Transcript

Aaron

You’re listening to The Dealmakers’ Edge with A.Y. Strauss, diving deep into the stories behind commercial real estate leaders. I want to welcome Andrew to the podcast today, co-founder and CEO of Tokens.com, a publicly traded company that invests in Metaverse real estate, and NFT related digital assets. He also co-founded and is the former CEO of HUT 8 Mining, one of the largest publicly listed bitcoin miners in the world. Prior to that, Andrew spent 20 years as an investment banker with a focus on technology and real estate.

Andrew, thank you so much for taking the time to be here today.

Andrew

Thank you, Aaron, for having me on. I appreciate it.

Aaron

Well, you’re living in a very, very exciting sort of leading edge industry we all know the whole world is fascinated with, and I know a lot of our listeners are going to be super excited to be educated on the Metaverse and all these emerging technologies. We’ll get right to it, but I think the first step would be to take a step back. I would love to hear about your background and where you grew up, where you went to school, your first career, if you will, before you got into this latest investment world.

Andrew

I was born in Santiago, Chile, and my family immigrated to Canada in the mid-seventies after there was a well-known military coup there. My family decided to go to better horizons and immigrated to Canada.

So, I grew up here and got fascinated with business and wanting to be a businessperson at a young age. I got my MBA and got into the finance world, and for 20 years I was an investment banker and focused primarily on connecting public market institutions, family offices, investors, and retail investors to great businesses in technology or real estate. And that was really the thing that got me curious about connecting people to things that are interesting and happening in crypto.

Aaron

There’s just an endless amount of news coming out in your space, and you know, we’ll try to break it down a little more, say, synthetic real estate versus “real” real estate. I know we’re getting a ton of inbound calls from a lot of people who are traditional investors. I imagine a lot of people listening to this podcast are traditional buyers and sellers or acquirers of different asset classes of commercial real estate, a lot of people servicing that industry as well. Maybe you can start by giving sort of where we are in the world of Metaverse. Obviously, it’s fairly new, but a lot of it’s been around a while to maybe just sort of paint the broader picture of where we are at this moment in time, and what people need to be aware of–the fundamentals of it.

Andrew

Yeah, the Metaverse is a broad term that has been around for many years. It was coined in a book by Neal Stephenson in 1992 called Snow Crash, which is a science fiction book based in a dystopian type environment where people would converse and interact through avatars in a different world, very much like The Matrix movies. What’s evolved since then is that these things have become more mainstream. So, we had things like The Sims and Second Life as Metaverse in the early days. Even games like Grand Theft Auto were Metaverse, as these were 3D virtual cities and game-like environments where you could take your character and

travel around, even through shooter video games where there are other people involved. So, the question is, why has this come to the forefront in the last six months? And I think there’s a few reasons that go beyond just Facebook doing the largest rebrand in history to Meta.

Let’s look at a few things here. COVID had a massive impact on the way people view socializing, and so very much like they did in most countries in the world, things like restaurants, museums were shut down. Your ability to travel was limited and people started finding other ways to socialize.

And I think from a psychology perspective, you have an innate need to want to communicate and interact with people, which is great if you’re living with your family somewhere and you have the ability to do that. But if you’re alone and you’re living in a place where you don’t have that ability to interact with people, you start to crave it. And the Metaverse started to get more popular, more visitors, as people are trying to find ways a little more immersive than traditional social media to interact with others. That I think was one catalyst.

The second catalyst here is that technology has evolved, and it’s evolved in two ways that are significant. Things like graphic cards, computer speeds, the hardware has all improved. And so that made it easier for people to access these virtual worlds that maybe five years ago may have not been possible on your computer.

And the last piece here, which is the most significant and I think was really elevating why the Metaverse has become so popular all of a sudden is that the community has been able to take blockchain technology, which is really ownership of a digital asset, and be able to transform that ability to own a digital asset and to create virtual economies. Virtual economies operate very much like a real economy where you can have ownership and thus things like virtual real estate that can be bought, can be sold, can be built on, and can be monetized.

