Conversations with the Coop - http://www.indexcoop.com
Audio and transcript from the February 24th, 2022 installment of “Conversations with the Coop” with Dark Forest Capital and AG, the methodologists behind the Metaverse Index and Co-Founders of MetaPortal.
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Crypto_Texan: Hello everyone. Welcome to conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in DeFi, crypto and the metaverse. I'm your host Crypto Texan, and today I'm joined by Dark Forest Capital and AG, who are the co-founders of MetaPortal and the methodologists behind the Index Coop's Metaverse Index. Dark Forest, AG, thanks for coming on the show today. How are y'all doing?
Dark Forest: Yep. Very good. Thanks for having us.
AG: Yep. Pleasure to be here.
Crypto_Texan: Yeah. So let's get started with just some introduction, if y'all could just give us your name so we can associate the name of the voice for the recording. And just give us a little bit of background about how you got into crypto, DeFi and more specifically the metaverse.
Dark Forest: Yeah, I'll go first. So I'm Dark Forest Capital. My real name is Paul, but obviously created this sort of profile for myself now that I use on social media. I got into crypto full time around the crash back in March 2020. I was actually looking for something to do because my plan to become an airline pilot just been put on hold due to COVID. So I actually started trading stocks and crypto, and really just found that, there was a lot more interesting things going on in crypto and it was easier to understand how things traded.
So that led into DeFi summer, which led into speaking to people at the Index Coop which spiraled completely out of control into a full-time role at the Coop and actually launching the MVI. And then since then, managing the MVI contributing the Coop and then stepping away and trying to create something of our own, me and AG sort of spinning up Meta Portal into a brand in its own right. So really the last sort of 6 to 12 months have just been trying to grow that brand really. So yeah, that's it in a nutshell, I'd say.
AG: Yep. Yeah, happy to go next. So, yeah, I'm AG, I go by Verto, kind of on socials and Telegram, Twitter and so on. My professional background before crypto was in asset management in TradFi. I initially bought crypto in '17, but I was recently talking to someone and I used to work with after college and he actually recalled us having conversations about Bitcoin. And I was back in 2013, which I don't really recall. So I guess I was aware of crypto before '17. I bought it first in 2017, and then when everything went down during the bear market, I sort of went back to my regular job and started looking at crypto again in early 2020, sort of, as we went into COVID lock down, I had, working from home, you have quite a bit more time just because there's no one really looking over your shoulder. So you can do a job four hours, you're sort of done.
So I ended up having a bit more time on my hands and I started digging into crypto again and picking up freelance gigs to do writing for crypto sort of publications. And yeah, if you write, you have to do research and part of doing research is using these apps. So I remember using Maker and then Compound and a Balancer when they launched as quite active in the Balancer community, in the very beginning when they launched for a couple of months. And then slowly found my way to the Coop, which was very, indices made a lot of sense to me given, given the background. My sort of area in TradFi was asset management and fund management, which is basically indices, but actively managed.
So made a lot of sense. And the transition to sort of the metaverse really happened with the launch of the Metaverse Index. I think before we sort of launched the Index, I was aware of the concept mostly coming from the NFT side of things, but I haven't really invested in anything in metaverse or NFT related. And I was waiting for an index to do so, because I was like, I have no clue what to invest in and we need to do an index and then sort of in the process of researching and launching the index and then continuing on the path of publishing content and managing it and doing all of that, that's kind of how, I guess both of us got much deeper into the metaverse and what's happening there.
Crypto_Texan: Yeah. That's interesting. And so how did the two of you meet? Because it's obviously blossomed into this great friendship and I'm just curious, did y'all know each other before your contributions to the Index Coop?
Dark Forest: No, we didn't actually, it might look a great friendship on the surface but, no I love AG. We get on pretty well. It actually started because when AG joined the Coop, I ended up reading some of the things that he'd written under a blog that I don't know if he wants shared, but yeah, so he was sort of doing these general musings and I went and checked it out and found that he was writing all the things that I'd been thinking. And so the first time we had a chat, we kind of connected over that and put the world to rights over a video call really. And yeah, just haven't stopped since then.
Crypto_Texan: AG you have anything to add there?
AG: No, that about sounds sums it up.
Crypto_Texan: And so let's talk about how y'all started getting involved with the Index Coop and what's it like, I guess in your eyes, since you've been in the space and you've worked for a DAO for longer, what was it like starting out, working for the Index Coop DAO and then how did that change over time as you, I guess, decide somehow, you acquire these new and new responsibilities over time. Can you just kind of describe that process?
AG: Over for you, you should go?
