Abstract:

• Background of establishment

• Resurrection

• Building an empire

• Future outlook

1. Background of Establishment

On INS, Animoca Brands introduces itself as: "We are the leader in the field of digital entertainment, specializing in blockchain, gamification & AI technologies." On its official website, Animoca Brands describes its mission and vision as: "To provide digital ownership to gamers and internet users around the world. Thus creating a new asset class, contributing to the construction of an open metaverse with a P2E economic model and a fairer digital framework." In 2021, NFTs not only represented "influence" but also investment, with a pure digital artwork auctioned for nearly $70 million and a 12-year-old boy, Benyamin Ahmed, selling a series of NFT works worth over $160,000. Non-fungible tokens seemed like "magic rings," pushed into the spotlight.

Image source: https://www.asiacryptotoday.com/animoca-brands/

The rise of NFTs is inseparable from the push of capital. As a top player in the crypto industry, Animoca Brands has been seen as a bellwether for investment in the NFT and GameFi fields.

According to statistics, Animoca Brands has invested in over 150 NFT/metaverse projects, becoming the largest investor in the blockchain gaming sector. The projects it has invested in include top wealth-generating effects like Axie Infinity, Dapper Labs (NBA Top Shot), OpenSea, Alien Worlds, Yield Guild Games (YGG), and other quality projects.

On January 18, 2022, the blockchain game development and investment company Animoca Brands announced the completion of nearly $360 million in financing, led by Liberty City Ventures, with participation from 10T Holdings, C Ventures, Delta Fund, Gemini Frontier Fund, Gobi Partners Greater Bay Area, Kingsway, L2 Capital, Mirae Asset, Pacific Century Group, ParaFi Capital, Provident, Senator Investment Group, Sequoia China, Smile Group, Stable Asset Management, Soros Fund Management, Wildcat Capital Management, Winklevoss Capital, and others.

The pre-financing valuation was approximately $5 billion, doubling from the $2.2 billion valuation in October 2021. For most people, Animoca Brands is like a unicorn that has emerged after a long period of dormancy, shining brightly in the blockchain gaming and metaverse track in 2021.

Image source: https://www.investing.com/news/cryptocurrency-news/6-questions-for-yat-siu-of-animoca-brands-2646721

Yat Siu, the founder of Animoca Brands, born into a musical family, has also entered the public eye due to his legendary experience. In an interview, Yat Siu mentioned that he chose to major in music to follow his parents' wishes but discovered his love and obsession for the internet during his music studies. He independently developed music software to complete assignments given by his teachers, thus uncovering his programming talent and stepping into the internet field.

In 1993, feeling uncomfortable with the lack of email services in Hong Kong that could meet daily communication needs, Yat Siu independently founded a network technology company focused on email systems—Hong Kong Online—thus beginning his entrepreneurial journey.

In 1998, he established the internet service company Outblaze, whose main business was similar to today's "cloud computing." Yat Siu mentioned that he hoped the potential of this business could be maximized.

He sold this business to IBM, which had more comprehensive R&D capabilities. After completing the transaction with IBM in 2009, with the emergence of the iPhone, Yat Siu developed a strong interest in apps and began developing gaming businesses. However, while achieving some success, Yat Siu also experienced the pain of "platform centralization" in the internet world.

In January 2012, Apple’s App Store deemed that 12 of Yat Siu's top game products had "negative impacts" and forcibly removed them, without ever consulting his team for opinions or ideas. This incident laid the groundwork for Yat Siu's later embrace of "decentralization," "blockchain," and "NFT."

2. Resurrection

Despite having developed 12 widely recognized mobile games during its deep cultivation in the gaming field from 2010 to 2012, Animoca seemed to fall into stagnation and confusion after being forcibly removed from the App Store. The survival of 150 employees and the rights of gamers became "sacrifices," as centralized platforms provided no avenues or opportunities for appeal.

Before embracing blockchain at the end of 2017, Animoca could only be described as "a relatively unknown mobile game developer and publisher." After being listed on the Australian Securities Exchange (ASX) in January 2015, its long-term performance was mediocre.

From 2015 to 2019, Animoca conducted nine rounds of IPO financing, totaling $34.3 million. However, by the fourth quarter of 2017, its quarterly operating cash flow had remained negative, and in August 2017, its stock price plummeted from a previous high of $0.20 to below $0.01, a drop of over 95%.

Animoca Brands stock performance from 2015 to 2019 Source: 61finance

In the second half of 2017, facing performance inquiry pressure from ASX, Animoca Brands began to adjust executive compensation structures, sell non-core assets, and lay off employees, with all executives taking a 50% pay cut. In 2017, Animoca Brands sold 60% of its mobile games for a total price of $8 million, totaling 318 games—most of which were casual games—reducing its total number of employees from over 110 to less than 70.

