ARK • Disrupt

Last week, ARK’s Nick Grous and Andrew Kim attended the 2023 Game Developers Conference to witness Epic Games, Roblox, and Unity Technologies introduce new products that should lower barriers to game development. The new products aim to integrate AI technologies, reduce compute costs, and enable cross-platform gaming.

Epic Games
Epic Games unveiled its photorealistic Unreal Engine 5.2 update and announced Substrate—a new shading system that enables digital artists to enhance graphic fidelity—as well as new Procedural Content Generation (PCG) tools that expand environments from objects into large-scale photorealistic worlds, as shown below.

Source: Epic Games. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency.

Epic Games also unveiled the MetaHuman Animator, which captures and animates human facial expressions in minutes—a process that, until now, has taken months—at a fraction of today’s cost.

Epic also announced major updates to the Fortnite ecosystem, introducing an Unreal Editor interface enabling Fortnite creators to leverage existing Unreal Engine tools to design, develop, and publish minigames and experiences in the Fortnite universe. To accelerate adoption of these new tools, Epic Games launched the Creator Economy 2.0 initiative, which will distribute 40% of Fortnite Creative’s net revenue to third-party developers.

Finally, Epic Games consolidated its marketplaces—Unreal Engine Marketplace, Sketchfab, Quixel Bridge, and ArtStation Marketplace—into a unified 3D asset marketplace called Fab that will house 3D assets compatible with the Unreal Engine, Roblox Studio, Unity, and more. As with third-party games available in its Store, Epic Games will charge third-party artists a 12% take rate on 3D assets sold on Fab.

Roblox
After describing its approach to integrating generative AI, the Roblox team unveiled plans to accelerate content creation with AI code assistants and AI material generators. Head of Roblox Studio, Stefano Corazza, confirmed Roblox’s plans to offer AI-generated assets and experiences.

Source: Roblox. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency.

Unity Technologies
Unity also rolled out new tools that will integrate generative AI to enable asset creation and game development with natural language queries. The Unity team also discussed its Data-Oriented Technology Stack (DOTS), a suite of tools enabling developers to build performance-optimized, large-scale worlds more easily. Finally, Unity unveiled Ziva Face Trainer, a tool designed to accelerate the automation of facial animation, including hyper-realistic facial muscle movements, as shown below.

Source: Unity Technologies. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency.

Conclusion
The Game Developers Conference fortified our thesis on video games, as outlined in ARK’s 2023 Big Ideas 2023. According to our research, global gaming software and services revenue will grow 10% at an annual rate during the next five years, from less than $200 billion in 2022 to over $300 billion in 2027, thanks to the convergence of gaming, social media, and generative AI that will turbocharge user-generated content and create a world in which gamers are the creators.

At the mention of automation, businesses and consumers respond both with excitement about the potential for massive productivity gains and with fear of massive unemployment. This week, OpenAI, OpenResearch, and the University of Pennsylvania released new research about the impact on labor markets of large language models (LLMs) like ChatGPT. The high-level findings are that “80% of the U.S. workforce could have at least 10% of their work tasks affected by the introduction of LLMs, while approximately 19% of workers may see at least 50% of their tasks impacted.”

ARK’s research suggests that technology will not increase unemployment but will displace employment associated with monotonous or menial tasks. Historically, while automation tools have created more jobs than they have displaced over time, they also have created the need for retraining as automation has transformed occupations.

To understand who will benefit as automation increases productivity, we are researching three possible scenarios, with a hypothesis that the answer will involve all three:

1. Higher employee productivity could boost wages.
2. Lower cost of goods sold could increase consumer purchasing power.
3. Higher employee productivity could bolster corporate margins.

The Commodity Futures Trading Commission (CFTC) is suing Binance and its CEO, Changpeng Zhao (“CZ”), for violating US Federal laws at the direction of CZ. Filed last Monday, the CFTC ‘s complaint alleges that Binance has offered commodities-based derivatives products—including futures, options, swaps, and leverage—without proper registration or sufficient controls for Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance since 2017. The CFTC also asserts that Binance knowingly allowed US customer accounts even after stating publicly that it would close their access to its main platform. According to the complaint, Binance also failed to police illicit activity on its platform. Finally, the complaint charges that Binance designed its complex global structure to evade regulation: purportedly a separate entity, Binance.US seems to have been more closely tied to the parent company.

In our view, the similarities to FTX and FTX.US have enhanced the CFTC’s scrutiny of Binance, adding credibility not only to the SEC’s allegation that Binance broke securities laws abut also to the New York Department of Financial Services (NYDFS) decision to shut down the Binance USD stablecoin in February. As more regulators crack down on Binance, more crypto trading is likely to shift to decentralized alternatives like Uniswap and to more compliant exchanges like Coinbase and Kraken.