A version of this story first appeared in Campaign Asia. Click here to read it.

Ever since Facebook rebranded itself as Meta and declared itself a champion of the metaverse, everyone wants to be part of the metaverse conversation.

Matthew Ball, author of The Metaverse, says the metaverse is the ‘fourth wave’ of computing: “It’s about being always online rather than always having access to an online world.” This vision of an always-on world has exciting implications for how we might live, work, and play in the future.

Many brands are eager to get in the metaverse game for a head start on the next digital frontier. At present, however, the metaverse is still a concept in its infancy. There remain many grey areas that brands must first do their due diligence on to decide whether they should make a metaverse play now, or whether waiting is the smarter choice.

The race to the metaverse

Broadly, we understand the metaverse as a convergence of our digital and physical lives. It is a world where both of our existences will carry real importance.

By 2026, Gartner says, a quarter of us will be working, studying, shopping and socialising in the metaverse for at least an hour a day. It will have a ‘virtual economy’, which will include digital currencies and non-fungible tokens (NFTs), to buy, own and sell digital or physical items online. The metaverse technology market alone is already projected to hit US$224 billion by 2030 — to say nothing of the revenue opportunities it will create for companies across sectors.

Unsurprisingly, we are seeing brands experimenting with new metaverse experiences to establish first-mover advantage in what could be a very lucrative new space.

Last year, Hyundai launched its Hyundai Mobility Adventure metaverse space in Roblox, an online entertainment platform and metaverse frontrunner, to showcase its products and future mobility solutions. Recently, Meta launched an online store for Facebook, Instagram and Messenger users to buy digital clothing for their virtual avatars — and luxury labels like Prada and Balenciaga already have designs for sale on it.

Other brands are choosing to dip their toes in first by buying digital land — despite prices skyrocketing by as much as 500 percent. In January, consultancy giant PwC bought virtual LAND in The Sandbox, a blockchain-based 3D open world game. Sportswear leader Adidas and gaming brand Atari number among PwC’s neighbours; the former aims to build exclusive content and experiences, while the other plans to build a virtual theme park with a unique digital economy.

Staying authentic in the eye of the storm

With everyone seemingly hopping on the metaverse train, it is natural for brands to worry about the potential opportunity cost of not following the crowd. It does not help when they are being bombarded by a myriad of articles and podcasts touting metaverse strategies and best practices for brands. But as far as I’m concerned, it always comes back to authenticity.

Brands are used to deciding what platform to advertise and engage on based on where their audience is, as well as which is more authentic to the brand’s image.

An apparel brand for young adults may create trendy TikTok and Instagram video content to appeal to the younger demographic, while brands focusing on mass market appeal may have more outdoor advertising and TV ads to get as many eyeballs as possible. Deciding whether to participate in the metaverse requires similar considerations.

Brands need to think about:

• Who and where is your audience?
• What are the messages you’re trying to propagate?
• Does a metaverse presence support your brand message?
• Is the metaverse the right medium to spread your message? Are there better alternatives?

Clubhouse’s meteoric rise and fall is an excellent example of why brands should not jump on trends for the sake of it. I am not saying this will happen for the metaverse, but the lesson remains relevant. At this point, we still do not know what the metaverse will even look like — what we are being sold now in the fancy teaser videos are still concepts and fantasies.

Brands that do decide to take the plunge must approach the metaverse as its own platform. They cannot hope to simply transplant a social media campaign into the metaverse — they must experiment, prepare for a lot of trial and error, and build things organically and in real-time. The key is always to focus on the storytelling — that has never changed, regardless of medium.

Who protects the metaverse?

Another aspect that brands must not forget when it comes to the metaverse is the question of ethics. For the metaverse to achieve popularity and longevity, it must be safe enough for people to interact, purchase, engage and invest in it comfortably. Unfortunately, we are not at that stage yet.