However, this transformation was both a severing and a turning point. In November 2017, the first blockchain game, CryptoKitties, was born. This game runs on the Ethereum platform, allowing users to raise, buy, sell, and breed "digital pets" cats.

Each cat and its offspring are unique, aligning with Yat Siu's belief that "data assets created by users should belong to users." However, at that time, Yat Siu could not have imagined how closely this game would relate to the digital empire he would establish two years later.

Immersed in mobile game development, Yat Siu did not pay much attention to this game at the time. His friend Mick, one of the developers of CryptoKitties, introduced the game's concept to Yat Siu and invited him to join this "blockchain" game "experiment."

During the process of understanding, Yat Siu realized that this was "the answer to many problems," the "decentralized gaming world" he had been pursuing. In early 2018, Animoca Brands signed a one-year licensing and distribution agreement with the development team of CryptoKitties, Axiom Zen. Animoca Brands had the exclusive right to distribute CryptoKitties in China, receiving 30% of the net revenue.

CryptoKitties also became the beginning of Animoca Brands' focus on NFT games. As Yat Siu said: "When we first participated in blockchain games, we realized that this was the key to solving many problems, realizing the power and benefits of this game, and how NFTs would change 'digital colonialism' by providing digital ownership to players, achieving a disruptive revolution in the existing gaming industry."

However, Animoca Brands' exploration of GameFi was not smooth sailing. By the end of the 2018 fiscal year, Animoca Brands' main revenue source was still traditional mobile games, and investments in the blockchain sector resulted in millions of dollars in losses for the company.

In March 2020, ASX pointed out that Animoca Brands had internal governance issues, a significant involvement in cryptocurrency-related activities, and trading violations. ASX officially removed Animoca Brands from the listing roster, citing a lack of sufficient resources and capabilities to fulfill its obligations under listing rules.

However, delisting did not affect its normal operations; rather, it provided space for deep cultivation in the cryptocurrency field. No longer constrained by the series of rules for listed companies, Animoca Brands continuously seized opportunities in investments.

In August 2020, Animoca Brands acquired the development company of the UGC (User Generated Content) platform The Sandbox for $4.875 million. Sandbox is a community-driven game that decentralizes creative rights, allowing players to earn NFT assets by playing games, creating gameplay, or building game scenes, which can circulate and be monetized in the blockchain world.

This mechanism gives Sandbox a strong imaginative space. Currently, the official sample games of Sandbox include adventure, search, social, and more, catering to achievement-oriented players, exploration-oriented players, social players, and killer players to varying degrees.

Value of Sandbox

In 2020, The Sandbox publicly issued the SAND token and listed it on Binance, with a total token supply of 3 billion, of which approximately 900 million are currently in circulation, including Binance IEO tokens, some tokens reserved by the company, and tokens held by the foundation.

As one of Animoca Brands' most successful projects, by December 21, 2021, the total market value of its token SAND was $4.7 billion, ranking 37th in the Coinmarketcap market, with a diluted market value reaching $15.3 billion. Meanwhile, the trading volume of virtual land in The Sandbox remained high, with Republic Realm breaking the record for virtual land sales with a purchase amount of $4.3 million on November 30.

Sandbox Map

Self-circulation of the ecosystem

Source: https://passport.weibo.com/visitor/visitor?entry=miniblog&a=enter&url=https%3A%2F%2Fweibo.com%2Fttarticle%2Fp%2Fshow%3Fid%3D2309404657476648960466&domain=.weibo.com&ua=php-ssosdkclient-0.6.36&rand=1644225491.3158#loginLayer_1644225428377

3. Building an Empire

2021 marked the first year of the metaverse, with DeFi bringing capital into the crypto field and NFTs broadening the boundaries of the crypto space. In October 2021, Blockdata's latest analysis showed that the total financing for crypto companies in 2020 was only $3.8 billion, but during the period from July to September 2021, the disclosed financing for crypto companies reached $6.5 billion, with 339 transactions.

The figures for the first and second quarters were $3.83 billion and $5.131 billion, respectively. The most active investor in the third quarter was Coinbase Ventures, participating in 18 transactions, followed by Animoca Brands and Polychain Capital, participating in 10 and 11 transactions, respectively.

Looking at the entire investment landscape of Animoca Brands, The Sandbox is just one of the brightest pieces of the puzzle. From 2018 to 2022, Animoca Brands conducted over 80 investments.

