Business

Gaming’s Web3 Future (with FTX Ventures’ Amy Wu)

AZEEM AZHAR: Hi, there. I’m Azeem Azhar, founder of Exponential View. Now, we know the world is changing at an amazing pace. Remarkable technologies are driving the fundamental rewriting of our economic and social order, taking us into what I call the exponential age. What is it exactly? How is this transition taking shape? What do you need to understand to find your footing and spot opportunity as the world changes? Listen to my podcast to get answers to these questions and more, every week. Today I’m exploring the future of the internet with investor and operator, Amy Wu, who runs a $2 billion multi-stage venture capital fund, FTX Ventures, which invests in crypto, gaming and Web3 startups. As a prominent gaming investor, Amy’s perspective on the evolution of that industry as Web3 emerges is particularly insightful. We get into what consumer and gaming user trends tell us about the mass adoption of crypto, how Amy evaluates these opportunities as an investor, and why governance mechanisms associated with crypto are more exciting to her than the dollar signs. If you’re new to crypto, I suggest you listen to my previous conversations with Meltem Demirors and Ronit Ghose, and also subscribe to my newsletter where I regularly aim to make sense of that emerging sector. We do use a little crypto jargon, but just in case, L1 or layer one refers to the primary blockchains like Ethereum, upon which many apps are built. Layer two or L2s are secondary blockchains that are often built on top of or connected to those primary layer one blockchains. To integrate with the crypto economy projects need to connect with wallets where tokens are stored of which MetaMask is the most popular. Now, over to Amy Wu. I was fascinated when I read that you had taken a new job at a very, a young company, FTX, running their venture business, because you had stepped out of one of the storied consumer internet venture capitalists, that’s Lightspeed Ventures. What is the excitement that you’re seeing in this Web3 world that says, “This is a better place for a traditional investor to be.”

AMY WU: It wasn’t an easy decision because I’d worked really closely with Jeremy Liew and Ravi. They taught me most of what I know about venture when I was there. I spent a lot of time at Lightspeed leading our gaming and crypto investing. It was just an exciting time to I think go somewhere where I felt like I was one of the least experienced and knowledgeable about the space that I would continue learning, and joining a rocket ship like FTX was really quite a dream to do, be an operator and an investor at FTX and just an opportunity I couldn’t pass up.

AZEEM AZHAR: FTX is a rocket ship. It’s a case of blink and you’ll miss it. I suspect that many listeners, unless they are investing in cryptocurrencies, won’t have heard of it. Give us the ten-second pitch of FTX and its history and how it’s got to where it’s got to.

AMY WU: The company was started about three years ago by Sam Bankman-Fried. He had previously been a trader at Jane Street and he actually started Alameda Research first, which is today one of the largest crypto hedge funds in the world. When he was there and was becoming one of the largest market makers in crypto realized that there was actually quite an opportunity to innovate on the exchange side as well. Since he had a lot of exchange partners, there was a opportunity to build an exchange for traders by traders, which was the original motto of FTX, and still is. I mean, today it’s the second largest crypto exchange in the world. FTX is in over 160 countries and we do on average $16 billion of crypto trading volume per day.

AZEEM AZHAR: It has grown up very quickly. I was in Miami a couple of weeks ago and I watched a fantastic game between the Miami Heats and the Atlanta Hawks in the FTX Arena. The company sort of made its presence felt in the way that a storied blue chip brand does, right? Because typically arenas are sponsored by companies like Walmart or American Express or American Airlines. One of the things I’m fascinated about is that FTX is a crypto exchange and it’s brought on board a gaming investor. Now I know games are a big business, but what’s the synergy between those two?

AMY WU: I’m head of FTX ventures. We have a $2 billion venture fund and the mandate is quite broad. We actually don’t have outside investors. It’s just Sam. That allows us the flexibility of just investing in really great teams at the speed and also the range that we want. We are doing a lot of crypto and Web3 investing. Then the other hats that I wear is I also lead M&A and then our gaming business at the company and some of our consumer internet partnerships. The reason is because the company had started off with the exchange business, but in the last twelve months we’ve been really broadening the product offering to a lot more than just that. I think the broader vision is to power crypto transactions globally. That has expanded to also launching FTX Pay, which allows crypto payments for any consumer internet company. Then also for online retail or even gaming, et cetera. Then also we launched an NFT marketplace as well. Then the third is actually using our core infrastructure software, but for white-label B2B usage. That’s our core business, actually gaming today. That today pretty much every gaming company in the world is thinking about will Web3 be the next huge trend in gaming? Maybe, maybe not. It’s still very early, but in order to launch a game with Web3 elements, there’s a lot of compliance around that, right? For example, if I’m a geek player and I want to convert a dollar into that in-game tokenized currency, there’s a lot of regulation around that, money transmission licensing. There’s also banking licensing. Depending on what country it’s in, it’s a different set of licenses. That is the core value that FTX has built since the beginning.

