Today we’ll be exploring the Metaverse with Dark Forest Capital and verto0912 (aka AG), founders of MetaPortal and the Metaverse Index.
SW: Thanks for joining us Dark Forest and AG. Very excited to be diving into the Metaverse with you this morning. To start off, can you both tell me a little bit about your background and how you got into crypto.
DF: I first bought crypto in 2017 without much of an idea of what I was doing. At the time I was working in the automotive industry focused on the sound and vibration aspects of premium cars like Jaguar and Land Rover. I later quit my job at JLR to become an airline pilot, but then COVID came around and ruined that plan. So I started looking back into crypto and realized that stuff was actually being built out like AAVE ($AAVE), Maker ($DAI), and a couple of other DeFi projects that piqued my interest. I thought, well this is something that I can get into in the meantime, and I don't really want to go back into an office if I can help it. I just fell down the rabbit hole from there really.
I ended up learning a lot through what we call “DeFi Summer” in 2020, playing around with these new apps, contracts and learning how it all works. Then I had a few friends say, “Why are there no index products in crypto? I just want to hold something that gives me exposure”. Around that time the Index Coop appeared and I initially went in looking to just to trade the token, but ended up chatting with the people in the discord and on the forum and found that there was space to actually contribute. So I ended up contributing full-time which then spiraled into a full time job. And it was there where I ended up launching the Metaverse Index ($MVI) in combination with AG. The Metaverse was clearly very exciting so eventually we made the decision to split off from Index Coop and manage the Metaverse Index full-time. In crypto things move so quickly and expand so fast that you need to constantly readjust and refocus. It made sense at that time that the Metaverse was expanding so quickly, that we focus on that one thing.
AG: My journey into crypto is actually very similar to Dark Forest, but my prior background is a bit different. I spent about 10 years in traditional finance on the asset management side, covering a range of strategies from fixed income to Australian equities.. Like Dark Forest, I started investing in crypto in 2017. There wasn’t much to do initially, so you just traded tokens. Eventually that all collapsed, so I forgot about it, went back to my day job and then COVID happened. All of a sudden I’m sitting at home with a lot of time on my hands wondering what is going to be the next thing that I do? I knew I didn't want to do another office job. It kind of bored me, and it wasn't particularly intellectually stimulating.
I started building a side portfolio of writing gigs through freelance platforms where I was mostly covering stocks, macro and crypto. With that crypto coverage I started digging in more and actually using some of those early DeFi protocols that Dark Forest was mentioning, like AAVE, Maker and Uniswap. In September of 2020, I was able to quit my job and began picking up more gigs doing strategy and market research for some of the early stage crypto projects and then I fell into Index Coop. And it just made sense to me in terms of on-chain ETFs. I remember talking to my colleagues in the past about how I can totally see how every ETF in the world is going to be on-chain. When I saw actual ETFs on-chain, it was really straightforward and easy for me to understand. I started contributing with Dark Forest at the Coop and we’ve been on the same journey since then. MetaPortal had previously just been a newsletter we set up for research content pertaining to the MVI Index. Once we spun out of the Coop, we decided to focus on creating a brand around MetaPortal and start doing other things with that brand.
SW: You both obviously had a strong interest in crypto, but you came into it from totally different backgrounds. That's always something that fascinates me with this industry, people coming together from all segments to collaborate. You bring different perspectives and skill sets, and with the decentralized ecosystem, it's really easy to source all of that together to get things done. In more traditional centralized type organizations, that can be difficult to achieve.
DF: On that point it was actually AG’s side hustle that really sparked our initial conversations. I read some of his writings and the ideas that he was bringing forward were very similar to things that I had been thinking about, but just hadn't put them out there. So we really gelled over putting the world to rights on certain issues and how crypto could hopefully help solve those problems. It was kind of fortunate the way it all came together.
SW: In terms of MetaPortal can you speak more to what it is and what you hope to achieve?
