Stockhead attended an Animoca Brands investor event in Sydney earlier this week and caught up with the CFO of the prolific web3-investing company – Hong Kong-based American Jared Shaw – for a wide-ranging chat. 

We discussed some of the company’s latest activities and why Australia is still very much part of its focus a few years on from its ASX delisting.

But more broadly we also delved into where the crypto/blockchain space is at right now, where it’s headed – figuratively and literally – and why Animoca is so bullish about web3 gaming, the open metaverse and digital property rights.

One thing’s certainly clear – the man knows his subject matter inside and out…

 

Scope ahead of scale

Hi Jared. Animoca Brands recently reported $160m of yearly bookings growth and vigorous global expansion activity. The company has also just announced a US$20 million raise for its ‘Mocaverse’ web3/NFT project. It’s been (or still is) an absolutely brutal bear market, though, so what do you put this positivity down to? 

‘Building during the down cycle’ is a common narrative but it’s certainly been true for us. A lot of tech companies, though, such as Google, Facebook, Coinbase for example, focus on scale, which is really important for building out that one thing or onboarding a bunch of users.

Our approach has been much more scope driven, which I think is pretty unique as far as tech companies go and I think that’s the main thing that’s been serving us well.

In what sense do you mean by ‘scope’?  

Because we have been a prolific investor in web3 we have this broad scope across all different types of technology, including AI, gaming, educational metaverse applications, core infrastructure tech and tokens themselves.

I think having that broad investment spread has given us an ability to cherry pick where the most exciting narratives are and do that very quickly.

So it’s an investment diversification approach across the various niches of the industry Animoca is interested in, then? 

That’s right. It’s very hard to pivot if you need to if you’re a pure-play, singular-focused company. That’s not to say scale is not important. But thinking about this sector and how nascent and yet fast it’s moving, how fast winners and losers emerge, it’s advantageous for us to have multiple irons in the fire.

That said, the core building blocks of everything we’re trying to develop are still gaming, open metaverse, NFTs… and Yat’s [Yat Siu, Animoca Brands’ founder and CEO] entire vision, and that of the company is to support digital property rights.

Digital property rights – why is this so important? 

As more and more people evolve to an online existence, blockchain technology and NFTs, tokenisation are the ways to achieve digital property rights. And by that we mean digital provenance – the verifiable origin of unique digital assets that you need for true ownership.

 

Are metaverse and gaming tokens undervalued?

Metaverse and gaming tokens, and in particular the NFT market, have by and large taken an absolute hammering over the past year in this bear cycle. Do you believe the best ones are undervalued at this point in time? 

I think so, yes. In fact, definitely.

There’s been a major trust erosion in the sector that’s laid a blanket over these assets. I’m talking about the impact of the FTX implosion, and the contagion through Three Arrows, Blockfi, Celsius.

And then you think about some of the allegations and negativity surrounding Binance and some of the other exchanges, and on top of that the regulatory impact coming especially from the US, then there’s a lot of negative sentiment that’s driven a lot of retail consumers out of the sector.

The same thing happened after 2017 and the last bull run. The bubble bursts and that’s fuel for the  naysayers. And there will always be naysayers. But each time there’s a cycle, more people come in.

And that’s proven true for the past 15 years.

 

Can the metaverse narrative make a bullish comeback?

Can the more bullish momentum in the space that we saw in 2020/21 happen again under the right circumstances?  

When thinking about the metaverse narrative at that time, and big brands coming in – HSBC, Snoop Dogg and whatever else – I see that as kind of like the early dotcom days, where everyone was rushing to get a dotcom address. But with no one really knowing how to make money on it, no one knew really what the business model was, just rushing to get in and trying to land grab.

I think the early days of metaverse applications building – 2020/21, is similar. A lot of brands coming in but not really knowing what to do. A little bit chicken and egg.

Consumers are there. They don’t really know what they’re doing there. And the brands want to be there. So I liken it to early dotcom. But what happened after dotcom was businesses actually figuring out how to evolve subscription models, monetising properly and being very efficient with marketing spend.

That’s where I think web3 is heading now and next. Specific metrics for businesses will develop regarding onchain activity and we’ll start to learn what really drives business in web3.

That’s why I’m really excited about the Mocaverse, because it’s a way to start gathering that information.