Dark Forest: Yeah, so I mean, my personal experience was, I actually remember very vividly seeing OverAnalyzer put out a proposal on the forum at the very start of Index Coop. So that would've been October 2020 and thinking, because I had the idea for a Metaverse Index. I was like oh, this would be easy. I'll just slap that on the forum. And then away are we going? It sort of demonstrated my naivety as to how all these things work, but in terms of that sort of becoming a job and a role at a DAO, it just happened organically. And it was kind of being in the right place at the right time. So I feel pretty lucky to have come along at that point because actually the reason that I stuck around in the Coop discord was specifically because I came in as I did at that time with a lot of discords looking to get info around the token and whether I was going to trade it.
And what I found instead was a ton of people who were just super interested in how do we build structured products, using smart contracts that are beneficial for everybody around the world that has a mobile phone and an internet connection. And I thought that is pretty cool. And nobody cared about the token really. That's all they wanted to talk about. So I started to talk about as well, and that spiraled into conversations around governance, treasury management, organizing a DAO, organizing a globally dispersed set of contributors. So it kind of grew organically. And I think it depends what time you turn up, what stage in the formation of a DAO, you turn up as to what your experience will be, because it can be quite different. And I think if you get in early, it's much easier to basically just contribute and sort of get the ball rolling that way that you can do anything because there's so many gaps, you just need to spot one of them, go for it and you can kind of build your profile that way.
If you come into a more established DAO something like Maker, I'd imagine you've got to be pretty spot on with whatever it is that you are trying to do there because they're such bunch of experienced professionals that also understand DeFi at a very detailed level. So it becomes more difficult over time. But for me personally like I say, it was more of an organic process. Definitely wasn't the intention when I started contributing and conversing and putting proposals out there but that's how it ended up.
AG: Yeah. I would say that for me, the one very big moment was realizing that you can actually make a living doing this. I think that was mind blowing. To be honest, I think I was at the time I sort of joined Coop in, I think it was December or November 2020. I was doing a lot of freelance gigs on writing and strategy for crypto, some for stocks and bonds and so on and starting to work individual crypto projects. But it was all through freelancing platforms, right. It was sort of very much unstable and then realizing that you can actually come in and contribute to a DAO and make living from that, that was an eye-opening moment. And then I think on kind of how it was back then versus how I perceive it from the outside now is I think it's still, if you come in early, it's easier.
But I think that the amount of context that you need in terms of understanding the industry, understanding what has happened over the last two years, understanding what type of governance models and strategies have been tested, which ones have failed or not, I think you need much more context because when we started out in late 2020, those really only three or four months of context of history when it came to DAOs and now there's much more, I also think that complexity is much greater, right. If you think about the innovation of say Maker or Compound or Aave and the complexity of those protocols, they're not that complex.
But then if you think about what has happened and what types of protocols and what types of mechanisms and tokenomics have been released over the last 6 to 12 months, the level of complexity has exploded. So I think it's at least my perception that it's much more technical, much more challenging now, while at the same time, I feel there's more and more DAOs that are popping up, that all need contributors, but the level of people or the number of people that are actually available having enough context and understanding that number is limited. So I think a lot of DAO's actually struggling with talent, with recruiting the right people.
Crypto_Texan: Yeah. And I totally understand what you mean about how complex is Maker DAO or Uniswap. And it's almost like I think a lot of us crypto natives or DAO natives in the space sometimes, well, we can sometimes take for granted how innovative this technology can be sometimes. And I know new people to the space do as well, but when Uniswap first came out, that was such a huge problem solver for the space it's like, oh, I don't have to go on Binance or Coinbase to swap tokens. I can just do it here on the blockchain still. And you know, when I onboard new people to crypto and get them their own self custody wallet, they talk about how clunky it is and I'm just, I think, man, you have no idea what it was like two years ago.
So yeah. But another thing is, yeah, I think the thing that was kind of an aha moment to me was, when I actually got paid from the DAO's multisig and that was through impression mining where I submitted my first batch of impressions and I got paid 30 bucks or something and index tokens. And that it just became very, very real to me at that moment that this is just almost a new paradigm shift in the future of work potentially. But we'll move on. So we're going to be talking about the metaverse quite a bit on this call and I think it'd be a good idea if we could just get a sense of how the two of you define the metaverse and do you have the same opinion on your definition or do you have slightly different definitions of what the metaverse is?
Dark Forest: I'll go first just because it's easier. So that I've got more choices what I can say then.
AG: So I actually like your definition, so I'm just going to concur with whatever you say.
