Bringing the metaverse to life could be a market opportunity worth over $1 trillion. That’s one of the key takeaways from Grayscale’s November report which explores the massive potential of the Web 3.0 internet evolution currently underway. It’s an ambitious number when you consider the total market cap of the leading Web 3.0 metaverse projects is currently at $27.5 billion.
But as the wider gaming sector worth $2 trillion starts tapping in, and Web 2.0 companies like Facebook (rebranded to ‘Meta’) with a combined market cap of $14 trillion make their moves in a bid to stay relevant, plus the number of daily active users keeps rising next year as more metaversal worlds come online, a total addressable market worth $1 trillion seems entirely possible — or more like a floor price.
That’s because the metaverse is like nothing else we’ve built before. But before we get into that, let’s agree on what we’re actually talking about.
The metaverse is part of the next evolution of the internet, represented by the broader dynamic known as the Web 3.0 stage. Understanding what that means starts with knowing what came before it.
Web 1.0 is the original internet: a network of pages interconnected through hyperlinks in a vast mesh of references. The Web 2.0 mobile internet, also called the social web, opened up endless new channels filled with user-generated content across social media, forums, blogs, videos, music, reviews, and much more. All that content is ultimately owned by the tech giants that run these channels. Web 3.0 rails against this uneven distribution of ownership, and proposes a decentralized alternative built on a peer-to-peer model.
Web 3.0 impacts every facet of the internet, the role companies play, and the agency of individuals. There are already many Web 3.0 projects building decentralized applications for things like web hosting, storage, domain name systems, entertainment, and much more. This is the primordial soup from which the NFT art movement bubbled up, and now the metaverse.
When we talk about the metaverse in the digital assets industry, it has little to do with Facebook’s version of the metaverse. Their corporatized digital platform accessible by wearing a nauseating VR headset is closer to the metaverse as it was originally coined in the 1992 dystopian science fiction novel Snow Crash — an addictive way to escape reality.
It opposes the value proposition of Web 3.0 considering that all interactions in Facebook’s metaverse will likely be owned by the centralized organization that runs the platform — from the interactive game elements down to the metadata. Instead, the crypto metaverse we’re building shares the same motivation as other Web 3.0 projects, which is to rebuild our digital world in order to restore individual agency.
So what is the metaverse exactly? Well, there is no perfect definition just yet, but Grayscale’s attempt in their recent report is getting very close: a set of interconnected, experiential, 3D virtual worlds where people located anywhere can socialize in real-time to form a persistent, user-owned, internet economy spanning the digital and physical worlds. Every word in that definition is open to interpretation and debate, but one in particular stands out and is perhaps the most aligned with the crypto metaverse: user-owned.
Metizens dwelling in the metaverse can do any number of things such as attending a Snoop Dogg concert, checking out NFT artworks in the Sotheby’s gallery, or even going to the Consulate of Barbados. But understanding why the concept of user-owned assets matters is perhaps best understood by looking at the gaming application of the crypto metaverse.
In traditional games, users can acquire special in-game items by either investing time and building up skills, or spending fiat cash to level up instantly. Players often choose the second option and in the last decade the gaming industry has shifted from pay-to-play premium games towards playing free games and paying for in-game items as a revenue model.
Over time, players build up a form of digital wealth inside the game, but all that glitter’s not gold. The valuable items earned or bought in the game are locked in the corporatized game world. Most game developers do not allow players to trade items with other players, meaning that the digital wealth cannot be transferred to the real economy.
In the metaverse emerging from the digital assets space, featuring projects such as The Sandbox, Decentraland, Axie Infinity, Star Atlas, Revv Racing, and My Neighbour Alice, it is the users that ultimately own content as in-game NFTs. The idea is that everyone has equal access to the means of production, in-game economics, and verifiable ownership of digital assets.