For a long time, the business model of Web 2.0 (our current iteration of the Internet) companies revolved around speed and profit: in fact, Facebook’s mantra was ‘move fast and break things’ until 2014. As a result, ethical standards and enforcement could not keep pace. Facebook is infamous for its inadequacy in dealing with ethical issues around data usage and collection, as well as its opaque content moderation standards. It may have a new name now, but its problems remain.

Brands in the metaverse cannot afford to ignore the ethics question. Already there are numerous accounts of virtual harassment in the metaverse, ranging from virtual groping to more violent behaviour. Meta’s latest answer was to institute a four-foot ‘Personal Boundary’ between avatars in its Horizon Worlds VR experience, but this seems reactive and insufficient.

“Designing mechanisms for ‘doing better’ is not beyond an ecosystem that is responsible for designing a virtual world in the first place.” — Mark Read, CEO of WPP

The real-time nature of the metaverse also works against it here. It will be extremely challenging for brands to monitor and regulate at speed — especially given the lack of satisfactory moderation standards in today’s Web 2.0. Managing information privacy and user safety is another question; how will brands protect both users and their sensitive data, and what is the scope of their liability?

No one has the answers yet, but finding them must be top priority for brands seriously considering making a metaverse play.

Take the good with the bad

The technology and the possibilities of the metaverse excite me. If the metaverse does succeed in cementing itself as a cornerstone — if not the nexus — of Web 3.0, then the question will not be whether brands should participate in it — it will be when.

If done well, the metaverse will provide brands with a huge opportunity to create new and immersive experiences for consumers, as well as pioneer new forms of engagement. However, we cannot also ignore its dark side.

The metaverse is presented as a new, decentralised Internet experience, but it is still driven by large businesses that focus on growth and profit — many of them the same ones that have shaped our Internet experience today, with all its features and flaws. Content moderation and digital addiction will both be huge issues that the ecosystem must tackle as a whole for effective and positive change.

With everyone hopping on the metaverse train, it is natural for brands to worry about the potential opportunity cost of not following the crowd. But as far as I’m concerned, it always comes back to authenticity.

What we have now is the relative advantage of time. With the metaverse still in its infancy, brands have some space to plan proactively instead of trying to play catch-up.

Decision-makers must tackle these difficult but necessary questions now about the suitability of the metaverse for their brand, as well as the ethics and regulations that it must uphold for them to participate productively. Joining the metaverse should be an informed, planned choice, not blind bandwagoning or as a last resort.

Ultimately, my advice to brands is: always look before you leap. Do not get dazzled by the metaverse hype. Stay focused on the story you are trying to tell and who the audience is that you are trying to reach. Those are the most important — no matter what universe you are in.

The post Should brands participate in the metaverse? appeared first on Redhill | Global Communications Agency.

Anyone watching the non-fungible token (NFT) space over the last year would be forgiven for throwing their hands up in bewilderment. Not unlike the 2017/2018 cryptocurrency market, the NFT market has produced some staggering numbers. US$1.2 billion in sales in July of this year alone, US$2.5 billion in Q1 and Q2. Some would say it’s sheer lunacy, others would be quick to point out that we’ve only scratched the surface. Either way, or somewhere in between, the NFT train has well and truly left the station. The question is: where is it heading?

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We tend to like money, or chasing after it at least. Nowhere has this been more prevalent than speculative bubbles. History provides us with so many examples. Tulips (although this does seem to be a matter for debate), comic books, real estate, tech stocks, commodities, uranium, cryptocurrency, postage stamps. That they keep happening demonstrates just how important quick profit is to us.

NFTs, particularly those representing digital art and collectibles, have been identified as some as the next bubble. I hear people outside the space balk at some of the prices paid for digital art. US$69 million for a Beeple? US$150,000 for a CryptoPunk? And if they’re not balking, they’re seriously wondering what the point of digital art is. It’s not like physical art that you can hang on your walls and admire, they say. It comes across as gimmicky. ‘Can I even display it somewhere?’ they wonder. More on that later.