Dark Forest: Awesome. Okay. Well I hope my definition is still the same as the one that you like. But I think it's because I kind of had an idea of what all this was trending towards before it became, actually it wasn't really, before it came years and years ago, mark Zuckerberg made everybody at Facebook read snow crash. I remember that story sticking out to me because I was well I'm never going to read snow crash because I hate Facebook so much and I still haven't read it, but I know the term metaverse comes from that book. But for me, the metaverse arises through the blending of digital and physical realities and the hardware that we use, VR headset or haptic feedback gloves, or even just our mobile phones as that improves. I see that as, and borrowing slightly from Matthew Ball, here that's the boundary layer between these realities.
So as that gets better and smaller and higher quality and more immersive, that boundary layer actually reduces. So the meta versus the ability to go into basically a digital reality and not be bound by the laws of our physical reality. And you'll be able to jump in and out between physical and digital now in terms of what it looks within that digital realm. I think that's what most people in crypto and on Twitter spend their time arguing over, is there one metaverse or are they virtual worlds within the metaverse? So that's why I kind of to zoom out a bit and just define it as it's humans going digital effectively. And that's how I see it.
AG: Yeah. And I think if you sort of expand that a little bit right to open metaverse versus closed metaverse right. I think what Dark Forest described can be both right. You can have a closed metaverse, centralized metaverse, corporate metaverse, whatever you want to call it, but what we want to see it right is an open metaverse and that's where you get into blockchain and crypto and NFTs, as sort of ownership of virtual digital goods, it's owning your data, owning your identity, it's digital money, all of these things. So I think metaverse itself can be closed or open, but what makes it open is all the things that we are excited about.
Crypto_Texan: So the metaverse, is it a spectrum? Because I hear people say that really just the metaverse projects are the metaverse. And then there's people who say that you need to include, digital assets and currencies like Bitcoin and Ether. And then there's people who just say, if you're interacting on Twitter, you're in the metaverse or if you're on a Zoom or FaceTime call, that's the metaverse. So do you feel it's a spectrum or do you feel there is a hard line somewhere? Or have we just not done find that line of what is and what isn't necessarily the metaverse yet?
AG: Yeah, I would say that there's a gazillion definitions out there right? So obviously I think it's a spectrum and we don't really understand. We don't necessarily agree on what the actual definition is. For me personally, I think the spectrum comes from the level of immersion. So Twitter, for example, your level of immersion is very low, the same with perhaps Zoom. So for me, it is hard to see that as metaverse just because you're not, even though you do operate in a digital realm, you are not immersed in it. And so for me, that spectrum is immersion. And so the closer you get to full immersion, the closer you get to this full concept of a full vision of metaverse, but immersion is a spectrum. And I don't necessarily know where on that spectrum do we tilt into the metaverse. When does it become metaverse versus sort of the sort of 2D digital world in a way.
Dark Forest: I'd say it's a spectrum, sorry, mate. I say it's a spectrum as well, but less focused on immersion and more on... If you cast yourself forward a hundred years and you imagine historians talking about this revolution, this Renaissance, whatever you want to call it that we're going through, I think they would refer to the metaverse arising as we saw, personal computers with glass screens on them and AirPod earphones that you can carry around with you all day.
These things seem clunky now, but if you give us another 20 years, they're going to become more ingrained. So I think the metaverse is arising on that spectrum and we're going through it. But we are in the sort of early stages of the industrial revolution almost where we've got these big, steam powered clunky machines that are making loads and not it's almost like that, but, I think by the end of this current decade or next, we will look back at having to hold a piece of metal and glass in our hands to access the internet as extremely backward. I think that stuff will start to get integrated. So for me, it's more about the spectrum of how easily we can slip from one to the other.
Crypto_Texan: Yeah. That's, that's really interesting. And just thinking back at when the proposal came through the governance forum for the Metaverse Index, it was quite a bit before the explosion or bull run on the metaverse related tokens and before Facebook changed its name to Meta. And so I guess my next question is, how did you identify this opportunity? And you kind of touched on it a little bit, but, and also are y'all gamers historically? Yeah. Those two questions.
Dark Forest: Yeah. So it came because I was almost at the forefront of this change that was being accelerated by COVID. So I had gone from a career engineer who was then going to have the career as an airline pilot, and then suddenly that was up short and it's okay, I'm not going to do that. I'm going to sit in my mom's basement and trade crypto all day. And then I look around and I see other people getting drawn into this. And then I see older generations having to learn how to use Zoom and getting caught with their bands down on Zoom calls. And you see that we are actually being forced by what happened these, this confluence of events. I think the trend was already going in that direction. We are spending more and more of our daily lives online, but it was accelerated by COVID.