 

What’s the ‘Mocaverse’ project? 

It’s a collection of NFTs and a web3 platform through which we’re developing an ID system that essentially works for users as frequent flyer miles for web3, focused on users’ onchain activity.

So if we can onboard users into that, then we’ll start tracking their onchain activity but it’ll be anonymous – unlike the data users give up to the likes of Facebook et al in the web2 world.

Blockchain wallet infrastructure, wallet data is anonymous. So, we don’t know what country you’re in, or your name and so on.

The beauty of that is, as a user you’re completely private onchain but through your activity, partners and brands can leverage that information and provide you with the services/rewards most applicable to you.

So it’s a way to target advertising and/or services to individuals without personal data being stripped and privacy remaining intact? 

Exactly. You’ll get an Ethereum Name Service address that’ll be .moca, and we’ll be able to white label that to other partners so there might be a .sport, or .cars – whatever you’re into. And then you’re a part of our broader ecosystem. Any of your onchain activity can then earn you experience points – just like in a game. You play the game, you get a bunch of XP – this is the same thing but it’s about your onchain activity.

 

What is the ‘open metaverse’, and why is it a big deal? 

There are common misconceptions about the metaverse. People think someone sitting on their couch with goggles on – Ready Player One style. That is perhaps the more literal form of the metaverse.

But the open metaverse is an iteration of that which is really around our ability to interact with each other in an open ecosystem that’s free from centralised actors.

If you think about our current online lives, we’re all interacting with each other and transacting through centralised institutions and applications – whether it’s through gmail or other email services or through social media and so on.

The open metaverse is the decentralised expansion of that, whether it’s sharing or trading assets or sharing culture, such as through NFTs.

The open metaverse can support not only financial transactions but also culture and entertainment and gaming and all those things can exist on a decentralised ecosystem.

And at the core of it is digital property rights?

That’s right. And this is where if you think about our lives on social media we don’t own any of those assets and we’re providing our digital servitude to centralised digital platforms and getting nothing in return. In fact, we’re getting advertising in return, which is lucrative for them.

The large web2 companies have free inputs, which is our time and attention. And they have monetised output, which is advertising and other revenue streams. And so the ability to have true digital property rights will be to own all of our data. And owning all of our assets online is really what we’re after.

And that’s why we believe the open metaverse will have a much more inclusive and finacially literate future for us that’s hopefully beneficial.

 

 

Web3 infrastructure needs to be abstracted

Those metaverse and digital property rights benefits make sense the way you’ve explained it, but do you think it’s all generally a bit of a hard leap for people to understand? 

It is a hard leap, but it’s also a bit of a generational thing, too. A little bit of this is to be in it for the long play. Because I think if you’re under 25 right now, the majority of your life is spent online. I think generationally we’re going to get there. But we’re not going to see the Baby Boomers adopting.

I think it’s why it’s important that the core infrastructure of web3 has to be abstracted – for the older generations like ours to really get involved. They can’t see that it’s there. It has to be seamless for them.

That’s why the next-gen of consumer technology in web3 will have to be abstracting all of that stuff away.

 

US headwinds and focus on emerging markets

Are the ongoing crypto regulatory headwinds in the US – the lack of regulatory and downright animosity to crypto shown by some lawmakers over there – part of the reason for Animoca’s  focus on emerging markets globally? Emerging tech… emerging crypto markets such as Hong Kong and the Middle East? 

Animoca’s roots have always largely been in Asia, even since before we pivoted to web3, so I think it’s a natural evolution of our already existing business. And let’s be honest, gaming is massive in Asia, so that lends itself naturally to us.

I think the US and other Western markets are really challenging right now. Especially as an American coming to live in Hong Kong, it pains me to see the innovation moving away from the US because of the lack of regulatory clarity. And seemingly arbitrary enforcement activity, too. It’s painful because I feel like the US is going to fall behind.

It’s also unfortunate because the US and other Western markets still has the largest capital to deploy. Some of our biggest investors into Animoca are American firms, British firms, and other Western markets. They’re still deploying capital, but they’re largely doing that outside the US and other Western markets.

Does the industry need the US to be more innovation friendly and be more open to crypto/blockchain tech for it to truly thrive? 

