Arianna Simpson, one of the four general partners at Andreessen Horowitz, is currently investing in the third crypto fund of the venture firm, a $2.2B vehicle. She is focused on returning that capital to the limited partners.
To that end, she has been focusing more on gaming and crypto-related startups. Her team led an investment in Virtually Human Studio last month. This startup is behind Zed Run, a digital horse racing platform that lets users breed, buy and sell virtual horses. Their value increases based on how they perform against other virtual horses. Each token is basically a non-fungible token or NFT. It is unique.
Simpson is also interested in NFT-based play to earn models. This allows gamers to earn cryptocurrency which they can cash out for local currency. Today, a16z announced that it has invested $4.6 million in Yield Guild Games tokens (YGG). Yield Guild Games is a Filipino-based gaming company that allows players to participate in its revenue. Players can play games such as Axie Infinity which uses blockchain technology to breed, battle, and trade digital Axies. They also earn tokens called Small Love Potion, which they can cash out later. YGG lends money to players to purchase the Axies and other digital assets necessary to launch the game. This allows them to begin earning money. They hope to earn more than the YGG charges for its assets.
Simpson, who joined a16z in the wake of backing several of the same startups (including the blockchain infrastructure company Dapper Labs) and the global payment platform Celo, spoke to us yesterday to discuss what's going on at the intersection between crypto and gaming. She also shared the platforms that a16z monitors closely in order to identify promising crypto startups. The transcript of our conversation is below.
TC: Zed Run is very interesting. How did this digital horse racing company first appear to you?
AS: It was crypto Twitter. This is where we found a lot our gaming investments. It is a great place to meet new people and it often becomes the first place where exciting projects are discovered.
Zed is the beginning of a new kind of crypto-gaming that involves more complex gameplay. CryptoKitties was a collectibles game that caught the eye of many outsiders. It was one of the very first NFT-based games. Zed is a derivative extension, in that you can have a digital animal to play with. However, the gameplay is more complicated and it's amazing to see how passionate the community is. There are many guides that explain how to play the game. These guides can be used to learn [race] courses and how to do many different things in the game. Tens of thousands of people around the world are playing.
TC: These may already exist. But are there endless vertical opportunities here like a digital car-racing equivalent or an UFC-style equivalent? Or are people betting on digital fighters in the hope that they will rise in value.
AS: The possibilities for what's going to happen and what's coming up in the crypto game universe are endless. The idea of giving back more of the ownership and value in these game assets to players is at the heart of this movement. This is a problem that has been there for a long time. It is possible to spend many years building up your collection of skins and in-game assets. Then a game might change the rules or take some of your winnings away. This can make players feel very disappointed and ripped off. Blockchain-based games are designed to open up the game and give players ownership of the space.
TC: This leads us to Yield Guild Games or YGG, our latest investment. What attracted the firm's attention to this company?
AS: Many people lost their jobs during the pandemic and were unable to provide for their families and themselves. This coincided with the popularity of Axie Infinity which was one of the first games that pioneered a play-to earn model. It is now a key theme in crypto gaming.
Axie Infinity requires you to have at least three Axies to be able to play it.
It is best to purchase them upfront. It is possible to buy these digital pets if you are out of work. Gabby Dizon, a Filipino YGG founder, started lending his Axies to other players so they could earn tokens that could be used to convert into local currency. YGG was basically the productization of their work. YGG buys or breeds in game assets that yield income, and then lends them out to scholars who are the recipients. YGG takes a small percentage of any in-game revenue the players generate over time.
TC: Do scholars have to be skilled players?
AS: Managers manage scholars in teams; they decide who is brought into the guild.
TC: These Axies can be exchanged for currency. But where and who are they being bought?
AS: They are available for purchase or sale on exchanges. Other players can buy them if they are needed to breed in Axie. Others are purchasing them to invest. They may also be selling tokens they have earned as part of their gameplay, but not necessarily the NFTs.
TC: Currently, there are 5,000 of them playing the game. Do they mainly live in Southeast Asia?
AS: The majority of the scholars and players are located in Southeast Asia. However, we were also seeing strong international growth for Axie Infinity as well as YGG. The YGG team is focusing on scaling internationally at this stage.
TC: You mentioned crypto-Twitter. Discord and Reddit are you interested? You can also look elsewhere for crypto projects that are capturing the imagination of people.
AS: All of the preceding. The crypto community uses Discord extensively. What's more, it allows you to gauge how active the community is, how engaged they are, how often they talk, and what topics they discuss. This gives you an insight into the community as a whole, which is a great thing to have when making investments or assessing the health of a project.