese bonds, which we call dim sum bonds around here, right? So right from the international, the dims sum bond market. And that's a major, major market. And you basically need buyers for that. And that's become, potentially the reserve assets for stable coins in this region, right? So that's why that's a big deal we think for us and also for the region. But generally speaking, we think every nation in the world is going to have their own type of stable coins and we'll essentially replace things like wire trances and so on in the future. Then there's a different form of yield. The business innovation is no longer just, making transaction fees. But actually it's more about the yield and treasury asset management of what you have, which by the way, I think is what Web3 is innovating, right? Because when you have these reserve assets as an entity, you can make money from it from a financial way that can then support the gaming ecosystems that you're trying to support. People sometimes don't look at the details, Sony for instance, which of course is PlayStation and Sony pictures, and Sony music would not need nearly where it was if it wasn't for basically Sony's financial ecosystem, right? The financing and the money system in Sony is what keeps Sony really going. And it's, and, and that's true for almost all large corporations, right? So because we as consumers only see the front end, right? We don't understand that. And what I think happens with Web3 and this is what we think will happen ultimately in the same way that we all become digital literate and internet literate, to understand how to navigate that. I believe that we'll all become financially literate. Like your small business owner is gonna be thinking about, like running a restaurant, but then his cashflow is gonna generate yield and is gonna do other stuff. And he's not gonna be thinking just about sort of how many dishes I sort of, how many sort of plates I sell, and what's the price of, the chicken and the meat I sell and the margins. He's gonna say, okay, I'm making this kind of profit and I'm gonna put it in this kind of, like a sort of yield generating product to basically generate flows from this. That's everything that's happening in Defi and that innovation and that accessibility is what's going to be democratized. And we're no longer gonna be talking about a FinTech business because we're all FinTech as it were. Kinda like how we're not gonna be talking about an AI

Eguan: 53:26

So I've, I've heard the Hong Kong dollar pegged to the US dollar. do you think that, uh, made them more amenable to the idea of a stable coin?

Yat Siu: 53:32

I mean, you could say that the Hong Kong dollar is the OG stable coin a way. The regime doesn't just cover Hong Kong dollar. Hong Kong dollar is the first to sort of token first currency to be launched just because it's something that is easy and accessible and everyone knows, but it can go for all currencies. And of course, the, the the, it may not make sense for us to consider US dollar, but it may make sense to consider a ribbon B in the future. That's really, if you think about it sort of the big the big prize here to, to do, a ribbon B type of stable coin rather than a Hong Kong dollar one, which is really, if you think about it, sort of, baby steps, right? But of course a Hong Kong dollar stablecoin is relevant because it is a tender that is used in Asia and, because Hong Kong slash China in this case is, stable E even when you think about what's happened with the whole Asia economic crisis. The only currency that didn't act have to fold was the Hong Kong dollar, precisely because of the fact that it was not just stable, but very well managed. Effectively you could say that the Hong Kong government essentially managed the

Eguan: 54:27

Um, I'm curious, so, so what mechanism are you guys using to stabilize it? So did you say a percent backed, Isn't that like most, isn't most of the value of banking and I was under the mistaken impression that Circle and Tether were doing fractional reserves, but if you're a hundred percent backed, like there's not like that fractional reserve, exponential like lending thing.

Yat Siu: 54:48

No, no, no, no, no, no, no. It's not a banking license. It's so, so, what you do though is you can make money through yield, right? So you buy tbi, basically you have the TBI or, and, and there, there's an income generated from that. And in the case of Tether, they don't have a big workforce, because they're basically just banishing treasury, right? And so if you're sitting on, I don't know, a hundred, 150,$200 billion of, of of T-bills, you generate 5% or 4% of that's fine, right? But then of course the criticism that some people might have had on someone like a tether before was, oh, okay. Some of those assets include Bitcoin, right? these are technically more volatile. Especially in the past. So if Bitcoin goes up and down, how do I know that you're managing your supply that way? Because obviously you're supposed to back it one to one. So the whole point is it's back one-to-one. You could launch. There's a lot of projects that we've seen we don't know how well that work or that trying to create sort of stable coins backed against other assets, right? Like gold is a popular one that people are thinking about, or there's new ones that are talking about sort of minerals or sort of, lithium or that kind of stuff. So you could do that too. Whether that has the same legs isn't quite the same because the underlying product might not generate that kind of yield. Like for instance, if high and may not make that

Eguan: 56:03

You, you probably even have to pay a fee for like the storage and maintenance,

Yat Siu: 56:06

therefore, that's why that model doesn't take off. But if you're basically doing a dollar backed one and you're buying basically, t-bills as an example then that makes sense, right? Because, there's a, there's a clear yield on that one. And as long as you have enough

Eguan: 56:19

Okay.