DF: It started as a Substack we were using to share macro pieces and deep dives on tokens within the Metaverse Index. It was a good way to share information and tie those two things together so that people holding $MVI could learn about the tokens within the index, but also what else is going on in crypto that might affect those holdings. After a period of time contributing to Index Coop and managing $MVI at the same time, we wanted to focus purely on the Metaverse because we saw it as something that you could dedicate your entire career to and still not keep up with it.
We met in Greece and spent a week coming up with a three month plan of what we would do with MetaPortal. The basic idea was to build up a community of what we call “infinite players”. That term comes from a book by James Carse who wrote a lot about finite and infinite play. Basically doing things for the enjoyment and the continuation of them rather than for chasing status or riches. The Metaverse is this massive, endless opportunity so we asked ourselves, how can we start generating some revenue in the background which allows us to be freer in the community to explore things that we find interesting?
We've already got the index products which do a very good job of providing a steady income stream. But we've been trying other things as well such as adverts on the Substack and collaborating with PrimeDAO, a ratings agency like Standard & Poor’s, but for crypto. We've created a framework specifically for Metaverse projects and have started putting the first few tokens through it. We'll also be doing what's called a rating season where we put out lots of reports about all these different projects and track them in a trusted database so people can see how they stack up against one another. It's still primarily me and AG doing most of the work, but we've also had people from the community step up to assist, whether that's with social media or some of the Substack content. By opening up what we're doing to the community and allowing people the chance to help us out, we hope to give them the same opportunity that we've had to contribute within the space.
SW: The speed at which things are happening is mind boggling, no more so in the Metaverse. Can you share your thoughts on the Metaverse? What it is and the role you see it playing in crypto and society as a whole.
DF: I think our outlooks on it have changed, certainly in the last six to 12 months, which is really interesting to see. I think the Metaverse can be summed up as the blending of physical and digital realities. In my opinion it emerges on a spectrum, and it started with the very first digital computers. We are somewhere on that spectrum at the moment. It's in our ability as humans to transcend the constraints of our physical reality, to dive into these rich virtual worlds, whether with augmented reality or virtual reality, or even just a normal PC monitor. I imagine as Mathew Ball describes, the hardware that allows us to enter these spaces is the boundary layer. And that layer between the digital and physical is reducing over time as that hardware improves. I think the next generation will be able to flip between these two realities and it will be seamless. They will grow up with two options, basically physical and digital.
AG: I think we've had to answer this question probably a couple dozen times and every time the answer is different because our understanding of it evolves. I would agree that it's a matter of experiences in digital form. You can rate the different digital experiences along three dimensions. One is how immersive is the experience? The second, is how much friction is there? And the third is, openness. At the moment you can’t really build an experience that is deeply immersive, has low friction and is open. If you want to create an immersive experience like VR, you need some sort of headset hardware which is not frictionless. If you want frictionless, you need to do a low fidelity type of experience like Zoom, which isn’t very immersive.
If you could create a low friction, low immersive experience, then it should be pretty easy to make it open. And by open, I mean the web3 values of ownership, self-sovereignty and so on. But as soon as you bring in the crypto experience, it's automatically high friction, because you need the wallet and tokens. So we're stuck with these experiences that are consistently trading off one of these dimensions for the other and we are struggling to build comprehensive experiences that are able to reach the masses. If you think about the concept of the Metaverse and where we are now, it's mostly these non-immersive, centralized experiences, with an average level of friction and where we want to be is open virtual worlds, deeply immersive, low friction to get in, and anyone can do it. We are definitely a long time away from that.
SW: So do you foresee technology as the key in terms of making more immersive, less frictionless experiences?
AG: Yeah, there are a lot of developers building experiences on top of VR and AR platforms. I think once you get the VR technology and AR glasses to a low enough cost where anyone can own them, that's when we start getting somewhere. And then you can expand to other types of hardware, haptics, and all those sorts of things that will expand that immersion horizon even further. You’ll be able to feel it in your body through your sensations when you engage in some of these experiences. But it’s technology basically that underpins all of that.
