Social Tokens (Blockchain) in Gaming | Richard Kim, Galaxy Interactive

hello everybody today we're going to be talking about social tokens what are they current and future applications in gaming and just to speak really honestly i think many if not most game developers are skeptical of anything blockchain and crypto related and i was part of that group for a very long time so most recently i've kind of come around to seeing some of the potential applications and we could talk about some of the reasons for that but with us to speak about blockchain and social tokens is richard kim a partner at galaxy interactive and actually an investor in my game studio lilac games welcome richard there you go and maybe just to start off do you want to do a brief introduction in terms of who you are and galaxy interactive yeah sure um so i'm a gp at galaxy interactive with my with my partner sam and over the last two years we've been one of the most active gaming vcs uh we're entirely sector focused uh we have around 50 of our portfolio in

interactive content um another 25 in interactive tech um and another 25 in interactive social which we see as the the collision the combination of gaming on the one hand and consumer and social more broadly on the other um you know i'd say that um we we obviously have a lot of knowledge and expertise about the gaming sector but we're not exclusively focused on on gaming or i think our real edge is in understanding how gaming is going to intersect with markets with with finance with social and and with in really interesting and explosive ways um which you know will be most of the topic of this conversation in terms of the intersection of web 3 and everything happening there with with gaming all right so i thought we could start by just talking to the audience about social tokens it's stuff like what is it could you describe to the audience what exactly a social token is and maybe

in the broader context of how it uh of like blockchain crypto and where social tokens fit in so in um in october of last year i i wrote this article called from nothing to something uh with rng um and you know i i started this social experiment that we call rng um to really explore this idea of can you create a community owned virtual currency out of nothing like can you create a sustainable ecosystem um out of that and um you know it's one thing to debate these things intellectually and one of the things i i hate the most to be honest is getting into intellectual debates about blockchain and gaming with with particularly folks from the gaming industry um just because there's just frankly too much talk in the space and not enough action and so i wanted to kind of um you know not be one of those talkers

and actually be a doer in the space and so in october what we did was we created a discord community called rng and tied it to um a social token which is specifically if you're familiar with crypto it's what's called an erc20 on the ethereum blockchain and you know there's infrastructure companies in this case we used role so i think their website's tryroll.com where you know our users didn't have to have metamask or any understanding of blockchain whatsoever but you know using traditional web 2 logins they could receive a wallet receive this social currency and use that to essentially participate in this discord that had authentication gates based on how much of the crypto you owned and kind of engagement rewards linked to um you know how active uh you were in the discord and what games you completed etc etc and you know the whole point of doing this was i'd been hearing from the crypto

crowd quite a bit that you just you just like tokens were like magic fairy dust right you just uh just sprinkle some on any community and you boost engagement and retention by 10x and uh i was like that's that sounds too good to be true but um you know i i only i had to test it out right and there's a real problem statement here and it's it's less rooted in gaming but more in the creator economy generally which is i um i had just read this this creator economy market from signal fire um that you know laid out the the kind of three layers of evolution of the creator economy starting from you know the foundational media platforms like youtube instagram etc and layer one and then the stiff to monetizing influencer reach once creator started building a brand this layer three where we are today of creators of businesses which you see in companies like sub stack and and others that um enable those with fans to monetize their fans better and um after you know looking at the 100 plus companies and that

in that piece uh i was really surprised that no one was working on what seemed to me to be an obvious layer for this idea of user-governed communities and i um i was kind of sick especially after talking to so many esports companies esports teams that then we're all like obsessed with this idea of how can we monetize our fans better it was a very kind of extractive dimension that i thought could be kind of pivoted to this idea of how can we reframe the creator collective relationship entirely so that fans could get shared upside um for for being early participants in the communities that they you know so so avidly act advocated for um and so last october it struck me as a perfect time to start experimenting with this stuff and actually try to build the equivalent of a soho house right except instead of charging people membership fees why don't we give away 80 percent of

sofa house have it run entirely on tokens have the earliest numbers not only get in for free but effectively become jump ball members of a decentralized collective and and see what happens right um and i certainly didn't go into it like having all the answers but um it's been a tremendous learning experience six months in um that i've written about quite extensively and you know it's it's funny those first few weeks you you feel like you almost feel like god like dropping this virtual currency on everyone and everyone's like doing these crazy engagement related things to get it and it's not just like funny money right because the amazing thing about cryptocurrency is that it's fungible and when you intersect that with decentralized finance which has come an incredibly long way over the last year and a half like if you want to look at one of the most mind-blowing charts you'll ever see there's a website called defypulse.com you can see the value locked under smart contracts in the ethereum blockchain has gone from a billion