Aaron

I appreciate that. And it’s a good segue into the next point, which is virtual real estate. You’ve been a very large acquirer. I think you’ve made some historically large purchases and pretty early on, pretty aggressively. You’re really an early adopter. This is what you’re set up to do.

I read somewhere that somebody made the analogy that buying Metaverse real estate is like buying real estate in Manhattan in the 1700s. I don’t know if that’s a perfect analogy, but obviously people have this fear of missing out and they’re super excited about these virtual worlds. Maybe you can walk us through sort of your broader investment thesis, how you acquire, how you position your company to acquire, and how you really are at the forefront of some of these acquisitions and your mindset around it?

Andrew

Tokens.com was really created to appeal to people like me, which is I look at all these amazing things happening in the crypto world, things like the Metaverse, and I wanted to put them into a public vehicle that made them easy for people to access.

The reason we started really looking into Metaverse real estate is two-fold. Number one is it’s scarce. There’s only a certain amount available. One of the biggest questions that I always face is like, “Wow, it’s just it’s digital, there must be just a ton of it available.” That’s not actually true, Aaron. And so, if you think about a Metaverse almost like a puzzle board, there’s only a certain amount of pieces available and you can’t traverse outside the boundaries of the puzzle–you’re just out of pieces. Metaverse real estate is very much the same. There’s only a certain amount available that there’s a scarcity value.

The second piece of it that we found interesting is that it’s not just a function of owning it and just parking it on your balance sheet and hoping that it goes up. We can start monetizing it.

I’ll tell you two ways we’re monetizing it. So, we bought that record-breaking plot in Decentraland, which is a massive estate in Decentraland’s fashion district. We’re holding a massive fashion show there. It’s being hosted on our land that’s going to include the top brands in the world. We’re going to be there to try and sell their goods very much like you might see at a London Fashion Week or Miami Fashion Week. We’re able to charge advertising for people to have some kind of a presence there, maybe a bit like a billboard or even something more immersive. And if you’re a brand, I think this event is going to have over the four day period, 500,000 to 1,000,000 unique visitors. If you are a brand, even if you’re not a fashion brand, how can you afford not to have a presence there? And that’s why we have this long list of people that are really every day trying to find ways to participate in the show, who want to pay us to showcase their brands. And for people that may be like, well, why would anybody even want to do this?

I think about my kids. My kids are nine and ten. They don’t read the newspaper; they don’t watch cable TV. Cable TV is for old guys like us, right? They don’t understand things like cable TV. They’re not reading magazines and they’re not walking down Rodeo Drive. How do they figure out what brand is what? How do they know with the difference between the Gap and Gucci or Chanel and Adidas? They get all of this information through social media and places like the Metaverse. This is where they’re developing and understanding what a brand is, what they represent. And if you are any of these brands, you’re going to do whatever you can to get into this demographic and introduce yourself. This is how you create longevity for your brand.

This is how you educate people on what your brand is, which is why what we’re doing is becoming so popular and why, you know, if you Google “Metaverse”, the first things you’re going to see is Gucci, Balenciaga, Chanel, Ralph Lauren.

All the fashion brands, you know, the GAP, all the fashion brands are trying to figure out ways to get into the Metaverse as quickly as possible.

Aaron

Makes perfect sense. You can’t be left out in the cold if you’re a brand, certainly retail. I know you’ve mentioned some of your virtual office buildings have billboards on them and service companies, accounting firms, law firms, finance shops, advertising like you would see down Fifth Avenue on some billboards, so it’s truly, truly fascinating.

Andrew

Yeah. And that’s even more similar in my mind. It’s really a convergence between real estate. So, in order to interact with the groups that we’re working with, we’re using traditional lease agreements that you might see in the real estate world.

But in some ways, they might look a little bit like digital ad contracts, something that you might sign with Google or with Facebook to advertise on Instagram or any of their other platforms that they own, because it’s a way for us to generate recurring revenue.

And that’s what a lot of people don’t see. I really think there is a generational thing in that a lot of people don’t understand that you can attribute value to something that is digital for many people if it doesn’t have a weight, if you can’t hold it and smell it and feel it, it doesn’t have real value. The younger generation doesn’t believe that. They understand you can own an NFT of something called the “Bored Ape” or a “CryptoPunk,” and that because it’s unique and has its own unique digital signature. It has value and they can hold it, they can show it off or they can sell it, and that it’s not replaceable by something else just because it might look similar.