AZEEM AZHAR: If we step back to understanding the presence of these other businesses, adoption rates for something like this can never be too fast, right? You just want people to adopt. Is it that entering sectors like gaming and payments are on-ramps for more and more people to start to understand the language and the utility and the potential of crypto and that therefore becomes this essential part of driving adoption?

AMY WU: It’s a combination of that. The idea that actually consumer businesses and gaming businesses are the on-ramps for the mainstream audience to on-ramp to crypto. Then maybe down the road, they also want to buy Bitcoin and other things, but also that a lot of these crypto transactions are eventually interconnected. So, we can work with a large consumer business and maybe the first thing somebody interacts with them is via one of their games, but then down the road, they can also buy Ethereum through that platform. Ideally, we would love to power a lot of that in the world.

AZEEM AZHAR: I think about the adoption challenge and look back at the internet between ’93 and ’97/’98 and what were the things that triggered adoption back then? The web certainly helped. The graphical browser helped a lot. The improvement in ISPs so that you could just put a CD-ROM into your PC and get started without tinkering in the Windows stack made a big difference. That constructed the start of an ecosystem that grew very, very quickly. The on-ramps were the elimination of the technical complexity. I guess crypto has been very complex for people for many years and actually remains quite complex before you look at the array of tens of thousands of different types of digital assets that are available. I suppose, is it that potentially just the pleasure of a game connected to a recognizable brand or something that is like a cutesy cartoon-like character, one way of easing whatever cognitive or emotional burden people feel when they approach this?

AMY WU: Yeah. I think it comes down to killer apps. Actually today, the transactions on the consumer app – the transactions in a game for example – will likely not be able to be actually built on chain yet. Certain elements of that app will be sort minted on chain. It’s not that the speed is a limiting factor I would say. Therefore, the limiting factor right now is actually just the presence of these killer apps. As an investor, I’m both interested in it from a returns perspective, but almost as a responsibility and being an early investor in this space to help grow this space currently are.

AZEEM AZHAR: What’s the pitch?

AMY WU: There’s some who are purists about technology, and I’m sure some of your other guests could talk about the pros and cons of blockchain or the faster settlement, security being both bug and feature aspects of it, the different models of incentivization that the form factor allows. I personally am not a purist about that. I actually think in the consumer internet world, there are just fads and trends. At some point at the intersection of that in consumer culture is where you get people buying speakers or collectibles or participating in the latest social network app, et cetera. Right now, I think particularly on the NFT side that has definitely reached a level of cultural relevance and celebrities, influencers, crypto influencers, et cetera, are all experimenting in the space and we see that people don’t want to miss out on this trend. That’s actually driving mass adoption in it right now.

AZEEM AZHAR: The adoption numbers are still quite low. I mean, the dollar numbers are very high. $69 million for the BETHEL NFT, but the numbers are still comparatively small, right? I think Axie Infinity which is one of the games that’s connecting NFTs and Web3 and in a game mechanic has a couple of million active players a month, which by comparison to a Fortnite is pretty low, or a Roblox is pretty low. Certainly by comparison to the top casual smartphone games is very, very low. When we talk about adoption, we’re really right at the beginning of that S curve, aren’t we?

AMY WU: Yeah, absolutely. Right now what you see are I would say the really hardcore, well, NFT traders are still numbering in the hundreds of thousands and they drive the vast majority of the volumes. A lot of these are early ETH investors. It’s one of the reasons why I think Ethereum still has the most blue chip NFT collections. All of some of the other blockchains are starting to attract artists, new artists, but it’s still difficult to start. You need to figure out how to use a MetaMask wallet and then figure out how to integrate that into OpenSea, and so I think the barrier to entry is still pretty high.

AZEEM AZHAR: One the big fishes in all of this is this game, Axie Infinity. There’s so much that’s interesting about the story. It’s a unicorn tech startup in the gaming space, but it’s headquartered in Vietnam. It’s grown really, really quickly. It suffered an enormous multi-hundred million dollar hack a few weeks ago. It’s like an entire lifetime in a matter of months for this company. It has these really cutesy characters, but I was trying to play around with it a few weeks ago. Even to get started, I felt like I was a Brit turning up to a high-end American hotel, where it’s called Palm View, because they’re always holding out their hands for a $10 tip. As a Brit, you never tip and you don’t know what you’re meant to be doing. It felt like that with Axie that, wow, to even get started, to even scratch the surface of having fun, I’ve got to spend $60, $70, $80. When I put that against the idea that this is an easy on-ramp, it feels like it’s a bit paradoxical. What am I not seeing in that story?

