The Future of Web3 Gaming Is Here w/ Robbie Ferguson from Immutable

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1:30What's going on, everyone? Welcome back to the Real Vision Crypto Daily Briefing. I'm Jeremy Varlow filling in for Ash Bennington, who is taking a well-deserved break. I like to think that Ash is somewhere with a button-down Hawaiian shirt and a cocktail in hand. Ash, hope you're having a lovely vacation. I'm super excited to be hosting the show today. We've got a great guest. I'm joined by Robbie Ferguson, co-founder of Ethereum Layer 2 and Web3 Gaming Protocol Immutable. Robbie, welcome back to the show. Thanks, Jeremy. Good to be here. Great to have you back. Just a quick note for our viewers, we're pre-recording this episode as Robbie is across the pond in Australia.

2:10It's early morning on the 6th, his time late in the afternoon on the 5th, my time. So we won't be covering any price action or top stories today, as Elaine covered that earlier on the show. By the way, before we get into things, viewers, if you are not a Real Vision member yet, please go to realvision.com forward slash crypto to sign up. All the content there is completely free and will remain so. This is where you're able to watch the newest episode of Raoul Pal's Adventures in Crypto, which premieres live every Friday. Let's get into things. Like I said, we've got Robbie Ferguson here. I'm super excited to chat to you, Robby.

2:46I'm a bit of a gamer myself, although not as much as I was when I was a kid. But yeah, I've been following Immutable's story very closely over the last couple of years, and it's been great to see the progress you guys have made. Before we get into things, maybe you can just, for our viewers who might not be familiar with you, talk a little bit about your background, your story, how you got into the crypto space, and how Immutable came to be. Yeah, absolutely. One of the stories I think is fairly useful is, so for a bit of context. I've been building tech startups for the last decade with my brother, mainly.

3:21And we both taught ourselves initially how to code, and we were also massive gamers. So there was actually a story where we used to play on RuneScape a bunch, and James had a RuneScape account that was much better than mine. And one day I went on it, we shared an account, which is kind of against terms of service, went into the wilderness and pretty much lost all of his stuff. And I was feeling so guilty that I went on and I spent all my pocket money and I bought gold so I could buy back these assets. And the next day, the account got banned for real world trading. And then I think six months or 12 months later, RuneScape rolled out Jagex bonds where you could just directly buy with cash in-game gold.

4:03And so I think it was pretty clear early on that this stuff really mattered, but you had zero rights in these ecosystems and universes. The other game we really loved was League of Legends. And so actually our first startup was a League of Legends wagering startup where you could baron your own matches, which eventually failed as it kind of lied each other down for terms of service breaches. And after that, we built a Shopify competitor, which leveraged machine learning to automatically optimize your store based on pricing and copy. That was a bunch of fun. We built some sort of quite successful hardware and consumer product categories out of that to kind of showcase the platform.

4:44And we got into crypto in around 2014. And I liked Bitcoin, but I wasn't obsessed with it. So when Ethereum came out, it's what we actually fell in love with. And I think it's for two reasons. One is we could actually build with it. So as developers, we could start to see the potential of what could be developed. And basically a gambling app where you could roll a dice and probabilistically it would return a reward to you. And all of this was done transparently. And I realized, you know, this thing was a few hundred lines of code and it came out in the first six months of Ethereum existing. And the Australian government spends billions of dollars every single year, heuristically testing slot machines, making sure they're paying out between 88 and 92 cents on the dollar, making sure they have sufficient funds in their bank accounts to pay out any winners.

5:35all to achieve the same thing that this developer achieved and granted lines of code. And then what Etherol did that the government could never do was decentralize and allow every single person who played with this machine to own a piece of the network. And that to me was magic. That was how we could essentially, within the sort of confines of capitalism, create a system of incentives that was much, much better for the prices for where businesses would eventually mature to, which are collectively owned, where fees are typically lower. I think we're seeing that trend in a lot of DeFi today. It's a long way before it starts to impact Web2 companies, but it's something I'm quite passionate about.