And so the opportunity to capture that trend through a financial product is really where that came from. It's very difficult to capture something that's moving so quickly like the metaverse space, the metaverse tokens, gaming tokens, NFTs, whatever it might be in crypto. So the idea of banging all of the top projects into an index was okay, this is a no-brainer because now anyone who's heard the term or is looking at this trend can capture it and getting exposure to it through a single token and it becomes simple. In terms of gaming, yes, lifelong console gamer. Started off with a Sega game gear and then Satan then PlayStation then went to the Xbox when local area network gaming came about. So I played a lot of Halo, a lot of FPS, first person shooters. And I'm still with Xbox today.
AG: Yeah. I think for me, it was, I started thinking about not necessarily metaverse as the term, but getting exposure to the NFT space somehow. Around the time we had the first NFT boom, which was right after DeFi summer right of 2020. And so when I came to the forum and saw the Metarverse Index proposal, I was like okay, I want this, I want exposure to the theme, but I didn't necessarily think about what exactly does it entail other than NFTs and some games, I was aware of Axie and Aavegotchi to some extent at that time.
So I think for me, it was more like, there's got to be a way to get exposure to this NFTs and gaming thematic. And that's what I thought metaverse was at the time. And then, yeah, with gaming, I think I've played a lot as a kid and growing up, but not for the last 15 years or so. I think Sega was a 16 bit, I think I had the 8 bit console before Sega. I forgot what it was called and then year of unreal tournament cone strike growing up. And then World of Warcraft a little bit here and there, but not much for the last 15 years or 12 years. And yeah, really enjoying getting back into it now. It's a lot of fun.
Crypto_Texan: Yeah. Let's change directions a little bit more to just the Metaverse Index specifically. And let's talk about the token inclusion methodology, and I know that y'all have different categories, virtual worlds, gaming. Can you just kind of touch on the methodology little bit and maybe just describe what types of categories you look for in this index?
AG: Yeah. So happy to cover that. So with any methodology, if you want to have an objective methodology, the better first step is how am I going to screen all of these tokens on CoinGecko for inclusion. I can't really manually go through 5,000 tokens and figure out what I'm going to put in. First off, it's subjective, second off, it's impossible to do time wise. So the very first step is figuring out how to screen things so that you end up with a feasible list of what can potentially go into the index that you can then research. So when we launched, we were using CoinGecko categories and we were screening for, I believe five categories at the time, which was NFTs, entertainment, gaming, VR, AR and music, so that's six.
I think that's what we're doing at the time. And then basically once you screen for that, you have a list of tokens, which probably somewhere between 50 and 100 and then we'd sort of go through them and we'd look at, is it an ERC 20 or not? Does it have DEX liquidity or not? When has it been released? And so that would allow us to filter some more tokens out. So we had a minimum market cap requirement, we had the token has to be live for at least three months and then we had a bit more subjective liquidity requirement as well. And so then sort of once you've screened through that, you look at what's left and you try to apply a bit of a fundamental overlay on top of that. So you look at the team, you look at the history of any incidents, you look at circulating supply, you look at vesting, are there any tokens, any cliffs that are going to hit the market, where you'll get diluted, is there a massive APY Staking program where if you're not participating?
All of these things. And then what's left is basically what you want to include. And for the MVI portfolio. Then going back to the categories, probably six or seven months after we launched the index, we've decided to change from CoinGecko categories to categories that we have developed. And that was basically around, we didn't want to be tied to categories. We are a little bit handicapped with that. And when the product started growing and hitting 30 and 50 million in AUM, that felt a hindrance really, something that might hold us back. So we've developed our own categories for the application layer of the metaverse and that's gaming, virtual worlds, marketplaces, I think extended reality, AI, machine learning, things like that, I think we have collectibles as well. And a few other things that I'm forgetting now, our platform's one of them, yep.
Crypto_Texan: And that's really why y'all eventually decided to start the Meta Portal brand, right? I mean, there was a time last year where the two of you started to scale back your contributions to the Index Coop, which was sad to see, to focus on Meta Portal, the Metaverse Index in other initiatives. But was the ability or the wanting to, I guess, define your own categories for the metaverse the primer for that move?
Dark Forest: No, not really. That was more of an outcome and trying to sort of take more control over our own destiny. Really. I think the main reasons for that move were we were stretched pretty thin trying to contribute at the Coop I, and manage a product to the best of both of those initiatives. So it made sense to focus on doing one. And I think with metaphor or we both enjoy writing AG does, and I do, but I think we to put our thoughts down. Occasionally we like the freedom of being able to sort of pursue things that we found. Interesting. So a AGs obviously gone off and he's got a scholarship, actually, scholarship. Now we got some advertisement partners on the sub stack. We're looking at what else at that time it was what else can we do with this?