AMY WU: I think what you’re experiencing is kind of like a progenitor Web3 game, right? Everyone has to study their tokenomics and also the ability to build what is a really deep community. Then unfortunately they had actually it was, like, an over $600 million vulnerability attack, which was pretty shocking to the crypto community. They were able to return all the lost funds, which was really great, but it was still a reminder that the vulnerabilities in crypto is probably the number one reason that’s slowing down some of these great apps to be built because developers are like, “I don’t want to build something just for my app to be hacked.” We need to fix that. This is another area of venture that I’m definitely looking into. Back to Axie, I would say that it’s a unique company in time. I think other people that try to copy exactly what they did will probably not find success, and the next generation of Web3 games I think will look more traditional games in the sense that free-to-play gaming really is the universally adopted monetization model today. I think that that’s what most I think gaming companies will actually launch in. Today, a lot of Web3 games are targeting crypto-native users, but in the future, the play is going to be actually the main stakeholder here. Therefore, we believe that non-custodial only, so you can only play the game if you download MetaMask and then you have to move assets into MetaMask and then integrate that in the game. It’s just way too high a friction. That’s why FTX we’re in the gaming business because we can actually white label our technology behind the existing accounts of the gaming studio. Ideally the player doesn’t even realize that they’re holding NFTs or other assets or working with a crypto company. They can, if they want. They can participate and maybe a segment of players would be really excited about that. We think in a successful Web3 game, the vast majority of those players will actually not even realize that they’re playing a Web3 game because a successful game will actually have tens of millions of players.

AZEEM AZHAR: Let’s imagine we’re looking at a typical gamer. A typical gamer is a casual gamer. They’re playing on their phone. They’re not playing either World of Warcraft or FIFA or Roblox. Those are much smaller market share than just the hundreds of millions and billions of people who sit on their Android devices every day and play a game. How do you describe what a blockchain-enabled Web3 game looks like? How does it feel different to them? Why is the experience better?

AMY WU: It’s a really good question. Get that a lot from game developers is what can I do with blockchain that I can’t do without it? I think there are some areas, one of which is just, there’s going to be a segment of players that love the concept of that. If I’m playing Candy Crush on my phone and I’m playing normal Candy Crush and I’m playing another version of Candy Crush that’s equally entertaining and fun, but I can actually earn maybe tokens that I can actually exchange for real value, why wouldn’t I play the latter is the question. I think the question is, there’s not a lot of games similar to Candy Crush right now with a token, but within, I’d say probably twenty-four months, because a lot of these games are in development, there will be. Then it’ll be interesting to see what the player chooses at that point.

AZEEM AZHAR: Amy, how do funds flow into a game like that? Because what I understand from something like Candy Crush is that a million of us enter the Candy Crush arena and one out of a million chooses to pay and they pay loads and loads and loads. Then the rest of us just play for free and stop when the ads show up. That’s the flow of funds. In this blockchain world, people are talking about play to earn, but how does money enter the system in the first place?

AMY WU: It really depends on how the developer wants to implement the token, fungible or non. I would say that a lot of game studios are looking at it like a crawl, walk, run approach, right? There’s ways to implement it so that it’s minimally impacting gameplay and then ways to implement it so it’s deeply integrated with gameplay. On the light end of the spectrum, you can drop NFT skins, which are cosmetic digital items. You can dress up your in-game avatar. The only difference being all of a sudden that skin is openly available to be withdrawn from the game and then traded on another platform. That’s it. That’s all that really is, is just to allow a player to just own that in-game item to be freely trade. Previously, maybe you’re trading that in a black market somewhere online, and you’re not really sure whether your counterparty is going to actually deliver your skin or make off with whatever you’re exchanging with, USD or in-game currency or otherwise. Now, it’s like you’re doing it on an actual marketplace, whether it’s OpenSea or maybe FTX NFT marketplace. It really kind of on one hand just legitimizes what previously was not with an asset that was owned by the gaming company versus now owned by the player. I think this is a pretty big conceptual difference.

