May 5, 2022 • 11 mins
Host and National Lead, Digital Services Adam Rodricks discusses the Metaverse, GameFi and their impacts on the crypto space with Kareem Sadek, Partner, Technology Risk Consulting; Kenneth Viegas, Senior Consultant, Technology Risk Consulting; and Kaan Farahani, Intern, Technology Risk Consulting.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello everyone and welcome back to KPMG in Canada’s state of cryptoassets podcast series. We are back with a very special episode, focusing on the metaverse and GameFi – two recent trends taking the crypto community by storm. For today's episode, I am very excited to welcome back Kareem Sadek, Ken Viegas as well as Kaan Farahani. So first and foremost, welcome gents. It is an absolute pleasure to be back in the studio with, you. Maybe to get us going, Kareem, you always you always start us off, you always bat first, the metaverse is what I'm coming to you about. It seems to be almost everywhere these days. Can you talk to us a little bit about what it is?
(00:40):
Hey, Adam and pleasure to be back on the podcast. Yeah, metaverse, great subject. Everybody's talking about it and you're going to hear a lot of definitions in terms of what it is and what it is not. So, I'll, I'll try to simplify it. Essentially the metaverse is a digital environment that combines virtual reality, so VR, block chain and online gaming technologies, allowing users to interact virtually across many platforms. So, if you think of it, It's about a social connection and building a digital identity in a network of virtual worlds.
(01:16):
And again, you might hear a lot of organizations that are trying to delve into it. And they, they go towards the VR side of things, and that's sort of the Web 2.0 aspect of the metaverse. When we talk about the metaverse in Web 3.0, that's where we're creating the ecosystem, the digital identity through digital wallets and transacting through cryptoassets. Quite frankly, this comes as a backdrop of a trend in individual spending more and more time online interacting with technologies and other applications.
(01:50):
It has become very normalized over the past little while as we all know, because of COVID and work from home, so we're going to see a lot more of that happening. I mean, I guess with that being said, maybe I'll go to Ken and Kaan. Maybe you can tell us a little bit more about sort of the possibilities in the metaverse that we see today.
Yeah, I could take that. I think it's important to start with the two distinct land models when you're actually owning virtual land. So, the first is a top-down approach where land is scarce. Landowners can create content which is then intended to be consumed by everyone else.
(02:25):
Now, the mechanics here, they really mirror real life where land plots are auctioned off or sold at predetermined prices. Now, many people support this model and argue that virtual land should be a scarce resource. In my opinion, though, I think there is an interesting second model. Now, the second, is a web three native bottom-up approach model where users receive free land to build experiences on. Now, they can later modify by staking an in game token or acquiring NFTs to improve that land. But supporters of this model argued that virtual plots are intended to serve as a social media profile and that all users should be entitled to own one.
(03:02):
In this case, I think there's a lot more opportunity for users within the metaverse to actually expand their creativity and build communities of people that they can actually resonate with. Now, despite on-chain data availability, the valuation of real estate is not necessarily easier than physical real estate and I think over time what we're going to see is something similar to that web three native model where people are incentivized or the value of the land is determined by the number of users actually interacting with that plot of land, or within that metaverse.
(03:37):
As of now, there is many possibility possibilities associated with owning virtual land. For example, if you're to own virtual land, you can host content or you can create experiences on your land such as concerts, or you can have a virtual office or an art gallery. You can also rent your properties to other enterprises, like gaming studios or e-commerce business. One of the interesting points here is that you can actually advertise on your land, which is an intriguing model for me because I believe virtual lands have the ability to gain mass exposure for different consumer products, goods or services. So there's a lot of different opportunities within the metaverse, and I think we're just seeing a few of them come to life today and it'll be exciting to see how people can really become creative and build out new models.
(04:26):
Thanks Ken. It's nice to talk about sort of the different opportunities within the metaverse. So Kaan, maybe based on what we have all seen so far, and again I mentioned about some people talk about the metaverse and say “well, there's no need for cryptoassets or blockchain or anything like that in the metaverse”, can you explain maybe a little bit what role cryptoassets play in the metaverse?
(04:53):
Thanks, Kareem. That's a great question.So one basic component of an operational metaverse is the nonfungible token and its underlying blockchain. And the reason is because NFTs form a bridge between in-game tokenomics and real-world economics. By representing unique digital items and asserting proof of ownership over them NFTs allow in game assets to be controlled by the user instead of the game developer.
(05:18):
Now combine this with the play to earn model mentioned in our last episode on NFTs and you have a win-win scenario where users can earn real world of value in exchange for their time and to experience interoperability of their assets across many different virtual worlds. On the other hand, game developers are also able to now see the game assets and charge fees for secondary market transactions, so it's really empowering both sides.
(05:45):
That’s really interesting Kaan. I want to stay with you with this line of questioning because speaking of gaming, why does it seem to be a centerpiece of the entire metaverse?