It can become, the index can give us a nice income generator, but what can we do with that? And if we want an open metaverse and we want to be people who actually make this thing better and make steer the direction of how this thing grows, then we can become a part of that in our own right. With a brand basically. So that's where it came from really. And like I said, that specific thing, the categories was just a good idea to give us more control over what does and doesn't go in. So you imagine CoinGecko's job is pretty hard, the amount of new tokens they get every single day, they're just banging out these categories on them, not always with the most due diligence, whereas we can sit there and take our time and do the normal process that we do for every net token inclusion, which is speaking to the team, deep diving the tokenomics, making sure that the product is actually live audited, works, et cetera. So just give us more flexibility, but more control over our own destiny.
Crypto_Texan: And so what, can you just describe Meta Portal, I guess, in a little bit more depth, so what is this organization? Is it a DAO, is it a meat space company? Is it just a Twitter handle? The two of you in a Substack? How would you describe it?
Dark Forest: I think we don't know yet. It changes as we go, which is one of the exciting things about it. We first sort of kicked off the direction that we were going to go in over some lovely cocktails on a beach in Greece, back in August last year. And we set forth, here's what we're going to do for the next three months and I think we kind of achieved that. And then we tried to do the same again this year and we've ended up focusing slightly on different things, but we've sort of kept to the core of what we're trying to do, which is grow those revenue streams through index products and other initiatives. But I think that our ideas change quite often.
And so in terms of what Meta Portal is today, it's us and our community, hopefully a community of people that enjoy reading and hearing our thoughts. And we've had some good conversations in the discord with our community. And we've had people reach out and actually get more involved like the gaming newsletter, if anyone's seen that's, comes in part from a guy in our community called Daniel. So at the moment, it's just a way for us to engage with people who enjoy being in the metaverse, being part of this thing emerging and a way for us to share what we are up to with other people. Where that's going to go in the next three to six months like I say, it kind of changes. If you'd have asked us in August last year, it'd be completely different. Where it was in January it would be pretty different to where it is now. So I think we like to keep our options open and yeah, see where it leads us really.
Crypto_Texan: AG, you've got anything to add there.
Dark Forest: I wonder if we've lost him. His internet has been a bit doggy.
Crypto_Texan: Yeah, he was cutting out a little bit. That's okay. Well we'll just move forward then. Yeah, so I subscribe to the Meta Portal sub stack and listen to the podcast and yeah, y'all do put out some really great content. And I think one that I just read recently, and I feel this is becoming a major theme in the crypto space and that's the blockchain gaming or play to earn gaming and in game NFTs and Meta Portal put out a primer on, what are some valid criticisms in shortfalls of play to earn gaming, blockchain gaming, in game NFTs. Do you want to touch on that a little bit? What are some valid criticisms of that space? Because I feel there is a lot of push back that we hear and see from traditional gamers and I think Discord try to integrate NFTs and they got a lot of push back as well. Just curious to hear your thoughts on all of that.
AG: Can you hear me coming through okay?
Crypto_Texan: Yeah, we gotcha.
AG: All right. Yeah. So it's interesting, right? Because we do get crypto gaming and blockchain, in game NFTs does get a lot of push back from traditional gaming. And a lot of people in crypto tend to just be like, oh yeah, these guys just don't understand. And it's interesting because from looking at the space and researching gaming for a while now, quite often, it's not traditional gamers who don't understand, it's crypto gamers who don't and understand. So there are a lot of really sort of credible and valid criticism of crypto gaming. So first one is that, the quality is shit. The quality of crypto games is not great. If you sort of try to compare it to traditional games, we are taking stepping back into 1990s, maybe 2000, so early 2000s for the quality of some of these games.
And crypto people then tend to say, oh yeah, but look at Illuvium and Star Atlas, and these guys are going to develop AAA quality games in the next three months or six months or whatever. And that's, we don't think that's going to happen. That's just not true. I don't have too many game dev friends, but I have a few and I've spoken to them and they tell me that it's literally impossible to deliver what Illuvium and Star Atlas are promising. For Star Atlas specifically, there is a game called Star Citizen, that is basically what Star Atlas wants to be. And those guys raised, I think up to 500 million and they've been building this game for seven years and it still doesn't work. So we think that the qualities is poor and it's going to take us some time to get better. So I think we need to be realistic about what crypto games are and will be for the foreseeable future. So that's number one, right?