For example, anyone can download the VoxEdit application from The Sandbox to design an in-game asset like, say, a Sleeping Doge avatar. They can then sell it on the in-game marketplace, and from there other users can continue trading the in-game asset. Perhaps it will be picked up by Cozomo de’ Medici at some point, pumping the value of the Sleeping Doge generating downstream revenue for the original creator. This presents real opportunities for real people to generate real value.
Another way metaverse games can generate real income is the play-to-earn (P2E) model, as part of the GameFi economy. Just ask any of the 200 million users on Axie Infinity. Or otherwise, read the story of the ex-Wall Street Banker who launched a scholarship to fund his Axie Guild with players logging in from places like the Philippines and Mexico who agree to share revenue as they battle for that Smooth Love Potion — an in-game token tradable on many crypto exchanges with a 24-hour trading volume of $164 million as of writing.
Some of these guilds are actively working to invite more people to join the new GameFi economy. Avocado Guild, supported by an $18 million Series A funding round led by Animoca Brands, enables players to participate in multiple virtual worlds as they learn how to earn additional income on P2E games, navigate the Web 3.0 landscape, take advantage of opportunities in DeFi, and become part of a community.
Here’s where we kick it into a higher gear, and dream bigger. Those in-game assets are transferable not only for trading on marketplaces, but they could even slide from one world to the next as the multiple metaverse games become truly interconnected. Your Hashport-themed racing car designed for Revv Racing could be sent to another wallet connected to another racing game, and burn rubber in another world to take the gold. This would increase the utility of in-game NFTs a thousandfold, regardless of which game they were created for originally.
But why sell and send, when you can create and lend? Instead of losing ownership of the in-game asset you created, you could lend it out to other users and generate a steady stream of income, if what you produce is in demand. Now we’re getting into the real multiplier: once the DeFi lego block snaps onto the metaversal economy there’s no telling how far this thing will go. But besides common DeFi products such as lending, borrowing, baking, staking, delegating, and yield farming being applied to in-game NFTs, we cannot overlook governance.
Many of the current prominent metaversal projects have announced they will eventually transition into DAOs, or decentralized autonomous organizations. This means the platform would be owned and run by the very same community that actually spends time and creative energy in this space. The value of making that transition is more than just philosophical, and perhaps best described by Animoca Brand’s founder Yat Siu in this interview with Raoul Paul:
“We think that a decentralized structure in a democratic framework will ensure longevity. When you look historically, centralized systems, kingdoms as it were, they always typically have an end of a life cycle, because the community that wants it to succeed and survive is typically a minority. But if you can make the majority care about its survival and care about its well-being, then it ought to be such that it actually has a long life.”
The goal of a trillion dollar market cap is ambitious, and it won’t be a straight and easy path getting there. Facebook’s vision of the metaverse has little to do with the value proposition of the crypto metaverse, but it will still distract and compete. And it won’t be the only major Web 2.0 player moving in, swaying newcomers with the convenience of big tech centralization.
We need to move past the early adopter phase quickly by continuing to improve the user experience, graphics, gameplay, and even things as seemingly straightforward as wallets. It’s fine for players in the metaverse today to use Phantom for interplanetary conquest in Star Atlas, Terra Station for Lunar Empires, and Metamask for building sandcastles on their LAND plots. But for the next 100 million users, ownership of in-game assets needs to be a lot easier to manage in a safe way across different metaverse worlds built on different blockchains.
Expecting a wave of new players to have the same tolerance for this overly complicated set up, or knowledge of transferring in-game assets across chains safely for example, is unrealistic. Once you add DeFi services to the mix, it becomes obvious that one of the tools we need to make available is a simple to use, cross-chain, high security wallet that anyone can use to explore infinite worlds. Getting this right means opening up the wider crypto world to an even bigger, mainstream market, and it’s one of the reasons Hex Trust entered into a JV with Animoca Brands.
The metaverse where players have easy access to P2E games, creator economies rooted in NFTs for in-game assets across multiple worlds, combined with a DeFi component, is the true killer-app we’ve been waiting for.