6:14And so we started actually by building trading bots while I was at university. My brother was the lead engineer at a$3 e-commerce store down here in Australia. And after a few years of building trading bots, first on Poloniex, and then we switched to Dexas and some derivatives, we realized we really wanted to fundamentally build stuff that people would use. Because it was 2017, and there was no mainstream use of crypto outside of payments. And honestly, I would say that is still the case today. And so we had a look at a bunch of stuff, and we initially started writing a white paper for the distributed autonomous act, or DAB, which was effectively a lending protocol, very similar to Compound.

6:53And we hadn't solved all of the over-collateralization problems. I think neither has Compound or any lending protocols yet, but we were about to launch this. and at the same time, five ICOs went to 100, went to 200 and we got very qualified about the space. We thought a bunch of people were going to jail. Regulatory was kind of a nightmare and we wanted to build something that could be built for the very long term and that was ultimately a proper business. So serendipitously that month, CryptoPunks came out. We saw these and we said, this is basically all of the value of Bitcoin that now it is anything rather than just fundable stuff.

7:32And honestly, the first thing we thought of is just players will use this to own video game items. We were so used to that concept from growing up. At that point in time, I think$80 billion US dollars was spent every year on in-game items. This is not the ability to play a game. This is not the ability to buy Call of Duty. This is the skins in Call of Duty. This is the coins in Candy Crush. And now that number is$130 billion. And so honestly, the way we started out was we decided to build a creative concept game that showed people the potential of this. And it was called EtherBots. It came out at the end of 2017.

8:06And it was essentially the first multiplayer game on any blockchain. Now, playing around today, I don't advise because all of the logic of this game is on-chain. So it's extremely expensive. I think it costs hundreds of dollars for a single match. And so we very quickly learned, for instance, what on-chain gaming versus off-chain gaming would do. and we formed this view that basically ethereum or blockchain should be this asset layer that empowers people with self-custody over digital assets but everything else you'll likely have some form of essentialization spectrum um and really that's that's i think uh the mission we've continued on today we incredibly importantly believe that just because an asset is intangible or digital it doesn't mean you shouldn't have property rights and we've been sold this lie based on the start of the internet, the start of e-commerce, the way that most digital asset infrastructure works today that, hey, the only way you can own this is at most a rental agreement or some sort of contract, which can basically be impugned at any point in time.

9:08And you see this all the time in gaming. When we started out, Counter-Strike Go, which has done 32 billion US dollars in volume of digital skins on this gray marketplace slash database run by Steam, shut down and basically you could only trade assets once per week. And overnight, Opskins, a multi-hundred million dollar marketplace went belly up. You had billions of hours of player time go to waste. You had hundreds of millions of dollars of asset values lost. And we've just seen this happen again, where there've been banning accounts with impunity and there's really no recourse. So I think this is a perfect example of why we chose this category, which is it's non-speculative.

9:49You don't have to believe in some future crazy off use case or adoption use case. It's, hey, players are already spending an insane amount of money because it matters to them and they get zero property rights and zero rewards. And so we really see this as a fairly simple transition to something with vastly more value. And from there, we can sort of develop much more interesting ecosystems built on top of it. Hey, everyone. We're going to take a quick pause and hear a word from our partners. We'll be right back. Yeah, I mean, it's a great point. And I'm happy that you brought up that CSGO stat there, because I saw you mention it on the most recent Immutable Town Hall, and I just found it to be a perfect microcosm of what's going on in the traditional gaming spaces that gamers will try and find a way to sell the assets that they've either worked very hard to acquire or spent money on acquiring, and a centralized entity can just shut that down and say, no, can't do this.

10:50Do not pass go. And, you know, I think it just really goes to show the amount of disruption that can happen in this space and that will happen and is happening. From a mutable standpoint, maybe you can kind of walk our audience through, you know, a simple explanation of the immutable ecosystem. I know you guys have a ton of different products and services. You just launched the Passport. you can talk a little bit about the ZK EVM thing, the IMX token as well, and how that plays into the whole ecosystem. Yeah, if you can check that out. So I'll start with a bit of background, which is the really interesting thing for me has been seeing NFTs, and in particular gaming, going from this sort of undefinable and unknown concept to being very well known, and now fundamentally associated with art and collectibles.

