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[Metaverse Masterclass] Metaverse: the good, the bad and the ugly

Image by Nurudeen Alidu from Pixabay

This is an article by Loic bardon, Chief Innovation & Marketing Officer, Founder PARIS SINGULARITY, originally published here.

When he presented his strategic vision for the future of Facebook (now Meta) Mark Zuckerberg threw a stone in the pond, or rather a tree in the forest. For those familiar with the Gartner hype cycle, Mark Zuckerberg may have pushed the Metaverse concept to the “peak of inflated expectations” phase. Since then, not a day goes by without discovering articles, a newsletter, an interview, Twitter threads, influencers posts, startups, conferences, Discord groups… throwing themselves at this topic like the next cake everyone wants a piece of.

The advent of a new story is never trivial, as Yuval Harari explains. The strength of Sapiens, our strength compared to other species, is our ability to collaborate on a very large scale: by the hundreds, by the thousands, by the millions and now by the billions. What makes this cooperation possible? Our ability to create and believe in intangible, fictitious entities, like countries or companies for example. As far as we know, Homo Sapiens seem to be the only species able to create a story about entities that cannot be seen, touched or felt.

Any group, regardless of its size, that believes in the same fiction shares the same rules and norms to overcome the same problems. Thus, when we collectively decide to change a story we relatively quickly transform behaviors. As we have done with slavery, monarchy, the place of women in society, capitalism, etc.

Actually, the birth of the first static version of the web, on Tuesday March 12, 1989, marks the beginning of a new story that transformed our relationship to time and space. Since then, social interactions, whatever their nature, are constantly increasing in number and frequency. No other species is capable of “connecting” 7.5 billion people.

The Internet IS this story.

And the first lines of a new chapter are being written through the concept of Metaverse for good, for bad and for ugly.

Image by David Mark from Pixabay

There is no consensus about what the Metaverse is

What the etymology tells us

The term “Metaverse” is a contraction of the Greek prefix meta and the Latin universum.

Let’s start with Meta. It means: among other things, change, going beyond.

Universum is itself composed of uni (“one”) and versum (“to turn”). Universum, or “united towards” represents both “all together” and “towards a common goal”.

Thus, the Metaverse could be defined as a common direction towards which we will move together, the characteristic of which would be that it transforms.

Simply put, it would be a matter of moving towards something that transforms.

What could be more difficult than defining something that transforms, a complex hyperobject in constant evolution, the result of an organic and chaotic process?

Why don’t we start by saying what the Metaverse is not?

What the Metaverse is not

Metaverse is not a revolution.

Actually, the history of technology shows that there is never a breakthrough. The perception of a technological revolution implies the convergence of many underlying and prior technological changes.

If for many the iPhone embodies the beginnings of the mobile Internet, this is because they did not perceive that all the necessary technological bricks were becoming mature enough. The iPhone arrived 10 years after the first BlackBerry, 8 years after the emergence of the Wireless Application Protocol (behind the first mobile sites), almost 20 years after the deployment of 2G and 34 years after the first cell phone call…

The Metaverse is not virtual reality. Just as the mobile Internet is not just an application.

The Metaverse is not a virtual mode either. Just as Facebook is not the Internet today.

The Metaverse is not a video game. Video Games like Fortnite offer a non-persistent experience and limit the number of participants (1 million simultaneous users of Fortnite are in over 100,000 separate simulations).

Finally, the Metaverse is also not a collection of technology tools like Unreal, Unity, WebXR or WebGPU.

The Metaverse is a new experience whose potential is just beginning to be explored. It could be something incredibly positive, destructive, or something in between. As was nuclear power in its time. After about 40 years of work and the discovery of the large amount of energy that fission could produce, the first application was not a power plant but a bomb.

We are building the invisible part of the Metaverse.

Each layer has some good, some bad and some ugly.

THE GOOD

Image by Devanath from Pixabay

The current “techlash” is an opportunity

If technologies are the “what”, humans are the “how”.

The Metaverse, in the right hands, could become a tool for a more equitable society. It could act as a mirror of humanity and shed light on dark areas, allowing us to correct the ills of our society through a feedback loop. Utopia you say? Yet, this is what we are currently experiencing through the problematic of the ethics of AI systems used by the web 2.0 giants.

The “techlash” continues to define the state of the technological world in 2021. Government leaders, who have traditionally been the gatekeepers of society’s protection from the effects of new innovations, are increasingly infuriated by the inability of traditional policies to keep up with the unprecedented speed and scale of change. Alerted by former actors of the attention economy like Tristan Harris, platforms that control Web2.0 are increasingly pressured to transform the systems they intend to rely on to build the Metaverse; whether by organizations like the US Federal Trade Commission or the CNIL (see Google Analytics). Increasing consumer demands and employee activism require more aggressive self-regulation.

This is why Twitter hired its biggest critics in 2020 to develop ethical AI. This is why Timnit Gebru (former Ms. Ethics Google) was “thanked” or why MIT researcher Joy Buolamwini’s remarkable work on algorithmic bias was highlighted in the Netflix “Coded Bias” paper.

Twenty years of experience to capitalize on to moderate Metaverse platforms

The social architecture of the Metaverse and the design choices are still ahead of us.

Researchers and designers of virtual worlds are increasingly interested in more proactive methods of virtual governance to address virtual groping once they occur of course, but also discourage such acts while encouraging more positive behavior.

These designers are not starting entirely from scratch. Multiplayer digital games — which have a long history of managing large and sometimes toxic communities — offer critical lessons for fostering responsible and successful virtual reality shared spaces.

Since 2003, for example, millions of people have gathered to work, play, and socialize in Second Life. Users can even create their own digital content and trade goods and services in the world’s currency, the Linden Dollar. Second Life is 650 million US dollars a year in transactions and a million people use it but above all 20 years of experience in the 2D Metaverse. On this subject, the video game sector is clearly ahead.

The most common forms of governance (warning, suspension or even ban) are currently based on users reporting. Given the size of virtual communities, these processes are often automated via algorithms, which have both advantages and disadvantages. They are reactive, rather than proactive. Moreover, automation leads to problems of false positives and negatives, or even algorithmic discrimination.

What about the self-governance practiced in the multiplayer game “League of Legends” for example that is a tribunal system? Due to lack of efficiency, this system was abandoned after a few years. However, it still exists under the name Overwatch in a game like “Dota 2” for example.

What about the Wikipedia moderation model ? Is it an ethical business model to ask voluntary members of the community to do difficult, time-consuming and laborious moderation work for free? “Wikipedia”, a non-profit organization, is not for everyone.

A multiplayer game like Everquest encouraged altruistic behavior by forcing players who died to return to the place where they died. In this way, players were implicitly but strongly encouraged to ask others for help in recovering lost items.

Couldn’t nudge, a concept theorized in the physical world, be integrated into the architecture of the Metaverse?

Image par Gerd Altmann de Pixabay

What if positive choices for the collective “paid off” more for the players? What if the Metaverse offered the possibility to monitor its “positive impact” score? What if the player was alerted when his score was below the average score to activate the social norm bias. Because if the underlying technologies have matured, so have the advances in the understanding of cognitive biases (which can be used to good effect)!

The Metaverse economy will benefit creators and “unbancarized” people

All the actors in the chain can also hope to get a piece of the pie and regain control provided that the Metaverse model is more decentralized than the social web is today.

For years, gamers have given video game giants like Sony, Nintendo, Microsoft, Ubisoft 175 billion dollars to play on a screen. They have seen the fruit of tens or even hundreds of hours of hard work to earn stars, pass a level, gain a power, and end up in the trash when the game is over.

But once again, video game players are ahead of the game.

In 2010, a nightclub in the Entropia Universe game was sold for $635,000. The virtual equivalent of Amsterdam was sold in Second Life for $50,000 in 2007. A 16-year-old won $3 million in prizes in the Fortnite World Cup.

Recently, Axie, which is at the forefront of this “GameFi” trend, has already generated over $2.5 billion in trading volume. About 35% of Axie Infinity traffic — and the biggest share of its 2.5 million daily active users — comes from the Philippines, where high proficiency in English, strong gaming culture and widespread smartphone usage have fueled its popularity. Axie has thus become the highest valued NFT collection to date.

Unlike the current buzz about “images” NFTs, gaming NFTs “act”, interact with other NFTs and can appreciate in value over time.

Imagine that you have earned KyratCoin by playing Far Cry 4 for a hundred hours. Because YOUR character, Ajay Ghale_xxx, is also an NFT, he is unique and impossible to duplicate. You own this character. Because you have played a hundred hours, your Ajay Ghale is better equipped, faster, better than those who have played only ten hours. Thus, you earn new KyratCoin faster the more you play. The value of your avatar is higher. You can sell your Ajay Ghale to another player if you want.If you’ve played well, your NFT is worth more than when you originally bought it. If you are not the only one in this case, then others have followed your example. As a result, KyratCoin has grown in value, and the Discord community has grown.

Some gamers currently consider that gaming NFTs is just a new way for gaming companies to earn more money. However, just take a look on Reddit and you’ll find people more or less officially selling characters they’ve raised in a game like World of Warcraft for example… Black market has existed for years. Axie’s NFTs are an interesting illustration to follow. Under the guise of the principle of scholarship, actors finance scholarships of sorts. They own NFTs which they “rent” to guilds they own. In a way, the players borrow the NFT and pay back this loan by giving up a part of the cryptocurrencies earned by playing the game.

Eventually, online and ephemeral experiences have also served to extract behavioral data, the same data used by tech giants to identify patterns and sell us products and services, the same data that made them become the biggest market capitalization in the space of a few decades…

THE BAD

Image par Devanath de Pixabay

Open source Metaverse could already be an utopia

After interest in these open source metaverses waned, the tech industry spent a decade obsessing over capturing our attention through free, addictive services from which it “indirectly” derives immense value. This is the internet that the metaverse has inherited.

In the early 90’s, when Neil Stephenson wrote his book “Snow Crash”, the Web was still a mess, each piece being connected only by the “magic” of servers. Novice developers build rudimentary Web sites using HTML and HTTP. Then, web browsers like Mosaic and Netscape were born to solve the problem of sorting and aggregating information.

The Metaverse, as described by Stephenson, is a three-dimensional digital street with virtual real estate, where users’ avatars can stroll, party and do business. The architecture and interoperability between all the players in this 3D cyberspace is managed by a company called Global Multimedia Protocol Group.

In the early 2000s, a flurry of open source Metaverse projects emerged to solve the problem of assembling virtual worlds. Unfortunately none of these projects ever took off.

By the mid-2000s, it became clear that the value was no longer in building individual websites but in creating information sorters, channels, aggregators and publishers — open enough to adapt to user-generated content, but closed enough to reap huge profits. Thus was born web2.0. For nearly 30 years, cyberspace has been in the hands of fewer and fewer technology giants. Promising new players emerge, compete with each other, are bought out and end up becoming real black holes called GAFA.

Is a story where giants like Microsoft, Facebook, Epic Games, Apple, Niantic, Nvidia, etc. decide to collaborate to build the metaverse under open source standards from which no one in particular would make billions really credible?

Why would they partner to create a metaverse when they have already spent decades and billions building their own?

If Big Tech’s growth goes on, there will be multiple Metaverse. Each will be interoperable within a proprietary and controlled ecosystem of a tech giant, in the same way that Apple is. Users like the homogeneity of Apple’s proprietary operating system, the ubiquity of iMessage. And Apple, presumably, likes the 30% commission it can charge developers who sell iOS apps through its App Store.

Who wants a metaverse built in the manner of Web 2.0?

New open source metaverse projects are trying to fight the inevitable to redistribute ownership of the Metaverse.

Play-to-earn may kill the core gameplay loop

Once again, the video game industry is ahead of the curve. Games have always been at the forefront of the notion of digital ownership.

The gaming platform Steam can be credited with standardizing the concept for games, and maybe for other media like movies.

Image par Gino Crescoli de Pixabay

Collecting items of randomized rarity and distribution is one of the main “loops” in many games. Usually the player kills a monster and then gets a better weapon, which allows him to kill a tougher monster, which allows him to get an even better weapon, etc. Moreover, collecting “skins” (i.e. different outfits/permutations of the game character) is one of the most common types of microtransactions in games.

NFTs are designed to dynamically adapt to various rare items with permanent, trackable, and open value. But the way NFTs are currently being discussed in games is in great danger of falling into the trap of killing the core gameplay loop by giving in to the sirens of quick financial gain.

This mechanism has already been tested to some extent. Developers of games with a “loot loop” have long had a problem with players being labeled as “farmers,” who acquire and accumulate game currency and items and sell them to players for real money, against the game’s terms of service. The solution was to set up “auction houses” where players could use real money to buy items from each other.

Unfortunately, this solution had an undesirable side effect. As noted by Jamie Madigan, a well-known game psychologist, our brains are designed to pay special attention to unexpected and beneficial rewards. While much of the joy in some games comes from an unexpected or random reward, easily acquiring a known reward via real money degrades the perception of the reward and thus some of the enjoyment of the game. This raises the question of the sustainability of the success of blockchain games like Axie Infinity.

It has indeed quickly generated enthusiasm around the concept of “playing to win”. Players can potentially earn real money by selling either resources or tokenized characters earned in a blockchain game environment. So what is the main driver for players? Do they care enough about the core of the game itself rather than the potential market value of NFTs or the potential to earn money while playing?

More fundamentally, if real gains are the goal, is this really a game or simply a gamified micro-economy, where “farming” as described above is not an illicit activity, but rather the basic mechanism of the game?

Thus blockchain games face several gameplay problems that fall under the psychology of games. Not solving them will probably prevent them from a massive adoption.

Games can be seen as the training wheels of the metaverse: the ways we communicate, navigate, and think about virtual spaces are all based on mechanisms and systems coming from games. Early adopters of a “metaverse” will be gamers who have honed these skills and feel comfortable in virtual environments.

Image par Okan Caliskan de Pixabay

Yet many brands and marketers who haven’t really done the work to understand games are trying to quickly seize an opportunity that probably won’t materialize for a long time.

Metaverse could be like web2.0… but even worse

A recent experiment at the University of California at Berkeley already shows that synthetic human faces have become so convincing that they fool even experienced observers

When you ask people to name main technologies of the metaverse, they usually name virtual reality headsets, blockchain or even 5G. But the underlying technology that will shape our experience is AI. Indeed, the metaverse will probably be filled with artificial agents controlled by AI that look and act like humans.

They have access to data about our personal interests and beliefs, habits and personality, while monitoring our emotional state by reading our facial expressions and vocal inflections. Actually, they will even have more information than in a web2.0 world to engage us in “conversational manipulation,” targeting us on behalf of paid advertisers without us realizing they are not real.

Since these AI agents will look like anyone in the metaverse, our natural skepticism about advertising won’t protect us.

And the UGLY

Iamge by shykhman from Pixabay

The Metaconomy (economy of the Metaverse) could be a trojan horse to implement a deeper surveillance system

When we make payments using bank accounts and credit cards, we make a deal: convenience in exchange for the fact that our transactions will be visible to the companies involved. Every transaction leaves a trail.

In China, the authorities have invented a concept of “controllable anonymity” for the digital yuan. If participants in transactions are anonymous to each other, the central bank can “un-anonymize”. Helping people who don’t have bank accounts “sounds like a very nice idea, but what if the end result is a system of monitored bank accounts? You can get very good privacy for digital payments, says Ari Juels, a cryptographer at Cornell University who has studied digital currency models for central banks. But it’s not clear how much privacy governments will allow and how much privacy compromises efficiency and security.

And unfortunately we don’t live in an altruistic world.

Investors and bankers deeply disagree about how cryptocurrencies will eventually take hold, but their extreme volatility makes them an increasingly important investment. While bitcoin, ethereum and other digital currencies are gaining acceptance on Wall Street, an ever-increasing number of new, untested currencies are endlessly emerging. Some of which are so dubious they are literally called “crap currencies”. With technical failures and sudden price swings, there’s no guarantee that these tokens can be converted to cash. And in the crypto-currency world, it’s also considered a rite of passage to be scammed at some point.

Ingenious players created a bank in EVE Online in 2009: the E-Bank. They created an account system similar to what already existed in real-world central banks. They made loans, paid interest, had a CEO, a board of directors and were extremely well organized. Then the CEO stole 200 billion ISK (EVE’s currency) and exchanged it for over 6,000 Australian dollars.

This may suit wealthy investors who can handle the risk, but could leave market players vulnerable, especially in developing countries.

Government-backed currencies still dominate the world today. If private digital currencies begin to compete with national currencies, it could make some of them more volatile. Almost 200 years ago, something quite similar happened in the United States. In 1830, 90 percent of the U.S. money supply consisted of privately held bank bills. When Facebook declared that we could buy Libra (a project that collapsed) using local currencies, the fear of the price volatility that private currencies caused in the United States in the 1830s resurfaced. At the time, the unpopularity of the system influenced the government’s decision, a few decades later, to replace it with a national banking system. Out of this chaos came the dollar and its domination. The value of a currency is stable as long as its issuer is credible. The political instability in Venezuela in recent years has contributed to the loss of value of its currency against the dollar. By analogy, if a large company were to issue its own cryptocurrency today but its business model declines, or if people begin to doubt the future viability of the company, then this would certainly impact people’s desire to hold this cryptocurrency.

So some countries, including China and Sweden, are testing versions of this state-owned cryptocurrency idea. The Bahamas has already launched a central bank digital currency, or CBDC, which they call the Sand Dollar. Nevertheless, there are still many details to be worked out.

Who oversees the digital currency?

How is it connected to private banks and payment services?

Which people will want to use it?

Image par Tamim Tarin de Pixabay

Another problem is that digital payments have a hard time staying private.

The Metaconomy is still quite useless and inaccessible to a large number of people

The NFT market volume is said to exceed $700 million, and OpenSea is headed for a $100 billion valuation in record time. Ethereum blockchain-based marketplaces seem to be emerging as a strategic infrastructure that will support metaverse economies, but for now, NFTs are missing something crucial: utility and connected economies.

Digital assets are bought and sold. Thus, it is a speculative market with little real use. To create functional economies in the metaverse, owners should be able to do something concrete with their goods. For example, if I buy a recently minted painting, I would want to be able to furnish my virtual home with it. Right now, all I can do is admire my purchase on OpenSea or another site and give the URL to everyone.

This problem will remain for a number of years while the industry agrees (or not) on standards and interoperability. Tim Sweeney, CEO of Epic Games, estimates that we will have to wait at least another 5 to 10 years. This delay could kill the emergence of the metaconomy.