Yeah, so this is very interesting. We observe that the gaming industry is a first mover into the metaverse and that's likely for two main reasons. The first, is that game engine provide a solution to the degree of simulation required for a metaverse, and, in fact, they are the most complex consumer-grade simulations that are currently available. Second, is that virtual economies have been a long-standing feature in many games, which is to say that the industry has a rich history of experience in incentivizing the user behavior.
(06:23):
So, in combination, gaming companies are uniquely positioned for the metaverse because they have the tools necessary for simulation and rendering, and they have the skill set necessary for implementing in game tokenomics.
So, let's bring everything together with an example from our last episode by demonstrating Axie infinity tokenomics. The objective for players is to collect, breed, raise, battle and trade Axies. Each Axie is a non-fungible token so they are unique and indivisible. If 1 player’s Axie has a higher subjective value in the eyes of another player this can be realized by the owner since they own the asset, and they can freely trade it.
(07:02):
But there are many other ways to earn while you play as well. So, for example, you can own assets in the form of NFTs and gain rewards in the form of native tokens, which are then convertible into fiat currency through a crypto exchange. You can also breed and sell unique axis for profit or you could even collect and speculate on rare ones, for example genetics plays a key role in determining appearance in body size. Moreover, the game avoids hyper-inflation by setting a maximum limit on how many times it Axie may breed before it becomes sterile, and the cost of breeding depends on how many times an Axie has bred before.
(07:35):
Players also have complete control over the game's development and evolution by way of casting votes with a governance token. So, all in all these innovative concepts and this complex incentive scheme has made Axie a very popular game worldwide. For instance, in developing countries, like the Philippines, Argentina, Venezuela, or Colombia some players even consider it to be a primary source of income.
(07:57):
Now, this has led to an ongoing issue in the blockchain gaming ecosystem, and that is, as the popularity of a game increases in-game assets necessary for playing it become more expensive for example, a new axiom affinity players have to purchase, at least 3 creatures before starting to play and although nowadays, the cheapest ones are available for around 30 dollars U.S.; this used to be much higher creatures can easily reach upwards of 500 dollars, which imposes a barrier to entry for many players.
(08:28):
This problem has led to a solution, that being the emergence of gaming guilds, which provide a range of supporting activities to players from onboarding them into the game all the way to lending necessary in-game assets. And in return, they charge a share of players in game earnings for compensation. In such cases a gaming guild can buy and breed an Axie, rent it to a player and charge them 20 to 30% of their in-game earnings in return. There are a few prominent guilds in the ecosystem and we see that majority of them are structured as decentralized autonomous organizations (DAOs).
(09:04):
That's fascinating. Thank you Kaan! Ken, one last question for you in addition to gaming being an important aspect of the metaverse are there any other up and coming trends related to the metaverse that will impact the crypto space?
Adam that's a great question. I definitely think there's more possibilities beyond gaming coming to the metaverse. I think we've all heard the idea float around about having virtual meetings in the metaverse, and I think that's really going to be adopted going into 2022 and a few years beyond that. Now, I always think about how we represent ourselves in the universe. Right? Do we want to have an animated version of ourselves or do we want to have something that's more photo realistic?
(09:41):
For me, personally, if I was to enter the metaverse, I would want something a little more photo realistic, that way when I'm sitting in front of somebody I'm not, you know possibly a monkey or some sort of animal, I'm actually representing myself and that's how I want to be seen professionally.
I think the metaverse is a great way of interacting virtually and enhancing the experience beyond a Zoom call. So, I think we'll see organizations adopting the metaverse as a means of actually facilitating virtual meetings. When it comes to that there’s a few implications involved and there's a few considerations to take; one of which being which metaverse do you use? Is it an open metaverse, is it a permission based metaverse and which block chain is that facilitated on? How do we make this happen? These are the questions I think we're all going to solve as a community going into 2022. As the metaverse evolves, I'll be there right alongside it and looking forward to all of the possible opportunities.
(10:39):
And maybe just one last thing that I would add. So, I think over time, the success of the metaverse, and how we interact within it is just going to be like, we're going to see a lot of focus around the interoperability between the different virtual worlds. I think this is going to be a very big thing that's going to have to be solved for over time because that's going to make it successful - where you take your own avatar and you can go from one virtual world to another, uh, in terms of interoperability. So we're going to see a lot more of that going forward.
(11:12):
The possibilities certainly do seem endless and quite frankly they are so cool. Kareem, Ken and Kaan, this has been a downright and enlightening and impressive session for me to hear about all of the various impacts of the metaverse and GameFi. Unfortunately, though, that does bring us to a close for today, but before we go, I want to extend my most sincere thank you to each and every one of you for taking time out of your busy schedules to join us today. I know our listeners are going to absolutely love this episode. To our awesome subscribers and listeners, thank you so much for tuning in, be sure to join us next time on KPMG in Canada’s series on the state of cryptoassets. Bye for now.