But first, for the purposes of this article, a distinction should be made between what we commonly know as an NFT (i.e., digital art) and what an NFT actually is. A work of digital art is not itself an NFT. Instead, it’s the ownership of the work that is represented by an NFT. This is important because it helps expand the horizons of what’s possible.

Digital art just happens to be the object that has vaulted NFTs into the spotlight. But there are so many more use cases than digital art. Or even physical art, for that matter. Ownership in literally anything can be represented by an NFT. A sports card, a complex financial instrument, a whisky cask, a contract, an identity. The list goes on.

As such, we seem to be on the verge of something quite big. Not as big as, say, the internet, mind you, but big enough where we should take notice. The way we manage, invest in, sell, and leverage assets is about to change. But we’re stuck somewhere between the desire to modify existing processes and the skepticism that precedes most lasting technological change.

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This change is possible because of the ability to tokenize assets. When you create a token that represents legally recognized (I can’t stress this enough) ownership of something, and that token resides on a distributed ledger that can’t be altered by special interests, and that token can move freely in and out of, say, decentralized finance protocols, you have enabled peak asset efficiency.

The traditional financial sector advantages are obvious. The reduction in documentation alone will save millions. It’s the benefits to the average person that remain to be seen. Yes, in theory we’ll be able to find liquid markets for any asset we own, or have our identity represented as an NFT, or finally have a global copyright system. But at present, these things feel far away. If regulators can’t figure out what to do with Bitcoin, how long will it take until they confront the possibility of, say, NFTs for identity?

While we’re waiting, though, there is another massive use case for NFTs. One that isn’t in the physical world, as such; one that goes far beyond digital art.

The metaverse.

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Metaverses are, in short, shared digital 3D spaces. They can be completely imaginary, made to emulate the real world, or fall somewhere in between. People, represented by avatars, can inhabit these spaces, communicate, trade, and do pretty much anything else that can be done in the real world.

Metaverses aren’t a new phenomenon. Author Neal Stephenson coined the term all the way back in 1992 in his novel Snow Crash. Ready Player One features a metaverse, as does the game Second Life.

What’s different about the metaverses we are seeing today — Decentraland, The Sandbox, and others — is that they are decentralized by design. No single entity owns or controls them. They leverage blockchain networks for things like issuing a native currency, voting on proposals, and ensuring object ownership.

Where do NFTs fit in? They provide the backbone of object ownership. Every single thing that exists in a metaverse, from land and buildings to creative works and avatars, is represented by an NFT that resides on a public blockchain network — meaning anyone can verify ownership at any time.

If you buy land, the metaverse knows you own it not because a property registry entity says so but because an immutable and metaverse-wide public record says so. Same goes for your avatar (identity), house, and any other object you buy or create. No one can subvert the ownership record and there can be no expropriation or confiscation.

We don’t even have this in the physical world. Property registries aren’t always respected, copyright infringements happen on the regular, and confiscation remains a punitive measure selectively imposed by authorities. Even if you put a physical-world property registry on the blockchain, the authorities can still choose not to respect it.

So far, the role of NFTs in the metaverse is perhaps best exemplified by Sotheby’s foray into Decentraland. Every object, from the digital replica of the auction house’s galleries, the avatar of Sotheby London Commissionaire Hans Lomulder, the digital art hanging on the walls, and the auctioned items, are represented as NFTs that can be bought and sold within Decentraland and, in some cases, transferred between metaverses as well.

The obliteration of ecosystem silos is what makes that last point — termed interoperability — so intriguing. Imagine being able to seamlessly move objects from one metaverse to another with ownership respected in both jurisdictions. Or transcendental copyright and identity systems. These are important things for any society, physical or digital.

It is worth noting, however, that interoperability is still very much a work in progress, both at the blockchain and metaverse levels. The potential is there, and we have groups like the Open Metaverse Interoperability Group to guide the process, but it will take time and diligence to keep metaverses truly open.