Moreover, the promise of blockchain-based exchanges and the proliferation of different altcoins that power them should mean that transferring the value of goods and services across different metaverse will be easy. But we are still very far from that.

Different virtual worlds are being created, with their own proprietary token-based economies. There is no real connected exchange of value or assets to other worlds. My plot of land in Decentraland may be completely worthless if I want to trade it for a Land in The Sandbox for example. Similarly, the mechanics of buying, selling, and trading through existing platforms require a certain level of understanding of cryptocurrencies and the use of Metamask, for example. Altcoins need to be converted to Etherum or Bitcoin for example, and then back to altcoin of another metaverse in order to be traded — each time incurring fees.

We are still in the early stages of a functional exchange market, as accessible as fiat, but one that excludes a large number of people who want to participate in the metaverse but do not understand how metanomics works.

Metaverse could be one version of the future of the Internet within… at least ten years

If the Metaverse were an iceberg, the visible part would be a new type of experience. While the invisible part would be: social interactions, new business models, devices, communication networks, new individual behaviors, new communities, new uses, killer apps, brands, gaming, physical and virtual hardware… Therefore, the metaverse concept is a combination of several technologies such as augmented reality, the Internet of Things, 5G, artificial intelligence, space technologies, blockchain… All of them being at the service of immersion in what some people qualify as the future of the Internet. Many of these technologies have been slow to mature, but they are approaching the minimum level of performance to make it a success.

For example, most virtual reality headsets still need to be connected to a PC or game console to achieve the processing power and communication speed needed for smooth and immersive experiences. With ever-faster processors and high-speed wireless communications on the horizon, better visual resolution and wireless experiences should emerge in the next few years.

Instead of looking at the news, you could be right in the middle of the news. Instead of learning the history of ancient Egypt or Greece from books, you could immerse yourself in it virtually, travel through the universe and interact directly with the avatars of the people of the time. Instead of watching a basketball game on TV statically, you could turn your head 360 degrees as if you were there. Instead of attending a virtual conference located on the other side of the world in a passive way, you could then go and meet the other participants and exchange with them on the subjects you are passionate about.

Today, augmented reality remains a niche market regarding the small number of use cases. The blockchain has enabled the launch of cryptocurrencies such as bitcoin in the last few years. It would allow virtual goods and identities to be purchased and transferred seamlessly between various platforms making up the Metaverse. New blockchain applications, such as NFT fever, are increasing the adoption of the technology and could launch a new kind of creator economy…

Image par Nurudeen Alidu de Pixabay

While some brands are already rushing to grab the pie, widespread adoption will not happen for several years. Indeed, the necessary technologies still have a way to go to optimize their functionality, usability and cost. One semiconductor company has stated that a truly immersive metaverse would require 1,000 times the computational efficiency of today’s state-of-the-art processors.

“When a tree falls, you hear it; when the forest grows, not a sound.”

What if the Metaverse was just a tree when the web3 grows without a sound ?

*******************************SOURCES********** ****************

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[Metaverse Masterclass] How AI, VR, AR, 5G, and blockchain may converge to power the metaverse

This is an article by Gary Grossman, the Senior VP of Technology Practice at Edelman and Global Lead of the Edelman AI Center of Excellence.


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Emerging technologies including AI, virtual reality (VR), augmented reality (AR), 5G, and blockchain (and related digital currencies) have all progressed on their own merits and timeline. Each has found a degree of application, though clearly AI has progressed the furthest. Each technology is maturing while overcoming challenges ranging from blockchain’s energy consumption to VR’s propensity for inducing nausea. They will likely converge in readiness over the next several years, underpinned by the now ubiquitous cloud computing for elasticity and scale. And in that convergence, the sum will be far greater than the parts. The catalyst for this convergence will be the metaverse — a connected network of always-on 3D virtual worlds.

The metaverse concept has wide-sweeping potential. On one level, it could be a 3D social media channel with messaging targeted perfectly to every user by AI. That’s the Meta (previously Facebook) vision. It also has the potential to be an all-encompassing platform for information, entertainment, and work.UnmuteAdvanced SettingsFullscreenPauseUp NextHow the World’s Largest Staffing Company ‘Randstad’ Generated 1000% ROI by Streamlining Risk and Safety Processes Using a No Code Platform._

There will be multiple metaverses, at least initially, with some tailored to specific interests such as gaming or sports. The key distinction between current technology and the metaverse is the immersive possibilities the metaverse offers, which is why Meta, Microsoft, Nvidia, and others are investing so heavily in it. It may also become the next versionof the Internet.

Instead of watching the news, you could feel as if you are in the news. Instead of learning history by reading about an event in a book – such as Washington crossing the Delaware – you could virtually witness the event from the shore or from a boat. Instead of watching a basketball game on television, you could experience it in 360-surround. People could attend a conference virtually, watch the keynotes, and meet with others. In the metaverse, our digital presence will increasingly supplement our real one. According to Meta CEO Mark Zuckerberg, the metaverse could be the next best thing to a working teleportation device.

As described by Monica White in Digital Trends, “The metaverse is meant to replace, or improve, real-life functionality in a virtual space. Things that users do in their day-to-day life, such as attending classes or going to work, can all be done in the metaverse instead.” For example, the metaverse could offer an entirely new 3D platform for ecommerce. Imagine a virtual reality shopping experience, virtually walking the aisles of a megastore stocked by a multitude of platform partner companies tailored specifically for you, where promotional messages are designed with only you in mind, and the only items displayed are the ones in stock and available to ship. In this store, on sale items are selected based on your tastes and expected needs, and value-based pricing is dynamically updated in real-time, based either on the age of the product (if a perishable item), supply and demand, or both.

First there was Second Life

While the metaverse feels fresh and futuristic, we’ve been here before. In addition to early visionaries Neal Stephenson and William Gibson, who described the metaverse in fiction, a very real metaverse was created in 2003. It was known as Second Life, and millions of people rushed to the platform to experience an alternate digital universe replete with avatars. NBC describedSecond Life as an “online virtual world where avatars do the kind of stuff real people do in real life: Buy stuff. Sell stuff. Gamble. Listen to music. Buy property. Flirt. Play games. Watch movies. Have sex.” Harvard University even taught online classes within Second Life. Second Life was so successful that it was the subject of a 2006 cover story in BusinessWeek.

Caption: Second Life makes the cover of BusinessWeek in May 2006.

However, Second Life’s popularity dropped soon after. As described in a 2007 Computerworld article, the experience suffered due to a “poor UI, robust technical requirements, a steep learning curve, an inability to scale, and numerous distractions.” And then Facebook came along and offered a more compelling experience.

In 2007, there was no VR, AR, 5G, blockchain or digital currency. Cloud computing was in its infancy, and the mobile internet was still emerging as the first iPhone had just been introduced. Further, AI still had limited impact, since the deep learning boom was still a few years away. Perhaps that is why Meta is now enamored with the idea of the metaverse as it seeks to combine the most compelling (and consumer-tested) elements of Facebook and Second Life, based on an entirely new platform powered by the latest technology.

Emerging technologies near ready

Several of the technologies that will enable the metaverse, including virtual and augmented reality and blockchain, have been slow to mature but are approaching a level of capability that is critical for success. Each has been missing the killer app that will drive development and widespread adoption forward. The metaverse could be that app.

For VR, most headsets still need to be tethered to a PC or gaming console to achieve the processing power and communication speed required for smooth and immersive experiences. Only Meta’s Oculus Quest 2 has so far broken free of this cable constraint. But even that headset remains bulky, according to one of Meta’s VPs. With ever faster processors and higher speed wireless communications on the near horizon, better visual resolution and untethered experiences should emerge over the next few years.

AR has achieved mostly niche adoption. In part, AR prospects likely suffered due to the high-profile market failure of Google Glass when introduced in 2012. And while Pokemon Go provided a huge lift for the technology in 2016, there has not been a similar phenomenon since. But an important new player is apparently readying to enter the market: Perhaps spurred by the metaverse concept and moves by competitors, Apple is expected to release its first AR/VR headset in late 2022. Apple has a penchant for entering a market well after the first movers have proven viability, then going on to dominate. It is a reasonable conclusion that this is the company’s plan for the metaverse.

Blockchain underlies cryptocurrencies such as bitcoin and would enable virtual goods and identities to be purchased and seamlessly transferred between various metaverse platforms. New blockchain applications such as NFTs are leading to greater adoption, potentially pointing to a new economy. The Wall Street Journal reported that the race is now on to extend this technology to all types of assets, adding that blockchain-based payments are superior to our legacy financial infrastructure. Similarly, the New York Times reported that venture capital fundshave invested about $27 billion into crypto and blockchain companies in 2021, more than the previous 10 years combined.

Metaverse prospects

While some brands are already rushing to capitalize on the metaverse fever, the metaverse will likely evolve in fits and starts, with widespread adoption still years away. This is because the needed technologies still have a way to go to optimize their functionality, ease of use, and cost. One semiconductor company has said that a truly immersive metaverse will require a 1,000-times increase in compute efficiency over today’s state-of-the-art processors. While that is a huge increase, the company separately presented at a recent “Architecture Day” that it expects to achieve that goal by 2025.

Whether it takes three years or 10, there is huge momentum behind the metaverse, with seemingly unlimited funding. Even at the current stage of development, Boeing has committed to designing its next-generation aircraft within the metaverse, using digital twins and Microsoft HoloLens headsets.

Kirby Winfield, Founding General Partner of VC firm Ascend, sees the metaverse as “the latest evolution of [an] ongoing shift to an increasingly digital life.” When it arrives in full, that shift will achieve the immersive sci-fi visions of many.

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Metaverse Blog Metaverse Masterclass

[Metaverse Masterclass] Axie Infinity Dev Journal: Economic Balancing

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Axie Infinity here.

We should collectively work to improve the economic balance of our community assets. We’d like to provide a framework to start this conversation.

One of the most common topics of conversation within the Axie Infinity ecosystem recently is around the Smooth Love Potion (SLP). We’ve been amazed by the level of thoughtful input you all have shared with us, and we also empathize with many of your concerns. That said, we wanted to write to you all in the new year with the hope of sharing some history, some statistics, and some of our current thinking as we further develop the economic models around SLP.

We released SLP in December 2019 as a utility token which enabled Axie breeding. While its core purpose was humble, the community’s response to SLP’s release made it clear quite early on that something very special in game economy history was occurring. These evolutions in SLP’s use in tandem with the explosive growth of 2021, has driven both incredible growth in the liquidity as well as some fundamental inflation in the token over time.

To put things in perspective, the average amount of SLP burned per day has grown over 500x (50,000%) through 2021! However, that must be contrasted with breakneck SLP creation, which historically has consistently outpaced its use, and has additionally grown over 160x (16,000%) over the last 12 months. Today’s data shows a growing chasm between SLP minted vs. SLP burned (Figure 1). This inflation in the token is not sustainable.

Figure 1: Daily SLP burn, mint and net emissions 

The primary complexity in economic balancing of SLP comes from the difficulty in predicting future player growth alongside timing further releases of products within our gaming ecosystem.  As hopefully you all know, we are working on a number of new gaming experiences, including the next generation of our battles experience (Origins) and a new land-based gaming experience (Project K).   Each of these games will include a number of new features that will affect the economy balance.  We’ve also invested significant time and effort over the past year into scaling our systems to accommodate the growth and build out the foundational blockchain components needed for our ecosystem (e.g. Ronin, Katana, Staking).  All of these efforts often have come at the sacrifice of improving our existing gameplay systems.  However, we want to reassure you that we are looking to prioritize experimenting with short-term approaches towards managing SLP’s inflation in the new year. 

Please know that we are listening to all of you. You all have given us a number of ideas to consider in the short term while the Sky Mavis team has come up with some as well. In short, SLP economics evolve with changes to its supply and demand. We wanted to review a few of the more popular shorter term supply / demand ideas emerging within the community:

Decrease supply:

  • Iteratively balance all in-game SLP rewards: The current alpha gaming experience continues to be refined on multiple fronts while player activity has evolved in surprising ways. As such, with the continuous balancing process, we may need to manually reduce SLP emission rates for daily quests, PvP, and PvE. Over the longer run, we’re hoping this can be adjusted more dynamically.
  • Change ratios of in-game incentives: SLP is not the only token within our ecosystem.  In fact, our long term vision is for a more equitable distribution of AXS rewards through gameplay.  We want top players to gain influence within our community.  We are evaluating ways to do this without inadvertently creating inflation problems for AXS as well. Unfortunately, we currently do not have the functionality to distribute AXS as a battle reward and so would need to spin off engineering effort from other projects to work on this. In the meantime, we are considering increasing AXS in Leaderboard rewards and reducing SLP rewards to high MMR players as one option.
  • Reduce SLP produced through non-skilled / automated / botting techniques: We received a number of recommendations from the community focused around reducing SLP rewards for parts of the game most vulnerable to automation or botting techniques.  Specifically, SLP won during PvE battles. This could occur in a few ways, including overall reductions in PvE emissions, or by updating the Daily Quest requirement splits to be more Arena focused over Adventure to make it easier for real players to earn.  This unfortunately isn’t a precise science, and it’s likely that some real people will earn less SLP because of this change. Another idea would be to require energy to earn SLP in PVE. This is currently not the case in that players can still hit the 50 SLP cap when they’re out of energy.

Increase demand:

  • Axie releasing / burning / consumption: This is a very significant feature that we have to be very careful around, and takes significant engineering effort to build. However, we plan on releasing some smaller tests this year to be able to validate the mechanic iteratively. Since the primary utility of SLP is to create new Axies, having this burning mechanism for Axies would increase demand for SLP (and AXS).
  • Community SLP buy back: We may allocate some of the Marketplace fee for a limited time to buy back SLP in the market into the Treasury. This would only be done in unique circumstances as maintaining the fee is important to sustainability of the Community Treasury. 

Needless to say, there are many factors we have to consider for each of these ideas, so ultimately we cannot make any promises as to which will be implemented. However, know that we are spending a lot of time and effort across our teams figuring out how we can make positive adjustments. It’s also worth noting that this above list doesn’t include all of the longer term ideas you’ve shared, including introducing Axie cosmetics and tournaments.

We’d like to hear from you.  Which of these approaches do you like best and why?  Are there others not mentioned here you think we should consider? Feel free to share your thoughts on Twitter using the #AxieEconBalance hashtag.


As a final note, we want to speak a bit about the MMR reset that happened earlier today for the Season 19 Off-season. First, we want to say that we originally planned to announce it with this blog post and made a mistake to reset it beforehand. We will learn from that misstep. 

We had looked into doing more granular MMR reset adjustments for different levels of MMR, but it wasn’t feasible given numerous factors and trade-offs (especially technical limitations). That said, this MMR reset will help make sure that SLP supply and demand are closer to balance. We observed that over time, MMR inflation was happening as the player-base grew, meaning more and more SLP was being produced each offseason. In addition, off-seasons have been increasing in time and length, especially now that we would like to release balancing updates in the middle of off-season rather than at the beginning of the season.

We saw that average SLP per PVP battle increased by ~40% over the course of Season 19 (from Day 1 to last day of the season). We believe that resetting off-season MMR reduces unnecessary supply, and ultimately leads to a more balanced SLP economy.

We want to reiterate that we care deeply about the economy and the Axie Infinity community. We spend considerable time thinking deeply about the tradeoffs between short and long term economic balancing. While we will continue to lean strongly towards the long term growth and sustainability of our ecosystem, we want you to know that we plan to shift some of our focus towards certain short-term issues that have emerged. We know it’s important.

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Metaverse Blog Metaverse Masterclass

[Metaverse Masterclass] Epic, Bored Apes and the Story of the Metaverse

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Doug Thompson, origially published in Out of Scope.

“In Fortnite, you are INSIDE a narrative about the Metaverse. The Rift Tour may make that narrative even more explicit. But let’s not forget about the Bored Apes. Because there’s more than one story being played out.”

I find myself shooting at what I’m told aren’t portals.

Reality is breaking down.

Waves of energy radiate around me, capable of changing anything in the blink of an eye. Jones has turned into a butterfly.

All this is happening after running through a gauntlet of licensed characters. Er, I mean attackers.

Creatures from Aliens and The Terminator, Kratos from God of War and a digital Sigourney Weaver were all part of pitched battles while the blue orb rotated overhead.

But instead of shooting at it, what I really, really want to do is jump through that little tear in the fabric of reality:

Until I remember that while this looks like Fortnite, I’m actually inside a narrative about the Metaverse. And we aren’t ready to make that leap just yet.

Fortnite and The Rift Tour

This week, a ‘superstar’ will hold an event in Fortnite as part of the Rift Tour.

It’s rumoured that Ariana Grande will ‘perform’ based on leaked court documents and the creative winks and nods ahead of the event.

We’ll know more on Monday.

Regardless, the event has the potential scale of the Travis Scott concert which had 12.3 million concurrent ‘attendees’, 27.7 million unique players across 5 showtimes and 45.8 million views.

Those are the kinds of numbers that generated reams of news coverage. We had seen the future of the music industry, live events, and online social activities. And it was bigger than anyone expected.

The Rift Tour might not reach the same scale. But let’s say it does. It promises:

A musical journey into magical new realities where Fortnite and a record-breaking superstar collide.

New realities?

Wasn’t Zuckerberg talking about that?

While other companies have been suddenly talking a lot about the Metaverse, Ariana Grande (or whoever the record-breaking superstar is) might actually show us the way.

A Narrative ABOUT The Metaverse INSIDE The Metaverse

And that’s what’s potentially so profound about what Epic is doing with Fortnite. While Fortnite itself will NOT become the Metaverse on its own, it IS laying down some of the tracks to a time when all of our virtual worlds and galaxies are interconnected.

They’re creating a mythology, a story, a game mechanic and a publishing schedule in support of their stated desire to make the Metaverse happen.

They aren’t just expanding the size of their world, they’re creating a mythology, language, and rationale for why it will happen and what its value will be.

And so the Rift Tour isn’t interesting just because it might be a fun event with potentially millions of concurrent attendees. It’s also interesting because:

  • Epic will again have a chance to push the boundaries for the experience of attending an event in a virtual space. Travis Scott shattered many of the conventions of what a virtual performance can be. Think of it like some wild, slightly hallucinogenic Disney ride and you’ll get the idea. It’s all groundwork to answering a more important question than whether the Metaverse will be browser-based or viewed in VR: why will people show up? How do you make online spatial experiences entertaining and fun?
  • Second, how does it tie in, if at all, to the larger Fortnite narrative? The fact that it’s called the Rift Tour at least gives a passing nod to the idea. Because this narrative, in my view, doesn’t just support playing the game, it’s actually an uber-narrative about what the Metaverse is, translated in a language digestible to the 18–24 year olds who play.