Hello everyone and welcome back to KPMG in Canada’s state of cryptoassets podcast series. We are back with a very special episode, focusing on the metaverse and GameFi – two recent trends taking the crypto community by storm. For today's episode, I am very excited to welcome back Kareem Sadek, Ken Viegas as well as Kaan Farahani. So first and foremost, welcome gents. It is an absolute pleasure to be back in the studio with, you. Maybe to get us going, Kareem, you always you always start us off, you always bat first, the metaverse is what I'm coming to you about. It seems to be almost everywhere these days. Can you talk to us a little bit about what it is?
(00:40):
Hey, Adam and pleasure to be back on the podcast. Yeah, metaverse, great subject. Everybody's talking about it and you're going to hear a lot of definitions in terms of what it is and what it is not. So, I'll, I'll try to simplify it. Essentially the metaverse is a digital environment that combines virtual reality, so VR, block chain and online gaming technologies, allowing users to interact virtually across many platforms. So, if you think of it, It's about a social connection and building a digital identity in a network of virtual worlds.
(01:16):
And again, you might hear a lot of organizations that are trying to delve into it. And they, they go towards the VR side of things, and that's sort of the Web 2.0 aspect of the metaverse. When we talk about the metaverse in Web 3.0, that's where we're creating the ecosystem, the digital identity through digital wallets and transacting through cryptoassets. Quite frankly, this comes as a backdrop of a trend in individual spending more and more time online interacting with technologies and other applications.
(01:50):
It has become very normalized over the past little while as we all know, because of COVID and work from home, so we're going to see a lot more of that happening. I mean, I guess with that being said, maybe I'll go to Ken and Kaan. Maybe you can tell us a little bit more about sort of the possibilities in the metaverse that we see today.
Yeah, I could take that. I think it's important to start with the two distinct land models when you're actually owning virtual land. So, the first is a top-down approach where land is scarce. Landowners can create content which is then intended to be consumed by everyone else.
(02:25):
Now, the mechanics here, they really mirror real life where land plots are auctioned off or sold at predetermined prices. Now, many people support this model and argue that virtual land should be a scarce resource. In my opinion, though, I think there is an interesting second model. Now, the second, is a web three native bottom-up approach model where users receive free land to build experiences on. Now, they can later modify by staking an in game token or acquiring NFTs to improve that land. But supporters of this model argued that virtual plots are intended to serve as a social media profile and that all users should be entitled to own one.
(03:02):
In this case, I think there's a lot more opportunity for users within the metaverse to actually expand their creativity and build communities of people that they can actually resonate with. Now, despite on-chain data availability, the valuation of real estate is not necessarily easier than physical real estate and I think over time what we're going to see is something similar to that web three native model where people are incentivized or the value of the land is determined by the number of users actually interacting with that plot of land, or within that metaverse.
(03:37):
As of now, there is many possibility possibilities associated with owning virtual land. For example, if you're to own virtual land, you can host content or you can create experiences on your land such as concerts, or you can have a virtual office or an art gallery. You can also rent your properties to other enterprises, like gaming studios or e-commerce business. One of the interesting points here is that you can actually advertise on your land, which is an intriguing model for me because I believe virtual lands have the ability to gain mass exposure for different consumer products, goods or services. So there's a lot of different opportunities within the metaverse, and I think we're just seeing a few of them come to life today and it'll be exciting to see how people can really become creative and build out new models.
(04:26):
Thanks Ken. It's nice to talk about sort of the different opportunities within the metaverse. So Kaan, maybe based on what we have all seen so far, and again I mentioned about some people talk about the metaverse and say “well, there's no need for cryptoassets or blockchain or anything like that in the metaverse”, can you explain maybe a little bit what role cryptoassets play in the metaverse?
(04:53):
Thanks, Kareem. That's a great question.So one basic component of an operational metaverse is the nonfungible token and its underlying blockchain. And the reason is because NFTs form a bridge between in-game tokenomics and real-world economics. By representing unique digital items and asserting proof of ownership over them NFTs allow in game assets to be controlled by the user instead of the game developer.
(05:18):
Now combine this with the play to earn model mentioned in our last episode on NFTs and you have a win-win scenario where users can earn real world of value in exchange for their time and to experience interoperability of their assets across many different virtual worlds. On the other hand, game developers are also able to now see the game assets and charge fees for secondary market transactions, so it's really empowering both sides.
(05:45):
That’s really interesting Kaan. I want to stay with you with this line of questioning because speaking of gaming, why does it seem to be a centerpiece of the entire metaverse?