Aaron

I Agree. And I think that’s the biggest hurdle. People who have traditionally lived in the non-Metaverse need to make that sort of emotional jump.

But in any event, I’d love to hear sort of how you determine what real estate to acquire. Say, somebody listening to this is a major owner of office buildings or industrial assets or multifamily. And they just say, “Look, I’d love to get into Metaverse investing.”

It’s not something that they grew up with their dad buying. You know, I mean, there’s just so many voices around this. How did you determine what to buy? How to buy? Walk us through that transaction. What should people be thinking about when they’re trying to find opportunities?

Andrew

Yeah, we did a lot of work to make sure we’re doing the right purchases, so I would caution anyone not to just to go into a Metaverse and start buying randomly. Do homework. What we did is we wanted to buy a lot of contiguous plots that would allow us to build something.

So, let’s focus on Decentraland for a second, which is one of the main Metaverses we own real estate in. Decentraland has 90,000 plots available, so the entire city is 90,000 plots, and each plot is the equivalent of 52 square feet.

Ok. So, it gives you a generalization of how large that city might be in comparison to a real city, and it’s about the size of Washington within those 90,000 plots. Only half of them are available for development. So, 45,000 are owned by people that can develop those plots. The other 45,000 are things that beautify the cities or sidewalks, fountains, rivers, parks, things like that that you need in a city. Otherwise, it’s just going to be building on top of building. So, there’s organization that goes into it. Within those 45,000 plots that are available for development, there’s various sectors or districts that are created. So, one is called the Fashion District, which is where they funnel all things related to fashion. There is a Museum District, there’s a Vegas District, there is a Club District…So, various areas that have neighborhoods where they’re trying to congregate people doing these things.

So, when we went in, we saw the move that fashion was going to be making into the Metaverse. To us, that was low hanging fruit. This is a whole group of people that are going to want to be introducing their brands to this new demographic.

So, we went and bought a huge parcel of land–parcels of land–deemed an estate within the Fashion District of Decentraland. And so, when you put it in the context of how we thought we could monetize this, very much like how a real estate developer would look, see an opportunity to buy into a hot neighborhood in a city that has a lot of visitor traffic. We did the same analysis. This is a neighborhood dedicated to fashion. So, number one, a hot growing area in the Metaverse– we’ll be able to monetize that.

Aaron

And just for people’s edification–I understand it pretty well, since it’s what I do for a living, how to go buy something in the physical world–I’d love to hear the closing process. How those things get essentially financed or not, how you talk to investors about that, I mean, obviously it’s digital, so it’s not a brick and it’s a different game, but it is absolutely fascinating the interplay between what you describe like the lease of the virtual world, sort of the digital agreement and lease agreement. There’s probably a ton of laws about to be written or being written as we speak.

But just going through the purchase, you know, say I’ve got xx millions of dollars lined up. I want to make a big splash. You help me identify this is a good parcel of virtual land. How do you go and actually acquire it?

Andrew

Part of the secret sauce that we have is being able to access these valuable plots. So, there are virtual or online sites that will list virtual real estate.

You can go to OpenSea, which is the big NFT site, because keeping in mind that Metaverse real estate is really a Metaverse city, is just a bunch of NFTs cobbled together and a piece of property is really an NFT.

An NFT is just a unique digital signature given to a digital asset. These can be listed. The largest exchange is called OpenSea. If you go to Decentraland, they have an area called Marketplace, and you can actually see what has been offered for sale.

And very much like the real world, keeping in mind, these are not commodities, each parcel of land has a different value based on its neighborhood, who your neighbors are, what can you walk to, you know, virtually in that neighborhood.

So, somebody would put it on and list it and say, “This is my asking price.” And it’s generally denominated in Ethereum or the local currency of that Metaverse. So Decentraland uses something called Mana, Sandbox uses Sand, and you can bid on it.

And you might put a bid out on something, and it might sit there for months, might sit there for a day. It just depends on what the person on the other side is willing to do. What we did is we did an off market deal, and that’s something that real estate people are familiar with.