in june 2020 to around 44 billion dollars today and this is not just like crypto funny money this is like real like dollar equivalents locked in self-executing contracts on on ethereum and and supporting you know things like decentralized exchange lending and all these things that um really they're important to gaming because when you take the fungibility and exchangeability um and composability of a cryptocurrency and you use some of these protocols to be now for the first time able to exchange some of these things for real value like upfront it's a tremendously powerful primitive in bringing open markets to what were previously kind of like largely closed economies right um and so you know in terms of like what the successful social token communities are these days like i would say that whale is probably the biggest one right now

and every one of these communities has to stand for something right and and the analysis of what gives a token value is it it's gonna it's gonna be the same no matter what token you're talking about right it's just the play in demand ultimately and part of demand is what can i do with this thing there's certainly the access gate dimension of if if i assemble like going back to my soho house example like if i assembled a really cool crowd you know there's a membership fee right and and people get that right but what aside from a membership fee in this dude like why else um would i acquire this thing and then you start to get into some of the the kind of virtual currency like use cases of social tokens whether that's buying digital art from creators in the community or powering games created by the community using that social token you need to create some of these sources of demand right and in the case of whale one of the amazing things they've done is it's the probably the biggest community of digital artists

in a space that's exploding right now with the growth of nfts generally and what they've done is gain mind share as essentially beta to the top tier of nfps and digital art which is an entirely separate topic that you know we can talk about for for an hour but you know my point here is you have to stand for something and and so whale is beta to nfts what is what is rng like still figuring it out and one of the reasons why i haven't taken the steps to make rng that liquid on these on these um decentralized finance markets is so that we have the flexibility to kind of learn as we go and just organically figure out things as we go along but the interesting point is if someone wanted to list rng on one of these markets i couldn't stop them right and and that's that kind of permit permissionless innovation and building on top of these communities is probably the most interesting part of it okay so like in terms of social tokens i

understand you're like you're doing something very practical with rng and in terms of a game developer as far as what they can do with their communities using social tokens what how should game developers be thinking about the application of social tokens for in their games or for their user communities so i would say social tokens are a pretty advanced application of crypto primitives um and so as i think about the continuum of games today right so most games like almost all games have virtual currencies and these virtual currencies are kind of closed within the context of that game right and that's very important to balance the economy and make sure the game designer can do all the things that they want to right as the kind of sole market maker and and supplier of these things what's interesting is you can take gradual steps towards making your game open right and and the benefit of making your

it's not the case that open is good and closed is bad that's definitely not what i'm saying um but there is a there's a set of of games mainly revolving around the collection space like where you have collectibles involved right i mean like yeah i mean especially mobile developers will be familiar with like gotcha mechanics and this sort of thing right so you bring that to the idea of digital collectibles and the ability to suddenly trade these collectibles on open markets that the developer doesn't have to build themselves because they already exist because of that fungibility aspect that i described earlier right and that's where you get potentially really interesting and powerful applications so i would say the layer one of getting involved in the blockchain space if you're a game developer is at the cosmetics layer it's hard to make functional virtual goods it's hard to put them on the blockchain without losing some really important control over game balance and game economy and this sort of thing right right right sorry just just to clarify for our audience so what you're suggesting is

that one of the things that game developers can do is to not risk their economy with you know basically they've got a system of sources and sinks and things of that nature but if they just started with a cosmetics based layer in in this case would they be using social tokens or would they be using nfts to power the the cosmetics yeah these are nfts and you know then you have to ask some basic infrastructural questions like which blockchain is the blockchain going to be scalable enough to support my issuance volume of nfts all this sort of thing right um and we can talk about that in detail later on but the i'd say i it's striking to me that i haven't seen and i know some are working on this right now but today i can't name you a single mainstream blockchain game that has their virtual goods layer even pure cosmetics um on a blockchain right and and so

it it goes to kind of my point of you know so many people think they understand blockchain and its application of gaming but but how can you if you haven't even seen in the wild what happens when you combine a a mainstream game with these open market tradable primitives that give you top shot like effect so nba top shot has sold over 250 million dollars to 300 million dollars now and it's not surprising to me at all right because you again you combine those core collection mechanics with open market tradeability and of course people are going to go bunkers over this stuff right it's become a cultural phenomenon so that's layer one like and i wouldn't say like shift your entire cosmetics layer to blockchain on day one but do control the experimentation right you could have most of your skins as they are but sell like one of five editions of a of an nft skin and then see what

