Abstract: The Metaverse refers to a shared vision among technology entrepreneurs of a three-dimensional virtual world, an embodied internet with humans and the physical world in it. As such, the Metaverse is thought to expand the domain of human activity by overcoming spatial, temporal, and resource-related constraints imposed by nature. The technological infrastructure of the Metaverse, i.e., Web3, consists of blockchain technology, smart contracts, and Non-Fungible Tokens (NFTs), which reduce transaction and agency costs, and enable trustless social and economic interactions thanks to decentralized consensus mechanisms. The emerging Metaverse may give rise to new products and services, new job profiles, and new business models. In this brief note, I assess the promises and challenges of the Metaverse, offer a first empirical glimpse at the emerging Metaverse economy, and discuss some simple Metaverse economics that revolve around building and operating the Metaverse.
Keywords: metaverse; Web3; non-fungible tokens (NFTs); blockchain technology; smart contracts; digital entrepreneurship; entrepreneurial opportunity; platform economics
Source: FinTech 2022, 1(3), 225-234;https://doi.org/10.3390/fintech1030018
Copyright: © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license .
Some Very Simple Economics of Web3 and the Metaverse
Paul P. Momtaz 1,2,3,4
1 House of Finance, Goethe-University Frankfurt, Theodor-W.-Adorno-Platz 3, 60323 Frankfurt, Germany; firstname.lastname@example.org
2 Anderson School of Management, University of California, Los Angeles, CA 90095, USA
3 The Wharton School, University of Pennsylvania, Philadelphia, PA 19104, USA
4 Center for Blockchain Technologies, Computer Science, University College London, London WC1E 6BT, UK
1. The Emerging Metaverse
The Metaverse1 describes the shared vision among technology entrepreneurs of “a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users, and with continuity of data, such as identity, history, entitlements, objects, communications and payments” . The economic ecosystem that is being built around the Metaverse vision is substantial. The market capitalization of incumbent (Web 2.0) firms working on Metaverse technologies is $14.8 trillion, while the estimated value of (Web 3.0) Metaverse entrepreneurs is only $0.03 trillion.2 However, Metaverse entrepreneurship is on the rise, with an explosive growth in centralized and decentralized applications (dApps) specifically designed for the Metaverse (see Figure 1). For example, the market capitalization of the popular Metaverse dApp “Decentraland” is $4.3 billion.3 In fact, Metaverse dApps experience an explosive number of transactions, with more than 30 million in terms of NFT sales on the Ethereum blockchain alone in February 2022 (see Figure 2). Implications of the Metaverse for entrepreneurship have not yet been explicitly considered [2–4], which is the void this brief note aims to fill. To accomplish this goal, the note largely ignores “centralized” Metaverse approaches that are pursued by incumbents.4
1.1. Motivating Examples
Decentraland: Decentraland is a virtual, blockchain-based world that features 90,601 “parcels“ (i.e., virtual land plots). Each parcel is represented by a Non-Fungible Token (NFT; for details, see ). Locations are unique and have (x,y) coordinates. For example, JPMorgan recently purchased a parcel and opened a banking lounge,5 while a real estate developer recently paid $912,228 for 259 parcels to build a virtual shopping mall called “Metajuku” modeled on Tokyo’s famous “Harajuku” district to rent shops out to retailers.6 Indeed, first analyses find that the real estate economy on Decentraland features behavior known from real estate in the physical world , is not merely driven by cryptocurrency markets , although the pricing of digital land does not yet seem to be efficient .
KONG Land: KONG Land is a cryptostate that is governed by its “citizens” through an overarching Decentralized Autonomous Organization (DAO; for details, see ) structure. Its innovation are so-called “Silicon Locked Contracts” (“SiLos”). A SiLo is essentially a physical microchip linked to a virtual smart contract. The microchip links the virtual and physical worlds by enabling the export of crypto-assets from the Metaverse into the physical world, or for example verifying an identity in the physical world for the Metaverse. Citizens of KONG Land can deposit their funds in the government’s treasury (much like a tax), which funds KONG Land’s expansion, and provides citizens with governance rights in a decentralized crypto-state.
1.2. Advantages, Challenges, and Limitations of the Metaverse
1.3. The Rise of Entrepreneurship in the Metaverse
2. What Is the Metaverse?
Infrastructure: The Metaverse is a persistent virtual system with real-time information processing capabilities that makes available the current state of knowledge to all users at the same time at all times.
Architecture: The Metaverse is a decentralized platform that features a high degree of interoperability to enable the mobility of digital identities, experiences, and possessions across the Metaverse from one place, event, or activity to another.
Human couth: The Metaverse overcomes limitations of Web 2.0-based virtual realities by enhancing users’ self-perception and presence, increasing human interactivity, and improving realistic expressions of human qualities, such as emotions.8
3. Non-Fungible Tokens (NFTs): Enablers of the Metaverse
4. The Emerging Metaverse Economy
5. Some Very Simple Metaverse Economics
5.1. Building the Metaverse: Startups vs. Incumbents
5.2. Operating the Metaverse: Welfare Implications
Funding. This research received no external funding.
Institutional Review Board Statement. Not applicable.
Informed Consent Statement. Not applicable.
Data Availability Statement. Not applicable.
Conflicts of Interest. The author declares no conflict of interest.
For the purpose of this brief note, we treat the nascent terms “Metaverse” and “Web3” as synonyms, while acknowledging that the connotations of the two terms might diverge in the future as the industry matures.
See https://www.statista.com/statistics/1280565/global-market-cap-metaverse-facebook-gaming/, accessed on 10 March 2022.
As of 11 March 2022, see https://coinmarketcap.com/currencies/decentraland/.
See https://www.metagreats.com/article/how-much-land-available-in-decentraland/, accessed on 11 March 2022.
See https://www.cnbc.com/2022/02/14/china-metaverse-tech-giants-latest-moves-regulatory-action.html, accessed on on 12 March 2022.
Emotions are economically important per se, as they convey important information, which extends beyond a merely experiential utility, see, e.g., .
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