NFTs, Axie Infinity & the Metaverse of Health
The rise of Play-to-Earn... and Exercise-to-Earn?
It’s hard to deny that one of the most exciting technology trends right now are NFTs (Non-fungible tokens). At EthCC Paris in July, Vitalik gave a thought-provoking speech that Ethereum needs to move beyond DeFi and financial use cases. And if the past weeks have been any indication: Culture, NFTs and the Metaverse is going to be next. This will be even bigger than DeFi, because these span multiple industries, beyond just finance.
NFTs are game-changing because they enable the financialization of culture. In the past 2 weeks alone:
Visa announced that it bought a female mohawk Cryptopunk NFT for $150,000 and put it on its balance sheet. This is a big brained move because they’ve gotten at least a few million dollars worth of publicity for this and is holding on to an appreciating asset.
A generative art NFT (generated by an algorithm, called Fidenza) was sold for 1000 ETH/ US$3.3M, a record high.
Gary Vee paid US$3.7 million for this JPEG (a rare Cryptopunk). I’m guessing its because they both like to wear beanie caps.
I’ve spent the past weeks immersed in NFTs, particularly Axie Infinity and generative art. (On gen art: I truly believe the melding of code & art is going to be the art movement of our digital generation, like impressionism was for the 19th century. A fascinating but entirely different topic).
But I want to expunge more on Axie Infinity: a cartoonish NFT blockchain game where your team of 3 Axies who look like ugly mutated Pokemons battle it out with other ugly mutated Pokemon-like creatures. Sounds pretty normal? Except..
A. Axie has amassed >1,000,000 DAU (daily active users).
This is greater than the peak number of players per day for World of Warcraft (one of the most successful MMORPGs). It is showing amazing levels of user engagement and retention, considering that Axie is relatively simple game with much less complexity.
B. Axie’s revenue growth has gone to the moon
Axie draws its revenue by extracting a 4.25% fee from all sales of Axies on the marketplace, as well as a breeding fee when you breed new Axies.
April 2021 Revenue: US$0.67M
July 2021 Revenue: US$196M
**That’s nearly 300x revenue growth in a period of 4 months.
Most startup founders can only dream of these exponential numbers and I know some who would sell their souls for this rate of growth. Even more remarkable is that all of this has been achieved with zero dollars of marketing spend. Zilch. This is opposite from the traditional mobile game freemium business model where you need to spend millions of dollars in marketing to acquire large numbers of new users and then sell in-game premium items to generate profits.
C. Axie’s take rate is <10%, compared to 100% rates in traditional games
In games like Fortnite and World of Warcraft, the game publisher and publishing platform keeps ALL the profits generated by the game. In Axie, its revenue does not go to Sky Mavis (creator of the game) but instead accrues to the participants of the ecosystem, in typical Web 3 fashion. This creates a virtuous cycle that greatly incentivises participation.
The main reason why Axie has been able to achieve this unprecedented level of growth is because it has pioneered a new business model for gaming, aptly called 'Play-to-Earn’.
Kid’s Dream Come True : Earn Money Playing Games
As a kid, I spent a lot of my time playing computer and console games (Dune 2, DOTA, FF series etc). I imagine If I was paid for all the hours I spent on them, I would be rich right now.
In Axie’s play-to-earn model, players earn Smooth Love Potions (SLP) by playing the game: completing adventure quests and winning battles in the arena. SLP is an Ethereum-based token that can be sold for real money. The catch is that to play the game and earn SLP, you need to own a team of 3 Axie NFTs which currently cost ~US$1000. The demand for SLP is fuelled by by Axie breeders because SLP is needed to create new Axies which can then be sold to new players who want to get into the game and start earning SLP
A typical player playing 2 hours a day will be able to earn 100 - 200 SLPs, which translates to US$20 - 40 / day, or up to US$1200 per month. This is easily 4 - 8 times the minimum wage in the Philippines (US$150 - 300/month). Hence it is not surprising that there has been a huge influx of new users from the Philippines (estimated 60% of Axie players are from the Philippines) and other developing countries like Venezuela who are now playing the game daily to earn a living. It has become a family affair to play Axie - grandkids to grandmothers.
