The metaverse is….dead?
Whatever happened to the metaverse?
Not so very long ago, the Web3 and wider tech community were swamped in the term. Soon, it was claimed, we would all be in ‘the metaverse’ - participants, both as individuals and businesses, in an array of new & immersive digital worlds. Separated by physical space and the exigencies of the pandemic, we could now meet each other in virtual reality, our digital avatars taking the place of our fleshy forms. Work, play, romance, and even religion were going to be revolutionised. Corporate meetings began taking place in the metaverse; brands and businesses experimented with receiving customers in VR shops; gyms, parties, and raves were created and apparently even enjoyed in digital space; avatars were dating each other using specialised apps; and, exhausted by all this activity, we could even seek spiritual solace in metaverse churches.
Today, the metaverse is dead. Such, at least, is the option to be found on any number of blog posts from 2023 onward. Somewhere amid the perceived failure of Facebook's ‘Meta’ rebrand and the crypto market collapse of 2022, the metaverse seems to have disappeared. Even today, with crypto values returning to their 2022 all-time-highs, the ‘metaverse’ narrative is notable by its absence. For an industry that believes itself to be fundamentally rewriting the rules of economy and society, the web3 world is notoriously faddy. For some, the metaverse is simply out of date - a fashion from two years ago. Google search data further underlines this point; between January 2022 and November 2024, the term suffered a 96% collapse in global search volume!
The apparent death of the metaverse is made all the more striking due to the rather startling predictions of future growth once made about it. It could create some $5 trillion of value by 2030, claimed McKinsey, who also noted that a quarter of surveyed executives believed that 15% of their revenue would come from ‘the metaverse’ within 4 years. Statista predicted a TAM of 4.4 trillion for the same year. Such claims seem to have quietly disappeared.
Much of the metaverse hype both appears to have been and actually was ridiculous; even leaving aside the inflated valuations and dubious business models, metaverse socialisation can only ever be a paltry image of the real thing. Online dating is already detached, abstracted, and generally bloodless; doing it via avatars seems to defeat the very purpose. Just because one can organise corporate social events in the metaverse doesn't mean one should; if nothing else, the prospect of this is a salutary reminder that even the most dispiriting of office Christmas parties can be replaced with something yet worse.
To dismiss the metaverse entirely, however, would be to miss the underlying logic of the discourse and the varying trends and opportunities that give it its power. Although the great wave of hype has abated, the fundamental drivers of the metaverse remain.
Bullsh*t aside, the fundamentals remain
To understand why the metaverse endures, and why metaverse projects are still developing today, it is important to consider the characteristics of the metaverse, the technological and economic drives of the metaverse as a space, and its primary area of use - gaming
Technology and economics
The metaverse is developing because we have the tools to make it, and because there is an economic rationale of doing so.
Technology: The ongoing development and adoption of metaverse environments is driven by decreasing cost of technology. Radical improvements in gaming technology are allowing ever more immersive in-game environments, and higher quality user experiences. The increasing capacity of AI based tools means that it is also easier and cheaper to develop and deploy new games; design and development tasks that might have taken weeks or months can now be done in hours. Advances in VR and AR technology and devices, meanwhile, are making it ever easier and cheaper for a mass audience to participate; no longer confined to PCs or mobiles, such consumers can enjoy deeper and richer experiences, further encouraging metaverse engagement.
Commercial value: The simple fact that fewer people are talking about the metaverse does not mean that the value of immersive and potentially digital experiences has gone away. Overlaying digital content onto the physical world, or participating in a digital world simply has too many use-cases to entirely go away.
- In certain contexts,for instance, it makes sense to have remote classrooms or meetings in the metaverse.
- Whether or not they are exhibited to a wide audience, digital twins are in increasingly wide use to help organisations model and understand buildings, physical items, or business processes.
Key characteristics of ‘the metaverse’
The metaverse is a loose and contested term. Broadly put, a successful metaverse project needs some or all of the following
- Immersive worlds: Metaverse worlds must be immersive. Ideally but not exclusively, they use VR or AR in order to heighten sensation and create an immersive experience.
- Persistence: Metaverse environments should persist irrespective of whether a user has logged off. Environments will continue to evolve and change with or without the participation of individual users.