AZEEM AZHAR: Certainly, I remember with World of Warcraft, you could develop your characters and through that development you could get armor and weapons and so on. There then became a black market on eBay where you could go off and buy someone’s character for them. If you were a middle-aged guy who wanted to look cool in Warcraft, but didn’t have the game skills, you could pay 500 bucks to buy a teenager’s character from them. You would hand over the ID and some game developers got unhappy about that, and they would clamp down on it. In a way you’re saying in these NFT-enabled games, what I earn, what I win, what I secure through achievement is in some sense, mine, and I can then give it to you if I want to, or sell it to you?

AMY WU: Well, it’s not in some sense yours. It is yours. That’s I think really exciting. It’s like player-owned economies versus a lot of players have been complaining about how gaming companies are nickel and dining them for so long. Actually this is a solution for it. Yes, the gaming company is taking a cut of that, but the vast majority of the value is owned by the player in this case. Then you have a more deeply integrated design, which we have yet to see a lot of. We will in the future or with a lot of these gaming companies with games in pipeline right now where maybe it’s like an MMO game in which the in-game currencies are tokenized. What that is, is it’s become a true open-economy game, whereas previously it’s really a closed-economy game. It’s essentially a game that is simulating a real economy. You have game economists that are balancing markets within the economy that are quite complex. Imagine if you’re actually tokenizing your in-game currency so that it is readily tradeable in a real outside market, whether it’s on our exchange or another exchange, or a decentralized one and it actually adds significant complexity.

AZEEM AZHAR: In a way, there are people who get to monetize their game expertise right now, but it’s few and far between, right? They’re in eSports and you have to be really, really good at doing that to be able to make your money through eSports. If you enable a real open economy within a game, you democratize access actually to the breadth of people who could potentially start to turn their idle game playing into something that generates real assets that they can trade should they want to.

AMY WU: If they want to. That’s a key operating word because I think that most players won’t, just like most players don’t trade their in-game items today. They actually are collecting them. I think that will be the behavior of most players still, if it’s a Web3 game, but there’ll be some people who really, really love that component of it, just like free-to-play is able to segment player bases across whether you’re a whale or a hardcore player or you’re just playing for free. That’s totally cool. I think Web3 games is adding another pillar, which is people who really care about owning and trading their assets. That part of it is fun for them, in addition to the games.

AZEEM AZHAR: I like to find really broad-brush frameworks that try to explain what’s going on in markets under technological change. One way to think about this is sometimes to say what is the take rate? What is the rate that is the cut of the intermediary in a marketplace, right? Currently in games, if you are buying coins on FIFA, the take rate is extremely high because the market’s not transparent at all. Your kid spends a lot of money. EA gets it and they get something in return that they can’t trade for anything, right? The whole process of how prices get set and that transparency does not exist. It’s completely opaque, is one way to think about this, that these open-game economies will end up looking more transparent, more accountable. That in some sense, the take rate, the cut of the developer is something that would be visible. Then we can make a choice about whether we like it or not. Could you even introduce competition in that kind of open economy?

AMY WU: Today, with NFT trading I think the marketplace is taking most of the time well under a 10% cut. It’s usually something like 5% or… I think OpenSea takes 2.5%. When the artist is first issuing that NFT, they’re getting a hundred percent of the proceeds minus the cut from the marketplace. Then in subsequent trading, it’s a lot less. That, in itself, is transparent I think. Today in gaming, essentially, it’s just, you are paying to be entertained and you are exchanging dollars for entertainment hours. In Web3 games, you’re exchanging dollars for entertainment hours, plus some amount of value. That value could be variable, in some cases like loot boxes or something like that. Sometimes you get a pretty common item and sometimes a rare item.

AZEEM AZHAR: It’s expensive right now. We discussed that earlier, right? That for variety of reasons, when these things are built on the main chains, there’s not the capacity. The transaction fees are very high so the entry point is extremely high and that’s a barrier.

AMY WU: This is true, but that’s why I also think that Web3 games cannot be built on Ethereum right now. I think in the future maybe they can be built on an L2, but even today, the transaction fees are too high. What they are built today on are Solana and Polygon, some of the alternative and much faster, cheaper L1s.

AZEEM AZHAR: Those are cheaper. They’re quicker. That means the overhead of actually just any kind of transaction is much, much lower. I mean, is the underlying hypothesis on this that the games industry that is today $180 billion a year global business will grow substantially faster than the GDP is growing? It’ll grow at 10/20/30% per annum enabled by these new experiences, this new way of telling stories, this new way of people interacting and triggering new emotional cues, and that sense of wanting to steward your collectible collection. That is the driver of the growth of that industry?