happens like maybe no one cares okay so and so just just to clarify it seems like when we're talking about uh blockchain and crypto that first step probably the first applications that you're suggesting that we're likely to see are going to be more around nfts rather than social tokens and will probably be in application in gaming that doesn't impact the economy so to cosmetics but then in terms of social tokens itself in the ability for game developers to utilize social tokens what are and again maybe this is more theoretical but what are some of the potential theoretical applications of social tokens in your opinion so so here's where i'm getting to kind of personal opinion stage but yeah um here's what i think is not going to work a traditional game developer with their own economy with the kind of one to five virtual currencies and and them kind of saying hey let's build a social token and create something out of nothing and

use it to like create value that wouldn't otherwise exist you know get get influencers to market our game and do all these things and basically treat this thing as cash without paying for it right and the reason i don't think that works is it it's like a recursive problem right you have to ask what is the source of demand for this thing so you can give it away the influencers or whoever and there may be some interest in it but then ultimately you're gonna have to ask the question what can i do with this thing there has to be endogenous sources of demand right within the ecosystem you're creating so one thing that could be interesting is if you created a fungible virtual currency like a cryptocurrency i.e social tokens that you send out to uh influencers and others who are kind of using your game or community members that are you know adding a lot of value or whatever right um you know your most engaged players etc and you send it out and it's redeemable for things like

skins right and only redeemable using that social currency right so that that could be an interesting kind of intermediate take of coastal tokens at the extreme end of the spectrum and where i'm personally most excited in terms of how transformational and spam creating social tokens can be is the idea of fundamentally reworking your notion of ownership and economy in-game which means all those traditional virtual currencies you had in that closed ecosystem you don't have it anymore you you rework your entire economy and governance and community structure around these social tokens it would be the equivalent of like epic games not existing and a kind of ragtag group of developers artists programmers et cetera coming together and saying there will only be v bucks and everything we do is organized around engendering value to vbox and you know

we'll still charge for skins and dollars and we'll only ever issue say 10 million v bucks and what's going to happen over time as your player base scales is the price and v bucks of your of your skin is going to fall right because v bucks get increasingly valuable because more and more people are going to want them and you're keeping the dollar price of skins constant right like that type of mentality shift is where social tokens get really interesting and i'm seeing some of that experimentation today in the blockchain gaming space you know the much criticized blockchain gaming space and the user experience is still atrocious like um but if you if you kind of see past that you see glimmers of things that are really really interesting there was a a tamagotchi kind of game that launched earlier this week called avegachi and honestly the onboarding experience was one of the most painful things i've ever gone through because you have to deal with side chains on

ethereum and all this kind of conversion and d5 complexity blah blah blah but um it was really interesting because you know this game was governed or was was built from the from the ground up to be governed by what's called a dao a decentralized autonomous organization i.e the player base and all the sources of value are are constructed so it deliver value to the token as the lifeblood of this entire ecosystem and the token is really integrated with decentralized finance protocols in ways that like this is just an open market game and and and combined with very basic collection primitives and so as i think about like okay what is the future of like where blockchain games get really interesting it's in games that are architected from the bottoms up to be governed by their player base and to have all of the sources of value delivered into the token itself and to

have that token be natively integrated into all the latest decentralized finance protocols and why is this important because today like let's use roblox as an example there's obviously a huge creator developer base around roblox but it's very difficult to get fiat in into and out not so much into but more out of the system right because you know if you're a developer and you're facilitating real money exchange with with virtual currencies you fall under things like money transmission laws and fincen guidance on what it means to be a virtual currency issuer that requires you to do things like kyc and aml checks um so like i think that space is the most interesting space that we're going to see a lot of innovation in in blockchain gaming space but it's also one that's fraught with a lot of issues primarily from a legal and regulatory standpoint that need to be

carefully considered and so for game developers that are thinking about just blockchain generally you know you mentioned nba top shots that they've obviously done really well but what are good examples of both games that have and i guess nba topshop isn't so much a game it's more of a it's more of nft art to some degree right but do you have examples of the specific whether it's game or applications that game developers should be watching both from a blockchain perspective and then in terms of social tokens or do you think social tokens is as you mentioned because of some of the challenges that's going to be further off in the future yeah so um if you think of blockchain gaming as like that the kind of spectrum of of innovation towards open markets gradually right i think the the first like breakout hits are likely to be games

