Sandboxes in cyberspace and the rise of the metaverse

Transcript

Angie Lau: In 2012, a full decade ago, an idea was born of a world to create that would exist in what we now know as the metaverse.

Well, today, The Sandbox is one of the biggest blockchain-based decentralized metaverse companies in the world. The real estate numbers are eye-watering. A plot for sale of a virtual LAND in The Sandbox in November of 2021 went for US$4.3 million.

Snoop Dogg has a virtual mansion there — presumably his pal Martha Stewart might be paying a visit — and brands are flooding in.

So what’s the play in the metaverse? Is GameFi the next stage of growth for blockchain and crypto? And does the future of gaming also portend the future economy?

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast.

I’m Forkast Editor-in-Chief, Angie Lau.

Today I’m so excited to welcome Sebastian Borget. He’s co-founder and COO of decentralized gaming giant The Sandbox. And here he is right now, folks.

Sebastian, welcome to the show.

Sebastian Borget: Thank you, Angie. What an introduction. Wow.

Lau: Well, you know what, I envision a day where we’re going to be doing this in the Forkast studio, in the metaverse. Maybe it’s going to be in The Sandbox, possibly. Maybe it’s going to be our avatars talking to each other, and then our avatar audience is joining us from around the world. But now, so many more of us are thinking about the possibilities. 

But back in 2012, what was it for you that triggered, ‘Aha, this moment. This is the time. This is the time to start building’?

Borget: I definitely see our conversation in the metaverse with the audience live.

In 2012, we had the idea to use new technology to create a new form of entertainment. By then, it was (through) smartphones that new technologies came, and touchscreens. So we thought, like, well, if we can just turn players into creators, let them make a lot of cool stuff, their own games by the touch of their finger, that would be a very strong and cool proposition for them. That was how the idea of The Sandbox was born, allowing players to create 2D pixel games just by touching with a finger. It came on iOS and Android. It generated over 40 million downloads over the lifetime of that game. We had a lot of player-made creations — 70 million. The company was successful in generating a good revenue from that, leading to its acquisition in 2018 by Animoca Brands.

Yet we felt — with my co-founder, Arthur Madrid — frustrated by something. We were not able to retain those top creators that were contributing to that content over the lifetime of that game. They were maybe here for months, but never through whole years and more. We felt like the frustration was around the idea (that) we were not able to reward them other than with social status and recognition for the work and the values they contributed. There was no way for us to share a part of the revenue, etc., due to the platform’s limitations.

In 2017, I was again dabbling into new technologies, this time with blockchain. We found out (about) CryptoKitties, the first blockchain-based game with virtual cats that you could breed and trade. And we were amazed by this idea, that actually those cats could be sold on marketplaces, which is not the (object of) the game. And we saw the potential immediately to actually combine NFTs as a technology with user-generated content. And then, suddenly, any creator could make content and sell that content somewhere else and monetize it fully. We worked on that idea for over three years — four years, almost, to date — turning Sandbox into a platform with creation tools, a marketplace map with virtual LANDS, bringing brands and IPs. And today, we’re proud to have more than 2 million registered wallets and having Sandbox where it is now.

Lau: It was really that moment when you thought, or you realized, that there was another kind of transactional relationship that you could have with your creators in a way that you couldn’t back in 2012 — and that was crypto, that was blockchain, and that’s when you introduced SAND, the cryptocurrency that fuels the Sandbox economy.

How did you integrate ‘Economics 101’ into building this metaverse, building this creation that allowed people to feel like they could participate in this world for much longer than just a game — that it was really so much more than that?

Borget: We’ve built Sandbox, this new version of Sandbox, since the end of 2017, with this idea to put the community first, to put the user first, at the center of the value creation and the reward system. It started with NFTs, allowing them to create content with a very accessible manner, without creation tools, and being able then to own what they create in the world they contribute to. So, from the assets moving into LAND, owning a piece of the map where they put the content they create, and owning the avatar as their identity. And ultimately we only introduced the SAND token that participated in the economy. SAND is a utility token that serves for payment, access, governance and staking. After, the community was here and we attracted (people) for the product, for the value proposition, the users… and then we rewarded them by allowing them to sell and to earn using that.