- User generated content: Individual users should be able to generate content and create value within the metaverse environment. This allows users to enjoy their own and one another's creations, as well as providing the basis of virtual economies.
- Community: A sense of community makes people want to participate in the experience offered by a particular metaverse implementation. This drives more engagement, and drives the creation of more user generated content. These, in turn, help with promoting in-game economic activity.
- Virtual economies: Users should be able to generate and trade in-game assets and artefacts. Metaverse economies can have varying levels of sophistication
- Interoperability: Some observers would also argue that a successful metaverse must have interoperability; standards, artefacts, and value must be transmissible between platforms. When discussing the metaverse as a series of interconnected spaces, this is most likely the case; some of the most successful metaverse projects, however, don’t appear to need this.
All of these characteristics favour the commercial priorities of certain forms of gaming enterprise. There are many potential use cases for the metaverse, but the most obvious one is gaming. An immersive world is one that people want to spend time in, which drives up engagement. If users can generate their own content, and are encouraged to do so by the existence of immersive experiences and an enjoyable, motivating sense of community, then this creates value for the creators of both digital games and the infrastructure of those games. Persistence means that game creators can capture long-term value; the existence of virtual economies, meanwhile, further incentivises users to interact with one another, generate content, and spend time in the game
Gaming and the metaverse
The concept of the metaverse comes from gaming, and it is through online games that it currently has its clearest use. Consider Roblox. Roblox is a platform and game creation system that lets users program, play, and create games for themselves and others. It has nearly 80 million daily users, and measurable real-world impact. A recent economic report undertaken by the company estimated that between 2017 and 2023, its creator economy supported the equivalent of 17,000 full-time US jobs. Worldwide, it distributed $803 million to online content creators in between June 2023 and June 2024.
Fortnite provides another example. Both a video game and gaming platform, Fortnite has 650 million registered users, and 1 million daily players. It too has a lively creator economy, and has paid out over $500 million to creators since March 2023. Its owner, Epic Games, sold a $1.5 billion stake to Disney in early 2024, an alliance that will bring Disney IP within the Fortnite environment and - rumours of death aside - illustrates the fact that serious money and players still see opportunity in metaverse-related projects.
Both Roblox and Fortnite have an in-game currency. Robux, which is used by Roblox players to buy new games, or artefacts like special outfits and weapons for their avatar. On the other side, they can also earn Robux by creating new games and artefacts. V-Bucks are used by Fortnite players to obtain items from the fortnight shop, and are paid for using real money; players can also earn V-Bucks for their in-game activities.
Both Robux and V-Bucks however, only serve transactions within the digital ecosystem of their respective games. While they can be purchased with real world currencies, they are centrally held and managed. Both the virtual currency and the in-game digital assets they purchase exist only by the consent of the owners of Roblox and Fornite, cannot easily be traded on an open exchange, and have no real value outside the game.
To understand the full potential of gaming in the metaverse, we need to consider the potential complexity of in-game economic activities, and the tools and technologies that enable this economic value to be owned, protected, and transacted upon.
Web3 games: a new economic frontier?
Creating, storing, and exchanging value
Players of online games spend many hours within game environments. The things they do are as varied as the games themselves - going on quests and killing monsters; building towns and cities; farming, trading, or fighting in environments as diverse as Tolkienesque fantasy worlds, Medieval Rome, or the black depths of interstellar space. The skills, experience, and artefacts that a player earns through these games can represent thousands of hours of work, and enormous accumulations of in-game value. This value can be hard to share or trade with others.
The larger computer games, and their more explicitly ‘metaverse’ branded peers, can have fascinating economies. We have noted Roblox and Fortnite - but for a full sense of the sophistication these economies can achieve, consider Eve Online. Eve Online is a space based massively multiplayer online game in which players can acquire resources, trade different assets with each other, combine into corporations, and engage in political competition. Alongside its Byzantine political intrigues, the game is marked by a high degree of economic complexity - sufficient complexity that it publishes a monthly economic report outlining the generation of the various in-game economies, and the economic performance of different regions. Alongside these it has a consumer price index, a mineral index, a producer index, and many more indica besides.