11:45And I think the reason if you go to Gods Unchained, one of our games, you will never see the word NFT on the webpage, is we don't think it matters at all. For us, the important thing is that players have property rights and economic guarantees around scarcity and future trading abilities. It's not, hey, this is how the technology under the hood works. And I think although our PMP projects and collectibles are interesting and a great example of what true digital ownership can do, they are not what we're fundamentally focused on because they're ultimately speculative assets or alternative asset classes rather than being this utility-driven change around what players are already spending huge amounts of money on.

12:29And the really interesting thing is in seeing gaming become essentially the most competitive category in crypto. So over the last three years, every single new layer two, layer one blockchain competing with Ethereum has basically had as the mantle that they want to win. Because it proves that they have consumers. And ultimately, there's been an insane amount of money invested into this category, roughly 15 billion US over the last three years, which is more than for context, any other shift in distribution, mobile, social, free to play in history. And we're now sort of seeing those games come alive in the next six to 18 months.

13:07But what we've really tried to build is how do we be the one-stop shop that solves all problems for gamers? And so today we have hundreds of games building on the platform. We would have the largest market share, especially now we've combined with Polygon out of pretty much any blockchain in the world. We've got a multi-billion dollar token, which is used to drive a lot of ecosystem incentives to adopt the platform. and ultimately our goal is how do we help solve the core problems for these game developers in getting these games launched and that means everything from their game design their economics their user experience the developer experience the scaling problems and you've probably seen our recent partnership with the polygon folks which is useful to touch on as well which is at the end of last year you know we had roughly uh 40 45 cent market share and so did polygon for gaming uh we were onboarding a ton of games that it was getting extremely difficult for games to a choose where they wanted to go and b the competition was just getting to the point of ridiculousness and so uh this this analysis from delphi came out that that kind of showcased pretty much it was a two horse race um and you know sandy called me and said you know robbie we really did figure out a way to make this a much simpler choice and and just focus on actually helping these game developers and succeed.

14:27So that's what we've done. We've basically built the Immutables ZK EVM where Matic is a staking token, Immutables is the platform infrastructure built on top. And the most important thing is, A, we can unify fragmented liquidity across all of these different rollups, marketplaces, wallets, and contexts. And B, we can really unify our sort of go-to-market efforts and really just provide a sane, single default place that can be developed to build. And the results of that has been pretty insane. So last month, June, has been our largest month by value of onboarding games in the company's history.

15:01And this is on top of three consecutive quarters of growth. And what we're seeing is a lot of Web2 game developers who are now shifting over rather than a lot of Web3 native game developers. And I think that's because early on in gaming as an industry, the only way for you to successfully compete was if you had enough expertise to say, hey, here's how you build a community, here's how you do successful primary sales, et cetera. But ultimately, a lot of these developers are going to fail at building successful games. We really want ordinary game developers to just be able to build their game with a real economy without having to worry about all these web3 components.

15:39And that's the bridge that we're really trying to solve with Immutable. That's awesome. And I was just about to jump into that Polygon partnership because when I first heard about it back in March, I was like, well, wait, Like, aren't these two the two biggest players in the space? Like, for them to collaborate is, like, quite earth-shattering an announcement for the Web3 gaming sphere. Like, this is one and two coming together. And, you know, as I thought about it, it made a lot more sense because Web3 gaming is in such a nascent early stage that, you know, what better than, you know, the two biggest players working together?

16:16You know, a rising tide lifting all boats, as people like to say. It started to make a lot more sense when, you know, the details of that came out. I watched your interview with Sandeep on Bankless and it was like just kind of this aha moment. It was like, yeah, I mean, this is the natural way to onboard these people into gaming is to collaborate, you know, with the biggest players. You know, it's just a really refreshing way of doing things. And I think that's very cool. Kind of following up on that question or when it comes to like developers, it's kind of a chicken before the egg thing. It's like, you know, who do you need to onboard first?