Web 3.0 — that’s the sense of Web 3.0 and blockchain — they’re, like, community-driven communities that are supported by token economies. And the incentive behind the network effect … that tokens provide (is) incomparable with the traditional system, where usually creators would get a smaller portion — somewhere between 30% to 70% — of the value they generate. Here, we gave up — literally — the power and the revenue, by handing it 100% to our users, and we saw the effects of that at scale. Concretely, what happened is, like, the users, the artists, the creators that became part of our community, they directly reinvested their earnings into the platform, so they started to buy, buy more content from other creators, to buy LAND to start building on their project. And that’s how we progressively onboarded them into the benefit of NFTs of crypto and building together this digital nation — I like sometimes to compare Sandbox to a digital nation — where every actor, every member of the committee is like a citizen that also can act on the future of that world and own a piece of it.

Lau: And how do you get your revenue?

Borget: That’s also one of the great things around being Web 3.0 and blockchain-based — the revenue we’re getting is from multiple sources. First of all, of course, we’re selling NFTs as the primary sell. So, typically, the No.1 revenue source currently is LAND. We’ve sold roughly more than US$80 million worth of LAND to date. That represents 70% of the map, leaving 30% of the map remaining for sale until the end of 2022/beginning of 2023.

But once we’ve sold out all of that, we still collect 5% royalties on any secondary sale. So, by providing utility value to the landowner and driving demand through that, and facilitating exchanges between users, we still earn royalties. And it’s the same for user-generated content. When creators make their NFTs, they get 100% of the price they ask as a payment, and we still get 5% every time those NFT exchanges end, which I think is one of the most scalable models.

Lau: No, I get it. I get now why you call it a digital nation. One could say that Sandbox currently exists where Forkast is in Hong Kong, for example — land sales really drive government coffers. It’s government-owned land, they auction it off, they get the revenue from the land sales, they use those revenues to, obviously, build up the city, reinvest into public utilities, public works, etc, etc. So, in a digital nation, in a digital space, in the same way, that’s how you’re accruing your revenue. Then, once that’s done, you’re still custodians of the space. You’re still making sure that participation in the metaverse is of a certain quality.

And so I’m curious how you see this kind of role, as you created this world in which a lot of people want to participate, but now you’re custodians of that experience.

Borget: All the people who own LAND are their own custodians of their assets. They own it. We cannot take it away from them. But our role is to support creators of these players through the foundation. Any time there is a transaction that comes in SAND — whether the primary sale or the 5% royalties — half of that, 50 percent, is reinvested into the foundation that then supports artists through the creator fund, supports creators, people building the experience in the game through the Game Maker Fund, supports the play-to-earn price. For example, the last Alpha season we launched in December supports staking rewards for people who also contribute to the economy, and now supports entrepreneurs, as well, with the Metaverse Accelerator Fund we just launched last week in partnership with Brinc, which is a US$50 million fund, which will be supporting up to 100 startups with checks out of US$250,000.

I believe it’s essential to build a world that’s going to be living, fun, engaging and culturally rich to support and promote diversity, to support and promote entrepreneurship, education, women and underrepresented communities in this space — and there’s more to be announced on that side — and to encourage the creation of a much more diverse experience than what we will be typically seeing in other virtual worlds or traditional gaming platforms.

Lau: Now, it’s exciting stuff. Sebastien, I want you to give us a little bit of a tour of The Sandbox. Who’s there? Who are the celebrities? What are the most exciting projects that you’re seeing? We know about Snoop Dogg’s mansion. We’re just seeing a lot of buzz happening in The Sandbox right now. You’ve got a lot of challengers, as well —  Decentraland and so many other metaverses are popping up. But I kind of want to get a little bit of a tour. Can you give our audience a sense of who’s in The Sandbox right now?