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While it is true that NFTs have great potential in the physical world, it could be a while before we see any widespread usage outside of the financial sector. Regulation and infrastructure need to catch up, as do our own understanding and willingness to trust a new ownership paradigm.

Blockchain-based metaverses, in stark contrast, are ready now. NFTs are part of the foundation, not some add-on. They are leveraged by design to create societies in which we can trust ownership records and get fair value for our creative work. And as metaverses continue to mature and expand, it’s not outside the realm of possibility that we use them as testing grounds for NFT applications in the physical world.

For those not guided by the quick profits afforded by bubbles, a future with NFTs is only just beginning. I, for one, am excited to see where the NFT train takes us.

The post Hitching a ride on the NFT train appeared first on Redhill | Global Communications Agency.

On August 11th, 2020, a new decentralised finance (defi) protocol called Yam Finance had over $500 million locked within its first 24 hours of existence. The price of its governance token (YAM), issued to users of the protocol, quickly jumped to $167.

On August 12th, 2020, an irreconcilable bug was discovered in one of Yam Finance’s smart contracts. Shortly thereafter, the YAM token price crashed to $0.97. The protocol is now defunct, prompting an apology by the CEO and equal measures of derision and support from the defi community.

Yam Finance, and many others like it, are a symptom of something called “yield farming” — a friendly term to describe the relentless pursuit of free money. At its simplest, yield farming is taking the crypto that you own and using it to make more crypto. In Yam’s case, you could lock your crypto into the protocol, earn YAM tokens, and then eventually convert those YAM tokens into fiat currency. Sounds too easy, right?

Some have likened the current yield farming craze to the ICO chaos of 2017. Projects springing up out of nowhere, issuing tokens in exchange for millions of investor dollars, and then just as quickly vanishing into the ether. 80% of ICOs in 2017 were reported to be scams. And while the jury is still out on the usability and integrity of defi projects, this phenomenon does raise the question of who defi is really helping?

Is it the world’s unbanked, as many of the original defi projects claim? Or is it those with the right combination of technical and financial privilege?

What is decentralised finance?

At its core, defi is finance without the fee-sucking middlepeople that make traditional finance accessible only to the comparatively wealthy. It means access to liquidity for anyone, even at small volumes, and, theoretically, very little opportunity for the many discriminatory practices that plague the existing system.

A good example is a lending protocol. Normally, if you wanted a loan, you have to go down to the bank and present collateral. If you don’t have collateral, then you would visit a payday lender who would charge you extortionate interest rates. No matter which path you choose, discrimination looms large. Wealth, skin colour, tattoos, piercings, accent, you name it. Lenders seem to have no issue with making discriminatory decisions in the name of profit.

With a lending protocol, there is no bank. There’s just a group of people like you who contribute money to a liquidity pool. What the protocol does is use an algorithm to determine borrowing and lending rates based on how much of the pool has been utilised. As the pool utilisation approaches 100%, the lending rate increases to incentivise lending. The reverse happens when utilisation approaches 0%: the borrowing rate decreases to incentivise borrowing.

As a borrower, you are represented by nothing more than your wallet address — a random string of characters. The algorithm doesn’t care who you are or what you look like. If you have collateral, you can get access to funds at fair rates, whether you’re borrowing $10 or $10,000.

Who is defi supposed to help?

Many of the initial defi projects were ushered in under the banner of “banking the unbanked.” Founders salivated at the number of unbanked people globally and likely thought, “This is the world’s largest untapped market. If only we could get 1% of that ….”

What they eventually realised was that banking the unbanked needs a lot more than just a cool app or new technology. It requires education, trust building, immediate use cases, and government support — expensive and time-consuming activities that startups lack the resources and will to do.

Going back to the lending protocol example, the idea was that a rural farmer in, say, Indonesia could borrow money from a pool of global liquidity on their phone without having to leave the house and then use that money in the village or for online payments.

