Finance in the Metaverse: Opportunities and a Roadmap | EY

From an adoption perspective, giving people a reason to engage: a gathering of friends, a game, or a business meeting in a virtual collaborative space is critical to success. If the experience doesn’t add value in and of itself or elevate it beyond a non-metaverse version of that experience, extensive development projects will languish as nothing more than exercises in 3D design. For those building the metaverse, the challenge is to create rich, immersive experiences and provide a compelling reason to come to the metaverse. Given the proliferation of smart devices and lower than ever barriers to entry into a global service economy, the war for attention in the digital world has only just begun, and metaverse experiences, despite their 3D realistic nature, will compete for digital mindshare.

New forms of value exchange in the metaverse

The metaverse is much more than a hangout in a 3D version of internet surfing. This view fails to understand the impact that the combination of Web3 and metaverse will have on the value that can be created and exchanged in virtual environments.

The ability to tokenize assets or create derivative trading instruments using blockchain technology could potentially unlock new business models and create marketplaces for digital assets and client advisory services. Web3 unleashes value models in the creation, storage and exchange of digital assets, while the metaverse provides the canvas on which to paint this new digital economy. Wherever there is commerce, there is the need for trusted intermediaries, even in a Web3 landscape that aims to reduce dependence on centralized platforms.

Today, global brands already sell digital and real world products in the metaverse, creating new revenue streams alongside and expanding product lines. Whether you want your avatar dressed in the latest “metafashion” or shopping the metaverse for actual goods, today users can express themselves and spend their dollars, and crypto, in the metaverse. Creators can monetize their own content and artistry, sell to their peers, and enhance the metaverse experience for others. All of this requires payment infrastructure, including entry and exit to fiat currency. Financial services firms have been de facto reliable sources for such services in the current real world economy, and the metaverse would be expected to provide new opportunities to expand these services.

Currently, tools such as digital wallets to facilitate these transactions are not user-friendly; not well integrated with traditional financial infrastructure; and serve in hybrid roles, including custody for both cryptocurrency and digital assets. The transition from crypto to fiat currency and back is complex, unknown and hinders adoption. These tools can benefit greatly from the decades of understanding that financial institutions possess about how to make tools user-friendly and remove friction from transactions.

Decentralized finance (DeFi) seeks to recreate the financial system in more of a peer-to-peer model, removing friction in transactions and the need for a middleman. Although not dependent, the metaverse and DeFi can evolve in a symbiotic way, as metaverse environments encourage the development of communities, including commerce. Today, creators in metaverse spaces design and market digital goods for consumption in the virtual world. They conduct peer-to-peer transactions on the blockchain, largely without traditional financial intermediaries. Financial services firms can meet metaverse residents where and how they want to transact, making the experience more user-friendly and secure, by introducing technology and services to protect consumers.

Next generation technology

On one level, the metaverse can be seen as a set of immersive technologies, such as 3D modeling, virtual reality, augmented reality, and augmented reality, that can make the digital world feel more real to people or make real experiences feel more digitally connected. These can range from virtual worlds designed in sophisticated game engines, with which users can play themselves for days and hours, to development platforms purpose-built to design discrete metaverse experiences for business functions or social events. While devices such as glasses or headsets enhance these immersive experiences, three-dimensional virtual worlds can add to an experience even when viewed on two-dimensional flat screens.

This evolution to fully immersive virtual reality vs. lighter-touch augmented reality glasses, which place virtual objects in the context of the real world, and even two-dimensional interfaces for three-dimensional worlds, continue to unfold. But this view focused primarily on the user experience technology layer only scratches the surface of what the metaverse could be. Combined with the decentralized infrastructure, digital identity and digital asset ownership achieved through blockchain technology, a Web3-enabled metaverse will be a place where users explore, create and trade with real ownership over content, assets and spaces.

Today in the metaverse, users own NFTs that not only represent digital art, but also penthouses, ski chalets and yachts that exist in the virtual world, where they can invite friends and business colleagues to meet virtually. Technologies such as smart contracts will embed programmable functions in digital assets that enable easy transfer, collateralization and enablement of new financial services.

For companies looking to make investments in the metaverse, it is critical to consider both the interoperability of these new technologies and their level of maturity. Identity, for example, enabled by digital wallets, could replace the ubiquitous logins we use today to traverse digital platforms. A digital wallet provides a way to validate one’s identity and a place to store digital assets. It also serves as a critical element of interoperability, allowing our identity and assets, via our avatar, to travel with us across metaverse platforms, much like a virtual world passport. Connected metaverses where users can move freely between experiences take advantage of the network effect and increase the commercial opportunities available to participants.

The way forward

How to get started in the metaverse is a daunting task, given how hyped and convoluted many of the concepts have become. This first requires an assessment of where in the value chain a firm wants to participate directly and where it needs to partner. Most importantly, it requires a definition of strategic goals and an objective look at a firm’s current capabilities and the development of an overarching roadmap for entry.

Identifying the technologies critical to success, tracking their maturity, and developing the partnerships necessary to execute an entry into the metaverse are all part of building that roadmap. As technology matures and experiences evolve, firms must treat this roadmap as a living guide and continually evaluate progress. The result should be a strategy that aligns with best-fit opportunities relative to current and needed skills.