AMY WU: I think the gaming industry is growing with or without crypto. Actually another trend going on in games right now is the intersection between games and social. I always think it’s crazy to think that Roblox is 150 million players are on average playing something like two and a half hours a day. People are building meaningful connections between friends, between strangers and potentially even work in digital spaces. That is a trend that’s propelling gaming forward. It’s very multiplayer, it’s very social now. I think that Web3 can actually accelerate that growth because it’s bringing in a different pool of people who are really interested, but this segment of crypto-native players are dwarf by the players in the gaming industry.

AZEEM AZHAR: I mean, half of humanity has a mobile phone and three-quarters of those people play a casual game from one day to the next, right? It’s a huge, huge market.

AMY WU: Exactly.

AZEEM AZHAR: I’m just curious about this Trojan horse aspect of all of this. Is it a consideration that you get to expose people to digital assets and NFTs and then tokens and then tokens that they can trade in exchanges for USD tether or Ethereum? Is that Trojan horse pathway actually real? I mean, is that in people’s mind when they look at this sector or is that just something that we bolt on because it makes for good narrative?

AMY WU: Do you mean if we work with a gaming company, for example, and then at some point down the road that some subset of those players actually want to trade crypto on exchange? I mean, that’s certainly the hope. You have Coinbase with tens of millions of users and so is Binance, and we’re getting there. We have a lot more of the more institutional volumes today, and that is that we do think, just like so many people have either Robinhood account or a Fidelity account and they’re trading, they hold some amount of stocks, we think those people will also hold some amount of crypto within the next, like, twenty years.

AZEEM AZHAR: It’s a fascinating approach because there are a handful of really big players in the crypto space right now. On the exchange side, there’s Binance, there’s Coinbase, there’s of course FTX. Then there’s also a series of players below you. In a way there’s a market share battle going on. I guess the way you’ve presented it to me makes me think, “Yeah, of course, well, you need to find novel ways and creative ways of getting customers. Perhaps this is a channel that works in of itself.” You made the point that it’s really complicated to tokenize a game. There’s a whole bunch of compliance stuff that has to happen. I’m right in thinking that you as FTX end up delivering a white label that makes it easy for me as a developer to build that into my game in the same way that developers have gone to unity to build game engines rather than building it for themselves. That should, potentially could give you access to tens, hundreds of millions of end users.

AMY WU: Yeah, that’s exactly right. Because there’s the users going on to an exchange to buy crypto, but then there’s also the potential for us to power global crypto transactions of which one can imagine in ten years’ time… and in crypto it’s really difficult to predict timelines, right? Some things happen much faster than people expect. NFTs and others happen way slower than people expect. For example, institutions coming on and holding crypto assets. Then actually potentially the majority of the world’s crypto transactions can actually be happening, not on exchanges, but in embedded apps within consumer apps or otherwise. That’s where we would like to be as well, is in that vision of the world. If that doesn’t happen then we’re really hoping that a lot of people choose FTX as the exchange.

AZEEM AZHAR: I think one of the things that’s difficult for people who are not on the other side of the crypto wall to understand is exactly that degree of potential, right? The notion that we will or could, or widely be holding these types of assets. Because I think for most people, they’re very, very insulated from the underlying plumbing of finance and financial services.

AZEEM AZHAR: Lots of the things that go on in crypto are accelerated versions of things that have happened in traditional finance, right? Whether it’s margin lending or asset securitizing or exchange, those things happen. Unless you work in financial services, unless you work in an interdealer broker or something, you never really see those sorts of things happening, and it’s become pushed to the fore in the last four or five years as crypto has captured some part of the media attention. This for me is one that I slightly struggle with. I struggle with getting a sense of the extent to which the average person will end up knowing that they’re interacting with something that is crypto-Yeah., if that makes sense. Or whether it ends up being cleaned up and covered in a series of beautiful interfaces. It works better, or it works just as well, but actually I don’t know that it is crypto sausage that’s being made rather than traditional sausage.

