Traditional institutions must reckon with gamified cryptocurrency services
DeFi platforms like SushiSwap are bringing the worlds of gaming and finance together. (Source images from SushiSwap website)
December 1, 2021 16:37 JST | Southeast Asia
Asia is the largest market globally for gaming -- and for cryptocurrencies.
Decentralized finance, or "DeFi," platforms have brought these two worlds together by turning cold, boring financial activities into fun, communal adventures which resemble the gaming experiences that young Asian investors are familiar with.
Take Tokyo-based DeFi cryptocurrency exchange SushiSwap for example.
Entering its website feels like stepping into a virtual sushi bar filled with cartoon illustrations and glowing neon, a far cry from entering an actual bank. The platform lets you manage cryptocurrency assets in a range of ways; various coins can be swapped, lent or borrowed, or users can stake and farm them, whereby they can earn interest by providing token liquidity to SushiSwap itself.
Users can check the interest they have earned in their "Bentobox," do lending and margin trading in the "Kashi Farm" and turn into a Master Chef by providing liquidity to SushiSwap.
The "stickiness" of games, or their ability to keep players engaged, can depend a lot on the bonding among participants.
Cryptocurrency enthusiasts have formed active communities on social media and messaging platforms such as Twitter, Discord, Telegram and YouTube, sharing technology knowhow and trading tactics just like gamers do. They have also developed their own jargon, such as "wagmi" (an acronym for "we're all gonna make it") and "apeing" (buying blindly), as a cultural glue.
The convergence between finance and gaming can be rather direct in the cryptocurrency world. Axie Infinity, a blockchain-based game developed by Vietnam's Sky Mavis, has evolved into a financial enterprise with real-world impact.
To its 2 million users, the game is already a workplace, a bank and a stock market. Tens of thousands of Southeast Asians are making a living with Axie Infinity's play-to-earn model, pocketing real money from breeding and battling their digital pet "Axies." The in-game currencies of Axie Infinity, AXS and SLP, can be traded into other cryptocurrencies at any time.
What is more, in-game assets, from digital pets to virtual land, are recorded on the blockchain as nonfungible tokens (NFTs), which also can be traded for cryptocurrency. The NFTs have proved appealing to nonplayers as investments. Total sales of Axie Infinity NFTs have surpassed $2 billion.
Last month, Axie Infinity launched its own decentralized exchange where users can trade not only its in-game currencies, but also dollars and Ethereum, the dominant currency on NFT platforms.
Tens of thousands of Southeast Asians are making a living with Axie Infinity’s play-to-earn model. (Captured image from Axie Infinity website)
Companies are using games to accelerate the mass adoption of blockchain.
Animoca Brands, a Hong Kong-based digital entertainment company and investor in Axie Infinity, has announced its own mission as being to "onboard the next billion people on to blockchain" through games. Without games like Axie Infinity, it is hard to imagine young rural Filipinos, among others, becoming users of blockchain technology so early.
Young investors are gravitating toward gamified crypto finance because it looks like a fairer playing field than traditional finance. Here, financial elites' advantages in market intelligence and analytical frameworks no longer matter so much.
The cryptocurrency world is a Wild West full of bubbles and pitfalls. But young investors say that at least it is equally new for everyone and the rules are transparently written in the code of on-chain smart contracts.
While professionals from traditional finance often question the intrinsic value of digital assets, many young investors grew up playing games in which they always need to pay for rare virtual items. Digital assets have real value to them.
One young, high net-worth investor whose family owns a Hong Kong-listed property company now spends a lot of time developing virtual real estate in blockchain-based games like Decentraland and Cryptovoxels. Virtual land in these games can trade hands for millions of dollars worth of cryptocurrency, so he is expanding his family business into promising new territory.
Cryptocurrency assets and DeFi are still in nascent stages of development, but they have the potential to change Asia's existing financial infrastructure. They are already winning over next-generation Asian investors by making finance engaging, social and boundary-breaking.
Traditional financial institutions need to understand that the way Asians approach assets and investment will be drastically different a decade from now - and get prepared for this shift.
The biggest barrier for traditional financial institutions wanting to enter cryptocurrency finance is not blockchain technology, but simply the culture of the crypto world.
In the cryptocurrency world, teams often collaborate in a decentralized and open way. The code they use to build products is usually open-source and it is common for different teams to build upon what others created. This process of component building is often compared to playing with Legos.
To be part of this process, traditional financial institutions need to adjust their way of working and give up a lot of their hierarchy, dogma and walls. Traditional financial institutions will also need talent very different from typical finance recruits - young people who understand not only numbers but also memes, not only stakeholders but also communities, not only market rules but also game mechanisms.
Traditional financial institutions have risk control at their core, but over the next decade, the real risk for them might be losing future customers and capital to gamified crypto finance.