Preventing Corporate Takeover: Regulating the Metaverse

A new study conducted by the Bank for International Settlements (BIS) highlights the importance of interoperable payment technologies in order to prevent the metaverse from becoming fragmented and controlled by powerful private interests. The metaverse, which refers to immersive computer-generated environments, gained significant attention in 2022 following Facebook’s rebranding as Meta. The study notes that widespread adoption of the metaverse is not guaranteed, as some of its use cases are considered gimmicky. The metaverse has shown potential in various sectors such as gaming, e-commerce, education, and healthcare, with the market value expected to reach trillions of dollars by the end of the decade.

The study categorizes the metaverse into two types of platforms: centralized and decentralized. In the centralized approach, corporations own the platform and have complete control over the payment system, regardless of the payment method used. These platforms may have a native token that can be manipulated for stability or to restrict user transactions. Examples of such platforms include Roblox’s Robux and Second Life’s Linden dollar. Decentralized platforms like Decentraland and The Sandbox rely on cryptocurrency exchanges to connect with the wider economy. The study also suggests the possibility of tokenized deposits and central bank digital currencies (CBDCs) playing a prominent role in the metaverse’s payment systems, particularly for cross-border applications.

The authors of the study emphasize that users of the metaverse often prioritize usability over technical aspects, as evidenced by their limited concerns regarding metaverse governance. The decentralized metaverse currently represents only a small fraction compared to the centralized metaverse. The metaverse has the potential to reshape the world economy by blurring the traditional distinction between tradable and non-tradable sectors, promoting international integration, and transforming the labor market.

To reap the benefits of the emerging metaverse, the authors suggest that central banks and regulators must focus on promoting efficient and interoperable payment systems to meet user demands. This approach is crucial to avoid fragmentation and dominance by powerful private firms within virtual environments and money. The study concludes by praising its clear language and argument structure, noting that it contains dense information across its 29 pages.