AMY WU: I actually think if it isn’t cleaned up and wrapped in a beautiful interface, you actually won’t even get mainstream adoption. One of the biggest problems right now in our industry is that the friction of onboarding is too high. This is where you’re starting to see the divergence between DeFi and what people are calling Web3, which is consumer internet crypto. In DeFi, which really blew up, I would say summer of 2020, you have lending and the exchange protocols and then derivatives. Really people are participating in order to really apply, leverage and belong a crypto asset. At the end of the day that is the function of most of these DeFi protocols. That, and also finding places to generate a lot of yield, which is just another way of [inaudible 00:29:58] whatever asset that you’re already holding. That’s a limited, but very deep audience. There’s a couple hundred billion and I think we’ll continue to grow amount of assets locked in DeFi today. There’s not that many participants. I mean, we don’t know who they are because permission list. That’s the whole point of DeFi. But I would guess that probably like 20/30 players make up the majority of that volume, whereas what’s happening in Web3, and what I spend a lot of time in and a lot of investors spend time in it, is that consumer internet apps, which is just an app bringing entertainment and fun and utility, depending on the app to a consumer, whether it’s a dating app or a social network, is utilizing the form factor of NFTs and tokens to deliver a novel experience for their users, but also using it as a customer acquisition and retention tool. Some of the ways that we’re seeing it starting to get implemented is for example membership gating. You can pay for Amazon’s subscription or in this version, you’re buying a token and that gives you the equivalent to that Amazon Prime subscription.

AZEEM AZHAR: I just want to pick up something that you identified for the typical consumer, and this is somebody you understand as a games investor well, they need a polished user interface and a polished experience, almost from end to end. That seems to me to then speak to things like common design patterns and standards and directed design and directed product management rather than a bottom up grassroots product management. Twenty, thirty years on, macOS is still easier to use than Linux for example, because Mac is designed by somebody and so on and so forth. If that’s the case, where does that narrative about centralization, which was Web2 and before and decentralization, which is meant to be what crypto is about, how do those things sit with this idea that mass adoption is also going to require polished performant end-to-end experiences?

AMY WU: I think it will look something like a hybrid of the two because people actually have a lot of fun participating in governance. I’m currently on the board of the ApeCoin DAO which is the community of Bored Ape Yacht Club. People are having a lot of fun and sometimes very impassion debates about where things should go and proposals that should be passed and suggestions. We’re obviously still getting started on that, but that is a natural component to Web3 because otherwise you just have traditional applications. What’s fun and different and new here, beyond just speculating in the tokens and NFTs is actually active participation as well. That this ideology a democratization of value and also decision-making is part of the culture of Web3.

AZEEM AZHAR: Listeners can’t see, but when you were talking about that and the idea of the fun of participating in governance, you were smiling quite a lot. I think it’s a really interesting point that you’ve made and it’s not one that I’ve heard made before. I want to come back to it a little bit and say, I suggested that in order to make these experiences work well and be enjoyable, has to be built by someone who’s got those design sensibilities and go through this process. You heard me and you came back and said, “Well, yes, but what we see is the art of participating in the decision-making of a decentralized community that is sitting around one of these crypto projects and probably through a DAO, which is a decentralized autonomous organization. What it does is it involves a political process, a café discussion, arguing about direction winning support and that people actually enjoy that participation. That is an aspect of the fun of the whole process.” Is that a fair reflection of that insight you gave us?

AMY WU: Executed well, that absolutely is. It turns out that DAOs are incredibly difficult to run well. I think the art is in figuring out what can the community decide on and what does it not, right? Because if it decides on everything, you essentially get standstill. The organization and the protocol gets nothing done. Threading that needle is extremely important and really difficult. In any case, it’s a lot of work, far harder to run than like a top-down centralized organization. There still is so much experimentation around how to best do that. A lot of bearers in the market being like, “DAOs are going to be dead.” It’s like, “There’s no way. This is the reason why communism has not worked out.” For example, Web3 gaming studio is probably not going to have the community decide on game design. That’s something that’s highly technical, specialized, et cetera. No generalized community is going to get that balance right, but there could be parts of the game that is up for voting. That could be really fun for gamers to participate in.

AZEEM AZHAR: I’ve been around the internet for a while. I’ve participated in Usenet groups that were discussing particular things and I’ve participated in open source projects as well, and enjoyed where I had a stake in the outcome of that project being part of the governance. When I started to look at DAOs – and we’ve discussed having a DAO for Exponential View and for the community and the audience as well – we dug into a lot. What I saw in the debates were things that were, either very, very technical or they were so boring they rather reminded me of that unending scene in one of the Star Wars prequels of the Trade Federation discussions, which is the moment where everyone falls asleep. It seems like it’s quite hard to figure out what things a community should be allowed to decide on and how they should do that decision-making and who should actually be able to participate for it to actually be fun. I mean, are there good examples that you would pull out and say, “Hey, this DAO does it really well and it’s tons of fun.”

