Xiao Yi, founder of Animoca: The cornerstone of the metaverse is digital property rights

Text: Wu Hongtao

Founded in Hong Kong in 2014, Animoca Brands is a company focused on the field of digital entertainment, first engaged in traditional game development, and currently mainly develops and publishes products based on blockchain, GameFi and artificial intelligence. At the same time, AnimocaBrands is also one of the most successful investment institutions in the Web3 space, and has invested in more than 400 NFT-related blockchain companies, including star companies such as Axie Infinity, Open Sea, Dapper Labs (NBA Top Shot), Yield Guild Games and others.

In September, Animoca Brands announced an investment from Japanese company Mitsui & Co., which is already the company's 19th funding round. According to Yuanli estimates, the company's disclosed total financing alone is close to $1 billion, making it one of the veritable giants in the entire Web3 field.

Animoca Brands is the main beneficiary of the development of digital technology, and in the future, as the digital world continues to evolve, virtual and real gradually become blurred, people's understanding of ownership and interactive forms will also change, how to cope with this change and find new opportunities is the main question facing every practitioner.

Recently, foreign media interviewed Xiao Yi, co-founder of Animoca Brands, who talked about his views on the combination of Web3 and artificial intelligence, as well as the construction of cryptocurrencies in Asia, and also discussed the new cryptocurrency regulatory framework in Hong Kong and cryptocurrency investment opportunities in Asia. The following is an excerpt from the interview:

1. What do you think is the biggest obstacle to Web3 adoption? What can the industry do to address these issues? **

Education and awareness are essential. A significant portion of the population is still uncertain or misunderstood about what Web3 or the metaverse stands for – the shift from platform/publisher ownership to user ownership. This misconception is caused by some bad facilitators who associate blockchain, cryptocurrencies, and Web3 with scams. We must continue to build Web3 and show the world how they understand the true potential and benefits of blockchain, especially its ability to enable true digital ownership.

The user interface and user experience of many dApps today tends to present challenges for those who are not yet familiar with Web3. As blockchain technologies evolve to the point where users can interact with them seamlessly, even without knowing it, we will see a significant increase in their adoption.

Increased regulatory clarity is also crucial. A clearer regulatory framework will restore confidence that was weakened during various crises in 2022. In this regard, Asia is setting a good example, and regions such as Hong Kong and Japan are developing policies that are already promoting adoption.

2.What are the key factors that determine the success of Play-to-earn games in the mainstream market? **

Play-to-earn is just one case of what is possible once you have full and real ownership. This is also why it is now often referred to as Play-to-earn; Making money is one of the reasons you can choose to participate, but it's not the only reason. In terms of value, it's not just money that you earn in a game, it can also be reputation, social status, or cultural value.

Another key factor is the successful onboarding of mainstream players. We're about to see more triple-A Web3 games coming to market, such as Phantom Galaxies from our subsidiary Blowfish Studio and Wreck League from nWay. These high-quality games will help traditional gamers realize that the quality of Web3 games can be comparable to those they are familiar with. This recognition and familiarity with quality will encourage more traditional gamers to participate in Web3 games. By participating in these games to truly own virtual items, they will be directly exposed to the benefits and potential of digital ownership, such as economic freedom over the items they own.

3. Can you explain your vision for an open metaverse? How do you think it will affect our daily lives? **

We strongly believe that the open metaverse is the future. It can be described as the Internet of Ownership, which means that its foundation is true digital property rights. It's a big misconception to think that the metaverse is purely a VR or AR environment, especially one built on an outdated "walled garden" model.

For us, the metaverse has nothing to do with VR glasses, specific virtual worlds, or games. As envisioned by most developers in the Web3 industry, it is an open, decentralized system and environmental network connected by true digital ownership, interoperability, and community management.

The open metaverse is built on the "meta" level of digital ownership, which is why it is such an interesting and powerful concept. Property rights are the fundamental foundation of all capitalist-based economies – property rights are inextricably linked to capitalism. The freedom enjoyed by capitalist economies is directly related to their strong property rights (ownership of something also confers economic freedom on that thing). These rights and freedoms are the foundation of the most successful and prosperous nation-states. The digital equivalents of these concepts underpin all the layers of experience of the open metaverse, which includes not only the oft-mentioned VR, but also any other digital interfaces.

This fundamental shift towards digital ownership is currently underway in the Web3 world, and it will only gain momentum, similar to the rapid development of the web in the late 90s of the 20th century or the rapid development of the mobile Internet around the 2010s. Blockchain technology is driving the continuous development of the internet.

