Grayscale Research is the Research arm of Grayscale Investments, a cryptocurrency asset manager.
The report outlines Grayscale’s view on the Metaverse, the market opportunity, web 3.0 economy and its financial potential.
I also provide my own take on Grayscale’s report and some potential pitfalls to be aware of.
“The Metaverse is 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.”
Grayscale start by discussing the evolution of the internet from:
Web 1.0: Read-only interfaces by early web browsers with largely static information.
Web 2.0: Read-Write interfaces by new web browsers and mobile applications allowing more complex interactions paved by centralised organisation like Facebook and Google.
Through to Web 3.0: Read-Write-Own interfaces — yet to mature, however through Blockchain technologies, a virtual ‘Metaverse’ where participants can own their virtual assets and interact with the virtual economy and world.
Grayscale believe that the way products, services, business & politics are currently used in today’s iteration of the web; Web 3.0 has the potential to do the same.
“A greater and greater portion of our attention is going towards digital activities, especially for younger generations. Today, ~1/3rd of our lives (~8 hours/day) is already spent watching TV, playing games, or on social media.”
Grayscale continue to explore the parallels of revenue generation and economic growth on digital platforms. Today gamers and users of Web 2.0 are spending their time and money building their brands and competing for prizes which are largely organised by large centralised corporations (think Twitch, Fortnite, Instagram, Twitter).
Web 3.0 offers an alternative model where users can take more control of the content they create and monetize their digital assets directly through Non-Fungible Tokens (NFTs) on the Blockchain. “This evolution of the “creator economy” is known as “Play to Earn”.
Gaming appears to be the first market where users are starting to move into these ‘play to earn’ areans e.g. Axie Infinity. However Grayscale believe the Metaverse market will extend far beyond gaming into advertising, events, real estate & software development.
Web 3.0 Economy
“Web 3.0 crypto Metaverses are emerging market virtual world economies with a continually developing complex mix of digital goods, services, and assets that generates real-world value for users.”
Grayscale looks at the Blockchain-based gaming stack and how in-game assets for blockchain based games are part of a free market economy built on infrastructure which is generally open source.
On top of the layer one Blockchains which we know (Etherum, Solano), developers have been creating scaling solutions, payment infrastructure and open market places to trade games and in-game items. All of this together help support the Metaverse virtual economies.
“Crypto virtual worlds have created a multi-million dollar primary and secondary market for creators and asset owners by eliminating capital controls and opening their digital borders to free market capitalism.”
As Grayscale have astutely noticed, the Web 3.0 market is emerging and has the potential to change the status quo. However there are some potential issues here which the report did not address:
- Regulation — with more capital moving to support decentralised virtual economies and play to earn games we can expect the tax man to come asking for their piece of the pie
- Scale — many of the virtual worlds would struggle to simultaneously hold multiple users in the same world; the technology still has some way to go before we can all attend the same concert (and interact with each other there)
- Corporate fightback — it’s unlikely the large centralised players in the Web 2.0 world will allow capital and ownership to flow away so easily so we can expect some response here (Facebook has already renamed to Meta)
“The market opportunity for bringing the Metaverse to life may be worth over $1 trillion in annual revenue and may compete with Web 2.0 companies worth ~$15 trillion in market value today. This potential has attracted companies like Facebook to pivot towards the Metaverse, which may serve as a catalyst for other Web 2.0 tech giants and investors to follow.”
Grayscale believe there is a lot of potential upside to the Metaverse economies taking off. After all, they do hold over $50m in the Decentraland token ($MANA) at the time of writing.
I’m excited to see the opportunities for content creators who will be able to take more ownership of the content they create. Imagine you could control every aspect of your video or meme you created in the virtual world so you wouldn’t have to go through an intermediary like Instagram, YouTube or Twitter — perhaps there will be an open source alternative in the metaverse. You could dictate your own terms for capturing personal information, advertising and re-use.
As with all of these platforms, one of them will get it right and as soon as we see mass adoption, it will take off — I do hope to participate and will be buying my own virtual assets over the next few years.