Number two is the user experience is challenging. It's having to deal with crypto wallets, hopping between chains, figuring out how to cash out any awards, it's really challenging. So we are nowhere near kind of what mass adoption you are. I will look, and we are seeing some better implementations, but we still quite far off. Let's see, I think, because the games themselves, the quality of the games themselves is poor. A lot of teams are not really focusing on building a good game and building a fun game. They're focusing on the crypto economic loops and stretching that as far on the Ponzi, non-Ponzi range, stretching it as far as possible. So that's where, the GameFi term that's sort of what it is. It's sort of DeFi farming mechanics with visual overlay.
But crypto game themselves, the way we see it is video games. And so we've seen a lot of GameFi and that's not really gaming. I think valuations generally pretty high for lack of users and poor UX and poor quality of games. Distribution, I think a lot of people don't understand how hard distribution is. You can't really get a crypto game onto Apple store, Play store, it's really hard. Esteem said that they crypto games. Even if you do get a game onto Apple store, Play store, they take 30% of the revenue. That changes the economics for developers, for studios quite a bit. And there is a limit to how much you can distribute the game directly by having people download an app outside of an app store, whether it's on mobile or PC.
And yeah, the last one is around land. And there is this argument that there's, we don't necessarily need to mimic the qualities of land in the physical world, in the metaverse because digital land can be abundant, right? We don't have physical restrictions. And so there are a lot of examples of digital scar land leading to land crises and collapses of the digital real estate market in different work, virtual worlds or games. And it's valid that a lot of teams in crypto gaming do not know that and haven't studied those things. So those are some of the criticisms that we find to be really credible and really valid at the same time. There's still a lot of positives that in the long term, make crypto gaming sort of a big step up from what we have today.
Crypto_Texan: Yeah, wow. That's really interesting. What was the virtual world land crisis you were referring to? Is it something second life?
AG: There is an article really well written case study by this guy called Lars Doset, on Twitter. And so he's a game developer who sort of studied these things for quite a while, and I'm happy to drop it in the chat. I forgot exactly which world, but there was several worlds that had these sort of land crises and they tried to deal with them in different ways. Right. So his article not only covers the instances of land crises, but also what different teams try to do and what works and what doesn't. So he sort of talks about the land value tax or harbinger tax is a different variation of it, but some sort of a tax system to make sure that the land in games is used is actually utilized. So if people want to build something there's land for them to build it, and for that to happen, speculators need to pay the price of just holding and squatting on the land without actually doing anything with it. I'll drop the article in the chat.
Crypto_Texan: Yeah. That'd be great. And it's interesting. It's almost like these crypto games when you have scarce assets that you need to utilize within a game, it's almost they need to hire their own economist. Just for a micro economist for the game that they're developing is that... I think we talked to Ryan, from DG about that a little bit, but is that a trend that y'all are seeing in the space at all?
Dark Forest: Yeah. We spoke to Tim, from Sipher, did a podcast with him recently, and he mentioned that I think they have two economists game economists for their upcoming game. So yeah, it's becoming a pretty serious intersection of economics and game design that you have to think about these things and make sure that they work long. If you look at something like Axie, there's literally billions of dollars at stake and upwards of millions of players. So if you get it wrong, the consequences can be huge. And I think actually to go back to a point that AG made earlier, a lot of crypto game projects are almost either deliberately or just unintentionally, I don't know, they're just not, they don't seem to have taken an account of anything that's happened in traditional gaming over 20 years.
There's so much to learn, there's so much information, examples of things that have gone wrong. The land scarcity stuff is a great example, which is why I think Nifty Island is a great idea. It's literally playing the opposite, which is land is abundant go and make the most creative thing that you can. Land scarcity has been shown time and time again, to make a mess of things. And you get landlords and rent extraction, and it turns into a whale's game and it can ruin the experience. So to just build a game and do constant land sales like you see from Sand Box, I think it could land these projects in hot water and they have to be careful. And so yeah, that's where game economists come in, people who are experts in the design of the game themselves and have that understanding of economics and convert them both to work.
Crypto_Texan: Yeah. That's interesting. And okay, so we've talked about out some of the valid criticisms and shortfalls of crypto gaming play to earn gaming, but there are also obviously some ways in which this space is better than the traditional one, which is why you've been teasing this game index on Twitter. So let's talk about that a little bit. What are some ways in which you feel the play to earn gaming is better? And how did that push you to want to develop this game index token and maybe just talk about how is it different from the Metaverse Index? And also you guys have chosen to deploy this game index directly on token sets, as opposed to going the Index Coop governance route through that partnership. So I'll just let you talk through all those questions. I feel I just gave you a lot of questions, but I'll let you talk through those.