Borget: Of course. We’ve worked to bring more than 200 IPs, brands and celebrities to date. Some of them — the first ones — include Atari, The Walking Dead, Care Bears, Smurfs, Deadmau5, and, more recently, we’ve been really excited to welcome Snoop Dogg, and his mansion, and his upcoming virtual concert. Adidas has acquired LAND in Sandbox, and Warner Music Group was announced last week … pushing towards very global cultures. We have IP from (South) Korea, such as Pororo, local artists and musicians. From Hong Kong as well, we announced Mega-City in January, featuring (New World Development CEO) Adrian Cheng, (property developer) Sun Hung Kai, (actor and film director) Stephen Fung…  just among some of those names that are more known in certain regions.

That’s just one part of all the content you’ll find in Sandbox. We have also, like, literally a hundred NFT-based communities, including Bored Ape, World of Women, Guild of Guardians, Rumble Kongs, etc., so we feel like Sandbox is really a space for creativity, a space where NFTs can come to life, because as an open metaverse, we enable any NFT to be displayed, to be played with — even to be turned from a 2D image into a 3D avatar that you can play with. And that’s something very unique that’s only possible in open metaverses based on blockchain, and where users own their digital assets and can transfer them from one application to another.

Lau: This is a huge new segment of the industry, and a lot of big players are moving into the space. Back in January of this year, 2022, Microsoft announced it was buying Activision Blizzard for US$68.7 billion to help that company, which one could say was innovative during its day — a startup in its day — and now a legacy company trying to stay competitive in the metaverse.

As an industry leader in this new segment, and really one that defined this space, what does this mean for competing companies building the metaverse? There’s a lot of people starting to crowd the space that you helped build and start.

Borget: I think I have two thoughts on that topic. The first one is, like, what is exactly the metaverse? Is it just a virtual world like we’ve seen 25 years ago with Second Life, Minecraft, World of Warcraft, Roblox? You can enter a virtual world through an avatar. We’ve seen that —  anyone has seen that before. But I think what really is different in the metaverse is, like, how users with the avatar can actually access a greater variety of experiences — more social, more rich, more immersive — and they have the ability to take their avatar — which is their identity, their assets, their currency — from one virtual world to many others. That’s actually the real metaverse. The true metaverse is an open metaverse, decentralized, where users are not locked in into a certain platform, and from there a whole economy can be born. That’s the novelty that blockchain brings, as now we’ve seen.

Now, the metaverse is a place for entertainment. In my opinion, we’re seeing very key actors positioning into virtual concerts, virtual shows. So it’s just with gaming, but it’s going way beyond. We see that with Fortnite, and more. And Microsoft acquiring Activision Blizzard — it’s in a way giving them priority access, securing them the exclusivity to prime entertainment, because we know the Call of Duty license is the one that’s selling the most consoles ever. To our scale — right now we’re not the size of a Microsoft, obviously. We also have the strategy to bring IPs and brands, entertainment, games, sport, music and more, because we know that through them we can reach the fans and they will come for those, to start with. But they also will stay to engage and play with the user-generated content, so they are a way towards a broader spectrum of experiences made by users. Because ultimately 99% of the metaverse is going to be made by youth and by users.

Lau: By content creators… How we want to engage with the audience and the metaverse — The Sandbox, other platforms, could be multiverses — is really platforms in which we choose to communicate our content. It’s kind of what we’re doing right now in Web 3.0. We’re inching into, obviously, blockchain and crypto, and NFTs and multiverses and metaverse. It’s just an extension of the core of the value of content.

Look, this is kind of how Facebook views it, as well. How do we kind of answer an existential question that its investors ask of it constantly: How do you view the rebranding of Facebook as Meta in the metaverse space? Is there a battle? Do you see (a battle) coming between centralized and decentralized metaverses? What would the difference be for the consumer?

Borget: I see the rebranding of Facebook as Meta as a very surprising moment. The company that’s been affecting the life of up to 3 billion people for the past 10 years, shaped some of our social habits, social connection and more, suddenly changed its name and says, ‘We’re entering the metaverse.’ You see something new. So, wow. I wonder, like, how Facebook is going to transform our life? What’s the future of technology?