Yat Siu: 56:20

then the size of the assets alone is enough to run and operate that. And I, I think for instance the future of Web3 gaming companies, the successful ones, also the big studios where they're gonna launch products. And, and they were going to have an open market like this, and where they have to act a little bit like the central banker. They're also going to be managing their reserves like a nation does, and they're going to basically sort of, buy T-bills backed against their currencies inside the game that then manage a certain way, which by the way doesn't have to mean that it's one-to-one. It just becomes part of the assets. Like if you think about sort of national banks in other countries, whether it's Thailand or Korea, They have their own sovereign currencies, but they have underlying assets that generate yield as well. That become the reserve value for

Chris K-S: 57:04

So I think, Jupiter Exchange, Exchange, that's like a, a very popular, token swapping program on the Solana blockchain, or, yeah, I think I use it a lot. So it's probably on Solana, but, it, they ended up doing something like a 15 million or$20 million buyback of the token which a lot of people bought it as like a hugely successful initiative. looking at that and I'm going, well, if you're just starting out, where do you find$20 million? Do you see this as just this incredibly capital intensive industry to start up in? You, hey, you just need to, you need to raise$50 million because you need to be, have the ability to be able to deploy or, or at least, maybe a couple million dollars at a time in order to buy liquidity. The whole idea was, oh, they deployed this capital and it helped stabilize their price. Which, like, if you look at the charts maybe that's true. How, how does that hinder innovation, hinder this founder mentality or even basically makes bootstrapping unless you're, a multimillionaire, impossible.

Yat Siu: 58:04

So first I would say, it's part of I would say the mechanism around being in the space

Chris K-S: 58:10

Yeah.

Yat Siu: 58:11

systems means that you have to know how to fundraise. In those kind of environments. And fundraising is what entrepreneurs do, right? So it's just a question of whether you can fundraise at that scale and, I don't know whether Jupyter used their own capital or whether they raised capital for it, but very likely they would know how to raise capital if they had a good capital markets team around it or support around that. And by the way, that's what, companies like US or Galaxy or whatever help them do as well. Like we do OTC, we do liquid and we help certain projects as well in that capacity. So again, there's a market for that. You just need to handle tap. It's like no different than if you're a startup entrepreneur. You need to know which VCs to talk

Chris K-S: 58:45

Yeah.

Yat Siu: 58:45

you need to know to which you know, angel investors you need to talk to. It's just a different type of audience, but it's the same thing now. you're talking about an example like Jupyter, which has like a

Chris K-S: 58:54

Yeah.

Yat Siu: 58:54

FTV and like a one half billion dollars sort of, basically market cap. That's one type, right? But you don't have to start that way, right? It's okay to have a$5 million or$10 million project. And, that generates reasonable, let's call it small, medium cash flows to build it out and then grow it from there, right? so, so, and then you need to raise a lot less. You can basically, maybe just do it with half a million dollars or,$300,000. You don't need to have, 50 million, right? So it's just a matter of where you sit and where you are as a project, and then you, you grow that. It's no different than when you're a startup and then

Chris K-S: 59:25

Yeah,

Yat Siu: 59:26

A, series C,

Chris K-S: 59:27

level wise, it is more capital than you would need to start a web two gaming studio. Presumably.'cause you've also got, not these days as much, but you've also got this AAA game you're trying to make that's costs$200 million. And then you're, asking for an additional, 10 or something like this. But yeah, no, I, I, I, I get your point.

Phillip Black: 59:46

So when we, we kind of talk about that fundraising question, you know, if I'm raising from VCs, pretty obvious what my promise should be.'cause it's a lot of promises, right? It's, Gimme something now expectation of something And so with VCs, I'm promising you know, to the moon, I'm promising an increase about to purchase from me. Uh, these nice sheets of paper. Um, What is it that companies should promise this kind of token class? What are, what are the type of promises that you think they're very receptive to?

Yat Siu: 1:00:13

So first. The, what they're receptive to and what we should be doing are probably two different things. Sometimes not always the same thing. because of course what they're receptive to is we hope to make a lot of money.

Phillip Black: 1:00:23

So let's, let's put it aside. What, what do you think Web3 founders should be promising to raise, to raise capital from these markets? Not from VCs, but from this particular segment?