Look Ma, I got a Scholarship
What’s even more fascinating is that these unique economics has led to the organic creation of ‘Scholarship Programs’. This is because new players who want to start earning SLP and for whom SLP earnings can impact their lives greatly most often don’t have enough capital to afford an Axie team on their own (US$1000).
Enter scholarship programs - which sponsors players (‘scholars’) with a team of Axies to play with for free. In return, the scholarship program takes a % cut of the SLP earned by the scholar. Here’s a win-win situation: the scholar can start earning money without any upfront investment and assumes no capital risk (Axie prices are volatile), essentially trading his/her time for money. On the other hand, the scholarship provider earns a good daily yield on the Axie NFTs they own. The market is skewed towards scholarship providers right now, with a huge number of people waiting to be picked as scholars in a scholarship program.
Yield Guild Games (YGG) is the largest scholarship provider in Axie right now, with 4700+ scholars on their play-to-earn program and growing daily. As a mark of faith in the play-to-earn model, a16z announced yesterday that they made an investment in YGG: because they believe that “NFT play-to-earn games are the next major innovation in gaming” and in the vision to bring YGG to an “even wider community of scholars around the world”.
Building an Ethical Scholarship Program
The mechanics of ‘play-to-earn’ intrigued me enough to start my own ethical scholarship program recently, which provides scholars from the Philippines with high-quality Axie teams with good earning potential and guarantees that they get to keep a large part of all their earnings. This is after hearing sad stories of scholars:
being scammed by managers who refuse to pay out their hard earned SLP and blocked them from their guild discord groups
being given low-quality Axie teams and unrealistically expected to earn high SLP quotas
participating in mercenary programs which keep 80% of their SLP earnings and pass on only 20% to their scholars
This has been a pretty fun, self-funded side project: we’re sponsoring about 100 scholars right now and I have a few wonderful team mangers in the Philippines to run it on a day-to-day basis. For me, it began as an experiment to better understand the economics behind the business model, but has since evolved into a project to help hundreds of marginalised people in developing countries earn a sustainable daily income by participating in crypto economies.
Running a scholarship program is 100% operations-focused. There is already product-market fit: the number of potential scholars who want to start playing by far exceeds the number of scholarship positions. Streamlining program’s efficiency and maximising profitability for your scholars comes down to keeping up to date with the PvP game meta (ie. what Axie team combinations are winning, how to counter other teams), breeding the right Axies, interviewing & onboarding trustworthy & hardworking scholars, putting in place training and development programs to educate scholars on improving their strategic gameplay, managing payments etc.
Through this project, I’ve found that Filipinos are one of the most creative, enterprising and driven people in the world. Many of my scholars are young to middle-aged adults who’ve been jobless due to the COVID-19 pandemic, family breadwinners who need income to support their parents/kids, students who want to fund their college education. All of them are grateful for this opportunity that didn’t ever exist before crypto. Every payday, it warms my heart when they tell you that they’re now able to buy food for their families, pay for their school fees and purchase medicines for their parents.
Here’s a real-life account on how play-to-earn is changing lives in the Philippines:
“Crypto-based games are community-owned. Everybody in the community gets to share in the revenues and the upsides….. So it’s incredible, a unique opportunity and if its done right it truly can be game changing”
- Mark Cuban
But is ‘Play-to-Earn’ Sustainable?
There are many detractors who believe that a ‘play-to-earn’ model is not sustainable: money earned needs to come from new players, the gameplay is not fun etc. They could be right. For this to succeed, you have to believe that:
1. The Axie team will ship an engaging game that a large number of people will play for fun.
For Play-to-Earn to work, you need enough Pay-to-Play users to counterbalance the economy. It will be interesting to see where the equilibrium point is: how many Play-to-Earn users can 1 Pay-to-Play user support?
There are multiple “games” in the Axie world besides the card battle: Battles v2 and land gameplay is on the roadmap in the next 12 months. Even Axie breeding, scholarships are function almost like games on their own, where winning can be highly profitable.
