NFTs Facilitate Metaverse Commerce - But Corporate Giants Might Spoil The Fun

Three months ago, Novum Insights published an article on how blockchain technology is facilitating Web3 business models. It discussed how play-to-earn games such as Axie Infinity and The Sandbox are blurring the line between the creator and consumer, and between the real world and the virtual one. In October last year, Facebook rebranded to ‘Meta’ in the largest mainstream endorsement of the metaverse to date. The move caused billions of dollars worth of funding to flow into the space.  

In 2021 alone, more than $10B was put into metaverse projects, and the current market cap of the metaverse sits at a staggering $31B. If this emergence can be compared to that of the internet, and MetaMask wallets can be considered an indicator of active participants - less than 1% of the full market has yet been penetrated. 

However, the question of how commerce would be enabled in the metaverse is largely unanswered. Projects are now emerging which use NFTs to transfer value seamlessly across physical and virtual worlds. 

The Non-Fungible Metaverse 

In the race to capitalise on the ‘metaverse land-grab’, decentralised protocols have quickly identified a need for value to be easily transferable. For the ‘Web 3’ business models that many are predicting to be crucial to delivering metaverse experiences, traditional payment options will (at least in theory) not be appropriate.

Boson Protocol is one of many projects seeking to facilitate ‘metaverse commerce’ or ‘MetaFi’. The concept is that items and goods purchased within virtual experiences like The Sandbox or Decentraland, should be considered to hold the same value as its equivalent ‘real world’ transaction. Boson allows compatible goods purchased in metaverse games to be represented as NFTs, which can then be redeemed for the real world asset it represents. Likewise, compatible items purchased in real life can be transferred into the metaverse through use of an NFT. The non-fungibility that defines NFTs can allow them to function as ‘receipts’, which can prove ownership of a particular product with specific attributes stored within the token   

Crucially, all of this can be done without the need for a centralised intermediary. Smart contracts are used to operate peer-to-peer transactions that pay both parties. In summer last year, Boson sought to foster growth in the sector with a $5M grant program for development of decentralised metaverse commerce projects. Boson’s native ERC-20 token $BOSON currently sits at around $0.91.

‘Highstreet’ is another relatively new protocol with similar aims. With its native token $HIGH (c. $5.00), products from brands such as Hershey’s, L’Oréal and Victoria’s Secret can be tokenised and sold across different metaverse experiences. The protocol’s liquidity pools (in theory) make purchasing tokenised products as seamless as purchasing their real world counterparts. Investors like Palmdrive Capital, Cherubic Venture and HTC have been throwing their weight behind the project.

Novum Insights Analyst Jessica Kang gave her thoughts on corporate presence in the metaverse:

In the physical world, many brands perceive the metaverse as a lucrative opportunity to expand their digital presence. Consumer-facing brands whose items serve exclusivity were some of the first to enter the metaverse leveraging NFTs’ counterfeit-proof properties. Nike acquired a virtual shoe maker RTFKT. Louis Vuitton, Balenciaga and Gucci have all embraced NFT technology to offer unique experiences. It is not just luxury brands marching in. Furniture brands like IKEA have been offering AR services to assist shoppers. 

As digital merch business led by well-known brands make headlines, metaverse platforms rush to create spaces where they can display their products. A new metaverse platform SPACE, backed by Animoca Brands, Dapper Labs, Digital Currency Group and many others, is focused on the commerce side of the metaverse and enables users to easily design their own virtual spaces like shops, galleries and music halls with point of sale tools integrated.  - Jessica Kang

(Jessica’s presentation on the metaverse can be viewed on Youtube or Slideshare.)

If something can be inferred from this, it’s that investors predict there will be substantial money to be made by facilitating trade in these virtual experiences. The question is who will be earning it? If the metaverse is simply to be an imitation of the existing market, does it have any reason to exist? The idea that all the metaverse might amount to is a new revenue stream for existing industry-giants, would depress even the most cynical technophile.

Does Corporate-Interest Threaten Decentralisation?

There is still little consensus on how metaverse commerce will be facilitated at scale. NFTs certainly seem to be providing the means for decentralised metaverse commerce, but that is very different to it actually coming to be. Some fear that mounting interest from large brands such as Adidas, risks ‘centralising’ the supposed web 3 haven, and returning to corporate dominance. Last year Adidas announced a collaboration with BAYC (Bored Ape Yacht Club), and released its own ‘Into the Metaverse’ series of NFTs, all 30,000 of which sold out within hours of being launched. 

The appeal of the metaverse to the average consumer will most likely be the novelty of the concept itself and its ability to provide new forms of entertainment. Its appeal to developers on the other hand, is very different. To them, the metaverse represents unsullied land, ripe for the emergence of grassroots projects which cannot hope to compete in their comparable real world markets. Clothing for example, has already been ‘conquered’ by corporate giants - leaving negligible market share for upcoming labels. Labels which are once again at risk of being thwarted if the metaverse cannot be structured so that revenue is distributed in a more egalitarian way. And for someone who values the decentralisation of the metaverse, the brand-partnerships with Highstreet should be worrying.  

Regardless of what ends up enabling metaverse commerce, there are few times in history where entire markets have been presented with what essentially amounts to a ‘fresh-slate’. Upcoming projects have been given an opportunity to ‘outwit’ industry-giants through their superior understanding of the technology. While not all aspects of the metaverse will have this be possible, at the very least there is market share to be taken. There’s a virtual pot of very real gold waiting to be snatched by big brands and tech-giants. All developers have to do now is beat them to it.  

Written by Rob Henderson for Novum Insights

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