Toward the new future economy

Dear shareholders and friends,

2020 has been a pivotal year for Animoca Brands, and as we approach year’s end we can look back to various exciting announcements: the unveiling of WWE Undefeated, a partnership with Formula E that will further expand the REVV Token ecosystem, the launch of SAND (The Sandbox’s currency), and the ongoing phased launch of F1® Delta Time, among many other exciting developments.

Animoca Brands is one of the very first mainstream game companies that identified and acted upon two important opportunities in gaming presented by blockchain technology: true digital ownership and play-to-earn. These trends will, in the coming years, completely revolutionize the world of video games - an industry estimated to be valued US$155 billion in 2020 and over US$200 billion by 2023 (source: Juniper Research, September 2020).

We are of the view that any projections of the value of the video games industry are necessarily too low if they do not factor in true digital ownership and play-to-earn. 

The promise of play-to-earn, made possible by true ownership of digital game assets, recently became an undeniable reality in Animoca Brands’ constellation of products and companies. Play-to-earn is now a significant force in our games The Sandbox and F1® Delta Time, and in various of our portfolio investments such as Axie Infinity and Dapper Labs (creators of CryptoKitties and NBA Top Shot).

For anyone not yet familiar with these important trends, I’d like to provide a quick summary of what we mean by true digital ownership and play-to-earn, followed by a discussion of how they apply to our efforts at Animoca Brands. 

Screenshot of the upcoming racing mode in F1® Delta Time, the Animoca Brands title that is successfully delivering a play-to-earn motorsport experience

True digital ownership (property rights)

Property rights are a novel concept in video games, because in-game content is typically provided on a licensing basis. In the traditional gaming model, the in-game assets you “own” are licensed to you by the game publisher or operator, and this license can be revoked for various reasons (e.g., if the game shuts down, or if you break the terms of service). You can use the game assets licensed to you inside the game that they’re from, but that’s typically the extent of your ability to use them. 

Blockchain technology enables true digital ownership for in-game assets, conferring to gamers genuine property rights - including the right to use the assets anywhere (not solely in their native game) and the right to make money from them (e.g., by selling them to a third party). 

Tokenised game content can be in the form of fungible tokens (usually for in-game currencies) and non-fungible tokens (NFTs, usually for content that is rare or unique, such as a race car or magic sword). The point is that, in blockchain games that tokenize their content, you are able to (truly) own your in-game assets, and can benefit accordingly from this ownership.

Play-to-earn

The play-to-earn business model rewards game players with monetizable rewards when they engage in activity that creates value for the game and its players. In blockchain games, this activity can be in the game (e.g., taking part in a Time Trial race in F1® Delta Time) or out of the game but still related to it (e.g., providing liquidity on an exchange for the REVV Token, our fungible token for branded motorsport games).

The rewards given to players for such activities are typically in-game assets ranging from fungible tokens (e.g., REVV) to digital assets that are tokenized on blockchain as Non-fungible tokens (e.g., a car, magic sword, potion, cosmetic item, etc.). These rewards have real value outside of the game, which allows players to convert them into money - such as by selling NFTs on a third party marketplace or selling fungible tokens on an exchange.

Play-to-earn rewards for the current Elite Time Trial special event in F1® Delta Time

New economic opportunities

At this time, the harsh reality for the vast majority of the US$155 billion video game industry is that, regardless of how much you spend to acquire your in-game assets, you don’t actually own them, are not allowed to make money from them, and could lose them at any time. This state of affairs is changing thanks to the fact that blockchain enables true digital ownership and play-to-earn in games, and this is triggering a wave of new economic opportunities. 

Think about how the Internet grew from total obscurity in the early 1990s into a major pillar of global economic activity in the 2000s - or consider how the smartphone and associated app stores evolved into essential cornerstones of modern life and work over the last decade. 

The shift toward true digital ownership and play-to-earn is the kind of monumental change that creates new markets and new opportunities - similarly to the Internet and the smartphone.

Property rights also enable significant and previously unavailable value-added services. Already, NFTs are being accepted as collateral for crypto loans (e.g., NFTfi) and there are even services that provide fractionalization of NFTs (e.g., NFTX), breaking up a single NFT into multiple pieces, or fractions, so that they can be owned and traded by multiple owners.

Activity across the Animoca Brands universe

As you may know from my previous communications on these subjects, here at Animoca Brands we are heavily involved in the expansion of true digital ownership and play-to-earn in the video gaming industry.