AG: Yeah. I can cover sort of what we see as benefits of sort of crypto gaming using blockchain and NFT tech for games. And then Dark Forest, can maybe talk about the game index and how it differs from MVI and why we've sort of decided to go through token sets directly. So on the benefits, the first one is the fact that blockchain and crypto games and using NFTs allow us to have open and trustless economies. So we all know that with gaming, there's always black markets, gray markets. Some of them are scam, some of them are horrible, it pushes a lot of this economic activity underground. And that just doesn't really make sense. So I think having an open economy is a massive advantage. And the fact that if that open economy runs on a public blockchain, then that economy itself is pretty trustless.
And with an open economy, players can monetize their time. If I've put in 20, 30, 50 hours into a game, maybe I won an NFT or two, I can sell it, I can monetize my time in a way, I can also exit the game. So let's say I spend $1000 buying Axies, I played for a couple of months and now I don't want to play the game anymore so I can go and sell them. So it's not sell at a certain cost as it is in traditional games. And so it's interesting because the traditional gaming developers, they can do this. They can do open economies, they just haven't really done so.
Another benefit of open economies that the prices are set by the market, which is the different from the developer controlling the pricing. So I think it's also worth pointing out that even though the economy itself is trustless, the games are often not trustless, because the developer still controls a lot of what's happening with the economy and controls what your character can do in games, through buffs, nerves, sinks, and other mechanisms. So you do kind of have to trust the developer, but the economy self is actually open and trustless.
The second benefit is the equity exposure. So basically token allows us to align incentives between gamers and the developer, as well as other participants in eco system, whether it's community or streamers or other sort of ecosystem participants and that's something that's not necessarily possible in the traditional gaming environment. I think one of the interesting ideas, and we hope that a lot of this sort of happens, is third party or community modes, often existing game that are funded with a token. Basically we know from the history of modes that they actually, sometimes they tend to bring a lot of value. We know modes that have been more popular than the actual game, we know modes that have been incorporated into the next installment of a game. So it's the ability to use the token to align incentives is really powerful. It's also mentioning that I think the equity exposure is probably needs to carry equity or something similar regulations. So I think there's a big risk of regulation in there.
I think governance is really interesting. I think they're good and bad things about governance, but the ability of the community to sort of contribute to the evolution of a game, to contribute to what is going to be the next expansion and in which direction can we take the story and things like that, I think it's really powerful ability to... And having tokens so NFTs that are verifiable gives us the ability to do that. Again, you could do that with a centralized system in a traditional game, it's just that the traditional game developers don't want to do it.
And the fourth benefit is really the difference in the monetization and the economic model. The way you monetize the crypto game is through the economic activity, which is why open economies are so important to this. And also if you think about marketing, for a AAA game, the marketing budget is often as big as the development budget. So we're talking 60, 80 million at a low end for both development and the marketing budget. So in crypto, you don't really need a marketing budget, because the token allows you to align incentive between the community and then the community has to push the game forward, has to push the marketing because they're financially invested in it. So we generally see that the economics of the crypto games are much better than the economics of traditional games and we think that's a huge benefit.
Crypto_Texan: Well, yeah, I can definitely see all the benefits there, yeah. It's just a matter of finding the common ground and merging between those criticisms and then the obvious criticisms of the crypto gaming space and then the obvious benefits and advantages and the alignment that the token incentives can create between developers and gamers. Yeah, that's really interesting. Yeah, Dark Forest, if you want to talk more about the game index, go for it.
Dark Forest: Yeah. So I think you asked about the differences to MVI and I think if we focus on the fundamental mandate for MVI, it was to capture life as in sort of social and business, or moving to take place in digital environments. And we recently updated that to specify that those environments should be powered by NFTs and blockchain. So MVI is kind of that broad, we've seen this trend, how do you capture it? And that's what's designed to go into MVI. Talked a little bit about the categories as well and how we see those different sectors of the metaverse. So I guess game is, okay, you're in the metaverse, what you're going to do. And gaming is currently the hot narrative, it's the hot sector. So you're going to do a lot of gaming. And as AG, has just pointed out, there's a ton of benefits to NFTs being involved in these games and basically the crypto aspect to it.
So game really is focusing on the traditional gaming is a growing sector, is going to be, or is predicted to be about $269 billion worth of an asset class or a sector by 2025. So there's tons of growth. It's been around for decades at this point and it was written off at the start and now there's even consideration for E-sports going into the Olympics. So the narrative on gaming in general has totally changed. So we're looking to capture that. So then you're in the metaverse, this is the top sector at the moment. So we're seeing billions and billions of dollars come in to NFT games, crypto games.