2. The player base continues to grow fast
More players = greater demand for Axies and SLP. As much as Axie has exploded in the past few months, its DAU of 1M is still very modest compared with many other games, leaving lots of room to grow. Pokemon Go has a DAU of 20M globally, for example.
Given the hundreds of millions of potential players in developing countries that haven’t even been exposed to this, it is highly probable that Axie will continue on its high growth trajectory. And there will always be enterprising individuals/collectives/organisations that will come in to providing scholarships as long as they are profitable.
3. The team and community will make sound decisions on the key factors necessary to sustain the in-game economy over the long run.
The success of Axie is driven by its in-game economy, a powerful flywheel which can also be easily destabilised if wrong decisions are made leading to imbalance of supply-demand. Decisions such as tweaking breeding costs, or enabling Axies to be ‘sent away’ for access to special abilities. It’s a fascinating real-life experiment that’s playing out right now and which I’m participating in.
Not just a game - its banking the unbanked
Many people look at Axie and mistakenly believe that it is a game. Superficially, it is. But there is a much bigger narrative behind this. It is banking the unbanked, elevating thousands of people in developing nations who aren’t plugged into the banking system and leap frogging them straight onto crypto payment rails (which are faster & cheaper). Innovation in developing nations do not always follow the same path as in developed nations: just like how China mostly skipped card-based payments and jumped straight into mobile payment adoption with WeChat Pay.
Many scholars don’t have a bank account but they have a Ronin wallet on their phone to make crypto transfers, and work through middlemen who convert their SLP into pesos. More merchants in the Philippines are accepting SLP as payment for goods and services, you can transfer from wallet to wallet nearly instantaneously and with zero transaction fees.
Some are already jokingly calling for SLP to be made legal tender in the Philippines, given the huge number of players (1.3M at last count) and how it’s actually moving the needle on the country’s GDP. Chris, one of my scholars, told me that Axie was just featured on one of the most famous TV shows in the country. And an hour later the Department of Finance made a public statement that they are considering taxing earnings on Axie. You know you’ve made it when you become part of a tax debate.
There are many asymmetrical financial opportunities in crypto today, because it is early and growing from a tech and adoption perspective. Still much of the world has yet wake up to its reality. Many of my friends and family are aware of crypto but not participating in an active way.
Axie Infinity has enabled one of the largest geographical arbitrages of time & money in the world today, bringing the financial opportunities in crypto straight to the people who need it the most. It epitomises how crypto can and will change the world - exactly why I’m so excited about the space. I truly believe that crypto is one crucial element in fulfilling the promise of Universal Basic Income - especially because we will be able to reach the masses much faster and quicker on crypto rails than through legacy financial infrastructure we have today.
I leave you with a case-in-point: The US, arguably the most advanced nation in the world, mails out cheques for its stimulus payments and you have to physically go to a bank to cash it out. How can we ever reach billions of people quickly this way?
(Further reading: Packy McCormick wrote a great article on Axie)
The Metaverse is coming
On a related topic that’s gripped me recently, Axie Infinity is giving us a sneak peak into the future of the metaverse: through its virtual world of Lunacia in which millions of people around the world spend a part of their daily lives in, powered by its own in-game economy. It’s a simple prototypical metaverse, centred around a game and without fancy graphics or AR/VR features.
The metaverse is a buzzword right now. In their latest earnings call in July 2021, Mark Zuckerberg says that Facebook is ‘transitioning into a Metaverse company’ in the next 5 years. Which explains why they’ve placed a huge bet and investment on Oculus.
“In the coming years, I expect people will transition from seeing us primarily as a social media company to seeing us as a metaverse company … In many ways the metaverse is the ultimate expression of social technology.” - Zuck.
Microsoft wants to build an ‘Enterprise Metaverse’ too. err…OK. I think they just want to be part of the cool kids club and use cool words too. The headline here is that Big Tech knows that the metaverse is going to be the successor of the mobile internet in the coming decades, creating the next huge paradigm change in how we interact with people, services and organisations. The lines between the real and digital world are blurring.