And then we get the presentation, which I personally found was rather boring — nothing exciting there. Maybe work, maybe play games and do that with VR avatars. Nothing new under the sun here. And if you read even further into the letter from Mark Zuckerberg, you can read there’s no notion of changing the core of their business model, which is — as we all know it now — about collecting user data with or without our consent, sometimes, in order to sell it to advertisers so they can better target us through ads to sell products. Mark even said, like, the metaverse is going to be a place for commerce, for transactions, where brands can sell products. But frankly speaking, do users want that? Do they really want to be sold more products into those virtual worlds? I think he’s been missing the ethos of Web 3.0, which is about, like, more community-driven engagement and other values than just transactional.

In Web 3.0, people are connecting because they’re sharing some passion together, some tastes. They’re becoming fans rather than clients and customers. And Web 3.0, specifically the decentralized virtual world, starts through an avatar which doesn’t ask you for your email, for your first or last name, your ethnicity, and so on. It just starts by you choosing how you look, who you are — can be totally opposite-sex, could be totally non-human character — and entering worlds, following brands, because you actually enjoy them and actually being rewarded through NFTs and through tokens for the time you spent and the value you create.

So, it’s been great. It’s a bit of — definitely — a great push toward growing the curiosity of the world on what is a metaverse. And it’s been a terrible way of answering that question, which, in my opinion, has given more breadth for decentralized actors such as Sandbox and others, Decentraland and more, to try to compete and offer a different value proposition, which is more user-centric.

Lau: Well, I do note that shortly after Facebook announced, The Sandbox raised another US$93 million in a series-B led by SoftBank. So, there you go. That was a nice little push in your series-B.

As you said, there is this rise that a battle is coming. And you have a very different value proposition about how the metaverse should be used. How are you going to use this war chest? Another US$93 million in a series-B? What’s the strategy?

Borget: So, definitely the series-B announcement being led by SoftBank has been adding even more … trust and confidence that one of the top funds that’s been backing companies like WeWork, Uber and more, that transformed our life profoundly, is betting on the Web 3.0 decentralized metaverse rather than on the one proposed by Facebook.

We’re going to use — and we’ve started to deploy — the funds to grow the team, hire more of the top talent in the world to build that vision with us, acquiring game studios and companies, as well, onboarding even bigger brands and IPs and celebrities that we’ve started to announce. And, of course, (we’re) promoting this through marketing activities so that we keep onboarding more and more people to our wallet and to enter Web 3.0 and the open metaverse. That’s been really astonishing so far — how the growth we’ve seen in this series of events between Meta, the series-B, the launch of (Sandbox) Alpha, and now us becoming one of the leading virtual real estate collections. Onboarding, like, major brands, buying LANDS directly themselves, and announcing without us knowing about it that they’re entering the metaverse — it’s really exciting to be part of that new movement.

Lau: Is there consolidation coming? We saw the pullback in crypto, we saw the pullback in SAND. Your all-time high was US$8.44. I think currently it’s about 56% off that all-time high. There’s a chill in the air in crypto and blockchain right now. Do you think there’s consolidation in this space that’s coming?

The rumor mill has it that Facebook is potentially looking to acquire. Have you been approached at all? I’m curious about what kind of conversations you might have had, and what you think about potential consolidation and acquisitions in this space.

Borget: Definitely, where the future is going is, like, if we’re going to compete for user attention, there are metaverses that are looking to capture, as much as possible, people’s time to be spent in the virtual world through gaming, through other activities, because we are going to spend an increasing amount of time working, playing, socializing, attending virtual concerts, virtual shows, learning at school, etc., in the metaverse.

So, in a way, platforms like YouTube — older, traditional social media — they’re going to lose that user time. That’s maybe where we are going into this idea of consolidation, and it starts by consolidating and acquisition of centralized companies of older games studios.

