The Rise of the Virtual Economy: Exploring Finance in the Metaverse

By Tinotenda Muradzikwa, Anna Kazmierczak, and Andres Diaz Published on Apr. 14, 2023

The metaverse is an evolution towards an immersive 3D internet experience powered by blockchain that enables humans to interact, transact, socialize, work, and be entertained. This evolution towards a three-dimensional internet is enabled by blockchain technology and cryptographic tokens (digital units of value that live on the blockchain, mainly payment, utility, security, and non-fungible tokens).

The first version of the web (Web1) was about digitizing databases and information. Then came Web2, which was about digitized human relationships and interactions, favoring content creation and online commerce. The new version we are moving towards, Web3, will come as more of a back-end revolution driven by the blockchain and where users become the owners of the internet. Hence, the metaverse will not replace the Internet per se but rather enhance it. In other words, metaverse technologies only constitute a small portion of this shift toward Web3.

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Finance in the metaverse refers to the virtual economy that operates within this space, including the buying, selling, and trading of virtual goods, services, and currencies. This virtual economy is driven by virtual activities such as gaming, socializing, and online shopping, among others. The use of cryptocurrencies is becoming increasingly popular in the metaverse for transactions and asset ownership verification. Since metaverse technologies are still new, nascent, and developing, this creates the need for a better understanding of the fundamentals and its possible implementations today.

The structure of the metaverse

Four layers form the structure of the metaverse, namely Hardware, Delivery, Ownership, and Sensory. Finance in the metaverse mainly dwells on the Ownership Layer.

Hardware Layer: The way we interact with the virtual world is fundamentally dependent on our metaverse gear. Users can access the metaverse with their computers and smartphones, even though these devices were not specifically designed for the metaverse experience. As such, they do not allow an immersive experience as augmented reality (AR) or virtual reality (VR) gear does.

Augmented reality is generally defined as an “interactive experience of a real-world environment where the objects that reside in the real world are enhanced by computer-generated perceptual information. It differentiates from virtual reality, which can be referred to as the use of computer technology to create simulated environments. This layer is where the basic building block of the metaverse is found, from Internet infrastructure (5G, 6G, WiFi, etc.), materials, GPUs, and CPUs.

Delivery Layer: One key component of the metaverse is the access points. Here is where the real and virtual worlds connect. It is an in-between layer bridging virtual spaces and different keys that will grant us access to them. Therefore, this layer is still not fully digital but a mix of both hardware and software.

Sensory Layer: Creating, accessing, and controlling are key steps of the metaverse. However, non of this would be of any use if not experienced by users. Creating a unique, captivating environment and experience is the final step to achieving success in the metaverse. The two easiest ways to access this content from a sensory standpoint are in the visual and auditory ways, where the biggest advances have been made in AR and VR.

Ownership Layer: One of the key descriptors of Web3 is how individuals interact with virtual goods. An easy high-level way to understand this is to think that Web1 was consumption, Web2 creation, and Web3 content ownership. Thus, there needs to be an infrastructure that enables us to demonstrate ownership in the virtual economy in a scalable manner. This is what the blockchain was designed for: validating the virtual uniqueness of anything that needs verification. For the ownership layer to function properly, there has to be content to claim ownership.

Key elements of finance in the metaverse and relevant metaverse startups

Decentralized finance (DeFi) - DeFi applications are being built on blockchain technology to offer financial services like lending, borrowing, and trading in a decentralized and trustless manner.

NFTs (Non-Fungible Tokens) - NFTs are unique digital assets that can represent anything from virtual real estate to collectible items and are stored on a blockchain and allow for secure and transparent tracking of ownership and verification of authenticity. NFTs are becoming a popular way to buy, sell, and trade assets in the metaverse.

The management of NFTs is a crucial aspect of finance in the metaverse. It encompasses the administration of non-fungible tokens, such as creating, buying, selling, and transferring them, and ensuring the security and privacy of NFTs and their associated data.

Tracking NFT ownership and authenticity through blockchain technology is also an important aspect of NFT management. To ensure the stability and growth of NFT-based markets and communities, effective NFT management is essential. In response, metaverse startups in the space are innovating by offering solutions that streamline various NFT management processes.

