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A Nation-States View of the Metaverse

Validated Individual Expert

Attempts at defining the metaverse have been made countless times. I say “attempts” because no one still has any clue what the end form will be. Lofty projections conservatively put the total addressable market (TAM) as a multi-trillion-dollar opportunity in only a few years’ time, but how and if we will get there is still anyone’s best guess.

In this piece, I put my two cents in and explore one potential form that the metaverse could eventually evolve into. It is a grand but realistic vision that we are already making early steps toward.

What a Metaverse is NOT

First, what is a metaverse for purposes of this article? Let’s start with what it is not.

If you search through CoinMarketCap’s metaverse token rankings or even do a simple Google search for top metaverse tokens (see here for a recent one from Forbes), it is not surprising that the public has no idea what to make of the metaverse. Almost all results yield misleading rankings and blur the identity of what the metaverse in my opinion stands for.

For example, some common names on these lists are protocols like Internet Computer and Theta Network. If a blockchain network provides the infrastructure that enables the metaverse to thrive, that is great but it does not mean it should be considered a metaverse itself. Relevant picks-and-shovel businesses are vitally important and should rightfully be included in the broader metaverse TAM, but they need to be defined or categorized as such.

Secondly, almost all of these rankings uniformly include every gaming-related project or token they come across. As you will soon see below, I believe some blockchain games can be metaverses, but not all of them are. Merely adding Web3 mechanics to a game does not turn it into a metaverse. No distinction is made here, and everything is just lumped together without much thought.

However, other names on these lists, like Decentraland and The Sandbox, are properly captured. Let’s explore why.

Defining a Metaverse Through Three Features

To me, a metaverse can come in wide-ranging forms. It can be 3D, pixelated, gaming-focused, sports-oriented, fashion-centric, etc. However, three core features are needed.

Open World

An open world is one in which players/users approach objectives freely. Think of it as if you were just dropped into a new world but in digital form. Go where you want, do what you want, socialize with others, and be free. There is no linear or scripted path to follow.

There is some overlap here with a lot of immersive video games that have launched, like The Legend of Zelda: Breath of the Wild and Red Dead Redemption 2, to name just a few. However, these games lack other features which prevents me from labeling them true metaverses (explained below).

Web3 Infrastructure

In a free, digital open world, is your progress done when you turn off your computer, or will your actions echo in eternity? A bit melodramatic (Gladiator quote), but it’s to prove a point. Back in my GTA San Andreas days, I would crush it at the casino and look fly doing it. However, everything I amassed meant nothing in the end — when I stopped playing the game, that chapter ended.

Blockchain technology changes the game. It is the key enabler for creating virtual worlds that parallel our real-life lives, not just optically but also in terms of value sharing and property ownership.

Here’s an illustration. Think back on a car, furniture piece, clothing item, or anything else that you interacted with in a video game. When you turned off that game, that item’s existence turned off with it. However, what if that item, written into its code, were unique from all other such items. Its identity would extend beyond the game itself — for example, you would potentially have the ability to move it into other digital worlds, where it would still retain its being and use case. And like anything unique (whether digital or physical), in a free market people may also ascribe real-world value to it. This potential is what NFTs unlock. In the metaverse, any single item can be an NFT, and therefore what you manage to collect or purchase digitally lives on.

Web3 infrastructure therefore shifts ownership and control back into the hands of the users, just like in real life. Below is a nice quote paraphrasing this idea in the gaming context (full article here).

“The mission should be to create a better game, which under the hood uses Web3, so that people have a better experience and have digital property rights. It’s this lie that has been sold to consumers for the past three decades that just because something is intangible, you should have zero rights to it.” — Immutable co-founder Robbie Ferguson

More Than Just a Game (Game+)

This last feature is a bit hard to define, but is what separates a metaverse in my mind from, for example, a pure blockchain game. Let’s call this feature “Game+”.

Since metaverses are virtual worlds, it is only natural for gamification to play a huge role in their future development. The appeal of just walking around with a digital avatar and doing things like shopping and chatting might wear off fast, and therefore gaming will be what keeps people around. But how do we then distinguish between an open-world blockchain game and a metaverse? It’s hard to do, but here is one way I think about it.

If there is an overarching objective to the entire world, that is more like a blockchain game and not a metaverse. Metaverses should therefore comprise at lease some other element that broadens its scope away from a traditional blockchain game.

Open, Creator-Centric Models. One way to do this is by developing a creator-centric model in which all can participate. The easiest way to understand creator-centric models is by looking at classic sandbox games like Minecraft. These are open-ended formats with no ultimate objective that provide players a great degree of freedom to interact with their environment in creative ways (e.g., build houses, farm resources, etc.). The imagination is really the only limit in terms of what you can create and play around with, and anyone from kids to company brands can take part.