A Complex Tale of Time, Power and Place

Now, let’s be clear: the Fortnite narrative is complicated. It somehow manages to reconcile Batman (and manage a limited edition comic as a spin-off in the process) and Deadpool.

There are time loops, rifts, shadowy agencies and a ton of branded and licensed content.

At first glance, it mostly seems like a convoluted excuse to change the Island up every now and then, to launch new skins and cosmetic enhancements (their main source of revenue outside of sponsorship), to justify new enemy characters and weapons, and to create partnerships with Ferrari or Marvel.

It’s a story of powerful forces trying to control access, superheroes arriving via rifts in reality, and…well, and YOU, a foot soldier struggling to survive yet another mission loop on a constantly changing island.

The narrative isn’t really needed to play the game, anymore than you need to purchase a custom character.

This isn’t Red Dead Redemption solo play where the story is the main driver of gameplay (I miss you, Dutch, delusional though you might have been!)

We’re here for the fun. We’re here to bash and shoot stuff with our friends. And we’re here for the occassional concert or DJ gig.

The narrative mainly seems to server a larger purpose: it explains why, in spite (or because of) all these secret agents and heroes and mysterious portals, a lot of content can come IN but we can never really leave.

Until, maybe, the day that you can.

The Show Bible for the Metaverse

It’s not like Epic is keeping this a secret.

In an interview with The Verge, creative creative officer Donald Mustard said that all those licensed characters were more than just an excuse to sell more skins:

“But Mustard says that it’s also a critical part of the storyline, nodding to something he and others at Epic have eagerly talked about creating — the Metaverse, comprised of characters and storylines from countless films, shows, and games all in one place.

Creating the Season 6 opener with the Russo Brothers, who know a thing or two about creating property-spanning universes, is another obvious nod in that direction.

Tim Sweeney, CEO of Epic, has been talking about Fortnite as something that transcends gaming, and has explicitly linked it to the Metaverse (the fact that one place he said this was in a court room just adds gravitas).

And so we return to the Rift Tour.

“A musical journey into magical new realities.”

Ariana Grande might not let us go there after the concert is done, but she might hint that our ability to travel between worlds is on its way.

Tools, Film Grammar and Distribution

Movies can extend their ‘film grammar’ in part by changes in technology.

James Cameron is perhaps the most famous for this: Avatar, for example, was using Mandalorian-style technologies long before music stars were filming on LED stages. With real-time compositing, Cameron was able to see his actors ON the CGI sets during filming.

More profound shifts in the grammar of storytelling occur when we shift media. From radio to screen, from silent films to ‘talkies’, from network television to cable, and from TV to taped and streamed.

The transition to virtual worlds has resulted in a similar and profound shift in the ‘grammar’ of storytelling. This shift builds off of the profound advancements in game-based storytelling and other immersive arts. And it translates it through the lens of highly concurrent experiences.

These shifts in media create a cascade: changes in media are the results of advances in technology. More advances in technology provide new tools to storytellers. The storytellers get better at their craft, which attracts wider attention from the distributers, (whether movie theatres, cable channels or Playstation).

What Happens When You Own The Full Pipeline?

But what happens when one company is the company that builds the cameras and tells the stories and has the capacity to distribute them?

You now have the perfect virtuous circle: they can test the ‘film grammar’ of the new medium, refine gameplay, figure out how to hold a virtual concert, get data on user-generated content (through its Creative mode), and find out which licensed content ‘pulls’ more than others.

By providing the Unreal tools and the Epic marketplace to other developers they can both help to guide a shared library of best practices and learn from others.

They’re not constrained to a particular film type like a movie studio would be. Because they’re the ones making the film.

Oh, and they can also distribute the experience.

Epic’s fight to get Fortnite on consoles was a genius-level achievement on par with what Steve Jobs did with the record companies for the iPod.

Launching their own app store helps to insulate them against — well, against things like Apple booting Fortnite from iOS.

A Story Built on a Road Map

And so Epic has a great deal of control over its product road map.

It knows how quickly it can develop new features for Unreal, it knows what pieces it’s missing (and can acquire some of those pieces), and it can sequence changes to its payment systems, identity and log-in and marketplaces.

Fortnite is creating a mythology of a future Metaverse. Fortnite uses all of the technology that Epic creates. Fortnite therefore can ‘attach’ its storylines to that road map.

Tim Sweeney has made it clear, for example, that Fortnite is being transitioned to UE5. Will Fortnite take advantage of the advanced rendering and realism offered by Lumen and Nanite?

Would YOU?

Maybe you’d leave Fortnite Island alone and preserve the cartoon-ish gameplay. But maybe you’d create a storyline about how certain ‘rifts’ actually lead to highly realistic worlds.

Imagine jumping through a rift in Fortnite and landing in a “Thor World” spin-off: a highly detailed and rendered version of Asgard.

Myths and Stories Make The Metaverse

My nephew really doesn’t care about the finer points of “what is the Metaverse”.

By the time the Metaverse is actually here, we won’t even need the name. We’ll just be “in” the space which is online:

But imagine a 12 year old today spending time in Fortnite. Coupled with the dense cinematic universes of Marvel and Star Wars, these are the mythologies with which they’re growing up (I’ll leave aside cultural commentary).

They’ll probably remember that they went to their first concert in Fortnite or Roblox the same way I remember seeing Supertramp. They’ll probably remember interacting with their favourite characters or the month they ran around dressed as Deadpool.

The breadcrumbs and Easter Eggs were all there. They were participating in a story about the how and why worlds existed and how they became interconnected.

And if all of those worlds interconnect in a seamless way….then they’ll have arrived in the Metaverse.

We just won’t call it that. It will just appear.

One day you’re hanging out with friends at an Ariana Grande concert and the next you’re teleporting through the ‘Rift’ to visit Batman or to kill Aliens next to a digital Sigourney Weaver.

The only thing missing are the Bored Apes.

Stories from the Ground Up

There’s another storyline. And it has nothing to do with Disney/Epic cross-licensing, Sony Music or using Unreal to recreate Mandalorian in your living room.

And it starts with the Bored Ape Yacht club:

Instead of Marvel characters and Kratos it has…well, it has bored apes:

(Maybe the only cross-over thing here is the banana skin in Fortnite. I toyed with some sort of analogy about the Bored Apes eating Fortnite for lunch).

Now, at first glance, the Bored Apes seem like edgy cartoon characters. Much like the narrative in Fortnite, they don’t seem like much more than an excuse for something else: to sell art work or t-shirts or craft beer.

In fact, they really aren’t anything more than the above images. 10,000 of them.

But there has been almost $100 million in trading value for those images.

Sure, it’s not quite the same money that Fortnite has pulled in.

And the Bored Apes don’t really exist anywhere in particular.

You can’t wear them like a skin in a virtual world. You pretty much just throw one up as your Twitter profile photo.

But scratch the surface and there’s more to it. First, you’re joining a ‘club’, a sort of fan community with its own benefits.

As the New Yorker explains:

When a buyer makes his Twitter avatar an image…it’s a sign of allegiance, and also a signal to other buyers in the club to follow him on social media. (“I changed my picture to the ape and I got hundreds of Twitter followers the first day,” Swenson said.) The center of most clubs is Discord, the real-time chat app. Bored Ape Yacht Club’s Discord server has more than thirteen thousand members…The mutual investment, both social and financial, forms a kind of bond among club members within the wider Internet bedlam.

The creators of the Bored Apes had identified an opportunity: instead of simply creating limited series artworks and selling them “We were seeing the opportunities to make something with a larger story arc”. (Emphasis added).

As the New Yorker outlines it, these types of works :

…whether of people or monkeys or ghosts…were fairly generic. Bored Ape Yacht Club, by comparison, created rich and detailed iconography drawn from its founders’ personal tastes. The setting of an Everglades “yacht club” (an ironic appellation) was meant to evoke places like Churchill’s Pub, a well-worn Miami music venue that Gargamel and Goner frequented. “We were deeply inspired by eighties hardcore, punk rock, nineties hip-hop,” Goner said…From the scenes of an apocalyptic tiki bar on its Web site to the jaunty style of the apes themselves, Bored Ape Yacht Club felt more like the plans for a triple-A video game… The combination of sophisticated visuals, subcultural fashion accessories (shades of Hot Topic), and literary pretension made the Bored Ape universe catnip to a certain crypto-bro demographic.”

And that crypto-bro demographic is important because the Bored Ape images are NFTs (non-fungible tokens).

Your ownership of one of the 10,000 apes is memorialized on the blockchain. There is one token per ape, and therefore only one person can “own” it at a time.

You can sell your NFT (your ape) off. Although be warned: the price keeps climbing. Digital scarcity has been created. You’re joining an exclusive club….and it’s a club of Bored Apes but it’s a club nonetheless.

Membership has its privileges.

But aside from digital scarcity (which frankly can have echoes of the scarcity of Beanie Babies), there’s something else that drives the success of Bored Apes.

Because by owning one, you can commercialize the asset:

(Bored Apes) was also one of the first clubs to offer individual buyers the commercial rights to the apes they own: each member is allowed to brand his own projects or products and sell them independently. In the three months since the club launched, Bored Ape owners have put the cartoon primates on lines of craft beer and created animated YouTube series, made painted replicas, and designed skateboard decks. Kyle Swenson, the clothing reseller, launched a publication called the Bored Ape Gazette, to cover the community.

The Primitives of the Metaverse

And so we start to see the other way that the story of the Metaverse unfolds.

At the level of Fortnite, a large-scale world is the backdrop for complex stories that unfold on a pre-determined schedule of chapters and seasons. The stories get bigger and bolder, the stars get bigger, the world changes…until other worlds are added, and we follow along, tracking the mythology of the Metaverse as it materializes around us.

At the level of Bored Apes, the Internet is rebuilt from the ground up with the primitives of story.

The story isn’t preassembled. Instead, the components of the show bible are created, and instead of passing a copy off to a show runner or writer, they are auctioned off.

The only thing that was created were a bunch of primitives. How people assemble these primitives is an exercise in community building, commerce, collaboration and imagination.

This idea: that NFTs represent creative primitives, is comparable to the ‘prims’ of Second Life:

In Second Life the entire world was built from the prim up.

A cube could be shaped and connected to another cube. The resulting shape could have a texture thrown on top. Suddenly, you have a chair or table or dress.

The genius of the prim, however, lay in what Philip points out above: the permission system and the “For Sale” field.

Because once you’ve used your prims to create a dress, you can now sell it. And the next person has permissions for whether they can copy, modify or transfer that dress, and more importantly, they can include it in their own personal story.

They wear the dress to a wedding, they put the chair in their virtual house, they have dinner at the table with their family (other people, represented by avatars, living an often full second life).

NFTs As Creative Prims

NFTs have a bit of a definition problem, in the same way that the word ‘Metaverse’ can elicit strong reactions.

It’s a technological affordance and a bunch of things can spin out of that affordance: from providing a trustworthy ledger for real-world art, for example, to creating speculative buying clubs for fancy JPEG art works through DAOs.

But let’s focus on the Bored Apes (which, by the way, have inspired dozens of similar storylines).

The images at the heart of Bored Apes are just little granular pieces of content. They’re not unlike prims.

They contain contracts for how they can be used. Their elements can be remixed, combined, and repurposed. They can be spun off into separate stories. They can be the basis of a new line of t-shirts or can be used like a high-signal version of the skins in Fortnite.

The promise of NFTs (and the blockchain) therefore is that we can create the primitives for large-scale storytelling.

And that the stories can travel further and reach more people. This is facilitated, first, because we can have ‘skin in the game’ (there’s a financial upside, similar to how the dress maker in Second Life can sell the creation); and second because right now you don’t need a particular skill set to change your Twitter profile in order to participate in the narrative.

The Road Map for NFTs

But just like Epic has a road map for its technology, there’s a presumed/collective road map for the Bored Apes (and similar ventures).

Namely, that eventually, we’ll move beyond remixing GIFs and JPEGs and start remixing larger and larger chunks of story.

The Bored Apes represent the ultimate unbundling of IP (think of all of those characters running around Fortnite) into its smallest components.

Eventually, those little chunks of story content will be easier to reassemble, view, display, remix and turn into story.

In the Bored Apes narrative of the future Metaverse, a demand will be created by the distributed nature of all of those little chunks of story.

As the pool of primitives grows and as more people own those primitives (whether unbundled IP from a big brand like Coke or a Bored Ape), we’ll want a place to play, to create and to share.

The owners of all of those Bored Apes and digital paintings and creative prims are going to demand a home. And the creators are going to demand better and more distributed tools to remix their primitives.

The Convergence of Story

This probably sounds like a showdown between Fortnite and the Bored Apes.

I don’t believe it is.

It might be a showdown, of sorts, between different narratives. My recent post about the Metaverse generated — well, it generated a lot of discussion.

And aside from the highly technical reasons why it’s important to ‘get granular’ about what we mean when we use the word “metaverse”, it’s an indicator that we all want a voice in our shared future.

Interconnected worlds are coming. Stories are being told about what those worlds will be, how they’ll connect, and who will own the gates, experiences, and myths.

As I was writing this post, Tim Sweeney had this to say:

And I personally believe Tim when he says that we all benefit from a Metaverse that is open (which has has said many times). That it can’t be owned by any one person.

The Primitives of Scans and 3D Content

I also believe that Fortnite isn’t the only narrative that Epic is building. Yes, it’s creating a particular mythology and storyline that leads us to a future in which worlds interconnect.

But so is Sketchfab, which Epic just purchased.

As I outlined in my post at the time, Sketchfab represents something more than just a marketplace for 3D content.

The photogrammetry that it hosts, for example, is another form of storytelling primitive. They are digital Polaroids which we’ll eventually be able to collect, place, and co-create. They also represent the blurring of the lines between physical and digital realities.

Interconnected worlds won’t just exist when you log in: they’ll exist when you walk around the very real neighborhoods on the other side of your front door.

I actually believe that the narrative for Sketchfab and the narrative for Fortnite will converge: at some point, Epic will open everything up, and you’ll be able to spin up your own island, or collect your own Sketchfab photo album, and you won’t be locked into a proprietary “Unreal/Epic” model.

Epic will still make money entertaining and creating games (and helping other developers to do the same) but they will ‘release’ the ‘kernels’ for the Metaverse itself.

This Is The Moment The Story Changed

Today, we’re seeing something that may, in the course of time, be more important than the emergence of edge networks or Lumen real-time rendering: we’re all co-creating a shared mythology of what the Metaverse will be.

The narratives have “legs”. We seem to have a hit or two on our hands.

We’re collecting the creative primitives that will be used to build it while at the same time we’re participating INSIDE a narrative about the interconnection of worlds.

And most of us are having a really, really fun time along the way.

Let’s set a date for after the Rift has occurred and the worlds started to metastasize, grow and connect.

We’ll share some stories about how we were there, back when the narrative of the Metaverse left behind the old tropes of 1990s science fiction (some of us got there sooner) and became something bigger, and more generous, and more fun.

Let’s remember back to that time we saw Ariana Grande together and it made us feel like kids again. Let’s remember how big the possibilities felt, whether we were hanging out in the virtual world of Discord at the Bored Apes Yacht Club, or were on an island dressed as a banana and we danced together.

Because really, there will be so many stories we’ll be able to tell.

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Metaverse Blog Metaverse Masterclass

[Metaverse Masterclass] Reintroducing The Open Metaverse OS Paper

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Jamie Burke, CEO and Founder Outlier Ventures, originally appeared on Ourlier Ventures Blog.

Science fiction like Ready Player One describes ‘the Metaverse’ both as a destination and dystopic process of capture and control.

In RP One: IOI, a single corporation, wants to own and control the OASIS’ servers and databases, enabling them to: delete people, access any information, change the rules of the world, and print themselves infinite currency

The parallels in the first virtual worlds we experience in gaming today and ‘The Web’ more generally are striking: centralised, closed, proprietary, and extractive, with shareholder supremacy elevated over user centricity. A state where giving away your time and data in return for ‘free’ access to platforms has somehow become normalised.

As we invest more time, data, and wealth into digital platforms ($10bn and 4bn hours per month in virtual worlds and gaming environments since 2020 COVID lockdown) it is critical to interrogate their design principles, business models, and terms of service so we as responsible online citizens can decide if we wish to continue to opt-in or divest into alternatives.

By now you’ve heard the term ‘the Metaverse’ thrown around a lot. I know I’ve been interviewed pretty much back-to-back in the media about it ever since the Facebook Meta rebrand. At my investment firm, we’ve been developing a thesis for the Metaverse over several years, publishing a paper called The Open Metaverse OS back in January 2021, pre-empting the hype-cycle that is now unfolding.

Because 12 months is a long time in an exponential technology class we wanted to share a primer and summary of our paper to update and reflect on what we got right, what we’ve learnt since and what might come next. So here it is…

Background context

Inspired by Bitcoin back in 2014, I founded Outlier Ventures, what was then Europe’s first venture capital firm dedicated to blockchain, something we began to understand as a new web paradigm, colloquially called Web 3. A paradigm based on the sovereignty of the user, their data, and digital wealth. For us, very early on, it was clear blockchain could not be looked at in isolation because it represented more than just a single technology but a new open economic system that would enable, and be convergent with, other technology trends. It would fundamentally change the business model of The Web and bleed into almost every industry, well beyond narrow pure financial use cases. More recently, through the innovation of NFTs (Non-Fungible Tokens), blockchains allow for new types of unique digital assets that go well beyond crypto-currencies extending into gaming, virtual worlds, and the wider Creator Economy, what you might now refer to as the Metaverse.

Today, through our virtual accelerator, we have invested in 100+ startups, a number we will at least double in the next 12 months and have helped them raise over $250million in seed capital in the last seven months alone. And by now, we have helped launch several billion-dollar crypto networks into the world. This activity, by any measure, makes us one of the most active investment firms (by volume) in our industry, and we believe is quickly cementing us as ‘the Y Combinator of the Metaverse’, a reference to the accelerator that came to dominate two decades of the Web 2 era.

The powerful thing about our accelerator and this volume of investments is it gives us access to a growing brain trust of startups at the very bleeding edge of the Metaverse. And by virtue, we have had over 3,500+ pre-seed / seed startups apply to our accelerator in the last year, giving us a unique perspective on the market. Typically with a 6–12 month window of advantage on seeing what’s next before it hits a wider venture, which is usually probably one to two years before there may be listed crypto assets, and ten years for publicly tradable stock… if that’s even a thing anymore. It’s not rocket science; it’s just the straight-up size of the data set we enjoy, basic pattern recognition, and a refined intuition for the narratives that are forming.