AMY WU: I think that we’re trying to figure it out right now. Again, every DAO has a different structure and so we have a board. I have a six-month term right now and we are all trying to figure out how to set up the DAO structure and really hand the keys over to the next set of core contributors and people in the community. I mean, it’s a lot of work. People sent dozens and dozens of proposals that need to be filtered. Then the serious ones need to be set up for a vote with the community. Then we need to help. There’s a lot of discussion that happens, most of which is very respectful and very passionate. Then, okay, once that proposal is finished then who’s going to actually build what was proposed, right? There’s actually a lot of work, which is why the best run DAOs… Another one, Mango Markets, really, really well run DAO is actually just a lot of project. They have core contributors that are paid. That happens to be usually the model that most successful DAOs settle into, which is you have core contributors that are essentially paid employees, many who are part-time paid employees as well at work.

AZEEM AZHAR: Wow. That sounds like employed work coming to my leisure time.

AMY WU: One more point on that, because the thing is, is that it’s become people’s actual work. I was at ETHDenver but the greatest thing that came out of ETHDenver was this realization of just how many of the blue chip protocols actually are just run as DAOs now and how many eng developers there were either employed part-time by multiple DAOs. That is their living.

AZEEM AZHAR: Wow.

AMY WU: Or they have a traditional job during the day and then they’re moonlighting as a Web3 developer. That was super cool to see.

AZEEM AZHAR: Well, now when you’re not running a DAO, you are, of course also running FTX’s $2 billion venture fund. I’m very curious to understand with Web3 and crypto developing at this rapid pace, are there particular characteristics or approaches that you use when you assess potential investments or potential founding teams?

AMY WU: A lot of the criteria are quite similar to just traditional investing. It starts with a team. We’re looking for a team who wants to build for the long term and also have vision. In crypto, the interesting thing is that the monetization comes quite early. A lot of times these projects launch a token or they launch an NFT drop and suddenly they’re worth, on paper, hundreds of millions dollars. Sometimes these teams lose structure and drive when that happens. I’m looking for projects where the founders are trying to create something lasting and special for users, despite the relative early wealth that they might come into, which is a really different paradigm than in traditional tech where it might take you ten years or fifteen years to exit your company.

AZEEM AZHAR: I mean, how do you check whether the founders actually have that drive and whether they aren’t just going to… even if they don’t rug pull, they’re just not going to lose motivation once their wallets rather are filled with lots of [inaudible 00:38:54]?

AMY WU: That’s probably more art than science. It comes from thousands of conversations with companies and over time and you know it when you see it. Sometimes you think you see it and it’s not really quite that. That drive, yeah, it’s like a feel. Also seeing what the founder had done previously and also, are they building the right design space? Is it something that’s going to be trending? Is it a thesis that we have that’s super interesting? I would say it comes down back to the founder and their ability to attract a great team because the best founders are able to pivot when they see themselves in a space that is potentially not trending.

AZEEM AZHAR: I mean, one of the things that investors often look at is user momentum and user uptake because in the traditional B2B and B2C world, you start with consumers or customers joining, your numbers go up. You look at retention, you look at propensity to pay and you start to have a sense of actual user engagement and then user monetization that allows you to make the judgment of whether to invest or not as well, or helps you will with these Web3 projects. The money comes very, very quickly and well ahead of user adoption. No one really has any big user adoption, right? Every investor you speak to, you hear in the space says, “Well, it’s still really, really early days. We’re still really early in it. It’s still 1994 for crypto or 1995 for crypto, or pick your year.” When do you think you’ll start to look at crypto projects and start to say, “Well, end user adoption is so strong that we should be backing this business.”

AMY WU: Right now you can use things like what’s the size engagement of the community that they’ve created earlier on? As a gauge for early-stage investing. I would say on the growth side, you’re right, it’s typically less about the user numbers, although that’s pretty important as well. Then we’ll look at revenue growth and really traditionally the same metrics as we would a traditional company.

AZEEM AZHAR: Looking at the kind of things you’re seeing with your venture hat on, what’s the kind of most interesting theme that you would like to see a team tackle?