um i'll just plug our own portfolio company for mythical games is developing a game called blancos um blankos.com and uh it's like a really it's it's like a really fun party game that is just genuinely like stands by itself as a game first and foremost so that's super interesting except they're making the cosmetics layer essentially subject to open markets and tradable and tapping into some of the the same inherent collection and trading desires that you see in something like top shot with its 300 million dollars of sale so i think that combination of a great game experience and kind of a ugc driven world where players can express their creativity so there's a lot more utility for cosmetics combined with open market trading and the ability to list you know skins on ebay and then have them go through paypal and all these things like i'm really excited about that over the next year so that's kind of like the the kind of short to to medium term right

over the longer term i'm i think even more excited about games that flip the ownership model on its head fundamentally right so mythical games which makes blankos is a traditionally organized company that you know receives venture funding from us and others just like any other company and sure they've made this kind of cosmetics layer that's tradable on a blockchain and that's interesting and i think we're going to see some really great results there but it's still a centralized company right so so what happens if instead you architect your experience so that there's not even a company right that all of the value goes into this decentralized collective and you know it's easy to dismiss this because the user experience has not been great up to this point but the amount of development and the pace of innovation you see in open economies that are fundamentally that open in nature right as a i'll give you an example of a

permissioned open economy it's the same marketplace and and like this is one one argument i hear against blockchain a lot is well the marketplace like it's kind of the same thing and it's on a single database so you don't need blockchain right but what you don't have with something like this new marketplace is that kind of incentive for an entire ecosystem to build on top of you know your core protocol knowing that the rules of the game aren't going to change halfway that they can't just be shut off anymore in fact like no one owns this stuff because they're all self-executing contracts on the blockchain and and that that that kind of split in ownership governance and economics is something i think a lot 99.9 of traditional game developers i met really struggle with and so i don't think we're gonna see traditional game developers leaving the charge on this stuff i think it's actually going to be people with more of a crypto background figuring out how to get reddit place

type of emergent like the emergent board like bringing them together in really unexpected ways um that that's interesting like almost flash mobs now and maybe we could talk a little bit more about social tokens applied to organizational structure and this is something we talked about on on clubhouse earlier this week but for example one of the interesting things that i've been noticing on roblox is that the kind of projects that come together and the creators that are developing on roblox are kind of dynamically organizing around different projects and it's like there's there's some type of lead who then attracts an audience of creators and then they will form these ad-hoc groups to work on a specific game project and my theory behind why that is occurring is because roblox has basically commoditized a lot of the infrastructure so that you don't need a big organized

kind of team to do a lot of the the work and because the creators can um creators can build a lot easier uh they're able to kind of form these these kind of groups but you then don't have like that formalized organizational structure like a delaware c-corp you know with a cap table all that kind of thing and so the other thing i wanted to ask you about maybe you can talk to our audience about is not only social tokens in terms of a layer of exchange between creator and community but also as potentially a way of being like an organizational glue or a way of being like a project-based token against like a game project or something like that could could you speak to the potential of social tokens in that sense yeah absolutely so i think we've now touched on at least two functions with coastal tokens right one is

as currencies um and apply your traditional virtual currency rubric to that in terms of supply demand profits and things right um then the second being like tokens as um kind of status symbols in the community and access gates um and exclusive rewards i think people get that as well um there's a third function that's pretty interesting which is tokens as essentially like jump all equity in a decentralized collective that is interesting to me because it arguably directly conflicts with the uh tokens as currencies use case um because for tokens as currencies you want high velocity you want this thing to be used in a lot of transactions whereas if i'm your seed stage investor you don't want me flipping that on secondary markets right you want me to just like forget i even have that and just like work with you as a partner so there's there's that tension and i think that kind of third use case is is what you're hinting at

right like as tokens as essentially jump ball equity for lack of a better word right right um and so it's this is where the legal side gets super interesting as well um because there's a long history of analyzing kind of units in um in a co-op as not being securities right so if securities are things where you primarily rely on the efforts of a promoter to deliver you value and you're kind of a passive participant that's a security right whereas interest and co-ops according to case law have not been deemed securities so long as you allocate these interests based on essentially patronage uh in the network and you have you know limitations on transfer and kind of a a bunch of other things relating to like how decision making is democratized and governance is set up in the right way and so i i

