Corporates are dipping their toe into the metaverse and selling their digital wares in 3D virtual worlds. For most treasurers, however, this technology seems a long way off but those who don’t take the time to understand Web 3.0, and all it entails, could risk being left behind.
Amid the talk and the buzz of the metaverse, it can be easy to forget that people have been living vicariously in virtual worlds since 2003. Second Life was the first virtual world that enabled avatars to connect with others, and live virtual lives doing fairly ordinary things like watching a film or going to a bank branch.
This was a precursor to the metaverse, which many imagine to be a virtual reality (VR) 3D experience where anything is possible. Most people, however, may not be ready for that just yet. The founder of Second Life, Philip Rosedale, said in an interview that virtual reality headsets are like blindfolding yourself and entering a room with people you don’t know.
That kind of bravery isn’t commonplace and most people won’t be reaching for the VR headsets just yet. But there has certainly been a resurgence of interest in Second Life since the metaverse became a buzzword, which was triggered by Facebook’s renaming to Meta in October 2021. In fact, a report by J.P. Morgan estimated that Second Life’s GDP was US$650m in 2021.
With figures such as these, it is clear that there is a business opportunity with the metaverse, which J.P. Morgan estimates to have a market opportunity of over US$1trn in annual revenues. The bank’s Opportunities in the Metaverse report notes there are opportunities to transact, and US$54bn is already being spent on virtual goods, almost double the amount that is spent on buying music. And when it comes to buying digital assets, the market capitalisation of non-fungible tokens (NFTs) is estimated to be US$41bn. Although these products may be digital, and bought with cryptocurrencies, the money they’re making for corporates is very real.
And while the metaverse still seems niche – and only a place for gamers and techies – it is moving from the fringes towards the mainstream. “It is definitely getting bigger and bigger,” says Chuck Cummings, Co-Founder and Head of Finance of Bankless Consulting. He adds that this has been accelerated by the shift to online experiences that occurred during the pandemic.
For many, however, talk of the metaverse can be confusing and many are still struggling to understand what it actually is. They often assume it requires a VR headset. Cummings comments that this common understanding of the metaverse probably stems from the first use of the term in the science fiction novel Snow Crash by Neal Stephenson, where the characters donned VR headsets.
So what exactly is the metaverse? Well, it depends who you ask.
Royston Da Costa, Assistant Treasurer at Ferguson, a plumbing and heating products distributor, points to a definition where the metaverse is the next iteration of the internet, and a single, shared immersive virtual space that is persistent – ie it still exists when you’re not engaging with it.
The metaverse is underpinned by Web 3.0 technologies and concepts, and by some definitions, the metaverse is part of the evolution of the world wide web. Da Costa points to wider context of the web’s development, where Web 1.0 was one-way traffic (a static web page that published information, for example) and Web 2.0 was two-way traffic (like Zoom calls or user-generated content that is uploaded to YouTube). The next stage of Web 3.0 moves into a different realm, one that is open and decentralised, based on blockchain technology where digital assets are tokenised and traded for cryptocurrency, all made possible through decentralised finance.
Some definitions of the metaverse go broader and encompass these Web 3.0 (or Web3) technologies that make interacting and transacting in this world possible. Gaurav Gopinath, Head of Legal at Bankless Consulting, a firm that specialises in Web3 consultancy, comments, “Web3 is not just the metaverse, and the metaverse is not just Web3.” He comments there are many definitions of the metaverse out there and it does not have to involve virtual reality. He applies a broader definition of spaces where the real world touches the virtual. This could be gamers playing Roblox games and spending real money, which has been converted into a virtual currency, for example. “The metaverse blurs the lines between virtual and reality,” Gopinath says.
The metaverse can be a virtual world where people interact and transact. What makes the metaverse distinct from Second Life is the virtual economy that is being created through the sale of digital assets. Individuals are living out economic lives through their avatars and amassing assets – and buying property – all of which creates huge opportunities for corporates.
While buying goods in a virtual world may not be new, what is different – and significant – is that the virtual worlds of the metaverse are interoperable, and it is possible to take your assets from platform to platform.
It can be easy to dismiss the trading of virtual products – such as NFT art selling for millions – as speculative hype. Could buying shoes that don’t actually exist in the real world be akin to overspending on tulips at the height of the Dutch Tulipmania bubble in the 17th century?
Not necessarily. Cummings explains the significance of owning such digital goods. Many consumer brands are creating digital versions of their products – such as Nike trainers – and selling them for real money. The owner is then given digital proof – the token – that they own that particular pair of trainers. Why would someone spend a relatively large amount on such trainers? For the same reasons they do in the real world, explains Cummings. “Humans have a basic need to express their status, compare themselves to others and show off their wealth or uniqueness. People do this online just as much as they do in the real world,” he says.
Why this is significant in the metaverse, explains Cummings, is that previously gaming and social platforms were not compatible – it is not possible to take your Facebook friends to Twitter, for example – and if you bought something on one platform, you couldn’t take it to another. Now with crypto, and the underlying layer of all these virtual worlds, you can prove digital ownership of something in all these virtual worlds.
A metaverse report by Deutsche Bank outlines how this could work in practice. A retailer, for example, could drop an NFT to a customer’s wallet as a reward, which allows their avatar to wear a jumpsuit in the metaverse. And the customer could redeem the reward for a physical jumpsuit to wear in real life. That jumpsuit could carry a chip that is linked to the NFT and allows the retailer to see where its garment is being worn and when; if this customer is an influencer, for example, they could be sent more rewards.
Consumer brands have already been doing this kind of thing and launching products and services specifically for the metaverse. Fashion brand Zara, for example, released its Lime Glam clothing collection for avatars in the Zepeto virtual world in 2022. In commenting on this news, fashion magazine noted, “We are living in a world where what we look like online is becoming just as important as our IRL [in real life] appearance.” Zara also released virtual nail polish for avatars to wear with the new clothing line.