That’s how we spotted crypto nearly eight years ago, NFTs twenty months ago, and now the Metaverse some twelve months ago before it’s going mainstream. Based on these kinds of insights, I’m going to break down how to understand the Metaverse as an investment opportunity. What’s bullshit, and where alpha can be found for what I believe will very quickly simultaneously become the greatest global wealth distribution and wealth creation event humanity has ever known. At least 10 x what China has been for global GDP over the last two decades.

Foreword

Now firstly, I know many are sceptical of seemingly new buzzwords, and especially ones as ethereal as the Metaverse. But I want to stress that narratives are powerful at mobilising capital and economic activity, and the Metaverse has shown it can cut through and stand the test of time.

Before we get into technical analysis of what the Metaverse is, I think it’s important to say it is first and foremost a contact language for Tech, Finance & Culture to converge and collaborate around a shared vision for the future. Both the future we do and don’t want.

Like the film Ready Player One, science fiction has described ‘the Metaverse’ both as a destination and a dystopic process of capture and control. In Ready Player One, IOI, a single corporation, wanted to own and control the OASIS’ servers and databases, where they could: delete people, access any information, change the rules of the world, and print themselves infinite currency.

The parallels in the first virtual worlds we experience in gaming today and The Web more generally are striking: centralised, closed, proprietary and extractive, with shareholder supremacy (that is structurally prioritised and rewarded) over user-centricity. A place where giving away your time and data in return for ‘free’ access to platforms has become normalised.

This post summarizes the key themes we laid out in a more technical Open Metaverse OS paper, which can be downloaded (for free) from our website, and serves as both an antidote, framework, and thesis for how we can achieve a more open alternative. But it is also a reflection on its success at predicting the world we now find emerging, at an exponential rate, just several months on.

Defining the Metaverse

Technically, the original vision and definition of the Metaverse was a point in time when a user interface made up of both hardware and software blurs the distinction between the physical and digital. This has typically been thought of in the context of advances in AR (Augmented Reality) and VR (Virtual Reality), together known as Mixed Reality, becoming ubiquitous.

However, we believe it’s important we think of it not as a destination, but as a journey or process. This is because it’s important to acknowledge the beginnings of the Metaverse are already here; we are just experiencing it largely in 2D. This is also critical to understand because if we think of the Metaverse as a far off destination, we will almost definitely sleepwalk into not addressing some fundamental design choices about the principles of how we want it to operate, and potentially replicate or deepen what is broken about the Web today.

When you think that with wonderfully immersive devices like the Oculus VR headset Facebook can now track your retinal response to visual stimuli (literally going inside your body to capture biometric data, emotions and feelings you aren’t even aware of) or is actively mapping the floorplan of your home, and the objects in it, given their track record with a pervasive and proven abusive form of what has been called Surveillance Capitalism one can’t help but be sceptical and concerned we are potentially extending a dystopia real-time. This makes it all the more imperative we properly interrogate any Metaverse propositions privacy paradigm, especially Big Tech like Facebook’s, something I wrote about recently.

As I will outline, the process of the Metaverse is multi-dimensional and has already begun through the creation of new virtual worlds, both in the context of gaming with MMORPG (Massively Multiplayer Online Role-Playing Games), and other social venues and experiences. Each exists on a spectrum with often several conflicting characteristics; where the production of content is both by studios and independent creators, value transfer is bi-directional (from digital to physical and physical to digital), and where it is both transformed entirely or just represented to be passively and/or actively consumed. Much of this process is bottom-up and driven by market forces and the general direction of technical innovation. However, we also believe it will increasingly begin to interplay and be informed by top-down government policy around data rights, privacy, antitrust and, most importantly, financial legislation, all of which of course vary wildly around the globe.

Furthermore, people today still make a distinction between the physical and digital economy, even though in reality a company like Amazon is a hybrid of the two. On the one hand, direct-to-consumer has dematerialized much of the retail supply chain, but it’s still both a virtual mall and network of physical fulfilment centres moving around physical goods, as well as a business with a growing number of virtual goods and services like ebooks, music, and video streaming, all of which are consumed entirely on its proprietary devices and platform. So is a company like Amazon or Facebook part of the Metaverse? Let’s take a look..

Furthermore, people today still make a distinction between the physical and digital economy, even though in reality a company like Amazon is a hybrid of the two. On the one hand, direct-to-consumer has dematerialized much of the retail supply chain, but it’s still both a virtual mall and network of physical fulfilment centres moving around physical goods, as well as a business with a growing number of virtual goods and services like ebooks, music, and video streaming, all of which are consumed entirely on its proprietary devices and platform. So is a company like Amazon or Facebook part of the Metaverse? Let’s take a look..

It seems one of the defining characteristics of a metaverse in sci-fi was that somehow it was an economic system independent of, and enjoyed supremacy to, old fiat-based economies controlled by nation-states. This is not true for a platform like Amazon, primarily a US-based company, that uses the local fiat currencies for customers and staff and is increasingly entwined with the US state and its various agencies, but still ultimately at the mercy of central banks and various government policies. And if we look at Facebook’s efforts to launch its own digital currency with Libra (which presumably just like its Universal Login would have extended into its VR platform, Oculus), but because it is a highly centralised and fiat-based company, it has been aggressively constrained and in effect neutered as a genuine disruptive and sovereign cryptocurrency.

Now it could be considered partially true that some games platforms like Roblox or Fortnite are so big they are closed micro-economies, with their own currencies which they control centrally and value systems, like experience points systems, in-game items (skins) and marketplaces, where significant amounts of the wealth are held and traded. This is even more substantial when you think of that as a proportion of a person’s wealth, especially when seen in younger generations. But the reality is only a few games even let you transact in and out of their closed platform using fiat in order to interact with the ‘real’ world because of limitations imposed by governments around fears of money laundering. But even more importantly, wealth is not directly transferable between these microeconomics into a virtual meta economy, or metaverse, with its own sovereign currencies. And you can’t generally borrow against virtual wealth, what you might call MetaFi, to buy physical assets, putting a growing class of digital natives at an economic disadvantage, where 63% of gamers said they would actually spend more on skins if they had ‘real world value’.

Earlier in the year, it was reported users spend 5 times more money in blockchain games than traditional ones, but the sample size was reported as too small and not comparable to the wider gaming industry. However, the recent breakout success of a blockchain-based game Axie Infinity has now proven beyond reasonable doubt what many suspected; that players will spend more money in-game when that value is freely transferable off-platform and value earnt or bought is easily convertible into cryptocurrencies like Bitcoin or Ethereum. A process their co-founder Jiho describes as; ‘what happens when you give users digital property rights’.

It’s what’s helped Axies achieve a record $1.2 billion USD in sales, growing exponentially from just over 108,000 daily active users in June to more than a million daily active users today — now reporting sales of nearly $780 million in the last 30 days alone and more than 1.4 million individual transactions. To give you context, this outperforms every game in every category from AAA to free-to-play globally. And in the process, popularises a new category of gaming, ‘play to earn’.

As you will learn throughout this article this is why I propose perhaps the defining characteristic of a true Metaverse is that it is in fact, rather than necessarily a particular kind of virtual experience, a meta-economy with currencies native to it; where value can be earnt, spent, lent, borrowed, or invested interchangeably in both a physical or virtual sense permissionlessly, importantly without the need for a government or platform.

Competing Multiverses

Now of course it is also true there are competing visions for the Metaverse, a tension which seemed to be present even in Mark Zuckerberg’s own recent musings on what Facebook as a Metaverse company looks like. And it is not yet clear if they can and will co-exist or must be in competition. But to put it simply, there are at least two versions of the Metaverse we observe emerging: one dominated by closed platforms and Big Tech like Facebook / Oculus and the other built on open protocols leveraging blockchains, such as the decentralised virtual land Decentraland and Sandbox.

The distinction of open and closed isn’t just limited to technology choices and the extent to which platforms embrace open source principles with their code and data, but importantly whether they have a closed economy, within or across their own proprietary games, or whether they allow transferability of value outside their ecosystem, how that interacts with fiat-based systems, and to what extent they do or don’t control the monetary and fiscal policy of the underlying economy itself.

It is interesting to see Tim Sweeny himself, CEO of Epic Games and the Unreal gaming engine, which currently enjoys a market duopoly, has chosen to raise a billion dollars to both support the Open Metaverse alternative through grants and investments into startups, including several startups that have been through our accelerator, but also to transition his company and properties into its direction. However, since Steem said they would block NFT enabled games Epic have come out and given more nuance to their approach saying they would explore a more permissioned / curated version of NFTs, presumably akin to an App Store, something echoed by Zuckerberg in his Meta interviews.

Furthermore, there is also another technical and philosophical distinction between visions and emergent actualities of the Metaverse which could be described as “low-fi to hi-fi.” There are platforms that deliberately push the technical boundaries of the experience through both software and the expensive hardware requirements like Oculus and those that design for the lowest possible device and bandwidth requirements for universal accessibility like blockchain-based Cryptovoxels, which is more akin to blockchain based Minecraft. This is critical when you think about these as an economic system and their requirement to not just be immersive but inclusive. However, it must be said, to our knowledge, all of these virtual worlds still require at least a smartphone, which currently excludes 60% of the global population.

As you can see above you can take these as a form of axes that allow for a crude classification of metaverse platforms and virtual worlds that emerge. We believe these two axes are the most important to consider because, when combined, they represent the cost to enter the economic system and the ability to offset that cost by earning value for as broad a range of demographics as possible.

It could be said there is a third classification about whether the platform allows for user-generated content or not, but we think this difference will fade away with time. Most platforms, to varying degrees, will allow for UGC like Roblox or Minecraft and will fall under the degree to which the virtual world is generally ‘open.’ Hence, UGC is not important as a separate dimension when looking to project into the future of the Metaverse. However, the degree of 3rd party developer freedom (whether a professional or user), especially the ability to integrate into crypto and NFTs, will become an important distinction as well as how the economics are split and the degree of data that can be collected from apps to be monetised for the purpose of advertising. As we have seen with Apple’s recent App Tracking Transparency (ATT) features it has become a battle line between platforms and developers costing Facebook’s mobile app business billions in lost advertising revenue making them more intent on controlling the stack down to the hardware level.

It is our belief, and thesis, that with time an open metaverse built on shared open-source protocols, open infrastructure, and a single unifying yet open financial system will erode, or ‘eat,’ and potentially replace closed platforms due to powerful network effects. Today, for many, it’s almost impossible to see how a ragtag of decentralised protocols that make up the Open Metaverse could ever compete with Facebook. But I circle back to my earlier point; whilst they have shown they can build great VR hardware and addictive digital experience, the failure of Facebook’s Libra has shown no private company, no matter their scale, will ever be allowed to create a meta-economy independent of fiat and nation-states.

Meanwhile, Bitcoin has shown how some simple code and elegant game theory can be seeded onto The Web and mobilise, bottom-up, trillions of dollars of capital and physical distributed infrastructure all around the world to create an unstoppable economic system.This tells us, whilst you may be good at creating immersive experiences, it very likely makes good business sense to bite the bullet, connect your digital platforms and worlds to crypto and subordinate them to the decentralised and open meta-economy. And perhaps, if, like Oculus, Fortnite, or Roblox, you currently don’t, are you even part of the Metaverse at all? The painful reality is no matter what you tell your shareholders through metaverse drenched press releases, you are in reality just an isolated game, platform, or virtual world that users will see decreasing reasons to invest their time and money in.

Web 3, a stack for an Open Metaverse

So why are we so convinced of this eventuality? Well over the last decade, since the inception of Bitcoin, and the maturation of blockchains like Ethereum, we have seen an open and permissionless Web 3 stack emerge where ‘the user is the platform.’

It is a paradigm ultimately based on blockchains and their atomic units of account becoming the global digital settlement layer and means that value is ‘minted’ (created), stored, or transferred across other technologies as a form of wealth. But digital wealth can be programmable and represent an increasingly complex range of assets from in-game items and virtual land to loan agreements or futures contracts. In aggregate, this represents an entirely new financial system of currencies, exchanges, borrowing and lending, often referred to as DeFi (Decentralised Finance).

Whilst today relatively small, at just over $2 trillion in combined market capitalisation, you can think of this confluence of convergent technologies as both a new financial system and open operating system for a more open metaverse, an Open Metaverse OS, that sits between the hardware, application software, and the user. Due to its open-source characteristics, anything that is born on-chain (on a blockchain) is transferable and its metadata visible. And therefore the DNA of the virtual worlds that get built on top of it, fully or even just partly, is passed on or inherited. In an evolutionary sense, by using the Open Metaverse OS, the virtual world is pregnant with Web 3. And in aggregate everything that flows through this crypto enabled financial system could in aggregate be considered Metaverse GDP (Gross Domestic Product), or at least Open Metaverse GDP.

The Open Metaverse OS

So how ready is The Open Metaverse OS, for prime time? Well, on the one hand, the Web 3 ecosystem is thriving with several nascent technologies that can enable many aspects of an Open Metaverse, and is being deployed in virtual worlds and experiences as we speak, albeit in an incremental fashion. But on the other, it’s still significantly behind on several measures such as performance and cost when compared to Web 2, which has had decades to mature and where the benefits of economies of scale have been achieved by platform monopolies, which allow some like Amazon to be multi-billion dollar ‘loss making’ companies that ruthlessly undercut any and all competition.

Equally, Web 3 technology has instead been optimised primarily for high degrees of decentralisation and transaction security rather than, and sometimes at the expense of, enabling smooth, real-time interactions and its applications for more 2D web based experiences on desktops and mobiles. As a consequence, user experience in Web 3 has to date been relatively poor and required a high degree of technical literacy due to both the radically different security model of self custody and the nascency of the industry. With frictionless user experience of Web 3 technologies within gaming engines even further away. But this is changing as the world of Web 3 and crypto increasingly converges with new environments like gaming and VR, and there is a generational shift away from Web 2 platforms.

Therefore, the Open Metaverse OS is best understood as an evolving collection of highly composable technologies that will increasingly, but pragmatically, be used to make aspects of an Open Metaverse possible as it seeks to serve a greater global population across several use cases and environments. As it stands, The Open Metaverse OS is concentrated on the critical lower layers of the stack, including what should be non-negotiable features such as user-sovereign identity and assets, in world economics and bridges into and out of its economy, and between each themselves leaving the intricacies of gaming engines, 3D modelling toolchains, and rendering stacks to the primarily centralized world. However, over time we expect the Open Metaverse OS to eat further downwards to decentralise those aspects as well.

In summary, the Open Metaverse is emerging, first slowly and then at neck-breaking speeds given their “exponential nature.”

MetaFi and Its Exponential Assets

At the beginning part of the year, when we first wrote our paper, it was fair to say The Open Metaverse, when compared to The Closed Metaverse, was one full of empty worlds. The number of daily active users across all platforms was sub-one hundred thousand and to be frank completely irrelevant when compared to even Fortnite alone, which at the time enjoyed over 350 million monthly users and had generated $5 billion in revenue in 2020, accelerated by a year of COVID. But we rightly believed this to be deceiving. Rather than their models having any kind of long-term superiority, it was simply a decade of a head start and at that time a lack of alternatives. And whose closed nature only served as a temporary form of moat, that frustrates users and creators alike.

As we have already discussed just several months on, due to the exponential nature of the Open Metaverse, Axie Infinity has now likely already overtaken Fortnite in annualised profits. This fact is truly incredible when you think of the time and cost to develop and launch an AAA game is on average between $60–80 million, can take 2–3 years, requiring a team of 150–250 people. This meant in the past, creating content was extremely expensive, and led to a highly concentrated industry difficult for new players to enter and challenge the status quo. And yet somehow Axies, totally outside the gaming system, and in just two years, with just $9 million in funding, overtook them all.

Now Roblox, is often lauded as somehow a more open kind of metaverse and as an example of the power of letting independent creators build games based on a shared but closed technology stack and centralised, permissioned economic layer. Achieving $150 million monthly users and creators and paying out $250 million to developers in 2020. But, importantly through our lens Roblox is barely close to what you could consider a part of the Open Metaverse. For example, you can’t clone and fork the entire platform and it still serves as a closed ecosystem requiring 850 full-time staff to operate it and $530 million of venture capital to continue steady growth. Far from being the future as we will see it could be seen as the walking dead.

So how can open virtual worlds first catch up and then at least equal let alone surpass the content and rich experiences of today’s dominant yet centralised virtual world and gaming platforms? Well, firstly, there are a longtail of millions of creators (in all forms of media production) currently locked out of participating and monetising their work at all in today’s virtual worlds. And in aggregate they dwarf the industry’s staff working for closed platforms. In fact, many of them are already contractors who would prefer to be doing their own thing. So it seems evident that the creatively excluded serfs will be more than willing to migrate their time, energy and ultimately careers to experiment in our open and permissionless economic systems, especially when they can derive a greater return on their time not just in the initial creation of work but in perpetuity through secondary sales through ‘on-chain royalties’.

Now, several months on from our paper, this is no longer just conceptual. It is abundantly evidenced in the successes of a growing ecosystem of diverse NFT minting platforms and marketplaces such as SuperRare, who achieved their highest monthly sale of $31m in October 2021, set against 2020’s high of $147,000 in December. Let alone Nifty Gateway (owned by Gemini), achieving an average of 50% monthly growth since its launch in March 2020 and OpenSea’s mega $1 billion in trading volume in August of 2021 alone. It has become clear creators when given the option, will overwhelmingly join The Open Metaverse, and people will value their digital works more when they can transfer it off any one platform and trade freely in open secondary markets. And we have only just got started; if you think of the growth curves enjoyed by fungible crypto exchanges like Binance and Coinbase who have onboarded millions of new users into crypto-currency imagine what happens when every possible non-fungible digital asset can be bought and sold freely. And in fact, they have both now launched NFT product offerings and Coinbase CEO Brian Armstrong announced he believed it would quickly become their primary driver of revenue and growth.

Furthermore, saw Beeple (Mike Winkelmann), a digital artist leveraging NFTs and a friend of mine, break art auction records selling a single NFT, Everydays: The First 5000 Days, for nearly $70 million almost immediately after we published our paper, and global franchises such as the NBA Top Shot NFTs generating a high of $231 million in sales in February of 2021, and reported $700m in total sales earlier this year from digital trading cards. But perhaps even more interestingly, rather than existing IP being translated into the Open Metaverse we are beginning to see what you might regard as entirely new ‘metaverse native brands’ emerge on top of blockchains, bottom-up.