  • Mojito is a Web3 company that facilitates NFT-based commerce, finance, and community interaction. It provides an API and dashboard for creating and expanding NFT marketplaces, games, and communities.
  • Bitski is a developer-focused blockchain wallet infrastructure provider that allows creators, brands, and platforms to create, sell, and purchase NFTs easily. The company connects communities, creators, and brands through ownable digital content.
  • NiftyKit is a SaaS platform for artists to mint, list, and sell digital collectibles without needing knowledge about blockchain or crypto. The application provides simple tools for artists to mint NFTs on either the Ethereum or Polygon blockchain.

Virtual currencies are becoming the standard mode of transaction, with metaverse startups creating their own currencies that can be used within their virtual environments.

In the metaverse, virtual currencies are crucial for the process of purchasing virtual assets, such as properties, gaming items, and access to services. These virtual currencies are frequently traded on decentralized platforms and can be utilized for transactions within the metaverse or exchanged for traditional currency. The growth of metaverse platforms and the growing interest in virtual currencies bring about both new financial prospects and difficulties in the virtual economy.

  • Criptan is an app-based crypto exchange and crypto solutions provider. It provides a fundamental set of crypto solutions for both individuals and businesses, including (buying, selling, earning, sending, crypto debit card, and B2B payment solutions).
  • CoinGate is a payment gateway for blockchain payments. Its mission is to grow the adoption of cryptocurrencies globally by laying out a reliable payments infrastructure that caters to the needs of both merchants and its customers: accessible, convenient, and customer oriented.

Virtual marketplaces are emerging in the metaverse, where users can buy and sell goods and services using virtual currencies. Metaverse startups build virtual marketplaces that provide investment prospects for both individuals and organizations to invest in virtual assets, contributing to the expansion of virtual economies.

  • OpenSea is an online marketplace that allows users to purchase, sell, and trade non-fungible tokens (NFTs). Users can transact various digital collectibles, including art, music, domain names, trading cards, and dozens more.
  • SuperRare is a marketplace to collect and trade unique, single-edition digital artworks. Each artwork is authentically created by an artist in the network and tokenized as a crypto-collectible digital item you can own and trade.
  • LooksRare is the community-first NFT marketplace that actively rewards traders, collectors, and creators for participating. LooksRare’s smart contracts are custom-built within a modular system that enables new features to be rolled out over time.

Opinion on metaverse technologies

By Andres Diaz, Ventures Analyst for Plug and Play Insurtech

The development of metaverse technologies is undoubtedly a captivating and, at the same time, complex phenomenon. Despite the initial hype and belief in its revolutionary capabilities, its potential has faced challenges, as is often the case with new technology, according to the Gartner Hype cycle. However, it’s now time for the technology to demonstrate its real-world applications and practical use cases.

In my opinion, the transition of metaverse technologies from a mere gaming platform to a widely adopted technology will be driven by two key factors:

  • Enterprise Adoption: With the increasing trend of remote work, virtual meetings, and asynchronous work, metaverse technologies present a compelling solution to sustain human connection despite physical barriers. To facilitate seamless integration into our daily routines, it will be important to lower the adoption barrier.
  • Blockchain Implementation: To enhance the nature of the metaverse from an "experience platform" to a "daily use tool," the seamless integration of blockchain technology is crucial. I am referring not to the adoption of cryptocurrencies but to the adoption of blockchain technology at an infrastructure level, where identities can be verified and tracked, and real-world connections can be developed through the connection of real-world and digital interactions. However, this requires a general trust in blockchain technology, which will be achieved through better infrastructure, seamless integration, more secure systems, and flat user learning curves.

I believe that we are already familiar and comfortable with virtual and augmented reality. The widespread use of filters on social media platforms like TikTok and Instagram, virtual communication through WhatsApp, Zoom, and Meets, and the ability to listen to music while remaining aware of our surroundings through Airpods transparency mode are all examples of our readiness to embrace technology that enhances our lives, be it for entertainment, connection, or safety.

Virtual economy is a rapidly evolving field that is being driven by the growth of virtual environments, blockchain technology, and the increasing popularity of virtual currencies and NFTs.

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Decentralized finance (DeFi) is at the forefront of this change, offering trustless financial services like lending and borrowing. NFTs are becoming a popular way to buy, sell, and trade virtual assets with secure and transparent ownership tracking. Virtual currencies and virtual marketplaces are also gaining popularity, providing new financial opportunities and difficulties in the metaverse. With the support of metaverse startups innovating in the space, the future of finance in the metaverse is bright, offering the limitless potential for growth and innovation.

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