F1® Delta Time’s first Elite Time Trial special event, which ended on 18 October 2020, required players to stake REVV tokens in order to participate. Players staked over 17.3 million REVV and raced over 57,000 times, winning 1.625 million REVV, with a further 38,439.15 REVV paid as yield rewards to stakers. In the second Elite Time Trial, which started on 27 October and is still underway, players staked a total of 19 million REVV to compete for prizes totalling 500,000 of each of three of our tokens: SAND, GAMEE, and REVV tokens.

One of several F1 tracks on which players compete in F1® Delta Time

Some players of F1® Delta Time are generating significant sums by playing our game (in the case of this user, over US$1,600 in one month). Some users have opened virtual “shops” to sell F1® Delta Time NFTs on marketplaces like OpenSea (e.g., see users Unitbox and Theramoe). In some cases the items fetch very significant prices - for example, this car recently sold for the equivalent of thousands of dollars.  

Many players, motivated by the opportunity for play-to-earn, have organized themselves into racing teams, sharing resources to increase their chances to win and then splitting any winnings. Joining a team as a driver usually means that you will receive some level of support from the team management - such as tyres, car components, or even a car. For example blockchain enthusiast and famed poker player Tony G (Antanas Guoga) has announced his participation in F1® Delta Time through his esports team ‘Super Fast’.

 F1® Delta Time player rankings. Teams are colour-highlighted, with the team’s name in square brackets

Trade volume the size of a nation’s economy

Our primary token projects at this time are SAND and REVV, both of which are utility tokens in their respective game ecosystems (i.e., SAND in The Sandbox, and REVV in F1® Delta Time and other branded motorsport games, including MotoGP). All together, the turnover for our two primary tokens during the month of October was US$245 million, consisting of US$24.55 million for REVV and US$219.69 million for SAND. This does not include the millions of dollars worth of LAND and F1 cars and components that Animoca Brands sold and that players traded in 2020.

The record-breaking 1-1-1, the digital car auctioned in 2019 that is the first officially licensed F1 NFT

A trade volume of US$245 million is highly notable, especially considering that both SAND and REVV have yet to attain maturity through their upcoming full game launches and subsequent user adoption. To illustrate the significance of the scale of activity for these projects, consider that US$245 million per month, when annualized, places the blockchain gaming ecosystem of Animoca Brands ahead of the GDP of Djibouti, Bhutan, and various nations, and just behind Greenland (based on UN data for 2018).

The above is, of course, a rough analogy for purposes of illustration and is absolutely not intended to be a rigorous economic analysis. The point is simply to highlight the incredible potential of the play-to-earn space as it grows into a powerful trend that will change lives and the very future of work itself.

The Sandbox is our “metaverse” game of user-generated content, powered by true digital ownership and play-to-earn

A powerful (but not new) trend

The assertion that digital ownership and play-to-earn will change how we live and work is not hyperbolic. The potential of these trends was recently highlighted in the Philippines, where playing the blockchain game Axie Infinity (which happens to be one of our investments) has allowed families to boost their incomes during the economic hardships brought on by the COVID-19 pandemic.

It’s important to recognise that these powerful and empowering trends associated with blockchain games are not isolated, are occurring with increasing frequency, and will eventually become commonplace.

Technically speaking, play-to-earn is not even a new phenomenon. Recall the gold farming occurring on a large scale in games such as World of Warcraft, in which “gold farmers” played the game to earn in-game goods that would be sold to other players for real money. Unlike the old gold farming, today’s play-to-earn trends are very positive: the selling and trading of blockchain game assets is not a violation of a game’s terms of service, blockchain gamers truly own the assets they obtain, and gamers are free to operate independently instead of being forced to grind for an employer under harsh and oppressive conditions.

The play-to-earn trend has existed for many years; the problem was that the play-to-earn of days past stood in an illegal (or, at best, grey) area because it was not permitted by the terms of use of centralized gaming platforms. 

Well, that is changing, and I am especially proud that Animoca Brands is one of the first mainstream gaming companies working to elevate digital ownership and play-to-earn into accepted standards in video gaming. 

As we continue to work on scaling up these trends for the mass market and break new ground in this exciting and promising space, I would like to thank all of you for the support and dedication you have provided to Animoca Brands and to our talented team of visionaries and creators. We are deeply grateful and look forward to the bold new future of play and work.

Sincerely,

Yat Siu and everyone from the Animoca Brands family

Co-Founder and Chairman