SW: Switching gears back to the index side of things, can you explain how $MVI works and what are its investment objectives?
DF: We put forward a mandate for $MVI, a one-liner that we use everywhere, that basically says the MVI Index is designed to capture the trend of entertainment, social activity, and business, moving to virtual economies that are powered by NFTs and blockchain technology. In a nutshell all we’re saying is that more of our lives are being spent online or in digital places. The original idea for $MVI came while I was sitting around back in my parent's house for eight months, with not much to do after my pilot training fell through and seeing COVID accelerate this trend. Everybody has been forced to accept this new reality. And if you want financial exposure to that trend, you can do it by the Roundhill Ball Metaverse Index in the traditional markets, which is packed full of companies like Meta, Microsoft and NVIDIA. And if you want the same thing in crypto, that's where $MVI comes in. We've got virtual worlds, marketplaces, NFTs, collectibles all packed in together and the MVI Index is designed to capture that trend broadly within the crypto sector.
On a granular level it's the same as any other index product, but our objectives are that for the holders it takes the complexity out of their hands. They're not going to have to research all these different tokens and decide what to hold. They don’t have to chase the market. They can look at the methodology, decide if it's right for them and if it fits what they're looking to do, and they trust it, then just sit back and hold the token. And with the periodic rebalancing based on that methodology, it will always hold the top projects in that sector to capture the theme. In a similar vein, if you were to do this yourself in crypto, you would be paying rebalancing costs via gas [transaction fees]. In the MVI Index the gas costs are covered, abstracting away that complexity so you don't worry about it.
AG: If we talk about the process, there are 1000s of tokens out there right now so you need to be able to screen through them with some quantitative metrics to narrow the number to something manageable that you can then apply a fundamental research overlay to. We started off initially screening for several CoinGecko categories and then eventually switched to our own categories that we’ve defined, which usually comes up with about 150 tokens, based on a circulating market cap threshold of $50 million. Once we have that list, we look at whether they're ERC 20 [Ethereum based] tokens and what their on-chain liquidity is. We are then usually left with a relatively small number of tokens which we research and try to understand a little better. We look at what the project does, is it a fit for our vision of the Metaverse? Are there any security incidents or contract audits? What are the token mechanics, is there high inflation? Do you need to stake it? And if you don't stake it, are you getting significantly inflated away? All of these things get us to the composition of tokens that will be included.
We use market cap and liquidity as the two factors that drive the final weight calculation. It's 75% of the square root of market cap and then 25% of aggregate liquidity. When we were looking to launch, on-chain liquidity for these Metaverse tokens was quite challenging so we incorporated a higher weight into the methodology for tokens with a lot of liquidity. And in general, we've seen that teams that can sort out their liquidity can attract a lot of individual retail LPs [liquidity pools] and usually have an understanding of how to execute which adds credibility.
So far we are rebalancing monthly, but we've recently done some backtesting to see what frequency would do better. Optimal was every other month and quarterly was roughly in line with monthly. So we’re looking to change the rebalancing frequency to ad hoc, but at least quarterly which basically allows us to make inclusions outside of the quarterly cycle. In a space that moves so fast, you want to have the ability to include things more frequently than once a quarter.
SW: I realize it’s really tough to make predictions in a market that moves so fast, but where do you think things might trend or what are things that you're really excited about in this space that you foresee in the next 12 months (or later)?.
DF: Longer term, the boundary layer that I talked about earlier, watch for that to reduce through wearables and more integration with the human body. I think maybe by 2030 or so, we will look back at how holding a piece of aluminum and glass in our hands as a very cumbersome way to access the internet and social media, because it will probably be directly beamed into our eyes, and maybe even brain, if Elon Musk gets his way.