The metaverse is not going to be a single technology or platform that is ‘built’ by one company. Rather, it is enabled by the confluence of multiple different technologies that bring it to life. Venture capitalist and essayist Matthew Ball writes that the metaverse will become “the gateway to most digital experiences, a key component of all physical ones, and the next great labor platform.” He believes it will be the driving force in creating a new generation of companies, similar to what happened with the popularization of the internet.
The idea of the metaverse has been around for several decades but today it is finally emerging from its deep slumber. We can make this happen because we have the building blocks in place:
Technology Infrastructure: Hardware, Networking, Compute. Up util the past few years, these been the key limiting factors. The pace of technology development in each of these areas has caught up (or is fast catching up) to our demands on it.
Open standards for media & content creation, that allows anyone to build on it.
Property rights (via NFTs) that enable a thriving in-game economy. For people to significantly invest their lives and money in the metaverse, it is essential for them to have full assurances that they genuinely own their digital goods and that it will persist no matter what happens. Digital goods have no value if they can be taken away at a whim. NFTs signify provenance.
Fast payment rails for exchange of goods & services (ie. crypto)
The “LifeVerse”: healthcare in the metaverse
I’ve always been fascinated by interactive virtual worlds. This probably stems from having spent lots of time on role-playing games as a kid. My favourite were the Final Fantasy games, where you play a hero that goes on a quest to save their world for imminent destruction. Even till today, I’m a casual player in Final Fantasy XIV, an excellent MMOPRG based on the FF universe. Fun fact: my favourite characters to play have always been healer-type classes.
The Web 3.0 revolution is all about community: anyone building in this space needs to focus on getting to community-market fit rather than product-market fit. The metaverse is not a game: rather it is an embodied social platform that amalgamates several different aspects of our existing digital lives (including social media, gaming, services, e-commerce and content consumption) into a powerful, user-driven experience with a greater sense of presence.
So in this new digital environment that will soon pervade our lives, one of the things essential for healthcare is a community-driven platform. A ‘Roblox’ where content, tools and services can be built upon and engages people through digital experiences.
I’ve been pontificating about how healthcare could look like in the metaverse. Let’s call this the “LifeVerse”. In the “LifeVerse”, these are some things I imagine you will be able to do:
1. Travel through virtual lands developed by talented health creators
Experience ‘live’ classes - HIIT, yoga, pilates, cycling, aerobics - that recreate the experience of being in an actual studio with your fellow classmates. Do your sun salutations wearing LV-branded virtual sports wear which you wouldn’t actually pay for in real-life. Hang out and chat with your friends and classmates via your virtual avatars before and after each class.
Or even beyond this: imagine doing sunset yoga at the top of the Grand Canyon, or running the trail through the Himalayas with your buddies, recreated in these virtual worlds. Or participate in a virtual supermarket tour that dietitians do to teach you how to make healthier choices when shopping for food. It doesn’t matter whether you’re physically in Los Angeles or Singapore.
The typical online class experience today is very dry & passively consumed with almost zero social elements. I go for physical activity classes and it’s the friendships I make there that keep me coming back for more (pain).
Zwift is already taking a stab at this providing a massively multiplayer online cycling and running physical training program that enables users to interact, train and compete in a virtual world. Rent a treadmill or indoor bike, then explore and gain levels & compete with a global community for $14.99 a month. Their user growth is doubling every year so clearly people want this.
2. Visit ‘Meta-hospitals’ and' ‘Meta-clinics’
A precursor to this is China’s successful ‘internet hospital’ model which combine online and offline access for medical institutions to provide a variety of telehealth services to patients, with support from the government and industry. Besides providing a superior patient experience, these internet hospitals also alleviate shortage of medical resources in different parts of the country which do not have physical access to specialist healthcare.
Globally, reputable centres of excellence will want to establish their presence in the metaverse, because:
1. It provides a channel for new patients to find them, especially beyond their typical geographical catchment areas. Finding a specialist doctor often involves a lot of google searching and reading online reviews. Being able to ‘visit’ the hospital/clinic in the metaverse gives you greater comfort in selecting the right hospital & doctor.