We are seeing also a big correction over all the technology values on the stock market after this pandemic period, where all that technology value in gaming, etc. — it has been inflated because investors were betting that everyone would just keep spending their time all the time online. Post-Covid government action has made us go back to almost normal life in the physical world, which triggered a correction. And blockchain and crypto is still a technological value, and hence followed that trend. But I’m still very confident in the future in terms of, like, the values that blockchain and crypto bring, the value that Web 3.0 and technology bring, and where users will be in the next decade.

In terms of consolidation and acquisition of the decentralized world by the centralized one, I guess that they might be looking at how we enter the space, since they are seeing their users potentially going from there. But I can ensure that any rumor about an acquisition by Facebook of Sandbox is totally fake. There’s been no discussion of such, because we’re fundamentally different in what we’re trying to achieve. From the very beginning, we are aiming to empower creators and to give all the ownership of everything in the world — the LAND, the ASSETS, the currency — to the users. So, ultimately, one day, 100% of the SAND, 100% of the LAND will be owned by the users, and it will not even mean something to acquire Sandbox. It would mean acquiring all the users. That’s just nonsense.

Lau: It makes a lot of sense when you think about how you view the future economy. Let’s talk more about that — GameFi. From traditional finance to DeFi to now ‘gaming and decentralized finance,’ or, what you might know more popularly as play-to-earn. It’s a whole new world of opportunity for a lot of people. 

Sebastien, when it comes to how quickly this space has evolved, 2021, you could say, was dominated by DeFi. Analysts are now referring to this year, 2022 as the year of GameFi. Do you see 2022 is the year of GameFi and the metaverse, and do you see it all going mainstream? What’s your view? What are you seeing on the ground? Where do you see growth, and how? How exciting is this for you to see, and perhaps, for investors to start realizing that this is a space for opportunity?

Borget: It just makes sense that investors and users are actually understanding that the value of assets is derived from their utility. And, as such, virtual land, game assets and GameFi — as you mentioned, or play-to-earn — play-and-earn typically is where the long-term value is going to be made and keep going on. We’ve seen 2020-21, crypto art, typically, but art as an NFT — as a token — has not so much utility, so its value is more likely to be speculative, or, like, how the artist might rise or fall in reputation.

We’ve seen DeFi, which is very finance-oriented and using, like, money Legos — bricks — to combine and compound product, and we’ve seen something very simple that’s, like, NFTs in gaming. The utility is native — it’s related to the gameplay. It has such a broad spectrum of experience that can be offered, and gaming itself is an industry that by itself is combining more than music and cinema together, leading the revenue in the world. So it’s a very natural evolution. And, as more and more developers progressively are now seeing, since last year, games and platforms like Sandbox, NBA Top Shot, Axie Infinity, are taking off the charts. They’re being inspired. So, they’re already working on the next generation of titles that will keep consolidating gaming as the leader in the space of GameFi and play-to-earn.

Lau: There are also, no doubt, a lot of risks. There’s a lot of potholes, there’s a lot of dangers, and there’s no doubt that as an industry leader, you also see this. Internally, there’s got to be some acknowledgment about risk. Where do you see the risks for the players? It can’t all be going up. What goes up must come down.

Where is the value actually being created? Who’s participating in that value creation? And does the music eventually stop? How do you regard risk, and how are you working to address some of those risks?

Borget: There’s effectively some risk related to that, like blockchain with fixed-supply scarcity of assets, they are zero-sum games, typically. So, the initial growth is, at the beginning, fueled by the community — the foundation fund that will support bringing in the capital that’s being distributed towards the first players, the first users that engage with play-to-earn. But progressively, as these funds will deplete, other funds have to come from the users themselves, and newcomers, eventually, or the existing economy in place. If that economy is only concentrated into one game, and all the actors gravitate around only that one game, I think it is going to progressively increase the risk. And we’re starting to see that with certain games — where the cost of assets to enter has been rising and the liquidity of those assets has been decreasing after.

So, the way to address it is actually coming from Web 3.0 itself — to add more utility to existing assets so they can be used on other applications, which enables new entrants to break through the idea that there’s only one developer or one platform that is supporting growth all the time, and create healthier network systems.

