Session 7-2: This article is a thread originally posted on Twitter (linked here) summarizing study notes from the Fall 2022 semester of the University of Nicosia’s online course, META-511: NFTs and the Metaverse. Course materials can be found at the UNIC META-511 github account here. The author is not affiliated with University of Nicosia or the META-511 faculty.

1/ Summarizing my notes from session 7-2 of @unicmetaverse META-511 ✍️

This discussion was between @punk6529 and @ysiu, chairman of @animocabrands. We learn the history of Animoca, as well as the meaning of network effects and why they are essential for thriving digital economies

2/ Yat Siu grew up in Austria in a family of musicians. While learning music, he started to use an Atari ST to code music compositions, uploading the software to Compuserve.

He was invited to take a job at Atari, then built a career in tech, founding Outblaze in 1998.

3/ Recognizing the potential of the smartphone, Yat went into mobile gaming. Outblaze became the biggest app developer in the Apple app store in 2011-2012, but was suddenly deplatformed in early 2012 for “violation of app store rules.”

No official explanation was provided.

4/ The incident with the app store served as a lesson on the importance of open platforms. Yat had been primarily working with open source up to that time, but he realized how the open Internet of web1 had become much more closed in web2.

Animoca Brands was founded in 2014.

5/ Yat was fascinated by NFT tech and how it could represent digital ownership, first seeing it in CryptoKitties.

The key differentiator from traditional games was that the creation and ownership of the gaming assets was left with the user, rather than controlled by the company.

6/ During the crypto winter of 2018, Animoca acquired minority stakes in various projects to support the industry and ecosystem growth.

These investments were more strategic in nature rather than seeking financial returns. Presently, Animoca invests in 380+ projects.

7/ This strategy reflects Animoca’s belief that the value of an ecosystem is derived from its economic activity.

For example, Animoca invests in 20-30 guilds which do not bring high financial returns, but do create more gamers and drive higher adoption, creating network effects.

8/ Network effects are the key reason a digital economy succeeds. When users are empowered to build and own freely, they are able to create real value by transacting assets which are sought after by other users.

The demand in relation to supply of an asset creates this value.

9/ Network effects accrue over time on permissionless, open platforms. They allow gaming platforms to be self-sustaining with fewer gamers that generate higher revenue.

In traditional gaming apps, 97-99% of gamers do not pay. In web3 gaming, all users are economic participants.

10/ Network effects are costly to recreate on closed, proprietary platforms. The reason Meta seeks a 47% fee (equivalent to the tax rate in North Korea 😬), is because they need to subsidize synthetic network effects.

Users are disincentivized to build because value is taxed.

11/ Tech firms need to provide a service commensurate with the cost of the platform. The current model revolves around the ownership and control of data, with access to a user base or higher visibility as incentives.

Users may start to choose open platforms for value accrual.

12/ The ethos of Animoca Brands is centered around the concept of “digital property rights” first.

While platforms such as Sandbox have terms of service and violations may result in not being able to use the platform, the ownership of the underlying asset is inviolable.

13/ Composability also enriches the ecosystem. Yat raised an example of how a Model-T used to be sufficient to meet the purpose of transportation. Thanks to innovation and technology, there are now countless choices of cars.

This is because the tech was open to develop freely.

14/ Animoca Brands believes royalties are important for decentralization as they allow the wide distribution of value.

If a marketplace allows NFT trading in violation of royalties, it should theoretically be liable for the value traded.

15/ That is it for session 7-2! I loved the Washington quote mentioned toward the end.

“Freedom and Property Rights are inseparable. You can’t have one without the other.”

What PFP would George Washington have used? 🤔

Replay & materials are here👇

https://github.com/UniversityOfNicosia/META511MC-Course-Materials