16:51Is it the developers? Is it the huge studios? Is it the gamers themselves? Like what is the most important part of that? Yeah, you've struck on, I think, a great note, which is there are so many different products to solve for in order to unlock success here. So really over the last three years, if you're a user adopting a Web3 game, You've had to use a wallet where you have to write down your seed words or you have to use something that's ultimately custodial. And we don't want either of these. We're not a fan of custodial wallets. We think the whole point of this is to default to economic property ownership, not just your credentials being stored on someone else's server where they can operate on your behalf.

17:36and we also don't think that we'll be able to get anywhere if users have to write down 24 words or remember a private key and they can have all of this stolen with all of these warnings shattered at them and so I think the first thing to solve for is how do you make sure a user funnel is smooth and we've done a lot of work here a lot of other people have done a lot of work here in terms of fiat on on ramps and but we just recently launched the immutable passport which means you can sign up with email, you can OAuth, but it's completely self-custodial under the hood. So you can literally sign up in under five seconds to a wallet.

18:09And I think that's critical because if you know much about gaming, especially mobile gaming, it is all performance marketing competition. It's how cheap can you get your acquisition costs? How much better can you get your retention costs? And then how well can you monetize? And we are killing 95 % of user conversion at this acquisition stage when we ask them to sign up with some sort of web3 wallet. So I think that's first really key. And the second thing is, obviously, in order to get players, you need content. Gamers won't come unless there's things to play. And so what we really focus on is how do we know the game developers and how do we help them succeed?

18:46I think that has a few things under it. The first is, for some reason, most alternative blockchains have gone down the path of developing proprietary languages for tooling and developing in blockchain. And things like Cadence or Rust and A lot of this new languaging we don't think is particularly effective because ultimately even using Solidity is incredibly difficult with all the boilerplate codes and templates that are out there. And our view is it should be as simple to use as Stripe for the vast majority of game developers. And what Stripe pioneered was you could set up payments with APIs and you didn't have to have specialized technical experience.

19:24You just had to be a general developer. We think the same thing should be true for game developers. If we're requiring people to hire blockchain engineers or understand what re-entrancy bugs are or understand really the perils of self-custody are layered even then exterior choices and exterior risks. We're asking too much of them and the industry will never take off. So what we've obsessed over is how do we abstract over almost every interaction they'll need in terms of building an economy into these APIs? And the way we do this is we have the platform of the company, which is the product itself and how we service other customers, But we also build this Immutable Games Studio, where we're internally publishing and developing now five games.

20:06And the reason we do this is we want to really become experts at how do you design the economies and the game design and understand the iOS policy store. Sorry if there's a gap on that. And we're working with the iOS store firsthand. And the reason we do all of this is so we know what the actual product experience our game developers are going through and what's required to create a successful game. And the way we have essentially run this now is with Immutable Studios and the Immutable platform, where you can know everything through the game developer experience people have to touch, while also trying to really pioneer stuff on this game design and economy side.

20:44And one final note on that, I think every successful shift in distribution for gaming, whether it's been mobile or free-to-play or social, has really been conterminous with a successful flagship game that defined the playbook of how everyone else could succeed. And that's really where you saw the inflection point. You had Farmball come out, and then you had 100 Farmball clones. And they understood how to leverage Facebook's social graph in order to generate a viral game. You had four mobile devices, obviously the early pioneers like Paper Toss, but really it was super self coming in with a lot of here's how you build successful mobile games.

21:22And then you had the Gacha and sort of mobile free to play, particularly in Asia, game design models come out. And as soon as these games have flagship successes, the way they do their game design under the hood becomes turned into playbooks and it becomes very accessible to other game developers. I think that's actually a critical piece of IP we need right now in Web3. When Axie came out, a whole bunch of people copied Axie. If that economy had been sustainable rather than unsustainable, today we would see multiple successes. And so we really just need an example of how do you generate an economy which is shared value for consumers, which has vastly superior UA, and then how can people copy that?