We’re only at the beginning of those economies. The leading one currently in the space is Axie Infinity. What Axie Infinity has shown is typically their capacity to bring massively new users, which were not traditional gamers before, from countries such as the Philippines, Indonesia and others to utilize the game, often play and earn revenue through that activity.

It became such a big phenomenon that half the population of certain countries is actually playing it, and the currency is widely accepted now in even paying for taxis, etc. That’s just one side of it.

The interesting side is, generally speaking, play-to-earn at the ecosystem level is lifting up nations, countries and audiences that were traditionally totally left off gaming in free-to-play and in (terms of) the premium to enter that market.

Lau: Or even wealth generation. Something as simple as that.

Borget: A lot of free-to-play games were concentrated on the top five markets, which are the U.S., China, (South) Korea, Japan and Europe. The rest of the world didn’t matter, didn’t monetize, so they were serving us. Countries like India, for example, were not generating revenue for traditional developers, so were left off. Now, those countries can generate as much revenue and the users can earn as much and be as valuable as (those in) the traditional countries.

So, it’s been growing. It’s going to grow, the total addressable audience of gamers — which is 2.5 billion gamers right now — and really shift the balance and the way we view the value of players and where they are based. That’s something very powerful. As we enlarge the pool of players, we’re opening new possibilities again … We’re totally shifting the cards again on value and wealth distribution for players and developers.

Lau: At the end of the day, we’re defining a future economy. It’s really exciting. But I think a lot of people still scratch their heads. What’s being produced here? What’s the future productivity of the human race? Are we going to play-to-earn everything? What’s the endgame? What is the true endgame here?

Borget: I like to think (that) any action we do with, essentially, time, should be valued against something. If I’m going to school and I’m actually giving my attention to get some more knowledge, I should potentially be paid, and it could be a ‘learn-to-earn.’ And that would be actually a great system, because, then, I’m engaged. I’m rewarded for that action. I get the knowledge. I get the financial value. So, I’m blessed in the mindset where I have to choose what makes me the most profit overall or activities. Should I go to work? Should I go to school? It’s just one example. Other than that, I do feel, yes, engagement… loyalty… should be rewarded. And that’s why brands should consider the metaverse from a different approach than spending on advertising budget to try to target users to have a small percentage of them that will try to buy a product. Rather than that, let’s spend that money on rewarding your true fans, offer them value in the form of NFTs and tokens for their engagement, and create a more meaningful experience.

The endgame is, like, there’s a whole digital world, a whole digital economy, millions of jobs in the metaverse for people who are going to create all that content, that goes beyond our imagination — all those possibilities that are no longer bounded by the laws of physics, all those new spaces to explore with. We’ve almost explored everything on Earth. It’s boring. There’s nothing new to discover. If you’re born, like, me, at my age, unless maybe under the ocean or space exploration — but space, maybe I’ll go to the moon, maybe I’ll go to Mars, (there’s) very little chance, so not so many great things. And humans are a race that’s born to explore, born to discover new things. Our imagination is unlimited, and so it just makes sense that we will be spending more time, more energy, more value into exploring, owning digital goods rather than physical goods, and creating new forms of aspiration of what is success. What is it? Is success more into social relations or into wealth, etc.? We have more choice to define that than before, and then it’s great to have choice.

Lau: Well, a true explorer in our digital age. Sebastien Borget, I think I’ve just given you a new title. Manifest destiny in the metaverse — and you’ve summed it up quite nicely. The opportunity is as limitless as our imagination. Very well said. Sebastien, it was such a pleasure having this conversation with you, and I look forward to our next one.

You’re welcome back anytime.

Borget: Thank you, Angie.

Lau: That was Sebastien Borget. He’s the co-founder and COO of The Sandbox, and it was a great pleasure to welcome him on our show. And thank you, everyone, for watching this latest episode of Word on the Block. I’m Angie Lau, Editor-in-Chief of Forkast. Until the next time.