Yat Siu: 1:00:31

I think there's a role for VCs like ourselves or, a 16 Cs or so on of the world because we understand risk capital and we're willing to lock up by the way. And we're willing to have a long-term view on things because we think it'll have potential and, we can navigate certain things in a certain way. Whereas I would say, your, let's call it regular investor class that's in this more retail component, may not necessarily have all of that. And maybe some of them might know what they're doing, but generally speaking, I think it would be incorrect to make the assumption. That we're dealing with a market that is very financially literate for the for the most part, for the time being. And there's also different, different places, like places like Hong Kong and New York are higher concentrated. There may be somewhere in the Midwest, for example. So what I think they should be promising, and I think this is where the rules will come into, is essentially the utility that is expected from the product. And that's the promise you need to be giving and need to deliver. And right now, that doesn't always exist because the rules haven't Yet. Because of the fact that it's a financial asset or is

Phillip Black: 1:01:28

Mm.

Yat Siu: 1:01:28

in many ways as a financial asset, it gets mired in this SEC securities law conversation, which is not relevant all the time. What I'm saying is, if you buy a car that doesn't drive, you get a refund. It's, it's very black and white, right? And so if you're selling an NFT that promises a utility and it doesn't happen. I think you need to give a refund. And that's called Consumer Protection Laws. And they exist all over the world right now. And so what happens with us in the past, we had this issue with the F1 car and whatever.'cause F1 decided to change a license. We created the refund program, for instance and stuff like that. And I know not everyone does that, but I'm just saying that, ultimately these consumer, like if you did have consumer protection laws in the product world. It'd be chaos. And so, that's exactly what's missing here. And because we got so conflated on the securities aspect, because unfortunately the US was so focused on essentially playing whack-a-mole with every token saying, your security, your security, even if you're not not opening the door for the correct type of sort of, let's call it oversight that's needed to create the necessary innovation around it. Now, what does that mean? It means that if I'm selling something that I need to have a reserve asset around that, around the product of, and it, I have to treat it as a liability and to the point of your, and we, when we issue tokens and when we issue NFTs and assets in our book we treat them as liabilities to our customers which is important because if we don't, and we think of it as purely, like, it's like it's deferred, right? It's not, we, we call it bookings, but it's deferred income because the service itself has to be rendered first. In order for us to actually qualify it as actual revenue. And in the early days,'cause the accounting standards were not known and a lot of people didn't understand it, and it's like, oh, I sold your token. You own the token. They would treat it as a revenue item and because it's maybe non recourse but that's probably not the correct calculus. It's just an example. And to to

Eguan: 1:03:21

just from a government, legal, financial framework side, what kind of direction do you think would be helpful for the industry? And I know obviously people talk about deregulation and whatnot, but What, what's specific changes would you love to see? Yeah.

Phillip Black: 1:03:34

Gary Kessler's gone so that that space has been taken.

Yat Siu: 1:03:36

No. No. Yeah. So, so I think, I think first of all, I think it's very important. and they do this in some places, but they don't do it in US. And at the end of the day, the the world looks at where the US is going, and they've already started to create clarity. We totally expect things like the markets act or versions of that to start to clarify things like what is a utility token and what is a security. If you're a large corporation in the US and you want to go and launch a token, you're not going to do that until you know exactly what's okay and what isn't. Okay. I actually think once that becomes clear, because it's the lack of regulatory clarity makes it difficult for the agency to know who is responsible for this. instance, if you're a consumer that has been wronged for some reason or the other, like who do you talk to? who's who? Who's who's your, who's your, who's your contact? Do you talk to the consumer

Phillip Black: 1:04:24

Vitalik Twitter.

Yat Siu: 1:04:26

exactly. It's Alex Twitter. Do you talk to, do you talk? Yeah. And so everyone's been running to the SEC because they basically said, Hey, I bought a token and I thought it was an investment. Vehicle when it's not and blah, blah, blah, blah, blah. But I think when you start to define that, and, and so this is the other thing, regulation isn't a bad thing because when regulation comes out, it creates clarity and it creates actually confidence because you as a customer now know, okay, this is what this is, and therefore I know what regime it sits on. A lawyer can advise me exactly what to do, right? And as a product, I know what I need to warrant or not warrant if I do it in this certain particular way. And we don't have many of these regulations in place, which means in most of places around the world, except maybe Japan to a lesser degree, Hong Kong and UAE us is catching up. And because we don't have that everyone's taking a guess. And the ones who make most money are the lawyers who basically say, oh, I think I know what you want. And I think, I think, I believe that the government, I mean, like they, they say all sorts of things at, they mean well, shall we say? And they get paid handsomely so you need that

Eguan: 1:05:28

Cool. So clear, clear regulatory framework on there. Uh, any, anything else? What's, what else is on your wishlist?