think that there's a really really interesting um application of social tokens to kind of ugc driven worlds where you know as you were describing in the roblox example like you sometimes just get drawn to certain creators than what they're building right and you want to be part of a movement and you get paid in the currency of that movement based on these like sub-communities that form and whether like these things ultimately have value depends on the productive output of that community there's a word for this um which is squad well right and and squad wealth is kind of like um you know and this is where like you just really have to understand what's going on in consumer social broadly right like there's this fascinating article that sam hart wrote about squad wealth where you know he was talking about um how the squad economy yields like primarily non-monetary forms of value so when he described what squad wealth is he said you know it's when your discord

is popping off and it brings you more joy than a 70-hour week hustle over or ever could right and everyone just wants to be a part of this thing and they'll do anything to gain admission to the club right so you kind of tap into some of these exclusivity elements but it's also just like it's not that difficult to understand like buying into a nice golf club with a high membership fee right and then doing things together that foster that group's identity and continues to create value as that squad right and so like there is definitely a combination of ugc driven um content together with a fundamentally open architecture monetary policy and financial ecosystem that will serve as this really turbocharged incentive layer behind i think the next gen of ugc content and i'm really excited to see it in you know things like um you know the equivalent of like dnd and digital space

right imagine like if we could like self-organize and and as dms then like i could you know i could buy into the the dm's i really like you know uh resonated with early on and kind of take a financial stake in the outside of that community right things like that are really interesting got it okay well you know i think there's a lot more we could dive into and i know you have an essay well you you've got a post about 25 mini essays on social token salt i'll add a link uh to to that post and i think it'd be great if we could get you back on to talk through some of the the finer details behind a lot of the concepts uh behind social tokens in the future but richard i wanted to thank you for your time do you have a last message to our audience in terms of you know any references or first steps they should they should take when it comes to learning more about or potentially implementing whether it's blockchain more generally or social tokens yeah i mean i like i said i'd focus on

nfts first um i'll probably come out with a piece in the coming days on on why i think nfts are so fascinating and the implications on the creator economy generally um i i think just in a word the number one mistake people are making is they're viewing nfps and digital art and digital collectibles is a purely financial instrument and they're and they're doing things like saying oh this is 2017 ico bubble all over again and i'm not saying prices aren't inflated prices are clearly like they've gone to the moon right but the analogy i think is less helpful than useful because you know let's just stipulate for a second that we're in an nft bubble the the interesting question to me is so what right because tokens in 2017 were fungible promises a means to some hoped for a bigger end right nfps are non-fungible collectibles

and the reason that's important is because they're ends in and of themselves so stripped to their core uh tokens were driven primarily by extrinsic motivations the idea of making money whereas nfts and digital arts collectibles are driven primarily by intrinsic motivation or at least a combination of intrinsic and extrinsic and so the reason that matters is i assume the bubble crashes and prices fall 50 and some people lose money what's left is going to be this core of more than just open expectation but actually fundamentally re-architected system through which um you know creators can benefit individually rather than through entities and that to me is the most interesting part of all of this is this idea of you know cutting out the middleman getting access to a global pool of buyers and sellers having creatives be able to collect

royalties every time their works are resold you know combining the kind of social and and utilitarian benefits of patronage with this possibility of of earning a profit for doing what you love right and and that is the most interesting part to me of how this can all go and i would not be on the short side of the compounding effect of this mass of creatives all having come together at one time in a selling point to use alex denko's term of it the shared understanding and common gathering point for creatives and developers who for the first time can now represent digital scarcity in a commonly understood way and and that is just super exciting to me right and i i would say like the example that you mentioned in terms of d i think that's a really powerful one i it does feel like with a game like d d that's fully digitized in some way on tablets and be in where you have the potential

to have a lot of different dungeon masters as well as characters and items that the potential application of blockchain nfts and social tokens around different communities and dungeon masters like it feels like someone could really figure that out and that could be like the next big hit but anyway yeah and would love to kind of talk to like game developers all over and jam on this stuff because i don't have all the answers and i learn constantly from conversations with smart people so um yeah we have a discord uh for rng gg slash rng life if you come in and introduce yourself i'll send you 100 rng so you can experience what it's like to play with this stuff in real time and continue the conversation all right great all right thank you for your time richard and folks until next time i'll talk to you later bye

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