I still think it’ll be really important for the industry and market to get to the next inflection point. Is it necessary? We’ll see. I think the crypto industry has so much development happening away from the US and that market that’s already become quite meaningful.

The one thing the US is very good at, though, is pivoting when it becomes valuable from a dollar perspective. It’s hard for me to imagine that the sector can grow as fast as it possibly can without the US involved. The US dollar is still the reserve currency and probably still has that dominant position for the foreseeable future.

And as much as we want crypto to be an alternative source of payment, it’s still a ways away from being that at a level of broad adoption.

But I think this is a blip, to be honest. I think there are political/administration factors going on that probably have a short-term horizon in the US.

And Gary Gensler can’t be the SEC chair forever, right? 

He already has dissent within the SEC. If you look at what some SEC commissioners such as Hester Peirce say, they’re continually publicly disagreeing with Gensler. And in very thoughtful ways. So I’m optimistic about some change there.

 

Is Hong Kong the gateway for China back into crypto?

Just on Hong Kong’s increasing investment and interest into the space that’s happened this year… how do you see that in terms of it being potentially a gateway for more re-engagement from China into the space? Does it have market-moving catalyst potential? 

We think it’s super important. Not only just Hong Kong, but the Middle East is moving favourably with web3 innovation and investment. Singapore as well, and Korea and Japan.

All are showing very thoughtful, forward-thinking approaches. And that’s going to be huge for us and the industry.

I think mainland China sees Hong Kong, and probably always will, as its sandbox for capitalism and Western-style business.

Hong Kong is in a very advantageous place to be able to be that testbed for China and play with one foot in the West and one foot in the East. And I think that’s super advantageous for Animoca being based there, too.

China, for all of its blocking and doom and gloom about the digital assets industry in the past few years, has started to become more thoughtful, putting pieces out about blockchain, the metaverse, and more. And so Hong Kong is certainly the vanguard for that evolving attitude.

You can’t ignore what China can do with its economy. And if you’re not in China you really need to come through Hong Kong to understand that market.

 

Where are the next biggest global crypto-hub hotspots?

In addition to Hong Kong, what’s emerging is Japan, Korea and the Middle East.

Japan has always had really strong cultural IP that has monetised it and become a global force – think anime and manga, movies etc. They’ve been very forward thinking with that and maybe only second to the US in terms of cultural IP power. But… I don’t know if they really think they’ve nailed that with web2 in terms of exporting its IP.

Korea is much newer to the market when you think of cultural exportation. They have K-Pop and K-drama and their movies are growing tremendously in all ways. And that’s been in just the last 10-15 years there.

And they certainly did not leverage web2 as far as the distribution of their cultural IP goes.

Those geographies do not want to miss the next wave of web3 for that reason of cultural exports. I don’t know if they know what the answer is but they want to be in a ready stance and be investing in the sector.

And what about the Middle East? 

Yeah, the Middle East is also interesting. It doesn’t have as much cultural IP to export, but it does from a religious standpoint. It’s basically the centre of the second-largest religion in the world and they influence a lot of eyeballs.

They want to be able to, I think, take advantage of what they’re building culturally and religiously to be able to export that to their followers as well.

Also, Saudi Arabia has been diversifying its economy away from oil and gas, and the blockchain space is, I think, a frontier move for them.

 

Does Australia hold strategic interest in the crypto world?

Animoca Brands’ investment roots began right here in Australia – on the ASX. How does the company look back on those early days and its delisting from the ASX in 2020? Would it ever consider relisting on the ASX or another exchange? 

The Australian market is very important to us. Animoca has over 2,800 shareholders. The vast majority of them are Australian and a lot of them are Australian retail investors from our publicly listed days. So it’s a very important investor base to us and one where we would love to relist.

Yes, somewhere else too, but if it’s Australia, great – if they would have us. But we’re certainly looking at a multitude of markets and that would give our shareholder base a fresh ability to have liquidity on our shares.

How do you see the Australian market strategically? 

We see Australia as a super important market for a couple of reasons:

One, again speaking about that east-west dialogue that web3 is in right now – Australia is certainly a part of that. And that’s being in APAC but also having a Western capitalism oriented market.