AMY WU: At the beginning of the year, I was definitely worried that at least in Web3, there were way more picks and shovels businesses than actual content businesses or creating the actual brands, but that’s changing pretty quickly. I’m super excited to back more emerging NFT projects, et cetera. I mean, they have the same problem as they do games. When a game’s successful, it’s generating so much cash flow that there is no need to raise capital. The same thing for an NFT project. I forget when Moonbirds recently launched – in Kevin Rose’s new project…I think they did something like $65 million in their primary drop. Yeah, I don’t think they need capital any time soon, but if they are interested in more partners, then definitely interested and other projects like that. Absolutely excited about these new NFT brands currently being built. Then actually more than half the investors at FTX Ventures are focused on infrastructure and core blockchain infra DevOps tooling. That is an area of intense creativity and innovation right now, because developing on blockchain is hard. Just like in the Web2 side, right now there’s a layer of DevOps tooling that’s being built so that it’s much easier for subsequent developers to build on top of. We’re definitely looking at a lot of these types of businesses. Some of them like ACME or others like Vibe on Solana ecosystem and others. Then we also are really just pretty deeply connected with multiple blockchain ecosystems. Certainly Solana, but then also for example NEAR, AviTron and Polygon and some others we’re really excited about. They have very interesting ecosystems developers building on top of them for various reasons. We like to participate in hackathons and also invest in the primitives that are built in those ecosystems.

AZEEM AZHAR: When a new field opens up, there’s always tons of competition. You think about the personal computing market, you had Altair and Osborne and Sharp and Olivetti and IBM and Apple and Apricot and a whole load of others. When you think about the internet business, you had a load of ISPs and you had people like Yahoo and WebCrawler and Lycos and Excite, and we don’t have so many. You have a handful in each category. Typically, each category has a very high market concentration. There are rival social networks to Facebook, and there are rival search engines to Google. We’re obviously at that early stage in the crypto market, everyone tells us we are. You would expect there to be this plethora of different networks, different tools and so on. If we go out and I’m going to… Sorry to ask you to go out ten years. It’s a totally unfair question for anyone involved in crypto. If you look out into the future, do you expect crypto because of this desire by players to say, “We want to be decentralized. We want there to be interoperability. We want to avoid market concentration.” That the shape of the market will look different or will it follow the shape that the internet and previous technology markets have, which is within segments, there are going to be a couple of really, really significant winners and no one else will matter and it’ll just really be broken apart segment by segment?

AMY WU: Yeah. I mean, who can predict? But I would suspect it will also converge to that. Right now there are dozens and dozens of layer ones and layer two blockchains, because it’s really easy to raise money for them. Also, you can just fork somebody else’s chain and just call it your own. That’s not necessarily innovative, but there’s plenty of people who are willing to pay over a billion-dollar valuation for something like that right now. Also, when you launch a token, if you look at the top ten or twenty tokens right now trading, many of them are going to be L1 blockchains. Because it’s easier to understand, well, and also they’re generating real revenue, right? Although the valuations are far in excess of any meaningful multiple on that, but I don’t think it’s sustainable because you can get short-term sustainability by launching a token and essentially air dropping, which is really expending hundreds of millions of dollars of marketing expense to acquire users. But those users will only stay if you have great applications built on top of that. People stayed and used the iPhone because the iPhone has so much utility. Then because there were so many users and there was this positive flywheel. The same thing with the blockchain ecosystems, where I think ultimately there’s going to be potentially a couple of big winners, and those will have the dominant developer ecosystems that have flocked there for again distinct reasons. Then users will also be driven there as well, and potentially connecting those couple of dominant blockchain ecosystems will be this layer of cross-chain protocols that is allowing users to bridge assets more easily, and hopefully in the future safely as well.

AZEEM AZHAR: Amy, tell us about your own personal NFT collection. What’s your favorite NFT and how does it make you feel?

AMY WU: My favorite NFT right now is the one Bored Ape I have. It’s because it is truly because of the community, not the R. I know it’s quite cliché and everyone says that, but when I joined the Bored Ape community, and it was just this outpouring of enthusiasm and support from people in it. All of a sudden I have something like 3,000 followers because everyone in that community follows each other and supports each other. That was just a crazy, wonderful feeling to feel like you’re a part of a club. If you ask people, it’s the number one reason why they’re so excited about NFTs, is this club membership that they feel a part of rather than necessarily the R. I don’t understand why anyone’s paying like $2,000 or much more for an NFT like doesn’t understand, is that it’s so much more than that.

AZEEM AZHAR: So much more than that. Amy you’ve given us so much to think about, thank you so much for your time.

AMY WU: Thanks so much Azeem for having me on.

AZEEM AZHAR: Well, thanks for staying with me until the end of this conversation. If you found it insightful, give us a five-star rating. You’ll make me smile and you’ll help others find the podcast. For more on crypto and blockchain, peruse through the podcast feed for previous conversations with Terra’s Do Kwon, Ocean’s Trent McConaghy, Chainlink’s Sergey Nazarov, Meltem Demirors, and many others. This podcast was researched by Chantal Smith, produced by Fred Casella and Marija Gavrilov, and edited by Sophie King. Exponential View is a production of E to the Pi I Plus One Limited.

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