2. It provides a better experience for their existing patients, who can continue to follow up with their doctors in familiar environments without having to be physically present.
Telemedicine providers can build a series of well-designed virtual clinics that improves on the currently very generic telemed patient experience and builds brand power, without incurring any of the overhead costs of a running a physical clinic.
3. Be a (physically) active participant in the health economy
This is the part I’m most excited about..
The creation of an entirely new, thriving digital economy is one of the biggest potential promises of the metaverse. These potentially massive economies are enabled by a simple fact: ‘Flexing’ is an intrinsic part of human nature - which is why we buy LV bags or Rolex watches (or Cryptopunks) at exorbitant prices even though we can easily get something cheaper that does the same job.
As we shift into a digital-first, post-COVID world, people are realising that their digital identity is as or even more important as their real-world one. This generates an innate need to obtain digitally-scarce goods to dress up their identity and differentiate from others. Social signalling in the metaverse is powered by NFTs, which are cryptographically secure proof of ownership. To illustrate this point: see this very timely article from the Wall Street Journal : “I Joined a Penguin NFT Club Because Apparently That’s What We Do Now”
The LifeVerse will be driven by its native digital cryptocurrency(s), which function as a form of health credits, which can be earned by adoption of healthy behaviours. Similar to carbon credits, it will be tradable between those who have too many and those who have too little.
A few examples:
1. Earn tokens by submitting a “Proof-of-Exercise” and show that you’re committed to leading a healthy lifestyle. These tokens can be exchanged for unique virtual goods (NFTs), access to events (which could be in-person or virtual, such as yoga, meditation classes), or sold for fiat currency.
2. Grow your virtual NFT pet that gains in strength and level and aesthetics as you perform healthy behaviours, such as eating more vegetables or going for a jog. Performing these activities in the real-world earns you special tokens that you can use to feed your pets regularly with - otherwise they will die. Stake your pet to earn more tokens as you climb the leaderboard. Perhaps your pets can even battle each other (in a friendly way, no animals are harmed in this game), in a Pokemon Go-esque style.
See this cool little game built for Mooncat NFT holders, where you can stake your cats, tokens and earn rewards. DeFi + NFT = dopamine rush++.
On the demand side, tokens will be required to purchase services (such as fitness classes, consultations) and goods (virtual items & lands). Let’s not forget the insurers, governments who would pay a fair price to keep their populations to stay healthy and Big Pharma for access to consumers and data. The challenge is in crafting out a balanced economy that will allow this to be sustainable over the long run, while ensuring that the incentives are strong enough to drive behaviour change.
Human behaviours are driven by rational economic incentives and psycho-social needs Thus, being able to participate in a real economy to generate real-world income, to be able to truly own your in-game virtual goods and participate in the growth and governance of the platform can be a major unlock for motivation and behavioural change in health.
Conclusion: Limitless possibilities.
Everything I’ve described above is only scratching the surface of what can potentially be done. The beauty of an open metaverse is that it will be driven organically by the community. Anyone can enter and create. Ideas are experimented upon quickly and the best ones prevail. It will be composable, you can build upon other people’s creations. The metaverse would be an entirely new digital nation, governed by the people, free of traditional geographical and sovereign boundaries.
Some people mistakenly think that the metaverse is a playground only for the rich and educated. In fact, the metaverse first started as a dystopian idea: a world full of suffering where the poor have to live in a separate digital world to escape from their painful reality. Axie Infinity is proving this hypothesis wrong, with millions of players largely from developing nations.
But this may not necessary come to fruition. One of the biggest worries many of us have right now is that the metaverse will be owned by corporations, a closed digital universe which essentially recreates the imbalanced, unhealthy power dynamic that the big tech companies already have over us. We cannot let that happen.
An idea that I’ve been toying around lately with is setting up of a DAO (Decentralised Autonomous Organisation) to bring together fellow enthusiasts in crypto and healthcare to collectively brainstorm, discuss and execute upon projects in the space. I’m going to be spending some time to think through the vision & framework for this. If it is something you’re interested in, please feel free to reach out to me on Twitter, Discord or email.