A recent example is The Bored Ape Yacht Club (BAYC), a collection of 10,000 unique 8-bit 2D avatars released by an anonymous collective. It has now become a non-fungible token franchise and economy to rival those of crypto-currencies, now at the time of writing worth over a billion dollars. With someone recently paying a total of $3.4 million at Sotheby’s Natively Digital 1.2 online auction for Bored Ape Yacht Club #8817, which, like the rest of the collection, possesses unique traits and characteristics. In early September, Sotheby’s sold 101 NFTs from BAYC for around $24m, to put this into perspective the last 7 days trading volume has hit $23m where the majority of revenue goes to its early collectors and supporters making many millionaires in the process.

What’s truly remarkable and unusual here is whilst a user owns an ape they hold the rights to exploit their individual ape’s IP commercially either permanently if they continue hold it or just momentarily leading to whole ecosystems of BAYC derivatives from 3D avatars, clothing lines, wine, and even sports merchandise, becoming a truly global transmedia brand in just four months.

But it doesn’t stop here! In the closed virtual worlds of platforms like Fortnite, because of their sheer reach, they became powerful ways for entertainers like Travis Scott to reach new audiences. However, very quickly artists, like electronic music producer and recent member of the Outlier partnership Deadmau5, have come to realise rather than momentarily playing in our people’s platforms he can retain direct and full creative and financial control of the experience through what could be considered new kinds of ‘Direct-to-Creator economies’ in his own virtual world, called Oberhasli.

Furthermore, with LiDAR technology now available to anybody with the latest iPhone, the physical world can be mass rendered, translated into machine-readable 3D models, and can in theory be converted into tradable NFTs. These NFTs will be uploaded quickly into open virtual worlds, populating them with avatars, wearables, furniture, and even whole buildings and streets. And because they are machine-readable, leveraging open source standards like Pixar’s USD, NVIDIA’s MDL, Khronos Group and NVIDIA’s Omniverse, they can be fed into AI to spit out infinite variations which again can be better monetised in global and open markets than any one closed platform.

Just as we predicted projects like Mark Cuban backed Alethea AI project are now taking advantage of innovations AI, in the form of GPT-3 from Open AI, to use deep learning to produce human-like text and speech to bring to life otherwise dumb NFT avatars into characters imbuing them with ‘interactive superpowers’. And one can imagine when it extends to other forms of media, virtual worlds and their content will be able to be automatically produced infinitely.

This all means we can expect to dramatically reduce the time and cost to produce games or whole virtual worlds and economies whilst also tapping into a global workforce of millions of creators allowing seamless and decentralised collaboration well beyond the capabilities of a single gaming studio, record label or virtual platform.

Humanity’s greatest socio-economic experiment

One of the most exciting and intellectually interesting things about an Open Metaverse, pregnant with Web 3 principles, is that you can openly (and in a permissionless way) experiment with its underlying economics. Where the same level of experimentation applies to rules of the game that underpin it both at the protocol layer and within each virtual world itself. And each experiment can be done in parallel to the other, in concert and/or direct competition.

For example, a project like Axie Infinity by design makes sure you can not derive value in the system through pure speculation only by buying and holding Axies (playing cards). To earn a yield or at the very least not see your investment decay, you must put them to use regularly in play. If you don’t want to or lack the skill to do that yourself, you must create jobs by lending your NFTs to players to put them to work. This means you can participate in the system by productive capital or through the work itself. The consequence is there are whole villages in Southeast Asian countries like the Philippines doing just that, where the income available is better than many ‘real world’ jobs if they exist at all. And you can imagine it will be the same for the great unemployed youth from the COVID economic fallout.

This activity doesn’t just replace the economy proper, it creates entirely new wealth in a purely virtual sense, but one that actually puts bread on the table and roofs over people’s heads. Whilst play-to-earn is nothing new, it is now going mainstream as ‘play as work,’ where hold to play, share or curate to earn, and play for keeps, could become the primary income for hundreds of millions of people as a form of financial emancipation rather than digital feudalism.

Conclusion: Metaverse Washing, a GDP and The Open Meta DAO

In writing this post, it has been interesting to revisit many of the themes proposed in our thesis published in just January of this year (2021) and see that they have come true much sooner than we expected. As Raoul Pal of Global Macro Adviser says, this is The Exponential Age, made up of convergent exponential technologies and now assets. In short, things move dizzyingly fast.

Since our first paper, Facebook and their recent rebrand to Meta has dominated the headlines. And now every Big Tech company is obliged to present their Metaverse strategy and credentials to capture the zeitgeist and the stock market premium it brings.

It has forced every tech and media company to have a position on NFTs. Steam, the gaming publisher, has said they won’t allow games that enable NFTs. Epic has said they will roll out NFTs but in a permissioned way and Discord faced serious backlash at an aborted roll-out of NFTs from their user base showing that it isn’t entirely obvious to all companies and users, especially in gaming, why this is anything more than a passing fad and why digital property rights in the metaverse are so important.

Many are using the Metaverse narrative to push their own agenda and either deliberately or accidentally conflating key points and principles like Facebook Meta talking about privacy, not in the context of the privacy paradigm of user data and what they do or don’t do with it but instead simply being able to block people you don’t want to interact with. And if you subscribe to our proposition that the Metaverse is first and foremost a meta-economy, we believe enabled by integrating into the open and permissionless system of crypto, Big Tech would rather focus purely on the interface layer, and shiny UX, than addressing the economic systems and their business models.

Equally, I’ve been incredibly disappointed that even supposed champions of the Open Metaverse let Zuckerberg and Facebook business practices with all its contradictions with an Open Metaverse go unchallenged on what now looks to be a rather cynical ‘friendly influencer not mainstream media’ roadshow to distract from the mounting problems at Facebook HQ.

When combined with political headwinds in US and Europe taking a combative stance to crypto, primarily around stable-coins, I fear there will be an ‘out of the box state captured’ permissioned Metaverse where Big Tech as its corporate stakeholders will be coerced to integrate into the existing broken fiat-based system and forced to adopt CBDCs (Central Bank Digital Currencies) which perpetuate the indebted, inflationary and exclusionary financial system.

This is why we are deeply committed to and vocal about the Open Metaverse its principles as a counterpoint to Big Tech’s supposed version of the Metaverse. And will follow up with two more bodies of work that build on the Open Metaverse OS Paper one being on the subject of MetaFi; how DeFi can be leveraged in the Metaverse and what kinds of collateral will emerge and secondly beginning to formally track an Open Metaverse GDP; that is GDP created in a shared and open economic system enabled by crypto.

In short, we had a good fight ahead of us. We invite you to join us in it.

About Metaverse Summit

Metaverse Summit is set to explore and build the future of Metaverse together. The summit will gather builders, entrepreneurs, investors and experts from 3D, VFXGaming, VR, AR, Web3 and beyond.

We believe that sharing and transmitting knowledge is the most sustainable way to develop the decentralized, fertile future of Metaverse.

Download the full Open Metaverse OS Thesis Here

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Metaverse Blog Metaverse Masterclass

[Metaverse Masterclass] IP and Non-Fungibility: The Intersection of Intellectual Property and NFTs

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Moish E. Peltz, EsqPartner, Chair of IP Practice Group, Co-Chair of Emerging Technologies Practice Group in Falcon Rappaport & Berkman PLLC, originally published here.

Overview of Crypto and NFTs

Like cryptocurrency, NFTs have taken the world by storm. Everything is being tokenized. NFTs, or “Non-Fungible Tokens” are digital files with a unique identity that is verified on the blockchain.

Bitcoin (or real fiat currency for that matter), can be thought of as entirely interchangeable (or “Fungible”). If you owe me five dollars, I wouldn’t care if you gave me five $1 bills or a $5 bill (even if they each have a unique serial number), so long as you pay me my money. Same with Bitcoin — it’s a commodity.

However, NTFs are ‘Non-fungible’ because each NFT is somewhat unique (at least in theory). NFTs can represent a 1 of 1 “original,” such as a unique work of art. NFTs can also represent one of a fixed number of copies in a limited series (For example #3,100 of 10,000 CryptoPunks, sold for 4,200 ETH, or $7.58 million on March 11, 2021).

In fact, NFTs can represent almost any real or intangible property, including artwork, music, videos, collectibles, trading cards, video game virtual items, or even real estate. In sum, an NFT is the digital version of a certificate of authenticity, embodied in the blockchain.

For that reason, unique NFTs are bought or sold in auctions, or in marketplaces based upon the principles of supply and demand, with a dash of cryptocurrency speculative fervor thrown in. Lately, these NFT marketplaces (such as OpenSeaRarible, or NBA Top Shot) have gone crazy, with millions of dollars being paid for single digital collectibles. Even the esteemed auction house Christie’s has gotten on board with the sale of Beeple’s EVERYDAYS: THE FIRST 5000 DAYS for an astounding $69 million.

Some view this is an unhinged speculative market that will eventually come crashing down. Others perceive it as the new frontier of digital commerce and art. Only time will tell.

But when it comes down to it, what does it mean to sell or to buy an NFT? What do you really own? If you are a brand with valuable IP, how do you approach NFTs?

How to Create NFTs

The basics of blockchain and cryptocurrency are beyond the scope of this article, and conversational knowledge is assumed.

NFTs can be created on one of any number of blockchains. The most popular of which is Ethereum, which has smart contract functionality (unlike Bitcoin). However, there are a number of alternatives, including: Binance Smart Chain, and Flow by Dapper Labs. On Ethereum, the Ethereum ERC-721 standard is the primary Non-Fungible Token Standard that powers the tracking and transferring of digital art and collectibles. This standard specifically contemplates tracking not only virtual collectables, but also physical property and “negative value assets” such as loans. https://eips.ethereum.org/EIPS/eip-721.

Once you have selected a blockchain, for ease of use you may want to select a platform that operates on that blockchain to help mint your NFT on that blockchain. For example, a popular NFT platform and marketplace running on the Ethereum blockchain is OpenSea, which has a section where you can ‘Create’ NFTs. You will deposit some ETH from your wallet to pay for the creation of your NFT on the Ethereum blockchain, accept the platform terms of service, and start creating the NFT.

Depending on the platform, creating your NFT can include uploading an image, video, or music file, adding a name and description. Additionally, NFTs allow the creator of the NFT to decide whether they will collect a royalty for future resales of the NFT, potentially an incredibly powerful tool that would allow a creator to profit from any future sale of the NFT. Various options currently exist on different platforms and additional options will undoubtedly be developed in the future.

Now that you have minted your NFTs, you can sell your NFTs to your fans. Choose a price and list it for sale or auction!

You can find a more step-by-step break down of this process in an article located here: https://www.coindesk.com/how-to-create-buy-sell-nfts

Copyright vs NFT Ownership

If you are an author of a work of art, who owns the copyright? At least from a US perspective, the default rule is that the author retains the copyright in their original creation. Although NFTs and other projects on the blockchain present numerous potential copyright minefields, there does not seem to be anything inherent about NFTs that would change this default rule as to copyright ownership.

The typical analogy is that copyright can be thought of as a ‘bundle’ of rights. For example, when an artist (or copyright “author”) sells a physical painting to a buyer, the artist/author is, by default, the copyright holder and will retain the original copyright in the work, even upon a sale to a buyer of the artwork, unless there is some deviation from the general rule. The buyer owns the physical copy and the related right to display that physical copy. The buyer does not have the right to make additional copies (that right is retained by the copyright holder), but the purchaser can of course resell his physical copy to a third-party without violating any copyright restriction. Indeed, the “first sale doctrine” limits the ability of copyright holders to control the further resale of their copyrighted works (and the application of the first sale doctrine to the digital era is already a bit of a gray area).

So, by analogy, if you were to create and sell an NFT which embodied your art, what does that mean for your copyright? Although these concepts have not yet been tested in Court, presumably, the author of the work still owns the copyright in the underlying work embodied in the NFT itself. That is, unless the author of that work specifically conveyed ownership of the copyright as part of the sale of the NFT (this is not likely, although presumably possible). As part of creating an NFT, you may sign up for a platform, and agree to further terms and conditions (likely including a grant of license to the platform to use your copyright to the extent required to create the NFT).

As a purchaser of an NFT, what are you receiving? The buyer of the NFT receives ownership of the NFT (with that ownership being recorded on the blockchain), and also presumably some implied right or license to make limited use of the underlying artwork embodied within the NFT in order to buy, own or sell the NFT.

By default, the purchaser of the NFT generally will NOT receive ownership of the underlying work of art embedded in the NFT, nor the right to reproduce, or transform that work of art. It is theoretically possible that this default rule could change, for example, if the work of art in question was issued pursuant to a creative commons license, or if the transfer of the underlying ownership were expressly stated in the terms and conditions governing the creation of the NFT.

Issues to consider:

  • If you are planning to create an NFT, you should ensure that you own the copyright that will be embodied in the NFT. If a work of art is anything but 100% indisputably your own creation, this might not be obvious and should be confirmed before irreversibly committing it to the blockchain.
  • Analysis of copyright ownership gets more complicated if there are multiple copyright authors for a single work. Joint works of authorship may have a slightly different analysis than what is discussed above. A good practice would be to ensure that you have the (written) consent of all co-authors in a work before creating an NFT utilizing that work.
  • This analysis also gets more complicated if the copyright holder is a company. As a general rule, a company should ensure that it has documented its ownership of any copyright which it will be turning into an NFT. This might be pursuant to an employment agreement, independent contractor agreement, work-for-hire agreement, or assignment agreement. Don’t assume that you own the creations of your employees or contractors without having it documented.
  • Does your work of art include, remix, or reference other works of art? Have you ensured that you have the right to do what you are planning to do when you create an NFT?
  • Does a digital first sale doctrine apply in the context of NFTs? Are there ways that you control the resale of works embodying your work by limitations built into the blockchain?

Trademarks and NFTs

How do trademarks fit with NFTs?

If you are creating NFTs, as a best practice you will want to avoid using any trademarks of another company embodied within your NFT.

If you are a brand owner, like any new technology, you may want to consider how your brand can or will be utilized in a new context, and how you can engage with the new technology to reach new audiences. The artists Deadmau5 and Kings of Leon each released NFT packages branded under their trademarked artist names. Similarly, LVMH (the owner of Louis Vuitton, Tiffany, and Dom Perignon) reportedly is using the AURA blockchain to allow consumers to use NFTs to trace the authenticity of their branded luxury goods.

NFTs present numerous open and potentially difficult questions for brand owners:

  • If you have a trademark for one type of goods or services, does your trademark cover your use of the brand as an NFT or on the blockchain? Should you apply for additional trademarks to cover uses in this area?
  • Would your brand benefit from authentication of your goods via an NFT?
  • If you are an artist or musician, are there real-world goods or services (for example, concert tickets, VIP experiences) that can be combined as an offering with the NFT? If so, does this present additional challenges?
  • Are there ways to monitor and enforce potential uses of your brand on the blockchain or as embodied in an NFT? Are these ways more efficient than brand monitoring current practices?
  • What do you do if someone creates an unauthorized NFT which includes your trademarked brand?

Patents and NFTs

NFT patents are already here, and more are surely on the horizon. For example, Nike has obtained a patent for “generating cryptographic digital assets for footwear,” which would allow a buyer of a shoe to ensure that their shoe is authentic, and also enjoy a digital collectible version of their shoe in their wallet (otherwise known as Cryptokicks). In general, blockchain patents continue to show accelerating growth.

If you are a blockchain inventor on the blockchain, you should be considering whether what you are doing could possibly qualify for patent protection. While obtaining patents for blockchain-related items might be difficult, it is also possible. In the US, a patented invention must be patent eligible, new or novel, useful, and non-obvious. Thousands of blockchain patents are already being filed every year.

Licensed Brands and NFTs

Artists or brands may choose to license their brands instead of creating NFTs themselves. For example, the National Basketball Association licensed the NBA brand and content to Dapper Labs to allow the creation of NBA Top Shot. NBA Top Shot is an application that allows users to trade, collect and showcase digital blockchain collectibles containing officially licensed NBA content, such as gameplay highlights. If you are a fan of the Miami Heat’s Tyler Herro and think he’s going to be the next NBA superstar, you can buy an NFT including a highlight of Herro as he “gets in the paint and nails the high-arcing floater over the outstretched arm of Anthony Davis during third quarter action of Game 4 of the NBA Finals.” Lowest asking price for a 1 of 43 edition? $22,500.

With NBA Top Shot, the NBA has a verifiable hit on their hands that can barely keep up user demand. Certainly, other brands will want to get in on the action. When they do so, like any other licensing arrangement, there are numerous considerations, including:

  • Who are you partnering with and can you trust them to execute your vision?
  • How will you protect your intellectual property in the context of an NFT licensing arrangement?
  • How will payments and royalties be handled?
  • How will disputes be resolved?

Enforcement against NFTs that have an Unauthorized Use

What do you do if someone has infringed your intellectual property in an NFT? The area of NFT copyright infringement, NFT trademark infringement, or NFT patent infringement is not fully developed, and the implications are unclear.

To the extent you can identify an individual company or individual that is infringing your intellectual property, you may be able to take action to enforce your intellectual property rights. However, it may be extremely difficult, impossible, or just not economically feasible to pursue random copycats duplicating your intellectual property within an NFT. Artists have already reported finding that their art has been stolen and sold as NFTs without their knowledge.

Some of the platforms, such as OpenSea state that they will work to “take down works in response to formal infringement claims and will terminate a user’s access to the Services if the user is determined to be a repeat infringer.” It is unclear to what extent the DMCA applies to NFT platforms, and how different platforms will respond to such infringement submissions. More decentralized platforms may not have appropriate avenues to make formal IP complaints.

There are potential limits to suing people for actions taken and recorded on the blockchain when their actions are decentralized, pseudonymous and international.

NFT Risks

Like any other cryptocurrency investment, the value of an NFT is uncertain and ultimately is only worth what someone else is willing to pay for it. The current environment is likely somewhat of a bubble. An initial time and money investment is required and transactions creating NFTs carry fees that may not be recouped if no one buys your NFT. NFTs (at least for now) do not generate cash flow and are only worth what someone else would pay for them. This amount, like the price of Bitcoin, could presumably drop by 90% in a period of weeks.

The creation of NFTs is largely irreversible and the future implications of NFTs are unclear. If you make a misstep, it may lead to unintended consequences that may not be correctable. Like any other marketing or advertising campaign, things can go wrong. You could do harm to your brand and intellectual property if you don’t get things right the first time. For that reason, it is important to think through possible consequences and associated downside risks that may be caused by NFTs before pressing ‘mint.’