Yat Siu stated, "We are optimistic about the decentralized track, where everything in the on-chain world is executed by smart contracts, not subject to platform will. We believe that when blockchain technology becomes infrastructure in the future, the popularity of blockchain games will continuously refresh public perception.

In investments, I think seizing opportunities is very important, but timing is hard to judge, especially for things that have infinite potential in the future but have not fully demonstrated their value at present. Therefore, it is essential to enter the market early; being late will incur higher costs. NFTs and blockchain games both represent the future, but when they will truly explode or become the infrastructure of internet society remains uncertain.

However, we hope to find people to promote this process together, so we have been tirelessly investing in quality projects. Additionally, we are self-funded, allowing us to adhere to long-termism without being constrained by short-term return requirements."

Illustration of "Digital Colonialism"

Source: https://www.bilibili.com/video/BV1oq4y1N7KC?sharesource=copyweb

Illustration of "Digital Ownership"

Source: https://www.bilibili.com/video/BV1oq4y1N7KC?sharesource=copyweb

According to Blockchain Gamer, as of June 2021, financing related to blockchain games reached $1.4 billion. Among them, Animoca Brands, Galaxy Digital, and Hashed are some of the most active investment institutions in this field.

In 2021, the investment and digital asset income of Animoca Brands in the first three quarters grew to approximately $529.6 million, holding over $600 million in liquid digital assets (including BTC, ETH, USDC, etc.); the digital asset reserves belonging to Animoca Brands' products and platform ecosystem (including proprietary tokens like REVV, SAND, TOWER, and GMEE) increased from approximately $2.9 billion at the end of September 2021 to about $15.9 billion at the end of November 2021, growing more than fivefold in two months; the total monthly trading volume of the two main tokens SAND and REVV exceeded $10 billion, compared to only $245 million a year earlier.

Compared to the previous three years, 2022 seems to have completed the foundational construction of the empire for Animoca Brands, which has begun to build a vast ecosystem around blockchain and NFTs through broader investments.

Number of investments by Animoca Brands in recent years

Data source: Crunchbase

Starting in the fourth quarter of 2021, Animoca Brands' investment pace significantly accelerated. With large amounts of financing continuously injected into Animoca Brands, its investment scale and leading investment numbers increased significantly, with the number of investments in the fourth quarter accounting for 51% of the total for the year.

The proportion of leading projects exceeded 36%, with an average investment every six days. Yat Siu stated: "In the blockchain field, projects related to the metaverse are more likely to drive mainstream adoption, and NFTs represent the best opportunity to realize an open metaverse."

The term "ecosystem" is frequently mentioned by Yat Siu, who describes the large-scale investment in blockchain companies as building an "NFT ecosystem." He believes that even if some investment entities are competitors, they are also builders of the NFT blockchain gaming ecosystem. As a producer of blockchain games and NFTs, Animoca Brands will undoubtedly benefit from the larger ecosystem.

Illustration of Animoca Brands' investment landscape

Source: Animoca Brands official website

4. Future Outlook

Compared to other tech giants, Animoca Brands has experienced dramatic ups and downs, with its overnight fame seeming more dramatic. When few people mentioned the metaverse, Yat Siu insisted: "Decentralized ownership will be the foundation of all future innovations," investing millions of dollars in the first generation of blockchain games.

As the next frontier of internet technology, Web 3.0 aims to achieve a more open, trustless, and permissionless internet ecosystem. The vision of "owning data ownership" advocated by Animoca Brands allows people to see freedom, equality, and hope in the era of internet oligarchs, with countless opportunities and chances hidden beneath the vast market of hundreds of billions of dollars.

However, there are also many challenges. Currently, blockchain sandbox games have low user engagement, poor experiences, and limited user groups. Most participants in land auctions are highly speculative, and few are willing to invest effort in creating content, leading to vacant land and deteriorating user experiences for other game participants.

If the content quality is not high, it is challenging to attract more users. Users are fundamental to games; if user retention does not improve, it will lead to a decreased willingness to purchase game NFT assets, ultimately causing game assets to depreciate and resulting in a vicious cycle.

How to help players understand the value of digital assets? How to make players truly understand the storage methods of digital assets? How to balance P2E and content quality in the separation of players' construction capabilities and rights? If the playability and fun of the game are insufficient, how long can player loyalty be maintained once high returns are lost? These questions urgently need to be addressed.

In summary, playability, as the core mechanism of games, is one of the keys to whether users can be retained for the long term. We can see that several blockchain games under Animoca Brands, such as Sandbox, are returning to the essence of gaming, with playability gradually strengthening, and the future of blockchain games breaking the shackles of traditional gaming looks promising.