In Eve Online as in human history, trade, warfare, and finance are intimately linked. As the game evolved, competition between different corporations led to an arms race to build space fleets with which to control resources. This in turn led to a financial revolution - taxes on corporation members, the development of in-game financial instruments such as war bonds or shares; the creation of a stock exchange.
The economic implications of web3 in gaming
Imagine if the value created in Eve Online involved actual digital assets - freely-tradable tokens and NFTs existing on a blockchain, and held within wallets owned by individual users and in-game corporations. In this scenario the value created by the mining, trading, and raiding of the players and their corporations can be exchanged for goods outside Eve Online. Digital activity will have created real-world value; the most successful players and groups could be earning tens or hundreds of thousands of dollars. Given enough economic activity, they could be earning millions of dollars.
Web3-enabled gaming thus has huge economic implications for how value is generated, exchanged, and traded. In-game activities can now accrue real world value - digital property, earned or received through in-game activity, can more easily be stored and transacted by individual users.
Several gaming environments have already made this leap. Decentraland is an immersive metaverse world within which users can buy and sell digital land, build experiences and businesses on that land, and generally participate in economic and social life. The subject of high media attention, Decentraland has been among the most prominent of metaverse projects; since launch, it has seen institutions as diverse as auction houses, churches, law firms, and music festivals advertise themselves and conduct meetings within its environment. Unlike Fortnite, Eve Online, or Roblox, Decentraland is governed via a DAO, meaning that its decision-making and ownership is vested with tokenholders.
Decentraland has two tokens; LAND, a type of NFT used to represent digital land, and MANA, a currency. MANA is used to buy and sell LAND, as well as to conduct other transactions. Interest in the Decentraland economy is such that this metaverse has also provoked the creation of real-world financial instruments - Grayscale offers shares in a Decentraland investment trust vehicle, allowing investors to passively invest in MANA tokens. This financial sophistication may however be unsupported by actual adoption for the game. Decentraland appears to be suffering from extremely low user numbers - as few as 42 a day in early 2024 according to dApp radar.
A more successful example of web3 gaming success may be Pixels, a farming-oriented MMO. Like Decentraland, Pixels also has NFT-based land and its own currencies. Unlike Decentraland, Pixels claims 1 million daily active users.
It has two forms of currency - Coins, an off-chain and centrally managed in-game utility token used to buy resources, tools, and lands, and PIXEL, which users “earn through completion of difficult tasks via their Taskboard, taxes earned by Land owners for their share of crops grown on their land, or transaction fees incurred from Guild memberships.”
The changing nature of the Pixels economy highlights some of the risks and rewards of web3 economics. The old in-game and on-chain currency, BERRY, experienced a daily inflation rate of up to 2%, thus impeding the economic activities within the game. The 2024 shift from BERRY to Coins and PIXEL was an attempt to manage this inflationary dynamic.
Other notable games
There are a wide number of games that highlight the continuing economic potential of the metaverse.
- VRChat is a metaverse platform that focuses on user-generated content, boasting over 25,000 individual community created worlds. Economic activity takes place within some of these; there is an active creator economy, with participles able to market and sell products through the VRChat store function. VRChat had an average of 32,000 daily active users over October 2024; people do things like play mini golf, hang out in pubs, fight zombies, and attend raves. Intriguingly, there appears to be something of a substance abuse problem among certain users.
- Axie Infinity: NFT based play to earn game. NFTs earned in-game could be used to earn or exchange AXS tokens, which in turn could be traded off-game for real world value . As a result, it was heavily associated with play to earn business models. Many individuals in the Philippines began using it as their primary form of economic activity. In 2022, as many as 40% of users were from the Phillippines; at its peak in August 2022, it had 2.7 million users. Highly popular in 2022, its user number and overall value crashed deeply along with the wider NFT market.
- Star Atlas: An immersive space based MMO of similar ambitions to Eve Online - a grand strategy game of space exploration, territorial conquest, political domination, and more. It will have land NFTs, a currency and a utility token. User numbers remain low. It is governed via a DAO, and it is further anticipated that in-game factions will be governed by their own separate DAOs.
Power & community: some preconditions for an open and successful metaverse.