Conclusion

The maxim to live by in cryptocurrency is to “never risk anything that you are not prepared to lose.” Creators should abide by this same mindset when creating NFTs. NFTs present an exciting new opportunity to engage and find new fans in a new territory, and perhaps make some money in the process. As an artist or brand owner, you must be mindful that you are also putting your intellectual property at risk, with uncertain and undetermined consequences.

In the meantime, artists and businesses that are seeking to participate in these markets should do so carefully, and as always, be mindful of their risks when it comes to ownership of their intellectual property.

More Questions? Contact Us!

Falcon Rappaport & Berkman PLLC has the knowledge and experience necessary to guide you through intellectual property and cryptocurrency matters. To set up a meeting with one of our attorneys, please call (212) 203–3255 or submit a request through the contact form below.

Disclaimer

This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.

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[Metaverse Masterclass] Web 3.0 — more than just crypto

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Naomi Obaoriginally published on Minima.

The Web is constantly evolving. Web 1.0, for the first time, made information available to anyone to access with nothing more than an internet connection. Web 2.0 brought tremendous improvements in usability, the richness of experience, and more importantly, turned everyone into a potential content creator.

Thanks to Web 2.0 platforms, we stayed connected with our friends, even during lockdowns, and could order anything from wall art to hardware wallets from the comfort of our living room — Delivered straight to our door. What’s not to love?

The downside of the convenient Web 2.0 we’re enjoying is that we’re constantly tracked. Google knows our most intimate worries, Instagram (or is it also now Meta?) knows that you’ve been stalking your ex, and Amazon knows all the things you’ve ordered. All this information together gives them a reasonably accurate idea of what you might be likely to buy, which is what advertisers pay for.

Our data is harvested and monetized without any benefits to ourselves. Consumers are slowly waking up to the implications; as an IRS survey indicates, only 17% of participants found personalized ads ethical.

In recent weeks, we’re seeing Big Tech starting to hijack a term that’s been used by crypto enthusiasts for a while: Web 3.0. Microsoft is planning to establish Excel tribes (VFOOKUP)in it, and Facebook’s rebranding is trying to turn it back into a cool, Metaverse company.

That’s not the Web 3.0 we meant, nor the one we want to see come to fruition.

The Semantic Web

Even before Bitcoin, Tim Berners-Lee, the inventor of the world wide web, spoke of a new iteration of the Web (3.0), which he coined the Semantic Web. When talking of the Semantic Web, he referred to a version of the Web that is more open, smarter, and more autonomous. All the things that our current Web 2.0 has lost.

Semantic is a term from linguistics that is defined as “relating to the meanings of words or phrases.”

In the semantic Web, machines would process content in humanlike ways and enhance user experience and connectivity. This semantic Web hasn’t entirely happened yet. Ten years ago, we might have thought that by now, AI would be able to communicate and completely understand humans, but we’re not there yet.

How would a machine know the difference between Jaguar (the car) and Jaguar (the animal)? For us, when used in a conversation, it’ll be obvious, but for a machine, it’s not. Building AI that grasps these taxonomies and concepts on every word is complicated. Just ask the team at IBM how it’s going with their AI assistant Watson.

So if Web 3.0 is not the semantic Web as envisioned by Tim Berners-Lee, what is it?

Features of Web 3.0

Web 3.0, despite having been mentioned over a decade ago, still is not a clearly defined term. Britannica features an article on Web 2.0 that refers to Web 3.0 but lacks an article on it. A pattern repeated across other encyclopedias.

While there might not be a unified definition yet, Web 3.0 has a set of features that set it apart. Crypto plays a significant role in Web 3.0, but it’s a lot more than just value transfer.

  • Open: The new Web is built from scratch on open-source software. That means anyone can develop on top of it, contribute, propose changes and add new features. The entire development cycle happens in plain sight — a level of transparency unheard of by Web 2.0 companies.

Interesting fact: In 2021 100% of the top 500 supercomputers are running on Linux, an open-source operating system

  • Trustless: Web 3.0 is a network that allows users to interact trustlessly -without a need to disclose their identity. They can choose to interact privately or in public. Instead of trusting one party explicitly, trust is now placed implicitly into all nodes holding up the network.
  • Permissionless: In 2020, India shut down access to the internet for millions of its citizens 109 times — despite an increase in demand triggered by the pandemic. Media Outlets such as the New York Times are blocked for Chinese citizens, and Social Media Platforms tend to censor accounts that they find critical. The new Web 3.0 is the complete opposite. Anyone can participate without any authorization whatsoever from governing bodies or other traditional gatekeepers.
  • Ubiquitous connectivity: This is the part where the semantic Web comes into play again. It can be seen as a part of Web 3.0 — the part in which information is more connected thanks to semantic metadata. Data can be accessed from anywhere, at any time, without relying on centralized cloud providers such as AWS or GCP.
  • 3D graphics: Three-dimensional designs will create a more realistic engaging cyber-world (also dubbed the Metaverse) that creates new business opportunities and could blur the lines between the real and the digital world.

Trustless, permissionless, open — sounds like Blockchain? Yes, it is. Blockchain will be the backbone of Web 3.0, among other technological components.

What powers Web 3.0?

Chris Dixon, General Partner at az16, believes that Web 3.0 is just around the corner (Source). This is primarily down to the technological advancements we’ve made in the last few years. Web 3.0 relies heavily on Edge Computing, Blockchain, and AI & Machine Learning.

Edge Computing

In 2019, every second, 127 new devices were connected to the internet for the first time. We don’t just have smartphones anymore. We have entire smart homes now. All these devices create a tremendous amount of data. The traditional approach to analyzing such data would be to send it to a centralized data center. However, Web 3.0 is pushing computing to the edge of the network.

Edge Computing works on a decentralized approach by processing data closer to the point where it’s generated. Already by 2025, 75% of data will be processed outside the traditional data center or cloud, according to Gartner’s estimates.

Processing data on your device is great but even more vital in combination with the next component of Web 3.0: Blockchain & tokens.

Blockchain & Tokenization

Public, permissionless blockchains underpin Web 3.0 and enable data generators for the first time to be fully in control over the data. Similar to how edge computing pushes the act of computing to the edge of the network, tokenization empowers participants at the margin.

Suddenly, it’s not the Big Tech platforms in control anymore, but all the individuals making up the network. With Tokens, every user gains property rights to the things they purchase and create online. Non-fungible tokens are a perfect fit for unique assets and IDs.

Cryptocurrencies, as natively digital currencies that function without a central entity controlling their supply, are the payment network for Web 3.0. With cryptocurrencies, users can transfer value without the need for middlemen, often at a fraction of the cost of using centralized institutions.

AI & Machine Learning

Artificial Intelligence and Machine Learning are already employed by most Web 2.0 platforms today. Just think of the LinkedIn chat that suggests answers to your messages. These are generated based on machine learning, AI use in everyday life. While sometimes far off, at times it’s quite convenient to be able to just click on “Thanks, you too”, instead of typing it all out.

On Web 3.0 AI will play a role in making this version of the web more intelligent, and powerful in regards to processing information. It will enable machines to better interpret what the meaning behind data is, and deliver a smarter user experience. Accessing data on top of decentralized structures could provide powerful predictions on things that go way beyond targeted advertising into areas like drug design and climate modeling. We already see companies like Ocean protocol explore ways to train AI without exposing the underlying data owner’s privacy.

Together, these technologies build the backbone of Web 3.0. At this point, we’re just scratching the surface of Web 3.0, but it could bring vast improvements once truly established.

Why we want Web 3.0

So far you might wonder, what the benefits are that Web 3.0 will bring along, and why we should care.

  • Disintermediation: no more paying to rent-seeking middlemen, no more reliance on Big Tech for your livelihood, or even just your social life
  • Resilience: A truly decentralized Web 3.0 built on the back of blockchain can’t be shut down.
  • Access: Regardless of gender, income, and demographics, anyone will be able to access Web 3.0. You won’t need a government-issued ID to access Web 3.0 services. Your decentralized ID (your history on Web 3.0) becomes your ID.
  • Power to the people: your data is going to be yours on Web 3.0. Instead of being tracked down, organizations will come to you and offer to pay you to access your data. You will be able to monetize assets you previously couldn’t. With Brave, we already see how this could play out in advertising. You get paid to watch ads; your attention is valuable.

Overall, Web 3.0 tackles many of the problems we face when interacting with Web 2.0, where we’re often the product and not in control of what happens with our data. Web 3.0 will entirely shift how we think and interact with web services. It’s a more human-centric Web, with native money that enables anyone to start entering transactional relationships with others all over the world.

For Web 3.0 to deliver on the above benefits, we must build it on truly decentralized networks. Networks in which everyone is equal, and no one player has the power to shut others down. There is no space for big conglomerates in Web 3.0 unless they give up control.

Web 3.0, when done correctly, could be a return to the original web. A web where “no permission is needed from a central authority to post anything…there is no central controlling node, and so no single point of failure…and no “kill switch” (Tim Berners-Lee, 2021).

The Web is constantly evolving. Web 1.0, for the first time, made information available to anyone to access with nothing more than an internet connection. Web 2.0 brought tremendous improvements in usability, the richness of experience, and more importantly, turned everyone into a potential content creator.

Thanks to Web 2.0 platforms, we stayed connected with our friends, even during lockdowns, and could order anything from wall art to hardware wallets from the comfort of our living room — Delivered straight to our door. What’s not to love?

The downside of the convenient Web 2.0 we’re enjoying is that we’re constantly tracked. Google knows our most intimate worries, Instagram (or is it also now Meta?) knows that you’ve been stalking your ex, and Amazon knows all the things you’ve ordered. All this information together gives them a reasonably accurate idea of what you might be likely to buy, which is what advertisers pay for.

Our data is harvested and monetized without any benefits to ourselves. Consumers are slowly waking up to the implications; as an IRS survey indicates, only 17% of participants found personalized ads ethical.

In recent weeks, we’re seeing Big Tech starting to hijack a term that’s been used by crypto enthusiasts for a while: Web 3.0. Microsoft is planning to establish Excel tribes (VFOOKUP)in it, and Facebook’s rebranding is trying to turn it back into a cool, Metaverse company.

That’s not the Web 3.0 we meant, nor the one we want to see come to fruition.

The Semantic Web

Even before Bitcoin, Tim Berners-Lee, the inventor of the world wide web, spoke of a new iteration of the Web (3.0), which he coined the Semantic Web. When talking of the Semantic Web, he referred to a version of the Web that is more open, smarter, and more autonomous. All the things that our current Web 2.0 has lost.

Semantic is a term from linguistics that is defined as “relating to the meanings of words or phrases.”

In the semantic Web, machines would process content in humanlike ways and enhance user experience and connectivity. This semantic Web hasn’t entirely happened yet. Ten years ago, we might have thought that by now, AI would be able to communicate and completely understand humans, but we’re not there yet.

How would a machine know the difference between Jaguar (the car) and Jaguar (the animal)? For us, when used in a conversation, it’ll be obvious, but for a machine, it’s not. Building AI that grasps these taxonomies and concepts on every word is complicated. Just ask the team at IBM how it’s going with their AI assistant Watson.

So if Web 3.0 is not the semantic Web as envisioned by Tim Berners-Lee, what is it?

Features of Web 3.0

Web 3.0, despite having been mentioned over a decade ago, still is not a clearly defined term. Britannica features an article on Web 2.0 that refers to Web 3.0 but lacks an article on it. A pattern repeated across other encyclopedias.

While there might not be a unified definition yet, Web 3.0 has a set of features that set it apart. Crypto plays a significant role in Web 3.0, but it’s a lot more than just value transfer.

  • Open: The new Web is built from scratch on open-source software. That means anyone can develop on top of it, contribute, propose changes and add new features. The entire development cycle happens in plain sight — a level of transparency unheard of by Web 2.0 companies.

Interesting fact: In 2021 100% of the top 500 supercomputers are running on Linux, an open-source operating system

  • Trustless: Web 3.0 is a network that allows users to interact trustlessly -without a need to disclose their identity. They can choose to interact privately or in public. Instead of trusting one party explicitly, trust is now placed implicitly into all nodes holding up the network.
  • Permissionless: In 2020, India shut down access to the internet for millions of its citizens 109 times — despite an increase in demand triggered by the pandemic. Media Outlets such as the New York Times are blocked for Chinese citizens, and Social Media Platforms tend to censor accounts that they find critical. The new Web 3.0 is the complete opposite. Anyone can participate without any authorization whatsoever from governing bodies or other traditional gatekeepers.
  • Ubiquitous connectivity: This is the part where the semantic Web comes into play again. It can be seen as a part of Web 3.0 — the part in which information is more connected thanks to semantic metadata. Data can be accessed from anywhere, at any time, without relying on centralized cloud providers such as AWS or GCP.
  • 3D graphics: Three-dimensional designs will create a more realistic engaging cyber-world (also dubbed the Metaverse) that creates new business opportunities and could blur the lines between the real and the digital world.

Trustless, permissionless, open — sounds like Blockchain? Yes, it is. Blockchain will be the backbone of Web 3.0, among other technological components.

What powers Web 3.0?

Chris Dixon, General Partner at az16, believes that Web 3.0 is just around the corner (Source). This is primarily down to the technological advancements we’ve made in the last few years. Web 3.0 relies heavily on Edge Computing, Blockchain, and AI & Machine Learning.

Edge Computing

In 2019, every second, 127 new devices were connected to the internet for the first time. We don’t just have smartphones anymore. We have entire smart homes now. All these devices create a tremendous amount of data. The traditional approach to analyzing such data would be to send it to a centralized data center. However, Web 3.0 is pushing computing to the edge of the network.

Edge Computing works on a decentralized approach by processing data closer to the point where it’s generated. Already by 2025, 75% of data will be processed outside the traditional data center or cloud, according to Gartner’s estimates.

Processing data on your device is great but even more vital in combination with the next component of Web 3.0: Blockchain & tokens.

Blockchain & Tokenization

Public, permissionless blockchains underpin Web 3.0 and enable data generators for the first time to be fully in control over the data. Similar to how edge computing pushes the act of computing to the edge of the network, tokenization empowers participants at the margin.

Suddenly, it’s not the Big Tech platforms in control anymore, but all the individuals making up the network. With Tokens, every user gains property rights to the things they purchase and create online. Non-fungible tokens are a perfect fit for unique assets and IDs.

Cryptocurrencies, as natively digital currencies that function without a central entity controlling their supply, are the payment network for Web 3.0. With cryptocurrencies, users can transfer value without the need for middlemen, often at a fraction of the cost of using centralized institutions.

AI & Machine Learning

Artificial Intelligence and Machine Learning are already employed by most Web 2.0 platforms today. Just think of the LinkedIn chat that suggests answers to your messages. These are generated based on machine learning, AI use in everyday life. While sometimes far off, at times it’s quite convenient to be able to just click on “Thanks, you too”, instead of typing it all out.

On Web 3.0 AI will play a role in making this version of the web more intelligent, and powerful in regards to processing information. It will enable machines to better interpret what the meaning behind data is, and deliver a smarter user experience. Accessing data on top of decentralized structures could provide powerful predictions on things that go way beyond targeted advertising into areas like drug design and climate modeling. We already see companies like Ocean protocol explore ways to train AI without exposing the underlying data owner’s privacy.

Together, these technologies build the backbone of Web 3.0. At this point, we’re just scratching the surface of Web 3.0, but it could bring vast improvements once truly established.

Why we want Web 3.0

So far you might wonder, what the benefits are that Web 3.0 will bring along, and why we should care.

  • Disintermediation: no more paying to rent-seeking middlemen, no more reliance on Big Tech for your livelihood, or even just your social life
  • Resilience: A truly decentralized Web 3.0 built on the back of blockchain can’t be shut down.
  • Access: Regardless of gender, income, and demographics, anyone will be able to access Web 3.0. You won’t need a government-issued ID to access Web 3.0 services. Your decentralized ID (your history on Web 3.0) becomes your ID.
  • Power to the people: your data is going to be yours on Web 3.0. Instead of being tracked down, organizations will come to you and offer to pay you to access your data. You will be able to monetize assets you previously couldn’t. With Brave, we already see how this could play out in advertising. You get paid to watch ads; your attention is valuable.

Overall, Web 3.0 tackles many of the problems we face when interacting with Web 2.0, where we’re often the product and not in control of what happens with our data. Web 3.0 will entirely shift how we think and interact with web services. It’s a more human-centric Web, with native money that enables anyone to start entering transactional relationships with others all over the world.

For Web 3.0 to deliver on the above benefits, we must build it on truly decentralized networks. Networks in which everyone is equal, and no one player has the power to shut others down. There is no space for big conglomerates in Web 3.0 unless they give up control.

Web 3.0, when done correctly, could be a return to the original web. A web where “no permission is needed from a central authority to post anything…there is no central controlling node, and so no single point of failure…and no “kill switch” (Tim Berners-Lee, 2021).

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[Metaverse Masterclass] The Cult of Ownership

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Lane Rettigoriginally published on Etherean.org.

The advent of immersive digital worlds give us an unprecedented opportunity to rethink the relationship between people and property. Let’s take advantage of it before it’s too late.

Ownership

We rarely, if ever, pause to think about concepts as abstract as ownership. Indeed, the idea of ownership is woven into the very fabric of modern society thanks to capitalism. When you actually reflect on it, however, you realize that ownership is a pretty strange notion.

It’s one that I’ve been thinking about a lot recently. Ownership makes intuitive sense to me in the physical, offline world. If there’s one bowl of single serving pea soup between us, then either you have it, and can enjoy it, or else I do, and can — but not both. Of course it’s even more germane for truly scarce commodities like land: we can always grow more peas and make more pea soup, but we cannot really grow more land (reclaimed land aside).

In the digital realm, Bitcoin also makes intuitive sense. There is clearly some value in the idea of digital gold, even if its scarcity is artificial and socially enforced. Why? Because currency is useful, and in order for currency to have value, it has to be scarce. Bitcoin is pretty close to a platonic actualization of decentralized, digital currency.

What doesn’t make intuitive sense to me is ownership of other types of digital assets, in particular things like digital art and “land” in virtual worlds. In order to understand why I feel this way, I’ve been pondering the basic question: What does it really mean to own something?

We’re used to the way ownership works in the pre-blockchain world. To own a piece of land, for instance, means to have a publicly recognized, verifiable title to it, entitling its owner to use, profit from, or dispose of it however they please, within legal bounds.

