Max Shannon, Digital Asset Analyst at major European digital asset investment firm CoinShares.
The Metaverse allows people to do everything they do in real life but in the virtual world. The Metaverse has transcended fiction to reality, originating from Neal Stephenson’s Snowcrash and Ernest Cline’s Ready Player One to emerging digital-physical realities, economies, and communities. People work, transact, create, socialize and play within a framework of hardware and on top of a base layer of programming languages and smart contract platforms.
Ownership, decentralization, interoperability, and the open-source and virtual nature of the Metaverse are all key features and characteristics, also central to Web 3 and the digital revolution. Processes to scale the Metaverse into a more personal, persistent, and immersive experience are being spearheaded by key players that enable improved infrastructure across the Metaverse “stack”.
The virtual world hosting the Metaverse is largely influenced by Decentraland and The Sandbox, with a combined number of 200,000 ‘items’ alone on OpenSea which equates to approximately USD 1.3bn. Identity software, imperative for verification, security, accessibility, and avatars for businesses and people, is mostly driven by ENS, an Ethereum (ETH)-based naming system. ENS saw around a 2018% increase in the number of registrations from 5,158 in December 2020 to 109,280 in December 2021, highlighting its increasing popularity.
Metaverse marketplaces are largely influenced by the NFT trading platforms, specifically, OpenSea. Since launch, a comparison between the top two Ethereum NFT platforms OpenSea and Rarible show a combined number of approximately 80.5m NFTs and USD 10.3bn in total sales volume with OpenSea commanding 99% of minted NFTs and 97% of total sales revenue. Whilst this comparison shows OpenSea dominates the ETH NFT trading market, Rarible launched over two years after.
From a more macro standpoint across the ETH NFT market alone, sales have increased year-over-year (YoY) by around 31,027% to USD 3.1bn in December 2021. Across the whole NFT market, daily transactions increased by 3,192% YoY to just under 520,000 transactions per day. Among other Metaverse industries, the top five GameFi organizations incurred around USD 90m in total sales volume out of USD 121bn of gaming industry revenue in 2021, with 161,000 users aiming to satisfy 3.2bn gamers around the world.
Despite these exciting adoption statistics on the Metaverse there remain problems of interoperability, cost, and walled gardens (a closed and restricted ecosystem, dictated by the centralized service provider in relation to applications, technology, information, media, and content).
Clear and concise regulation and technological advancement are needed. The onboarding of the masses will only occur by providing confidence to businesses and encouraging a shift in consumer behavior. One example would be in providing a clear and concise blockchain-based, open-source “Know Your Customer” (KYC) model, which would lower the cost and improve the effectiveness and efficiency of verifying identities and activities. Technological advancements should decrease the cost of hardware to affordable levels; and oracles, sidechains, application-layer adaptors, and blockchain-agnostic smart contracts need to further reduce gas fees and improve security, decentralization, throughput, and convenience.
These advancements and policy changes will take time, and more time than the current hype around Metaverses would imply. It is therefore likely that we may see Metaverse exhaustion this year, when investors and consumers realize this hype doesn’t live up to reality.
The piece first appeared in CoinShares 2022 Digital Asset Outlook.
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