Outside-World Presence / Interoperability. But what about MMORPGs then? Most of these are not sandbox-style games, but they are open-word, include a high degree of social interaction, and are focused on character progression rather than linear gameplay. I actually do think Web3 MMORPGs can be classified as metaverses, but they need to have some touch with the outside world and/or have some degree of interoperability with other platforms. Without these additional elements, they remain solely a game.

For example, if a real-world brand is able to purchase a piece of land in an MMORPG and set up shop, this would make it a metaverse in my mind and expand beyond something just being a game. Likewise, if I am able to take an item I collected in one MMORPG and use it in another metaverse, this provides interoperability and use case beyond the game itself.

Metaverses as Nation-States

Classifying metaverses as Web3-enabled, open virtual worlds with Game+ elements (interoperability, creator-centric, etc.), let’s now think big.

When I think of the future, it has tens or even hundreds of thriving metaverses of all different kinds. No one metaverse needs to win out for the industry to thrive. If I want to play some Madden-style football while shopping at Nike on the side, maybe there is a metaverse tailored for sports. If I want to interact with my favorite Marvel characters, Disney or some other partner can potentially create an entire comic-themed world for me to explore. Or if I just want to get lost and do my own thing sandbox-style, I can hop into a metaverse similar to what NFT Worlds is building. The possibilities are endless.

It is then possible that a lot of these different metaverses eventually start acting like their own nation-states. In the real world, every country has its own economy, governance, and appeal (sites, history, etc.). Each of these factors are affected by what a country produces, what policies its government endorses, and so on. The same concept can be extended to individual metaverses. Not only could each metaverse have its own specific cryptocurrency, but the strength of that currency would be a function of how each metaverse is structured as well as its popularity.

For example, in The Sandbox, users will need $SAND to make any purchases from that ecosystem, and the valuation of $SAND can change based on market factors. These factors can extend beyond supply/demand for marketplace items and might also include forms of token sinks that reduce supply on the open market or other creative ways to stabilize the currency’s value, just like what a government considers when it conducts monetary policy by adjusting the supply of money. This might also include influencing or partnering with other metaverses for purposes of user growth and/or economic stimulus.

The end state of the metaverse could therefore comprise a whole digital universe full of interoperable, virtual ‘nation-states’ each with their own economy and focus.

I would not be surprised if this structure then allows for people to work full-time within a metaverse of their choosing. For example, if I am a digital store owner or run a business like a virtual casino or museum, it probably makes sense for me to hire service to answer user questions directly within the platform. This is where creativity can really take over as well. What if a Sims-style metaverse were created that mirrored everyday life, full of digital homes, jobs, shops, social standing, etc. Salaries could be paid by in-game token faucets (akin to governments printing money) governed by a DAO and run by the community. If popular, companies and brands would be fighting tooth and nail to set up shop and participate. Then another metaverse might be based on virtual Mars with its own types of jobs and economy, and so forth.

Obstacles and Closing Thoughts

This piece only represents an idea, but if achieved could potentially meet the high expectations everyone has for the metaverse as it relates to its ultimate impact on society and existing businesses.

However, a number of obstacles stand in the way, not least of which concerns continued development of blockchain tech to enable frictionless experiences for users (e.g., automatic wallet configuration, no gas fees, near immediate item transaction times, etc.). Without this, mass user adoption beyond crypto natives is difficult. And without fun and immersive gameplay, users will get bored and stop coming altogether.

Future regulation is also a question mark. The SEC continues to ramp up enforcement against issuers of digital assets and other market participants, and there is still very little guidance as to whether tokens in general should be regulated as securities. We are still probably a long way off from having any clarity here, so this factor will continue as a significant risk and probably prevent traditional companies from touching token economies for quite some time. It is likely that some metaverses will also launch with stablecoins or fiat money backing them as a result.

Government regulation aside, companies remain slow to enter the metaverse and some have taken hostile stances against Web3 technology as a whole. For example, in July 2022 Minecraft effectively banned NFTs and other blockchain technologies on the Minecraft server, making it impossible for the Minecraft ecosystem to be considered a metaverse under my definition. This stance by Minecraft only contributes to the stigma associated with crypto and NFTs, which is an unfortunate result. I can still understand if people want to classify Minecraft and other similar platforms like Roblox as metaverses, but I personally consider Web3 mechanics as an important part of the definition. Without digital ownership, these remain games for publishers’ profit rather than a promise to transcend reality through user control in virtual worlds.

We are still barely above the ground floor in terms of metaverse development and numerous obstacles remain in the way before mass adoption can occur, but I have high hopes for the impressive talent that continues to build and trailblaze their way forward.

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