Secondly, web3 is still a highly financially literate ecosystem. It requires individuals to have a little bit higher standard of literacy because dealing with cryptocurrency is not easy in many cases – trading or using other strategies in DeFi and so on. The markets are incredibly liquid and incredibly innovative.

Australia has very high financial literacy compared to other markets. Especially when you think about how ingrained superannuation is.

Most Americans don’t even think about their pension. I guess they think about “Oh, I’ll be getting a pay out from the government through the social security system when I retire” or whatever. But every Australian is invested in superannuation and that’s such a tremendous innovation. I think that engenders people to be more financially literate here.

Fintech is also very thriving sector in Australia. So if we’re talking about markets where we can really test out some of our products and services and see how people react to that, then Australia’s a great place for that.

 

Animoca Brands CFO Jared Shaw (at right). With some other bloke, who needs to buy a phone with a better camera.

 

Animoca’s favourite crypto sectors – what happens next?

How do you expect the next few years to pan out for crypto/blockchain, Animoca Brands’ favourite narratives within that, and global adoption of the space generally?

We’re ready for the next 100 million users. The industry sort of already got to north of 100 million users. If you look at it from a wallet basis, the number of accounts set up on Coinbase, Binance and others, then we’re at that nine-figure level of users but how do we get to high nine figures, if not 10 figures?

And we believe that gaming is the vector that gets us there. The key will be that abstraction I was talking about – you can’t have a situation where people really need to think about it too much to get involved.

And hopefully the applications we’re building will provide the ability for people, if they want, to dive in on web3 and get super intricate with their crypto. But if not, they can still play the game and have fun.

Gaming is the conduit for mass retail adoption then? 

We think so. It could be something else. It could be identity because everyone has to have some kind of online identity. So that’s certainly an interesting use case.

But if you just look at the numbers, gaming is the size of sports, entertainment, music, movies combined. It’s about a $200 billion business pushing half the global population.

 

Where is web3 gaming at in its evolution?

Where do you think it’s currently at in its web3 evolution? No one seems to be talking about play to earn much any more. What’s next for the sector? 

Play to earn has certainly taken a hit. These things follow the market cycles, though. Play to earn is doing well when crypto assets are up and to the right. It’s certainly not dead. It’s just where the market cycle is at and it’s cycle dependent.

We’re really looking to have innovations that move us past market cyclicality. So maybe that’s the Mocaverse, keeping people engaged in web3 gaming through the “frequent flyer” rewards kind of model we spoke about earlier.

And that is a much more stable type of a model than pure play to earn. P2E will still have a role. In fact, with Mocaverse you’ll be playing to earn XP, which has much more value than just crypto up, crypto down.

But I think the applications themselves will evolve to the choice of: ‘Do I really just want to play the game or maybe want to dig in and find a bit more of a web3 aspect to it?’

The web3 gaming narrative has certainly shifted away from making money and grinding to more focus on asset ownership and retaining something of some value for the time you’ve spent on these games. 

That’s right, and building within it, too. In the early Sandbox days and other metaverse applications, all these brands showed up for the land, but they didn’t know what to do there.

Because it’s still evolving. And this is where the user-generated content side of things is super important. As we figure out how people want to generate content – that’s what has value, it’s not just play to earn it’s also creating value within those assets.

 

On BlackRock and other financial titans circling

Lastly, I want to grab your thoughts on the much-hyped BlackRock interest in the crypto space. How significant is that and these other huge asset management companies showing interest in Bitcoin and Ethereum right now? 

I think it’s very significant from a capital perspective. These are institutions with huge balance sheets and can really move markets.

And there’s the stamp of credibility. There’s been so much trust erosion in digital assets. Having these large institutions come in… BlackRock is essentially viewed as a bank – you put money in, it’s safe, your funds grow. Fidelity, others, same thing. I think having these types of players enter brings back some of the trust.

The other thing is, these products they’re offering are just easier to use for most investors. It’s getting back to that whole ease-of-use aspect. It’s much easier for people to buy into an ETF than it is to set up a Coinbase account, use a hardware wallet, trade crypto, MetaMask and so on.

 

This interview was edited lightly for clarity. None of the information contained in this article should be construed as financial advice. 

Animoca Brands is a Stockhead advertiser at the time of writing, but it did not sponsor this article. 

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