Entry into the metaverse can be for a number of reasons, notes the Deutsche Bank report. The jumpsuit example could be a promotional exercise that enhances a customer relationship and loyalty to the brand. And the Zara collection example is a way to create a new revenue stream for the retailer. Alternatively, a company could enter the metaverse to create a new channel for communication, such as a bank opening a branch in a virtual world.
Accounting is a new kind of challenge for this space.
Chuck Cummings, Co-Founder and Head of Finance Bankless Consulting
Virtual technology is fast catching on, and companies are already applying it to enhance their existing offerings. Da Costa points to tools such as Matterport 3D virtual viewings that allow real estate agents to conduct virtual property viewings. Seizing such opportunities requires a shift in thinking for companies, and an awareness of the potential of such technologies. Part of this is being open and forward-thinking. Da Costa illustrates this kind of approach with how his company Ferguson was able to adjust to the pandemic. When lockdowns occurred, the company was not thrown into disarray because it had already done its thought exercises – and business continuity planning – and had already prepared for an eventuality where its employees would have to work from home. Although at the time no one predicted there would be a pandemic, the company’s preparedness meant it was able to adapt quickly.
When it comes to the metaverse, Da Costa says that the technologies and the possibilities are not really touching treasurers’ world, unless they work for gaming companies or businesses that are directly operating in the metaverse. He argues, however, that treasurers need to wake up to the possibilities because of the pace at which the technologies – and applications – are developing. Treasurers need to be aware and be prepared, he says. “There is not a magic pill that anyone can take. What we can do is make sure that you are suitably equipped,” Da Costa comments.
When dealing with the kind of future that the metaverse heralds, there may be a shift in thinking required by treasurers. Cummings explains that the major difference with the metaverse is the use of cryptocurrency, which is required for processing any transactions. This can be a steep learning curve, and it is becoming increasingly difficult in the context of regulators taking harsher action, such as the charges that the Securities and Exchange Commission filed against crypto exchange Binance in June 2023. This is making it harder for people to acquire cryptocurrency and to buy and sell digital assets, says Cummings. Also, it is becoming harder for businesses to get accounts that link to crypto exchanges because of the compliance burden on banks in the face of regulatory pressure.
Another challenge for treasurers, which is different from how traditional treasuries are run, is with the accounting. “Accounting is a new kind of challenge for this space,” says Cummings. He explains that because crypto is usually volatile, it can be difficult to account for its value when it is changing so frequently. Although there are software solutions in the market, it can still be difficult to integrate them for the purposes of tax reporting.
As the legal expert at Bankless Consulting, Gopinath makes a broader comment that the rules – both accounting and legal – have been set up for the traditional way of doing things. One concern is that with applying old rules to a space like the metaverse, it runs the risk of hampering innovation and holding back progress, he says.
Companies have the opportunity to buy and sell digital goods in the virtual worlds of the metaverse. And they also have the chance to apply the technologies – such as VR and headsets – to new ways of working.
On the practical side of what the metaverse could mean in the course of a working day, Da Costa points to the development of working practices from the pandemic and how many working patterns have adjusted to the virtual world. This, Da Costa believes, falls into the realm of the S of ESG [environment, social and governance] whereby the S – social – can be about creating working practices that are flexible, for example. He argues that the younger generation that is now coming into the workforce is not willing to compromise on flexible working, and also prioritises their mental health.
With flexible and hybrid working policies – eg two days in the office – there is more potential for employees to get immersed in the metaverse. If you take a loose definition of the metaverse – where the virtual and the real collide – then even Zoom calls are in the metaverse. And if you take a definition where the metaverse involves virtual reality, that Zoom call can take on a different dimension with a VR headset on. Zoom calls could then feel like you are in the same room as your colleagues. Or you could have a meeting on the beach in the Bahamas, or an office on Mars – whatever takes your fancy.
Another application of virtual technology, explains Da Costa is with digital twins. This technology creates a virtual representation of something that a company has created or has an interest in, such as a city, a financial system or a complex product. A digital twin is created, which can then be stress tested. In theory, a digital twin could be created of a corporate’s treasury operations and then tested with different scenarios, such as a natural disaster, oil price shock, supply chain disruption and so on. This could be really valuable to treasurers, says Da Costa, as they will be able to visualise – in real time – what would happen to their cash balances in such scenarios. “Seeing things is so much more memorable and powerful,” he says.
In the face of such new and powerful technologies, the discussion can focus on how humans are becoming disconnected from each other, or may become unnecessary and irrelevant in their current roles. This is not how Da Costa sees it, however. He doesn’t think that avatars, virtual worlds, AI and machine learning are replacing the need for humans, or the human experience. Rather, he believes such technologies help foster effective communication with colleagues in the virtual world, and then free up time for treasurers to build relationships and connect in the real world.
Treasurers who are thinking of getting involved in the metaverse would still be in the early stages of the technology adoption curve (the model that consultancy Gartner outlines as having five stages: innovators, early adopters, early majority, later majority and laggards). Cummings argues that with the metaverse we are still in the early adoption phase. He urges everyone to dip their toe in and understand how it works. He cautions that things won’t always work as expected, everything won’t be fully robust, but that is part of the process of understanding a new technology in the early stages of the adoption curve. By the time everybody else jumps on board with the metaverse, it may be too late for some to get properly involved.
And Da Costa’s advice to treasurers about the metaverse? “Embrace it, but don’t forget the basics – you need to be fully versed in the fundamentals of treasury management,” he says. And finally: “If you are not prepared to move you will get left behind.”