We knew that there was a large landowner that held the property in the Fashion District, so we started having conversations with that individual several weeks before we closed the deal, and it was a full negotiation. How much are you going to pay? How is it going to be denominated? How much of the land is going to be included? We went through an entire procedure there. Once we determined a price, we actually have to list it onto one of these virtual exchanges for all of a second to clear it and have it get logged onto the blockchain, because the blockchain is really a ledger that would move it from his wallet or his ownership to our ownership. And that’s part of this whole technology we were talking about before. Blockchain technology allows for the movement of digital ownership.

Aaron

It’s amazing in the real world. Do you think of the entire title insurance industry where you have title defects, and you have ownership going back in such an archaic ancient way? I mean, literally, you look back at deeds that are handwritten from hundreds of years ago with exceptions, and that’s gone on virtually.

Andrew

You just transfer those words and sell it. Probably pretty basic. You know, the concept of provenance?

Aaron

Yes, in the art world, I guess.

Andrew

In the art world, you want to go back and, you know, especially with older, valuable pieces and like how do you verify and authenticate the artist, the ownership history, how much has been paid for the last hundred years? How has this piece of art been traded? Very hard to do in the art world. And then there’s been various, you know, movies and documentaries about forgeries.

In this space you get perfect provenance all the time because if you’re buying something, a piece of land. You can see the origin history where it came from. You can see every single trading price, and you can see the digital wallet where it now resides, being the current ownership.

And that’s actually also for things that you might buy in the Metaverse. So, I get the question once in a while like, “Oh, I hear you can buy a Gucci handbag in the Metaverse for about the same price as a real one”.

So right away, lots of people are asking, “Why would anybody pay $10,000 for a virtual Gucci handbag?” Well, number one, there’s a scarcity value to it. Number two, you can wear it. You can store it. Or you can trade it.

You have that digital ownership. And so, as the demand builds, you can use it. You can use it for social status. You can show up to the party or the museum with your friends and have your bag or your running shoes or whatever it is, and it builds social status in the same way that people might try and build social status on Instagram by snapping pictures of their food or where they’re vacationing.

Aaron

Fascinating. I guess if you think of it as far as art as being art, then it’s easier.

You know, NFT is art. There’s a lot of modern art that is potentially just as interesting as an NFT is. You know the famous jokes of different art forms that you sort of guess their relative value. But I mean, it is an incredibly fascinating world.

So, you’ve done all these acquisitions, you’re probably looking to acquire more. How are you set up? I mean, a traditional real estate firm is set up with its old style property managers and acquisition folks, and underwriters, and deal people running around.

I mean, what is your shop look like day to day as you look to make acquisitions? Is it really just looking to buy these NFTs with a small group? Are you set up with a team? What are some of the big picture goals you have your eyes set up on the next few years as far as trying to acquire?

Andrew

So, we’re growing very quickly. But the company looks like this right now. We have an acquisitions team that sits around during the day and does the due diligence on the various Metaverse. As we’re looking at, it’s almost like looking at real estate in various cities.

You know, do you choose, you know, Singapore, over Miami, over New York? We’re trying to find where we’re going to get the best off-market deals. We want large, contiguous plots that we can use to build on and rent out.

So, we’re looking for lease revenue, advertising revenue. We have people that are specifically designated to dealing with potential clients. Or, as I said, we have a very long list of people looking to number one at the very low-end digital billboards.

So, we have Tokens Tower and Crypto Valley, and we have a list of people that want to have a digital billboard so that as the traffic goes through there, so we have somebody doing those lease agreements. We are dealing with some major brands.

We are at the final stages of discussions with one of the top three running shoe apparel companies in the world to create virtual stores on our property. And so that is through guiding them into the entry into the Metaverse, the building of the stores. The next level I think you’re going to see us get into is more the architecture and design, possibly things like providing mortgages to people who want to buy them with sort of certain floor prices trading. So more of a CBRE trading model. So, there’s all kinds of things we’re looking at as we develop and grow this business.

Aaron

Amazing, and there’s certainly a lot more convergence coming down the road.

