I’m currently on a bit of a Michael Lewis bender. I recently read his seminal work – Liar’s Poker and The Big Short – and then moved on to The New New Thing, which tells the tale of billionaire founder Jim Clark, the co-founder of Silicon Graphics, Netscape, and Healtheon (later WebMD).
I was particularly interested in reading The New New Thing because I want to understand what the beginning of the Internet era felt like. There were so many opportunities to digitize an analog world, and there was so much that needed to be built to better organize and maximize the utility of this nascent technology. I wonder to what extent it felt like African markets do today.
Anyway, the book does a great job of juxtaposing the clash in the 90s between the old economy and the new – that which is software- and Internet-enabled. There’s a fantastic passage, in which Jim Clark is opening up a Swiss bank account (for reasons unrelated to his own personal savings and investment). Clark became a billionaire virtually overnight, with the IPO of Netscape in 1995. He wasn’t the standard wealth preserving (and tax evading) clientele of the Swiss banks.
Michael Lewis recounts the meeting, in which the Swiss banker asked Clark a series of templated customer intake questions,
“Risk profile?” asked the banker.
Clark just stared at him. “What do you mean?”
[…] Finally, the banker just skidded his questionnaire across the mahogany table and asked Clark to fill it out himself… His eyes drifted farther down the page, to a category marked “Return Objectives and Risk Tolerance.” This was a summary of the typical Swiss banker’s idea of the range of possible attitudes towards financial risk. It read,
Conservative: I seek to… minimize investment volatility.
Moderate Growth: I want to take some risk while also preserving capital.
High Capital Growth: I have a minimum time horizon of five years with which to pursue my objectives.
Next to each risk profile was a little square box. Clark passed quickly over the first two and paused a moment at the third, wondering, probably, where they put the box for people who sought to turn ten million dollars into one billion in a few months. Finally he looked up with the most perplexed expression.
“I think this is for a different…person,” he said.
Clark’s (and Silicon Valley’s) definition of risk was entirely incompatible with that of the Swiss banker. And I wonder to what degree this culture clash pervades the relationship between innovators on the African continent, and governments, development agencies, incumbent corporates, and the like.
Sometimes I feel like Jim Clark (though I’m not a billionaire… yet 😏). I don’t really understand what is considered risky. Africa’s population is young and growing rapidly. Formal industries and traditional economic development methodologies are not going to create jobs fast enough. So isn’t a perpetuation of the status quo and/or conservative growth initiatives incredibly risky?
I’m thinking about risk and economic development in the context of a topic I’ve recently become quite obsessed: NFT and play-to-earn games. The leader in this space is a game called Axie Infinity.
I first learned about the game from this documentary:
In short, play-to-earn games create earning opportunities for players within the game. Players can earn an in-game token (called SLP), which players can sell on a crypto exchange for fiat currency.
SLP is valuable in a market because it is needed in order to “breed” new Axies, the characters used in the game. Like Pokemon, Axies come with select attributes that are applied “in battle”. Unlike Pokemon, Axies are actually unique NFTs1 that are bought and sold on the Axie Infinity marketplace. In order to play the game, a player needs Axies; thus, breeding is another revenue-generating opportunity for players.
As the game has grown in popularity, so too has the cost of Axies (quite staggeringly, in fact), which has given rise to a unique scholarship program model. Those players or breeders with extra Axies can “lease” out their Axies to players, in exchange for a revenue share of the tokens generated from the gameplay. This not only lowers the barrier to entry for less privileged players, but it is a way for larger players to monetize their unused assets. (One scholarship program, called Yield Guild, recently raised $4 million to scale this model!)
Now, I know this sounds crazy – and it is! This past week alone, the market cap of the game’s governance token2, AXS, has grown nearly 4x. In April, the game did $670,000 in revenue. This July – just over halfway into the month – they’re already up over $100 million in revenue!
And as the documentary shows, players in the Philippines are earning real money, and much more than traditional, local opportunities allow.
a16z’s Chris Dixon famously wrote that “the next big thing will start out looking like a toy”. The telephone, the computer, the Internet, social media all fit the bill. The exciting thing about play-to-earn games is not only the earning opportunity but that it is being used as an on-ramp into the crypto economy, and is a rock-solid consumer use case for NFTs and the Ethereum network, at large.
Meanwhile, there are an abundance of digitally-native African youth, with an abundance of time, and few job prospects. Why shouldn’t there be a play-to-earn games as an economic development strategy for the continent?
It may be crazy. But is it risky?
Thanks, as always, for reading 🙏
- A non-fungible token is a unit of data stored on a digital ledger, called a blockchain, which can be sold and traded. The NFT can be associated with a particular digital or physical asset (such as a file or a physical object) and a license to use the asset for a specified purpose. NFTs function like cryptographic tokens, but, unlike cryptocurrencies like Bitcoin, NFTs are not mutually interchangeable, so not fungible.
- Governance tokens are tokens that developers create to allow token holders to help shape the future of a protocol. Governance token holders can influence decisions concerning the project such as proposing or deciding on new feature proposals and even changing the governance system itself.