Yat Siu: 1:05:33

the, the, the other, I mean that to me would, from a regulation standpoint, of course it has to be sensible regulation. We saw what happened with, with the previous administration. The hostility actually put the US back in time in terms of I think it was very harmful to the US as an industry, not just to the industry at large, because think about it, right? As a result, is probably the only industry for now that the US is not leading in or has a leader of size. Now, you, you could say, yeah, look at Coinbase, it's big, but Coinbase is quite small compared to finance or OKX or those guys, for instance, right? And when you think about companies like ourselves, is our US peer for the time being. It's unheard of to think that as a techno industry and technology where there's a company that wouldn't be leading in this space in the us you have it in ai, you have it in gaming, you have it in everything. You just don't have it in, in, in Web3 because the US has been so hostile towards it. So I think, I think this clarity is really very important. And this openness around that. Of course. in a market friendly. In a market friendly type of way.

Phillip Black: 1:06:36

We've grilled you for about 90 so you, you for pretty hostile

Yat Siu: 1:06:40

No, you guys are No, you guys are friendly. Don't worry about it. It's okay. I love, I love I actually think it's through friction that we get good ideas and that we can basically get towards

Chris K-S: 1:06:50

Yeah.

Yat Siu: 1:06:50

we need to get to. I love it when people disagree. It also makes me think about stuff as well.

Chris K-S: 1:06:58

A bunch people sitting in a room agreeing with each other is uh, not a recipe for success,

Phillip Black: 1:07:03

It,

Yat Siu: 1:07:03

it, yes, it can feel, it can feel good, but I we didn't have to discourse. So maybe the one thing if you allow me

Phillip Black: 1:07:09

please.

Yat Siu: 1:07:09

a, closing thought around this is that I've said a little bit about this, but I actually think that the big innovation around Web3 of which gaming could be a pioneer in pushing it. When you see what happened with Axio Infinity in the Philippines, you could take the take away. The thing about the speculative side, actually, it onboarded millions of people in the Philippines. Towards a financial platform, having a form of banking as it were. And, and the reason why the Philippines is now Procr is because of the fact that so many people in the Philippines have learned about this new asset class And become more financially literate as a result. And to me, this is actually what I think is a problem we have in the world, which is world isn't divided by inequality on just you have something, I don't have something. It, to me, I think it's around the fact that there's people who understand money and investing in financial markets and the rest of the world that doesn't. And the people who understand financial markets and investing remain a single digit percentage, which happens to be the wealth class of today. And, when you think about the story of everyone who entered Web3, actually the under the underlying undertone is that they've all become more financially literate. Whether I made money on a bored ape, whether I bought some meme tokens and they just went crazy and I made some money, suddenly I was like, wait, hold on a second. What's all this about? Sure, maybe I got in because of gambling or some form, but then I ended up actually learning something about money, even though I didn't come from money, money and Wall was, wall Street was the sort of exclusive club that, only if you studied economics and finance in an elite university, you would then eventually get hired by Goldman Sachs and you would follow that trajectory and that was your pathway to, to this, right? That this whole sort of pyramid of it's, it's worse in the Confucian system in China where you know, you basically get to the top rank of being an investment banker if you start from kindergarten learning your numbers all the way up, right? That was the, that system. And what Web3 does is it blows it open. Suddenly you can see what happens in Defi. You can see people's trades. You can learn and understand that. And I actually think that's really what is democratized here. And the point about making everything into a capital asset and financing everything be effect is that everyone will be more financially literate because everything. That you touch and is financial nature, which I also think is a controversy because a lot of people don't like that idea because they don't understand it. They're a little fearful of it. I grew up in Europe, I grew up in Austria, and that was a place where you weren't even allowed to talk about money. If I, if but then if Hong Kong for instance, we're sitting on the dinner table and people will say, oh, by the way, real estate prices is this, and did you look at the stock market? Like it's a completely different culture and a different relationship with money. And if we believe so this is the point. If we believe that capitalism is the better form then we have to also believe that we need to teach about money and financial systems right at the start. And we don't do that. And that's why we have this division. I think Web3 does that in a way that it did for information and digital literacy with the birth of the internet. Uh, and, and, that's really what we Change the world.

Eguan: 1:10:08

Amen to that.

Phillip Black: 1:10:09

Our guest today is vsu.