In the short term, I think the Metaverse is in a bit of a trough of disillusionment. In the real world, a lot of companies were throwing the term around in their quarterly calls last year. And they're probably all wondering right now, what do we actually do? What is it, how do we get involved? In the crypto space that has played out a bit in terms of prices where things got very exciting towards the end of last year and now they've cooled off. I think everybody's heads are down, building and it’s a case of watching these things unfold now. A lot of what we've seen so far is skeuomorphic, where ideas are just copying what already exists and then applying NFTs or tokens to them. It's not particularly inventive. But with this amount of focus and breadth of involvement, I think we're going to start to see some really interesting stuff happen. So for the rest of 2022, I think it's certainly quieter, but there could be things that come out of the woodwork that we haven't seen before.
AG: I actually hope we see a trough of disillusionment in this space and a pause in the amount of capital that is flowing in. At the moment you can fund anything in crypto. There's so much investment and that leads to what some investors are calling horizontal innovation where there are incremental improvements on the margins, but no vertical innovation, no zero to one moments. I hope we get to a point where the market cools and the founders stop launching these thousands of copy paste projects with incremental innovation and we can then see which ones are actually good. The incentives right now in the space are not fundamentally aligned. We often see projects launching a token before there's anything to show, no track record of anything. And the cliff vesting schedules of the initial coin distributions are often founder team and private investor friendly so the incentives are not there for these guys to build long term. Not to sound too pessimistic as I think we both still see a lot of upside in this space, but there's also a lot of crap out there as well.
One specific area off of the Metaverse which we've done a lot of research on over the last few months is gaming and even launched a gaming specific index, $GAME about a month ago. The space suffers from similar dynamics as the broader crypto scene, but there are some really interesting ideas and concepts in gaming that we’ll probably see in 2022. The use of CC0 [Creative Commons] licenses for intellectual property is interesting for gaming because if you launched the base set of items or characters with open IP protection, then everyone could build on top of them and we can see multiple games emerge. That concept of building from the item level is very compelling and we’re already seeing multiple examples of that in the space. And going back to the immersion and friction dimensions we spoke of earlier, we've seen how launching a project in 2D, lo-fi and making IP open allows for so many different interpretations. If you launch a 3D collection then it doesn't leave much room for imagination for other people to build on top of, because it's high fidelity, it’s already three dimensional.
And I think in 2022 there's going to be a lot more games coming to market. We’re seeing a shift from “play to earn” to this new “play AND earn” vocabulary which basically acknowledges that play to earn economies are not sustainable. I’m curious to see what that transition looks like because existing crypto games are mostly very simple when it comes to the design of the in-game economies and the levers that can be pulled to adjust the economic environment. I think we're going to start seeing more complex crypto games that make use of traditional gaming techniques - more faucets, more sinks, crafting, and all the other aspects, as well as different monetization models.
I’m really excited to see the level of innovation in the gaming space, but at the same time, quite frustrated with the amount of noise that's in the market. It's a daily battle between the disappointment I feel with all of the bad stuff that is coming out contrasted with being super excited about what the future may hold for this space!
SW: Thank you for taking the time to meet with us today Dark Forest and AG. This has been extremely informative. We really appreciate all your insight, both in terms of understanding the Metaverse, but also how MetaPortal and $MVI fit into that vision, particularly given your background and experiences. We wish you continued success in the Metaverse!
Verto 0912 aka AG
Time in crypto: 4 years
Special power: Quitting Goldman Sachs to play Axie
Degen Score: Wannabe
MetaPortal The purpose of MetaPortal is to foster a community of infinite players within the Metaverse. Fuelled by diverse revenue streams and an intrinsic curiosity, MetaPortal aims to contribute to the development of the open Metaverse through its various projects and initiatives.
Index Coop is a collective of finance professionals, engineers, DeFi experts, meme-makers, content marketers and crypto enthusiasts focused on making crypto investing simple for individuals and institutions through a broad variety of investment vehicles from token baskets to leveraging.
Please note, this article is intended for informational purposes only and should not be considered investment, tax or legal advice. Consult your investment, tax and legal teams for definitive guidance on any digital asset.