If you look at the numbers are pretty staggering to be honest, I think it was FTX that have raised a fund a couple of months back, that's $2 billion purely for gaming, mainly Solana focused of course, but there's money coming in. So even though there's a ton of rubbish, there's definitely going to be stuff that comes out of this that is good. So the sector itself is growing, money is coming to support it and while probably in the short term stuff has been over hyped. You're definitely seeing good things happening and projects making real products. So game really is, can you capture that part of the narrative? And do you know what really struck me was, listening to AG talk about all of the sort of hard truths and is kind of ironic that we've put that article out there a week before launching this product, because it basically FUDs the whole space and says, everything's overvalued and over hyped and actually we need to take a step back and consider what's really being built here.
But actually I think, I say the fundamentals are there, it's a growing space, there's money coming into support it. We are seeing innovations and real things being built. And of course, it's powered by self-sovereign ownership of your digital assets, which is an extremely powerful thing. So game, in terms of a portfolio, if you looked at it from a portfolio perspective, I think you look at it as a sort of supercharging your exposure to the metaverse. If you've already got MVI, maybe you would take up a 20 to 30% allocation in game, just to capture that. We've seen that the top performers within MVI have been gaming related. So we're talking, AXS, ILV they've all been up massively some inclusion.
So it just made sense to have a product that captures that. I mean, up until, even just recently, we've seen data that shows that gaming has stood up really well since the start of the year, and it's actually been the best performing sector. So yeah, it just seems like the time is right for that, but in terms of its differences, it's that narrow focus on a hot set within the broader metaverse. So that's how it differs from MVI. And then, yeah, the interesting question about why token sets and not with the Index Coop I guess, because we like doing things a hard way and we don't want to make it easy for ourselves, but the real thing is the Coop has a bit of one size fits all approach to feed splits, and rather than trying to shoehorn ourselves into that and sort of dealing with it in perpetuity, I think that we just want to see, is there something else that we can do?
And by the way, I want to make it clear that everything I say here, I have already discussed with Matthew Graham, probably other men members of Index Coop. We've had these kind of discussions so none of this should be new to anybody. But in terms of that fee split, I think the main benefit we see of working with Index Coop is that kind of re-balancing as a service, but where we are currently at, I think that's all that we're looking for the time being. So the fee split would have to be sort of flipped the other way around in order for that to be tenable for us. I mean, if you look at the numbers, if we take a hundred percent of the income from this product and we get it to 8 million, that's the same as the current fee split with MVI at 40 million. So there's a lot less pressure on us to grow it to a massive size, to have the same sort of levels of profitability.
And I want to say that, as I said, all of this stuff has been put across to various people at the Coop already. We haven't closed the door, I think there's always an option to work together and there are definitely things that the Coop can do that we can't. So perhaps in the future, it would be a case of having those discussions, but the door is always open and we came from the Coop, we understand how it works, what it does well, and it's just a case of falling onto something that works for both parties I think in terms of what it can be offered and what we have to give up in return.
Crypto_Texan: Well, we're kind of running up on time a little bit here actually we're over time, but yeah, I'm excited, I love the Metaverse Index, I love what y'all have done in your historical contributions to the Coop and getting to Coop to where it is today. Love the Meta Portal sub stack and podcasts, and very excited for the game index, which I think you said is launching next week. So like I said, now that we're over on time, the final question is where can people go to find out more about the two of you and Meta Portal?
Dark Forest: Yeah. So we're both on Twitter I am @DarkForestCap and Verto is @Verto0912. We have a website, not many people use it, Metaportal.wtf is our website and the probably best place to go now. It's a bit of a hub, it's got all of our product information, it'll soon have, if it doesn't already, no, it does have links to our get book. So you can find detailed information, contract addresses, et cetera. So we've got everything on there. I'd say start with the website. And as I say, we're both on Twitter and we've got all the links in our Twitter as well and recently opened our discord. So anybody is welcome.
Crypto_Texan: All right, guys. Well, I really appreciate you coming on the show today. Thanks to everyone who's listening live in the Index Coop discord. This is being recorded and we will get this out in about a week. Dark Forest Capital, AG, great to have y'all and have a great weekend and I'll see y'all next time.
Dark Forest: Awesome. Thank you.
AG: Thank you.
Host: @Crypto_Texan
Audio Engineer/Mixing: @LloveraFrank
Marketing Image: @crypto_diller_
Transcript: @0xMitzy / @Crypto_Texan
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