**4.How do you see the crossover of gaming, blockchain and the metaverse in the next 5-10 years? **

Over the decades, games have had a profound impact on the physical world by driving advances in numerous underlying technologies. These advances not only improved the quality of the game, but also gave a strong boost to the development of industrial infrastructure. Think about how gaming is driving advances in GPUs, display technology, control devices, processing power, and storage. As smartphones developed into advanced gaming devices, they also became viable production tools, which led to the initial mass adoption. The interweaving of content, culture and technology is an important reason for this progress.

The transition from Web2 to Web3 requires not only blockchain infrastructure, but also cultural factors, which can be social, entertainment, or consumption-oriented, but are all driven by gaming, prompting mass adoption of this infrastructure. Take the Internet, for example: while connecting to the Internet ties us to infrastructure, its main attraction to people is not the Internet's impressive technological achievements, but the access it provides to content and services.

The Open Metaverse – a virtual society empowered by digital ownership with real economic impact – represents the next logical evolution of our digital lives over the next 5-10 years. In the open metaverse, our time provides value and meaning to ourselves, not just in the current Web2 paradigm, to platforms that leverage our data and attention.

**5.Can you describe the main criteria and general philosophy of the Animoca brand for selecting investment opportunities? **

Our investment strategy and processes are deeply rooted in our belief that Web3, blockchain and NFTs have the potential to revolutionize our interactions with the digital world by enabling ownership. To date, we have invested in more than 400 Web3-related companies and projects with our balance sheet, while also operating subsidiaries such as The Sandbox, Tiny Tap, Darewise Entertainment, Blowfish Studios, and others.

We especially favor companies and projects that emphasize openness and interoperability, have the potential to drive large-scale Web3 adoption, and make significant contributions to the development of the open metaverse. For example, any company and project that is able to improve the network effects associated with NFT ownership. This includes projects to build an open metaverse, as well as projects that provide true digital property rights based on open and interoperable assets. This includes platforms and protocols, marketplaces, and consumer products such as games and virtual worlds.

**6.How do you think this regulatory shift under the new SFC licensing regime will affect retail investors' attitudes and sentiments towards digital assets in Hong Kong? **

The new SFC licensing regime will add a layer of legitimacy and security to digital assets in Hong Kong. It will help clarify the rules of participation, make the digital asset market more transparent, and reduce the risk for retail investors.

Due to stricter compliance requirements, some may initially see regulation as an obstacle, but in the long run it will boost investor and consumer confidence. Retail investors feel more secure knowing that the platform they use is regulated and has protections in place.

This will ultimately lead to more participation from retail investors and attract more institutional investors – both of which will contribute to the overall growth and maturity of Hong Kong's digital asset market.

**7.Has the JPEX fraud affected perceptions of Hong Kong's new, more open digital asset policy? **

The JPEX incident underscores the need for clear and sound regulation to protect retail investors. It must be acknowledged that most innovations, including early cyber innovations, always have inherent risks and the potential for abuse. We trust that the Hong Kong government will continue to work with all parties involved to develop rules and standards that deter malicious actors without stifling innovation. Hong Kong is one of the world's major financial centres and has great potential to become a global innovation hub and leader in the digital asset economy.

**8.What do you think the West misunderstands about cryptocurrencies in Asia, and what aspects of the Asian cryptocurrency market should we focus on? **

An important aspect that is often overlooked is how fast the Asian cryptocurrency market is evolving and how open it is to innovation. There is a strong entrepreneurial spirit and high level of technological literacy, providing an ideal breeding ground for the development of blockchain and cryptocurrencies.

In addition, Asia, especially places such as Hong Kong and Japan, are establishing clear regulatory frameworks for digital assets. This is critical because it fosters an environment that both fosters innovation and protects investors. In Asia, we are seeing the internet shift towards greater decentralization, with digital ownership and user autonomy being prioritized. In this region, we expect to see even more impressive growth and innovation in the coming years.

9.We are in the midst of what I call a "mild" bear market, but what is certain is that interest in Web3, NFTs, and the metaverse has waned and been overshadowed by technologies such as artificial intelligence. How are investors, start-ups and users responding to the current market environment? **

Web3 is still in its early stages and has yet to reach its full potential. AI and Web3 are not mutually exclusive, they may develop symbiotically. If we envision a future where AI entities can trade autonomously, then these transactions will be conducted in cryptocurrency, which is logical. It is predicted that 70%-80% of transactions in the future will be conducted through autonomous AI agents, and the decentralized nature of cryptocurrencies makes them a suitable choice.

If we all have reason to believe that Web3 will revolutionize the world (as its predecessor, Web2, did), then the current state of the market should not be seen as a hindrance. Our focus should remain on advancing technology, educating the public, and creating transformative dApps for the greater good. Over time, no matter how volatile the market may be, we will benefit from true digital property rights and a fairer digital economy.

Also, given the upcoming launch of various Bitcoin spot ETFs and the recent inflow of funds from Web3 projects, I think that while overall activity by volume may be lower than its peak in 2021, it is still quite positive.