21:59And that's exactly what we're working on over at Immutable Studios. Hey, everyone. We're going to take another quick break and hear a word from our partners. We'll be right back to the Real Vision Crypto Daily Briefing.

22:12That's very cool. So we've talked about from the developer side of things, we touched on the actual gamer side of things, but, you know, taking the complexity and just getting set up, you know, getting a wallet, you know, not wanting to go through the whole seed phrase thing and, you know, buying crypto and loading your wallet and whatnot, not using the term NFTs, you know, But there's also been this very slow trickle of gamers, of popular streamers that are kind of getting into the Web3 space. Dr. Disrespect, one of the biggest streamers in the world, is launching a Web3 game. So, you know, I think that there will be kind of that slow trickle of, you know, it definitely takes somebody to kind of pull the cart.

22:53And, you know, I think that will hopefully onboard, you know, some more gamers into the world of Web3 gaming. Let's talk about the, you know, the big studios, the AAA studios. We're talking, you know, the Rockstars, the Activisions, the Epic Games, who, as I understand, you know, Immutable has a few games on the Epic Games platform already. You know, I'm sure you've had conversations with these people. What's like take their temperature? What are they feeling about the space? Why would they want to give up, you know, huge revenues? You know, Epic Games, for example, I think takes 15 percent. Or is it Steam?

23:29It might be Steam. but you know why would they want to give that up to kind of return power to the players so to speak you know what's the incentive there for them and where are they at kind of in this journey are they coming on i think steam takes 15 yeah um it's it's a great question so look ultimately we see a bifurcation where there i think the large studios which are happy to dive headfirst into this and really try and be the first movers and therefore have an advantage in what they see to be the next successful paradigm in how games are shared and distributed. And a lot of these studios right now are based in South Korea or Japan.

24:05And if you historically look, that makes sense. South Korea was the pioneer for free to play. South Korea was the pioneer for mobile. Both of these, by the way, were not immediately adopted by gamers when they came out. But the reality is gaming audiences over in Asia are incredibly pro-web3 games. And you don't have this sort of tension you have to walk in the West as well. I think the other one is every single Web2 major AAA gaming studio in the West is absolutely currently working on some sort of Web3 understanding, research, or game. But it's really more a defensive strategy so that if this does threaten their status, they know exactly how to execute.

24:46And some of them, I'm sure, will just be, hey, we'll pay up. when the first$10 billion Web3 gaming studio, when the next Web3 Fortnite comes out, we'll just acquire them and that's how we'll get the capabilities internally. And that's fine. I think these players can afford to do that. But it definitely does represent this trade-off where I think it's less they don't like this system and more it's just a risk, right? They're the beneficiaries of an incumbent model where they can sell$130 billion of fake stuff every year and never have to work out how that should be any ongoing value. They can take Call of Duty Warzone 1 and make everyone buy their skins again in Warzone 2.

25:23They can manipulate CSGO economies in order to maximize profit. And the really interesting thing is that all this stuff is powerful. So Counter-Strike Go has done$32 billion in the last three years. If you look in crypto, probably the next biggest game is Axie with$4 billion in volume. And we expect everything to conform to that topology. So when people look at the timelines of adoption today, they think, well, why are there hundreds of successful games? We will never see that. You will see a giant successful game, which has more volume than everything else combined. The second will then have more volume than everything else combined.

25:56And it's going to be incredibly hit-driven in terms of what's successful. I think the beautiful thing is you can actually run a much smaller game with this idea of 1 ,000 true fans. And you can actually create a successful sort of sustainable economy throughout too. So I think Web3 is going to be incredibly good for new developers. We see it being incredibly community driven. But to sort of tie back to what you were asking, Jeremy, I think the reality is the biggest disruption or winners are going to be midsize studios, roughly 50 mil to a bill in enterprise value that are all in on Web3 and work out some way to disrupt major competition for this.