On the surface, blockchain-based ownership actually isn’t that different. What it literally means to own some bitcoin is to possess a few bytes of data, a cryptographic “key” that can be used to “unlock” a transaction stored in the Bitcoin distributed ledger.1 This is not unlike holding a title to land, with the caveat that a bitcoin private key is a bearer instrument in the sense that he who holds the key holds the bitcoin that it controls. In the case of Bitcoin, possession really is 99% of the law.2

In both cases, ownership is publicly verifiable and enforceable. Indeed, without these properties, the whole idea of ownership is pretty meaningless. The main difference is that enforcement of the first is primarily legal, whereas for blockchain-based assets like bitcoin, it’s primarily cryptographic and computational in nature.

Ownership is social

In fact, ownership of both land and bitcoin is a socially enforced construct.

Land, of course, has intrinsic value: it’s practically useful for renting, growing, building, or storing things. It’s therefore tempting to think that the value of land derives entirely from its intrinsic value, but in fact, its value is highly social. This should be evident when you consider two otherwise identical plots of land in two different social settings: one in the middle of a highly desirable city, the other thousands of miles away from the nearest town. Moreover, to own land is to rely on a public, verifiable land registry, title to the land, and various institutions and mechanisms of the state to enforce that ownership, such as evicting a delinquent tenant or calling the police if someone trespasses.3

Ownership of bitcoin, too, may not seem inherently social at first glance due to the cryptographic nature of its enforceability. However, if you peer a little deeper, the social layer becomes visible. The private key and the ledger entry corresponding to your bitcoin holdings have value only because other people believe they have value. In other words, just like fiat currency, bitcoin has no intrinsic value. Another reason bitcoin has value is the fact that a group of people has agreed to run software that conforms to the Bitcoin protocol, not to debase bitcoin by issuing too much of it, etc..

Presentation

But there’s an important way in which these two types of asset differ. Tangible artifacts such as land need no presentation layer. Digital assets, on the other hand, are meaningless and, indeed, invisible without a presentation layer. You can only claim, and see, and spend the bitcoin you own because you have a wallet application that talks to the Bitcoin network on your behalf, interpreting things like cryptographic keys and presenting them to you as legible things like transactions and balances.

The idea of a presentation layer is a very old concept in the digital world. Think of reading your email on your laptop versus reading it on your phone. You’re using two very different applications to access and interact with the same data: this is the presentation layer. The possibilities for how to present even the most mundane data creatively are endless.4

Fungible and nonfungible assets

The concepts of ownership and presentation get very interesting in the world of digital assets. The first and most common form of digital asset is the fungible asset, which includes bitcoin: like a dollar, every bitcoin is the same as every other bitcoin, so they are totally fungible.5

By contrast, an asset like land, or a piece of art, is not fungible. Each one is unique and special. Nonfungible assets can be traded, but the correspondence is never precisely one to one: even two plots of land of identical size that are near each other will almost certainly have characteristics which mean their values will differ!

While the concept of a nonfungible asset makes intuitive sense in the tangible world, in the digital realm it’s a bit murkier. It’s easy to value bitcoin because of its fungibility. What makes an asset like land or art nonfungible is that it has a lot more variables. Land, for instance, is valued not only on the basis of its area, but also its shape, location, drainage, elevation, history, improvement/development status, neighbors, etc..6

A digital nonfungible asset, however, has none of these intrinsic properties. Like bitcoin, under the hood it’s really just a series of bytes on a ledger. Everything else — including all of the properties that actually matter — lives in the presentation layer, and is therefore subjective.

On the one hand, this disconnect between the ownership layer and the presentation layer is wonderful because it allows for a lot of creativity in how digital assets are composed and presented. Witness one of the oldest, and most well-known, nonfungible digital assets: CryptoKitties. One could build a different presentation layer that presents the same underlying genetic data that gives a kitty its fur color and eye shape as, say, a robot, or a pair of shoes. One can also compose multiple nonfungible digital assets: giving a crypto kitty a unique hat, for instance.

On the other hand, however, there’s something odd and a little troubling about the way that all of the variables and properties that matter in a nonfungible asset are open for interpretation in the presentation layer. This calls into question even very basic concepts such as value and ownership. Do you really “own” a CryptoKitty in any meaningful sense if under the hood what you possess is really a series of bytes that have no intrinsic value and are meaningless without interpretation? What about a piece of virtual art — say, a digital image — when, in practice, you really only control an arbitrary series of bytes on some ledger that are at best a hash of the contents of the art, and at worst are totally arbitrary? Given that the art is digital, it’s trivial to copy, and many people may choose to enjoy or even display it simultaneously, “ownership” or no.

Assets can have value for intrinsic or extrinsic reasons. Intrinsic reasons tend to be less subjective and to require less interpretation, whereas extrinsic reasons tend to be highly subjective and to rely on a socially-constructed interpretation. You can acquire an oil painting, hang it in your house, and admire it. No one else in the world can possess and admire precisely the same piece of art in the same way at the same time. This uniqueness is an intrinsic source of value for traditional forms of art. Digital, nonfungible assets do not have this same property. Their value is almost entirely extrinsic and subjective.

To be clear, I am not suggesting that digital art, land, collectibles, or nonfungible assets in general have no value. My point is that, to the extent that we as a society collectively choose to attach value to them, that value will necessarily be fundamentally different in nature from the value of traditional assets such as land and art. We’ve barely begun the process of understanding these assets and the ways in which they may possess value in the eyes of society.

As fascinating as digital assets are, there’s an aspect of the way they’re being marketed today that worries me.

Reimagining

What attracted me to blockchain was the once-in-a-century opportunity that it presents to reimagine so many aspects of our society: how we communicate and collaborate, how we relate to one another, how we form institutions and bonds of trust, etc.. In the same way, blockchain presents us with an equally rare opportunity to totally reimagine basic social concepts like art, community — and, yes, ownership. It is of course natural that we should start by attempting to import already-familiar ideas and analogues. Some of them may even stick! Decades later, we still have a “recycle bin” sitting on our “desktop”: great, useful examples of skeuomorphism. Some less useful analogues, however, should be jettisoned while we still have the chance.

Rather than attempting to recreate the world of scarcity, of “this is mine, not yours,” why blithely bring these offline constraints with us into the digital realm? The entire point of the digital world is that, free from the constraints of the physical world, digital assets need only be precisely as scarce as we want them to be! Digital assets need not be rivalrous nor exclusive: we can both enjoy a digital bowl of pea soup, and my enjoyment doesn’t detract one whit from yours.

As we collectively undergo a once-in-humanity phase shift from an offline, agricultural and industrial world, a world of scarcity and need, to a more digital, online world based on data and information, we have a unique opportunity to rethink fundamental concepts such as wealth and ownership. We have a rare opportunity to transition from a scarcity mindset into one of abundance. The next hundred years of human society will be less about which scarce assets we own and exclusively control, and more about which networks we are a part of — and, thus, which connections and information we have access to.

What sort of novel experiences could we conceive of if we relax the constraints of the offline, tangible world? It’s probably too soon to tell, since we’re still quite early in the development of virtual worlds and experiences, but the platforms that exist today do offer a glimpse. One good example is the avatar: platforms like DecentralandMozilla HubsAltspaceVR, and VRchat, not to mention Fortnite, offer users a fantastic array of ways to express themselves in the form — literally — of avatars of all shapes, sizes, colors, species, and agility. Some platforms do allow users to buy or pay to upgrade their avatar, and maybe that’s okay, but I suspect the dominant model will let the user express themselves creatively at no or very low cost.

Just an ordinary day in the crypto VR meetup scene: lower fidelity than an in-person event, perhaps, but lots more latitude for creative expression. A panel chat, part of Consensus Distributed, held in VRChat.

It’s about the experience, dummy

The point is that we should be innovating on the experience, and that means innovating on the presentation layer, not on the ownership of arbitrary blobs of cryptographic data. The average person cares a lot more about experience and self-expression than they do about some abstract notion of self-sovereign ownership. There’s a reason that well-designed, centralized games like Fortnite have hundreds of millions of active players while the most popular dapps have many orders of magnitude less.

Ownership is not, in and of itself, an experience. If you ask me it’s not something that 99% of humanity cares about or is looking for in the digital world. As one example, young people everywhere are frustrated by high levels of debt, and property that feels totally out of reach (a situation that’s quickly getting worse). I suspect they’d sooner keep living in the offline world than subscribe to a digital world that also forever relegates them to second-tier, rentier status.

There is probably some value in moving existing traditional assets, such as stocks, bonds, and derivatives, onto blockchains. And the idea of fractionalizing ownership of traditional assets such as art or real estate is genuinely interesting. Indeed, work on all of this is proceeding apace in the #DeFi space.

But let’s not seek to commoditize all the things. Once we figure out the experience, there will be ample time to figure out the economics. By leading with economics, the same old economics we’ve been stuck with for generations, we’ll never win the hearts and minds of the 99% of people who feel less than enfranchised by the current system.

My greatest fear is that, in conceiving of and building a new, digital world for humans, we manage only to recreate and indeed to exacerbate existing socioeconomic divisions that have sown strife and discord in the offline world for millennia — in other words, a Black Mirror-esque dystopia.

The types of people that have been the most active thus far in conceiving of, and building, digital worlds, and blockchains, have by and large been beneficiaries of the current system. It’s therefore unsurprising that we should have recreated aspects of the system, such as scarce assets and old-fashioned property rights, on chain.

But it’s time we recognize this opportunity for what it is — an epoch-making opportunity to rethink every human social system — and boldly envision and build a better future together. In particular let’s be careful not to enshrine ownership and property rights as primal, at the expense of intangible but essential things like experience, identity, and self-expression.

[Special thanks to James Prestwich for invaluable pre-publication input.]

  1. This, of course, assumes you hold the keys and custody the bitcoin yourself, which you really should do. Not your keys, not your coins. If you don’t, holding bitcoin is really not very different from holding fiat money in an ordinary bank account
  2. Whether or not the legal system of this or that jurisdiction might provide some protection if this key is stolen is a thorny question and will differ from place to place and case to case. This is what makes up the last 1%. 
  3. This works well enough where property rights are clearly delineated, and enforced, and where one can rely on the rule of law. It doesn’t work so well where these things are not the case. Witness jurisdictions where people hold land without explicit title, or where all land is owned by the state and can be requisitioned for state purposes at any time. The concept of ownership is much fuzzier in such situations. 
  4. One of my favorite examples of creative presentation of everyday data is the Foursquare Time Machine
  5. This is an oversimplification and isn’t completely true in practice for digital assets like bitcoin — read more about crypto’s “fungibility problem.” Fungibility and privacy go hand in hand, and true fungibility is a goal of privacy-preserving platforms like Zcash. 
  6. To be fair, in addition to these intrinsic properties, land does have a set of extrinsic properties that are the product of a social presentation layer, so to speak: things like zoning, taxation, air rights, etc.. Here, the presentation layer is the set of formal and informal laws and norms that apply to the land’s ownership, use, and disposition. 
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[Metaverse Masterclass] MetaFi: DeFi for the Metaverse

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Jamie Burke, CEO and Founder Outlier Ventures, originally appeared on Ourlier Ventures Blog.

We believe the next phase of growth in the evolution of DeFi will come not from better integration into the existing financial system, more regulation or real world assets and CeFi but instead by unlocking digital value already native to the Metaverse.

In our follow up to The Open Metaverse OS paper we introduce MetaFi: decentralised finance in the Metaverse.

Download the full report

Background context

The concept of decentralised finance (“DeFi”) has been steadily gaining momentum within the crypto community since 2018. Built on the principles of sovereignty of wealth, permissionless innovation and the promise of financial inclusion, the mission of various DeFi protocols and applications is to construct a digital financial system that is more open, innovative, efficient and less extractive than the one the majority of the world still relies upon today, which in contrast is referred to as CeFi or TradFi.

While DeFi has commanded a lot of attention in the crypto space, its adoption is still relatively low, estimated at under 5% of all crypto assets being put to work as collateral in it. In 2021, DeFi achieved $4.6bn in annualized monthly revenues, which is less than 5% of JPMorgan’s revenues last year. Furthermore, DeFi is still primarily limited to basic forms of borrowing and lending against stablecoins, Ether, or wrapped Bitcoin. While there is notable work being done to create bridges from centralized finance (CeFi) into DeFi — for example, to introduce real-world and income-bearing instruments as new forms of collateral — an increasingly hostile regulatory environment, low capital efficiency, and challenges around managing counterparty risk for institutions make this bridging seem a long way off.

In this paper, we propose that the majority of growth in DeFi will not be driven by CeFi. Instead, we explore how it unlocks value in the Metaverse through what we call “MetaFi”: the decentralised financial tools of the Metaverse. But what is the Metaverse exactly? What kinds of value exist within it? And more importantly, how will DeFi be combined with continued innovations in tokens and crypto-assets to enable MetaFi at scale?

In advance of reading this article, and if you are new to the Metaverse and our thinking, we recommend first reading our Open Metaverse OS thesis published earlier this year back in January 2021. You can download and read the original paper and updated primer here.

However, in summary, the Metaverse could be understood as an interface layer between the physical and virtual worlds, comprising a combination of innovations in hardware and software, but most importantly, an economic system parallel to the fiat financial system. In that context, it’s critical that we think about it in terms of financial inclusion. This anchor will be important as we unravel the concept of MetaFi.

The internet in its current state suffers from drawbacks like limited inclusion of digital assets by the banking system, dynamic terms and conditions of centralized platforms and value being siloed in platforms by design.

We view MetaFi as one of the potential solutions to these problems as it adopts the core DeFi principles of unstoppability and composability.

This paper outlines how the adoption of MetaFi will be driven by four key trends: improvement of the DAO services stack, mutualisation of risk, development of financial tooling, and gamification of finance and the financialization of everything. These trends will be most visible in the main clusters of activity of MetaFi, like virtual worlds, games, avatars, wearables, marketplaces, yield-bearing NFTs, and access tokens. We invite you to download the full paper for a complete overview of MetaFi and the possibilities it will unlock in the medium to long term future.

Some paragraphs from the report (Download the full report)

The Metaverse is Crypto

As discussed, the Metaverse is first and foremost an economic system, a meta-economy if you will, that enjoys supremacy over any one digital economy, virtual world or game which should rather be considered a singular instance of the Metaverse, or individual verse. In fact, on a long enough time horizon, as the combined GDP of this meta-economy outgrows those of nation states, so too will it enjoy supremacy over their fiat based economies. We believe, The Open Metaverse at least, is an open and permissionless version of this meta-economy, made possible through what we might in aggregate refer to as Crypto. And in the absence of an alternative meta-economy today you could, and we do, make the argument The Metaverse is Crypto and Crypto is The Metaverse.

Download the full report

Status Quo of the Digital Economy

Today, there are billions of dollars of value currently trapped in proprietary web platforms such as social media (Facebook, Instagram or TikTok) or gaming (Fortnite and Roblox). What we refer to as Web2 has actively and deliberately built “moats” to trap that value and the user for as long as possible in order to extract as much “lifetime value” as possible for the benefit of shareholders. Web2 firms generally operate on the principle of shareholder supremacy over all else, even or especially, at the expense of the user. This value, in the case of social media or free-to-play games, is often primarily monetized through advertising and the profits generally not directly shared with the users themselves. Even with Roblox, where the whole premise is the ability of creators to monetise their user-generated content (UGC), the percentage they receive is only estimated to be 25%1. This extends to the music streaming model and programs on YouTube. In aggregate, it is estimated that the digital economy is currently worth US $11.5 trillion globally, equivalent to 15.5% of global GDP2. It has grown 2.5x faster than global GDP over the past 15 years, almost doubling in size (since 2000) with an increasing percentage of the population depending on the internet for their livelihood. If we zoom into a subset of the digital economy — the digital creator economy, it is currently only a fraction of the mainstream digital economy, but its core areas are growing. This includes fields like publishing, gaming (skin creation), digital art, streaming, music, film, and more. On the supply side, there are currently up to 50 million3 content creators in the space, who consist of mostly amateurs (46.7 million)4 and around 2 million professionals. Professional participants in the digital creator economy can easily earn up to $100,000 per month. However, the majority earn much less, their income is irregular, and receipt of funds as they work their way through the system can take several months after delivery. We argue that much of the digital creator economy today would not be considered part of the Metaverse, because value is not freely tradable across platforms and is primarily locked into the value of platform equity alone.

Download the full report

Web 3, NFTs and the Metaverse

In contrast, in the Web3 world of crypto-currencies, DeFi and NFTs, the whole paradigm is oriented around the user and their sovereignty: their identity, data and wealth. In Web3, even data itself can be a form of digital wealth and income. This means that while there are still platforms that help with the creation, discovery or curation process, the user is in full control of the output and can freely transfer value between platforms to resell, borrow and lend against in a completely permissionless way. In short, transferability is a fundamental “property right.” Unsurprisingly, we have seen in the early successes of Web3 that when moats are removed and transferability made possible, people spend more time and money on platforms they like, such as the blockchain game Axie Infinity5. This is something we laid out in our previous paper. Long-term, the Metaverse and its platforms (including much of Web2) will adopt Web3 technology and principles, not necessarily because it’s philosophically the right thing to do, but because it’s good business.

Download the full report

Defining MetaFi

For us MetaFi is an all-encompassing term for the protocols, products and/ or services enabling the complex financial interplay between non-fungible and fungible tokens (and their derivatives). For example today, with MetaFi an individual could use a fraction of an NFT as collateral in a DeFi lending platform. To understand MetaFi, we must first highlight the two core principles of DeFi that make it possible. It is 1) unstoppable and 2) composable, acting as a form of “money lego” for developers, which in aggregate form a highly innovative parallel financial system. Developers all around the world can openly participate and compete to provide the highest yields, whilst ruthlessly removing inefficiencies. It is also important to note that regulators can only limit how the fiat-based systems they oversee interact with DeFi, but not necessarily what happens in DeFi itself — that is, as long as projects and their teams themselves are sufficiently decentralised. MetaFi brings together these DeFi principles to the wider Metaverse through a mix of non-fungible and fungible tokens combined with novel forms of community governance such as Decentralised Autonomous Organisations (DAOs). The combination of these different crypto primitives enables a fully-fledged parallel economy bringing hundreds of millions, and eventually billions of users, into the crypto ecosystem over the next decade.

Download the full report

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[Metaverse Masterclass] What are the risks of recreating reality in the metaverse?

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Sandra Helou of Zilliqa, originally appeared here.