I mean, I think, you know, five or ten years ago, the conversation was about how retail brands compete with Amazon. It was about those brands in the physical world that are sort of optimized on the app. You try it on, your return, and all those conversations.

The next five, ten years look a whole lot different, I imagine, and the convergence is going to be fascinating. Where do you see the Metaverse lining up with the actual physical world together? Where do you see those exciting convergence opportunities?

Andrew

So, the one thing for listeners, I would say, is the Metaverse is not a fad. If you look at the amount of money being poured in here and you know, the investment banks are going bananas over this calling this, you know, I think Goldman Sachs just came out and called this potentially an 8 trillion dollar market.

Every technology company is looking at this because they know if they don’t, they’re going to get massively disruptive. But where I see this going is that there’s going to be various Metaverses, and the various Metaverses are going to cater to different people.

So, in the same way that you have various video games, various social media platforms you can have various Metaverses. Disney is working on a Metaverse, and that’s going to be very much focused on a virtual Disneyland where you can go, sit behind your kids behind a computer and experience some of the things you might experience there in real life. Why is that valuable to a family? Maybe for geographic reasons, cost reasons. It’s not something you can actually do.

You mentioned Amazon. What is the future of shopping in the Metaverse? Imagine you could go into the Metaverse and do something that was more immersive than what Amazon currently provides.

So, let’s just say you’re looking for a running shoe or a computer display. At the Amazon website, you are entering your search engine and then a bunch of boxes pop up. What if you can walk into a virtual store, look at these items from a three-dimensional perspective, compare them side by side to make your purchase decision? Walmart is already putting out a whole bunch of patents around shopping in the Metaverse.

Let’s think about education, not just for kids, but what about education for higher learning like the medical profession? You can have the best medical professional in the world lecturing to students who are geographically dispersed all over the world and within the Metaverse they could be performing virtual surgery, looking at the anatomy of a human body from various angles.

There are so many different possibilities here. So, I think there’s going to be various Metaverses and lots of various uses.

Aaron

It’s amazing. It’s amazing, and it’s nice to talk to somebody who is literally on the cutting edge of that.

And I think you are going to be in high demand on many levels, Andrew, as you see your career. I would just ask you one more question. Somebody in traditional real estate, you know, their whole, your whole career, that’s what they know, that’s what they’re set up to do…If they just dip their toe in the Metaverse, if they just have to keep them focused on one thing just to be sort of positioned. What are you telling that person? Are you telling them to invest passively? Go to a public company, buy Facebook stock? You know, how are they supposed to sort of like hedge their traditional portfolio and just sort of get into it to start?

Andrew

You’re going to see some of the same things that happen in the real world occur. You’re going to have some people who are going to start to build their own personal real estate portfolios in the Metaverse, and you’re going to need some time commitment there to figure out how to buy it, how to store it safely and how to monetize it. And then you’re going to see public companies come in here and start doing this.

So, we would be the first public company doing this, but we’re not going to be the last. There’s no question you’re going to see Metaverse reach, just like you see real estate rates, which are going to be professional managers who are going to own large amounts of property across various Metaverses that are going to have teams doing, you know, leases with major brands, the architecture, the development, all of these types of things, which will give people an ability to invest into this area more passively with professional managers because again, there is a tremendous amount of work that goes into doing this.

I’d say unless you have a whole bunch of time and you’re really going to dedicate yourself to it, sometimes it’s better to let somebody else do this professionally on your behalf.

Aaron

Well said, extraordinarily fascinating. I know you’re a very busy man, so I’m going to let you get back to your day, and I want to really thank you for taking the time and sharing your insights with our listeners. I’m sure they really appreciate it. Anything else you feel like you wanted to add before we wrap?

Andrew

No, I mean, thank you very much. I appreciate the questions. If anybody is interested in learning more, you can go to tokens.com. We have an education tab at the top with the Metaverse link, and there are various articles there about how Metaverse real estate works and some videos from places like The Wall Street Journal, CNBC, and CNN.

Aaron

Andrew, thank you again so much. Best of continued success and looking forward to talking again real soon.

Andrew

Thank you.

Aaron

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