It is notable that the most successful metaverse games are currently centrally-controlled corporations. Yet more striking, global megacorporations like the Meta rebranded Facebook have been making strides into the metaverse. The deep risk is that one or more major corporations create their own walled gardens within these new zones of digital interactions, capturing value and threatening the privacy and freedom of other users.
If any of the predictions regarding the future importance and influence of the metaverse come true, this is a worrying phenomenon. These are new spaces of interpersonal and economic interaction, spaces that would be given up entirely to the control of private interests. Should any one actor or small set of actors dominate the metaverse, they will be able to exercise new and potentially worrying forms of digital control and sovereignty.
The ‘rules of the metaverse’ remain substantially unwritten. They will be defined and strengthened by the choices of metaverse project builder and the people who join them. There are a number of preconditions for making a successful & open metaverse:
Portability: Being able to take value across metaverse environments is a precondition for an open metaverse. Walled garden metaverse games prevent this, thus giving central control to the authors and controllers of these gaming platforms and their associated technology.
Liquidity: both the value created by players and their digital identities must be portable between metaverse systems. Value should be liquid and tradable.
Tokenisation: Tokenisation means that value can be portable and liquid. It enables the generation of in-game econimic activity, and the ability to exchange the fruits of that activity for off-chain currency and value.
Property rights: The creation of real value needs property rights to protect it. If not, it can simply be destroyed at the whim of a game creator. By placing digital assets on the blockchain, games and their users can ensure that they have property rights over the value they have created.
Payment systems: To facilitate in-game economies, payment systems must enabled game users to easily transfer value with game creators and each other. Whether is this in coins and tokens there must also be crypto on and off-ramps
Actual users: Above all, however, games need actual users. If the experience of gaming is unpleasant and if there is no digital community to join, people simply don’t want to participate. The metaverse - or rather, individual metaverse environments - will be stillborn.
User-generated content: Whether web3 or web2, platforms live and die by their community. It is the users who create, maintain, and exchange value.
Company formation: an under-appreciated element of the further economy of the metaverse is company formation - a tool that enables the better protection of property rights, and the pooling of resources in pursuit of economic game. It it to this that we now turn.
Legal entities and in the metaverse
Theoretically at least, the metaverse provides huge new economic opportunities. The creation of digital spaces offers limitless possibilities for new value creation. As people develop and expand online worlds, they will create new transactions, business models, and forms of digital property. Billions of value may yet be created within metaverse environments
The question of promoting and protecting this economic activity ultimately comes back to the question of property. One of the main economic opportunities within the metaverse comes through digital assets - who owns them, and how and where they are created and translated. Once value can be contained in a form of property, it can be measured, traded, and legally protected
As economic activity increases within metaverse projects, so too will both the complexity of economic interactions and their overall value. Players are collaborating with one another to generate real value, and to do so at a scale they could not achieve by themselves. Within the more sophisticated games, this in turn, leads to a rationale for company formation. Just like with real-world business, company formation allows investors and project developers to pool resources, create new legal persons, and to limit their liability. The expansion of modern capitalism saw an explosion in company formation. Legal entities will also be needed in the metaverse.
Metaverse companies. By wrapping their crypto wallet and their economic activities in some sort of corporate form, gamers and investors can better protect their assets. Among other things, incorporation may be particularly useful for gaming guilds, which pool resources and even hire players to conduct in-game tasks.
Otonomos has previously assisted gaming guilds to incorporate entities for their activities, and we would be happy to discuss this further.
Metaverse funds. As the economic complexity of some metaverse environments increases, Metaverse funds could enable people outside the game to invest within in-game economic activity. By providing crypto capital, they can give gamers and team leaders the assets they need to buy goods, trade with one another, or to combat one another; in exchange, the fund investors can receive returns on their investment. Greyscale has already provided an example with Decentraland; this can now be scaled to other projects.
Otonomos has extensive experience in fund setup, and would be pleased to facilitate the creation of a metaverse fund for any interested fund managers.
Metaverse DAOs. Many metaverse projects are governed via DAOs. DAOs - decentralized autonomos organisations - are a blockchain native organisational form of great flexibility, allowing participants to pool resources and collaborate.
Otonomos is a leading provider of DAO structures, both to the gaming industry and a variety of other sectors.
>> Schedule a FREE call today to discuss the setup for your gaming project or whatever else you're building in Web3.