New virtual worlds are full of opportunities, writes Sandra Helou of Zilliqa. But what if real-world problems get magnified in the metaverse?

What are the risks of recreating reality in the metaverse?

Image: Envato Elements

In Neal Stephenson’s 1992 science fiction novel “Snow Crash,” the world was offered its very first taste of a parallel digital universe. Predating non-fungible tokens, the metaverse has been part of the literary and entertainment canon for almost 30 years now. Often depicted as a virtual escape from the limitations of reality, the metaverse is seemingly a logical next step as we look at where we’re headed as a society.

With so much of our lives already lived online — from our very own digital representations housed on social media platforms to the extent to which we rely on online marketplaces to shop for leisure or necessity — the infrastructure is already here. But as projects, startups and big firms alike hope to cash in on the metaverse trend, we must pause and ask ourselves: what are the risks in store?

Is this real life or is this just fantasy?

In South Korea, we’re now seeing the stirrings of a new phenomenon. With rising property prices, socioeconomic inequality and dismal career prospects following the devastating impact of the coronavirus pandemic, Generation MZ is hurriedly flocking to the metaverse. In the metaverse, buying and selling pockets of land suddenly becomes a very real possibility and when combined with real-world monetary value, it serves as a leveling force in a society where the odds aren’t necessarily fair.

Defined as the age group that grew up with digital connectivity since birth, Generation MZ combines both millennials and Gen Zs alike. This new segment of society has had to contend with the realities of an “untact” economy more than ever, as it pertains to a “contactless” state of affairs — befitting, considering the impact of a pandemic that has demanded social distancing.

Untact is a concept that describes “a future where people increasingly interact online and companies replace humans with machines to immunize themselves against the effects of rising wages and a rapidly aging workforce.” South Korea itself has already committed to becoming a leader in developing technologies and infrastructures for an increasingly untact world. Sure enough, its citizens are some of the world’s dominant users on metaverse platforms such as Earth 2 and Decentraland.

South Korea, as well as other markets such as the Philippines, where citizens have flocked to virtual worlds like those offered by Axie Infinity, show how persistent structural inequalities are driving people to seek out alternatives. It may not be a dystopian present just yet, but the catalyzing factors are similar. It’s a similar trend we’ve observed with digital assets, amid rising inflation, currency devaluation and economic instability — people will want to maximize their returns in the hopes of making any gains possible.

Deepening digital divides

In the same way, when it comes to accessing the metaverse, what of the inequalities that could potentially arise there? Much has been said about Facebook’s foray into the space, largely enabled by its Oculus business unit. Critics have been quick to point out that the entrance of big tech into the metaverse simply takes away from the core tenets of where the internet is already headed in terms of the rise of Web 3.0 — a more decentralized, equitable online ecosystem. With Facebook at the helm, the metaverse is likely to become but another opportunity to leverage ever-growing swaths of user data for monetization while harkening back to the same issues of surveillance and accountability in the virtual world.

Meanwhile, the growing inequalities we’ve already seen in terms of the digital divide may very well be magnified in the metaverse. Equal access to the same tools and infrastructures when engaging in immersive, continuous 3D landscapes will likely require not only a great deal of computational power but also high-speed internet access and top-of-the-line headsets. Similarly, with advertising likely being a key component of funding “closed” or corporate-backed metaverses, will inequality be determined by who can afford an ad-free version of a metaverse or whose avatar is of better quality? Do we not risk creating a new divide of haves and accessibility?

With so many aspects of life now being lived online, across education, career, and even dating, leveling these infrastructural access points to the metaverse will be critical.

A glitch in the matrix

French philosopher and sociologist Jean Baudrillard coined the term hyperrealitythe state in which reality and simulation are so interwoven that we lose sight of the distinctions between the two. Baudrillard argues that eventually, the simulated world matters more than the “real” as it becomes the site from where all meaning and value is derived. Much like Generation MZ who now find that much more satisfaction can be achieved by flipping real estate in Decentraland, will there ever be a state in which we’ll only ever want to be plugged in?

Eventually, if it does become the case that the idea of the metaverse simply becomes reality in itself, what do we want it to be based on? If we look to “Snow Crash” as a cautionary tale, what we end up seeing is the rise of city-states ruled by the interests of big business — inequality ultimately prevails, and the metaverse instead serves as a virtual escape, an idealistic distraction from the ruins of reality.

We, as the collective blockchain ecosystem — whether that’s NFT projects, play-to-earn games, or virtual worlds — coupled with a growing number of programmers and UX designers around the world have the opportunity to create something really great. Empowered by an ideology of decentralization, we can develop a metaverse that is accessible, fair and beneficial to all, no matter who they are, and where they might be. Let’s not waste the opportunity, we don’t need to borrow from reality — instead, we can do more.

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[Metaverse Masterclass] Video games and their communities are influencing the metavers

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Noah Shin published on Venturebeat.

The year was 2021; Webster Dictionary had added a slew of Gen-Z-related words and phrases like digital nomad, NFTs, blockchain, cryptocurrency, augmented reality, and my new personal favorite dubbed by Mark Zuckerberg, the metaverse. The translation? The internet is evolving to a stage that is more immersive, intuitive, and one step closer to completely immersive virtual reality experiences. Zuckerberg may make Meta the first big tech corporation to invest $10 billion in a virtual universe, but we are beginning to see indications that other major corporations will soon follow suit.

Technology is encroaching on a new era where the different forms of technological communications merge into one seamless experience, from work meetings to social life to workouts to conference calls. In a study by Pew Research, 90% of U.S. adults say the internet has been essential for them during the coronavirus outbreak. Screen time is at a record high, so a massive shift to a more immersive online presence seems almost inevitable. Online activity has accelerated during the global pandemic when digital technology has served as a lifeline for many Americans and corporations, whether that’s seeking new job opportunities or Zoom meetings for teleworkers. Moreover, digital tools and the hiring of young technologically savvy workers are becoming points of emphasis in every sector, from finance to health care, and manufacturing.

So what does this mean? The public is witnessing an internet evolution greater than the innovations from the DotCom era or Social Media era, or perhaps even greater than the internet itself. Consumers are approaching a time of digital immersion, stamped by the approval of big tech giants and corporations everywhere. Now, most of us have begrudgingly conceded that the internet is a powerful tool and even deserves to have a monetary value attached (hello, cryptocurrency). For everyday American consumers, it is necessary to be aware of this digital immersion and how it affects our daily lives – from job opportunities to educational art and science curricula.

Technology companies look to incorporate video game elements

In his keynote presentation on Facebook company’s rebranding to Meta, CEO Mark Zuckerberg states: “If you ask people today what they thought the metaverse was…people that follow the space would say it’s about gaming, and that’s because gaming provides many of the most immersive experiences, and it is the biggest entertainment industry by far.”

The gaming industry certainly dominates the entertainment industry. On January 17, 2019, tech-streaming giant Netflix company announced its biggest consumer company rival in a letter to shareholders, “We earn consumer screen time, both mobile and television, away from a very broad set of competitors…We compete with (and lose to) Fortnite more than HBO…There are thousands of competitors in this highly-fragmented market vying to entertain consumers.” Since June 2020, Fortnite has surpassed over 350 million registered users, and gamers logged 3.2 billion hours in the game in April 2020 alone. Assuming people live until they’re 79, that is the equivalent of 4,624 human lifetimes.

Online video games, console games, and mobile games have billions of downloads and continue to emerge as one of the most prevalent media forms in our society. Most console and role-playing games (RPG) already incorporate versions of their metaverse into their gaming structure. Game companies like Roblox, Epic Games’ Fortnite, and Grand Theft Auto already have metaverse-like platforms which depend on their communities for their business model. In-game purchases of character skins and other game assets are the majority slice of a game company’s ad revenue, especially free-to-play games. Open world games continue to stand at the forefront because it opens a virtual reality space where users can interact with the computer-generated environment and the ecosystem of users.

Online communication fosters positive interaction. Online games are highly social, and communication among friends and online players promotes teamwork and delegation for different game roles to succeed. Gamers are not in the monolithic category; there is no rigid or fixed type of uniformity when discussing role-playing games. That psychology of online communication among users is what tech companies are looking to imitate. Another instance of this gaming integration includes child and toy elements into gaming frameworks. By integrating child-like effects into their technology like friendly-looking avatars, cartoon guns, and harmless games, these factor into a fun, interactive experience – something game developers understand and what tech companies look to enact into their metaverse structures.

Fortnite numbers are statistics any company would salivate for, and we are beginning to see these corporations follow suit. Google, Microsoft, Apple, and hundreds of startups continue testing virtual and augmented reality products, from glasses to deals with game companies. Large tech corporations are investing in-game platforms in hopes of a more lucrative business model. Nike has quietly filed trademarks in preparations of selling virtual apparel, which apparel consumers can don via their virtual avatars. The Los Angeles Staples Center was given $700 million to change its name to Crypto.com Arena by the Singapore-based cryptocurrency exchange app. Adidas partners with NFT gorillas Bored Ape Yacht Club and other NFT communities, and the Seoul Metropolitan Government (SMG) has publicly announced its work into their version of a virtual communication ecosystem with economic, cultural, tourism, and civic services, provisionally dubbed Metaverse Seoul.

Digital assets will skyrocket in value

The point is: Virtual communities make these companies successful, and if big corporations and governments are working to create virtual realms, it’s more than likely that Facebook’s metaverse will thrive and remain sustainable, so long as they continue to be community-centric. As tech frontiers shift their focus to building virtual worlds, further attention turns to its byproducts. This includes the entire spectrum of digital assets. I have a personal bias towards the role between game companies and implementing photo capture modes within their console systems or art developed to what is now known as virtual photography. As video games evolve to hyper-realistic models, the lure to capture the game world’s beauty and emotion follow a newly implemented innovation that might interest audiences outside the gaming genre.

Virtual photography shows its value by presenting a form of memorabilia while showing still imagery can exist in a new, exciting digital medium. Console games with photo-op modes offer new innovative compositional tools, options to incorporate aspects like painting and illustration, graphic design, and other artistic tools. There is a practical use here that can aid workflow and design processes while offering engaging, interactive material.

Within current gaming audiences, where teen and gen-z consumers are the primary markets, game developers tend to focus on an important aspect: fun and entertainment so users can spend as much time within the virtual world. Role-playing games seek to extend the gamers’ experiences past the general story mode.

Redefining digital art

Virtual photography is just one of the many examples of branding the new modern digital artist, and it changes the perception of branding digital artwork. Type “media jobs” on the LinkedIn job board, and you’ll see a million different titles. Digital communications manager, social media strategist, graphic design manager, NFT creatives, multimedia specialists, et cetera.

Technological intuitiveness and a certain amount of media fluidity are becoming necessary to navigate the world of industry professionals. I can recall a time I was teaching a summer tech camp in Palo Alto, California, where students were given curricula in the forms of vlogging, 3D building, audio engineering, and design. Maybe the most surprising classes were the video game-oriented classes, where teachers taught students the fundamentals of Roblox, an online video game platform and game creation system. Most importantly, the camp taught students the fundamentals of building, coding, and design, all through playing a video game. While this is a relatively new trend, educational institutions are seemingly embracing the educational aspects of gaming.

The tech metaverses will prove valuable for its educational purposes. Virtual realms can aid in institutions teaching logic and problem solving than many school curriculums. Puzzle games, select real-time strategy games, and select simulation games fall into this educational category. Games with gameplay elements that require users to utilize creativity are called Sandbox Games. Minecraft (2011) and The Sims franchise are building task games with no true end objective. Educational platforms seek new ways to integrate the arts with the sciences, and gaming turns out to be one of the most innovative aspects of progressive curricula.

It’s no surprise that digital immersion is expanding at an exponential rate, and many video game corporations have used similar business models for years. These games generate a mass ecosystem of game users by following most entertainment structures. The most successful games create open-world gaming environments with interactive possibilities while maintaining a compelling narrative with goals and objectives and minimal constraints. If tech companies like Facebook look to follow suit, maintaining an integral, loyal community must remain at the forefront of their mission.

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[Metaverse Masterclass] How Luxury Fashion broke into the Metaverse

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Laura Pan, originally appeared in Resilience of Luxury Companies in Times of Change

Demna Gvasalia, the current creative director of Balenciaga, belongs to a new wave of creative directors that includes Kim Jones at Christian Dior, Matthew Williams at Givenchy, and Virgil Abloh at Louis Vuitton, all of them hand-picked by the leaders of luxury conglomerates to bring new life to heritage brands. Gvasalia, the founder of the cult streetwear brand Vetements, has always been very forward thinking, and in a class of his own. His appointment as creative director of famed couture house Balenciaga in 2015, came as a surprise as it was thought to indicate that Kering SA owner Francios Henri-Pinault could be trying to catch on to the streetwear trend. However, Gvasalia has proven that tearing up the rule book can be both innovative and profitable. In the 6 years at the helm of Balenciaga, Gvasalia had brought so much value to the maison, that it overtook Gucci as the most search brand in 2021, according to Lyst. All of this was attributed to Gvasalia’s out of the box ideas, which caught the attention of Meta (formerly Facebook) in a tweet; days after the announcement of its rebranding, by asking Balenciaga for dress code in the Metaverse.

(Screenshot from Twitter, Meta Oct 29, 2021)

It all started in 2020, when fashion companies were looking for innovative ways to showcase their upcoming collections. While most brands resorted to the classic livestream fashion shows, Balenciaga announced that it will show its fall/winter 2021 collection as a fully interactive video game. Gvasalia and his team at Balenciaga created an online role-playing game (RPG) titled Afterworld: The Age of Tomorrow, where players take a journey into a dystopic world set in New York in the year 2032. Attendees of the fashion show were able to follow the main character as they explore the realm. The character follows the illuminated arrows through a series of zones, and encounters non-playable characters (NPC) — models wearing the latest collection. This digital realm mimics game play, where you move from one level to the next, with each level designed according to a different theme. What Balenciaga created was out of this world, or rather a parallel universe where reality meets virtual reality. The show was an astounding success, as it resonated deeply with its target audience because they now believed the brand truly understood what was relatable to them.

(screenshot from YouTube, Balenciaga Dec 8, 2020)

Luxury fashion has always been about pushing the limits of creativity and finding newer ways to engage with the end customer, but Gvasalia found a revolutionary format to showcase that creativity while connecting with Balenciaga’s target audience. The dystopia Balenciaga created for Afterworld demonstrated how digital realms (Metaverse) can offer a kind of escape. This was the first taste of the potential fashion and luxury brands have in the metaverse.

Since 2020 has been a time of great distress; with many of us facing new feelings of constraint and isolation. It is games like Nintendo’s Animal Crossing that transported players away from their mundane zoom meetings and daunting housework to another world. More than a distraction, Animal Crossing allowed people to travel vicariously to different islands and socialize with friends from all over the world. Players were able to connect both on Nintendo’s online platform as well as Discord to have a full experience, e.g.: I would be playing my character in Italy, and visiting my sister’s island, but she was physically located in Australia. It also gave players the opportunity to dress up in designer clothing as a way to express themselves freely. While fashion and gaming collaborations are not new, cue EA Games’ The Sims and their collaborations with H&M and Moschino in 2007 and 2019, respectively. It is the ability to connect with one another, not only online but through other platforms such as social media, forums and livechats that has allowed a kind of synergy between fashion and gaming. Still, today only a handful of brands have ventured into this segment, most notably Louis Vuitton and League of Legends for the 2019 World Championship held in Paris. Other brands slowly followed suit, starting with Valentino and Marc Jacobs with Animal Crossing, Gucci and Pokemon Go, and more recently Balenciaga and Moncler for Fortnite.

Luxury brands’ late entry into the gaming sector was not a lack of vision, but rather the lack of complimentary between the two industries. Many would assume that fashion could only exist in dress-up games, yet they have completely neglected the profitable skins segment on all online games’ platforms. According to Forbes, 69% of Fortnite players spend money on the game (Fortnite is actually free to play, but you can buy battle passes which offers more bonuses during the gameplay), and the average expenditure per player is about US$85.In 2018, almost 60% of Fortnite’s revenue came directly from skins. It wasn’t until 2021, when brands such as Ferrari, Balenciaga and Moncler decided to be part of the Fortnite repertoire. Even then, it was Louis Vuitton that pioneered luxury’s entry into esports. The brand had been involved with sports in the past — since 2010 it has designed the trophy case for the FIFA World Cup — so its 2019 announcement that it would be creating the case for that year’s League of Legends World Championship in Paris should have come as no surprise. After all, Louis Vuitton was known for its unexpected collaborations, teaming up with cult streetwear brand Supreme in 2017. This time, it worked with Riot Games (the developer of League of Legends) to dress hip-hop group True Damage in Louis Vuitton skins for their opening ceremony performance at the championship. Following the success of this alliance, Louis Vuitton created a League of Legends capsule collection of 40 pieces designed by womenswear creative director Nicolas Ghesquière.

(Source: Louisvuitton.com, Nov 14, 2019)

League of Legends is one of the most-played multiplayer games, with around 115 million monthly players worldwide. It is also the most-played game in esports worldwide. The esports industry is worth US$950 million as of 2020 and is predicted to reach US$1.6 billion by 2023, according to Statista.This is a huge opportunity for luxury brands, considering the vast exposure it provides. Unlike any other platform, the esports stage has a dedicated and concentrated viewership composed of people of all ages and various financial backgrounds. More recently, we are seeing a rise in newfound wealth among gamers and live streamers. Current estimates suggest that top streamers earn upwards of US$500,000 a month, potentially outpacing high earners in traditional career paths. In April 2020, in the middle of the global pandemic lockdown, Travis Scott, an American rapper, drew a crowd of 27 million players to a digital live show on Fortnite’s platform. On the day of the show, Fortnite offered unique skins that could only be purchased prior to attending the live concert.

Even till this day, players of Fortnite are complaining about missing out on the skin and upset that it was never made available again. It was because of this, Fortnite restructured their strategy with Ariana Grande’s Rift Tour which was held from the 6th — 8th August 2021 over several time slots.

(Screenshot of actual game play on Fortnite, Aug 6, 2021)

Ariana Grande’s rift tour was the perfect example of what the Metaverse could hold for fashion and luxury. Minutes before the show, players have the opportunity to choose and purchase skins and emotes. Then as players wait in the lobby before being transported to the concert, player could connect with one another either through their Discord Group, private calls or livestream to discuss or provide commentary of the events. Now, imagine if this was a virtual fashion show — just like the one Balenciaga did in November 2020. It would really transport all of us, not just the fashion influencers, celebrities, and journalist, into the metaverse to experience the brand-new collection.