Yeah, so this is very interesting. We observe that the gaming industry is a first mover into the metaverse and that's likely for two main reasons. The first, is that game engine provide a solution to the degree of simulation required for a metaverse, and, in fact, they are the most complex consumer-grade simulations that are currently available. Second, is that virtual economies have been a long-standing feature in many games, which is to say that the industry has a rich history of experience in incentivizing the user behavior.
(06:23):
So, in combination, gaming companies are uniquely positioned for the metaverse because they have the tools necessary for simulation and rendering, and they have the skill set necessary for implementing in game tokenomics.
So, let's bring everything together with an example from our last episode by demonstrating Axie infinity tokenomics. The objective for players is to collect, breed, raise, battle and trade Axies. Each Axie is a non-fungible token so they are unique and indivisible. If 1 player’s Axie has a higher subjective value in the eyes of another player this can be realized by the owner since they own the asset, and they can freely trade it.
(07:02):
But there are many other ways to earn while you play as well. So, for example, you can own assets in the form of NFTs and gain rewards in the form of native tokens, which are then convertible into fiat currency through a crypto exchange. You can also breed and sell unique axis for profit or you could even collect and speculate on rare ones, for example genetics plays a key role in determining appearance in body size. Moreover, the game avoids hyper-inflation by setting a maximum limit on how many times it Axie may breed before it becomes sterile, and the cost of breeding depends on how many times an Axie has bred before.
(07:35):
Players also have complete control over the game's development and evolution by way of casting votes with a governance token. So, all in all these innovative concepts and this complex incentive scheme has made Axie a very popular game worldwide. For instance, in developing countries, like the Philippines, Argentina, Venezuela, or Colombia some players even consider it to be a primary source of income.
(07:57):
Now, this has led to an ongoing issue in the blockchain gaming ecosystem, and that is, as the popularity of a game increases in-game assets necessary for playing it become more expensive for example, a new axiom affinity players have to purchase, at least 3 creatures before starting to play and although nowadays, the cheapest ones are available for around 30 dollars U.S.; this used to be much higher creatures can easily reach upwards of 500 dollars, which imposes a barrier to entry for many players.
(08:28):
This problem has led to a solution, that being the emergence of gaming guilds, which provide a range of supporting activities to players from onboarding them into the game all the way to lending necessary in-game assets. And in return, they charge a share of players in game earnings for compensation. In such cases a gaming guild can buy and breed an Axie, rent it to a player and charge them 20 to 30% of their in-game earnings in return. There are a few prominent guilds in the ecosystem and we see that majority of them are structured as decentralized autonomous organizations (DAOs).
(09:04):
That's fascinating. Thank you Kaan! Ken, one last question for you in addition to gaming being an important aspect of the metaverse are there any other up and coming trends related to the metaverse that will impact the crypto space?
Adam that's a great question. I definitely think there's more possibilities beyond gaming coming to the metaverse. I think we've all heard the idea float around about having virtual meetings in the metaverse, and I think that's really going to be adopted going into 2022 and a few years beyond that. Now, I always think about how we represent ourselves in the universe. Right? Do we want to have an animated version of ourselves or do we want to have something that's more photo realistic?
(09:41):
For me, personally, if I was to enter the metaverse, I would want something a little more photo realistic, that way when I'm sitting in front of somebody I'm not, you know possibly a monkey or some sort of animal, I'm actually representing myself and that's how I want to be seen professionally.
I think the metaverse is a great way of interacting virtually and enhancing the experience beyond a Zoom call. So, I think we'll see organizations adopting the metaverse as a means of actually facilitating virtual meetings. When it comes to that there’s a few implications involved and there's a few considerations to take; one of which being which metaverse do you use? Is it an open metaverse, is it a permission based metaverse and which block chain is that facilitated on? How do we make this happen? These are the questions I think we're all going to solve as a community going into 2022. As the metaverse evolves, I'll be there right alongside it and looking forward to all of the possible opportunities.
(10:39):
And maybe just one last thing that I would add. So, I think over time, the success of the metaverse, and how we interact within it is just going to be like, we're going to see a lot of focus around the interoperability between the different virtual worlds. I think this is going to be a very big thing that's going to have to be solved for over time because that's going to make it successful - where you take your own avatar and you can go from one virtual world to another, uh, in terms of interoperability. So we're going to see a lot more of that going forward.
(11:12):
The possibilities certainly do seem endless and quite frankly they are so cool. Kareem, Ken and Kaan, this has been a downright and enlightening and impressive session for me to hear about all of the various impacts of the metaverse and GameFi. Unfortunately, though, that does bring us to a close for today, but before we go, I want to extend my most sincere thank you to each and every one of you for taking time out of your busy schedules to join us today. I know our listeners are going to absolutely love this episode. To our awesome subscribers and listeners, thank you so much for tuning in, be sure to join us next time on KPMG in Canada’s series on the state of cryptoassets. Bye for now.
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