When you start to unpack the steps needed to make that possible, it becomes clear why defi as a solution to banking the unbanked is such a challenge. First, the farmer needs to own cryptocurrency that they can use as collateral for the loan. That means setting up an account on a local crypto exchange, funding it via a cash transaction at a convenience store, and then buying crypto on the exchange. All of this requires, at the very least, financial literacy and trust in crypto.

And so on it goes until you realise that the barriers to adoption are quite high. This is one of the reasons why the latest iteration of defi projects are targeted more at people with the knowledge and existing crypto holdings to yield farm. (A cynic might suggest that the recent episode of defi project hysteria is nothing more than a cash grab.)

How has it turned out so far?

Going by the numbers, defi is doing well. With $9 billion and counting already locked into various protocols, it is far and away the leading use case for blockchain and cryptocurrency.

As an active user of some defi protocols and projects, I can’t help but note how “cool” it feels. I can borrow against my crypto holdings without having to visit a bank, buy fractional real estate without the bureaucracy, transact in a stablecoin independent from central banks, and participate in the governance of mutual insurance platforms. This is much better and more convenient access to financial services than I’ve ever had before.

And this is just the start. Defi is catnip for the world’s brilliant financial and technical minds. With programmable money, there are no restrictions on what’s possible. Today’s proliferation of defi projects is only scratching the surface of what’s to come.

But there is a problem I find hard to overlook: defi isn’t helping those who find themselves, for whatever reason, excluded from the financial system. These 1.7 billion unbanked people — a number you see quoted so often — are not the ones benefiting from defi.

A playground for the privileged

Instead, defi is very much the domain of those with technical know-how, financial literacy, and disposable income. It’s making financial services more accessible to a small subset of the population. Everyone else either doesn’t trust it, doesn’t understand it, doesn’t have the money to use it, or some combination of the three.

Defi is also creating a new yield farming elite. These are the people who have the resources to take advantage of all the “free money” being offered by protocols in the form of governance tokens. One such protocol issued 30,000 governance tokens to key users. At the time of writing, each token is worth $23,000. That’s almost three-quarters of a billion dollars in wealth created out of thin air.

Thing is, someone has to foot the bill for this new wealth — finance being a zero-sum game and all. Sadly, it is often the people who were late to the party and simply buying the hype. Yet another reminder of the 2017 ICO craze.

Ever-increasing complexity

At some level, defi is supposed to make things easier for people. Instead, the DIY-finance approach is only going to get more complex. Just the terminology alone is enough to keep people away. It’s difficult to trust something you don’t understand, particularly when there is money involved.

Fintech solutions that leverage defi should help lower the complexity, but then we’re back to trusting centralised entities with our money. Defi was supposed to be different, however it requires a level of effort that I’m not sure the unbanked are ready for.

Insane GAS prices

Ethereum is the network on which much of today’s defi action is taking place. This has meant massive congestion on the network as stablecoins, protocols, and scams fight for mining resources. And while all this activity is great for miners, transaction costs (called GAS) have skyrocketed.

There were anecdotal reports of a single smart contract interaction costing well over $100. Even a basic transaction from wallet to wallet was up over $5. GAS prices have abated somewhat since, but are still well above historical rates. What this means, of course, is that small volumes become infeasible.

Let’s say I want to borrow $50 from a lending protocol at 3% interest so that I can purchase another asset paying 9%. Normally, it would cost $0.15 — an amount still too high, but that’s another story. These days, the cost would be well over $10.

We can assume that these high GAS prices won’t last forever — Ethereum has a planned upgrade for next year that should drastically reduce transaction costs, and other, cheaper networks will become more attractive to defi projects. Until then, defi will remain the domain of those who can afford the transaction costs.

Governance in the hands of the few

As defi protocols look to decentralise their governance mechanism to put power in the hands of the community, the path most often chosen is: the more money you have in the protocol, the more governance tokens are distributed to you, and the more votes you get.

The logic is clear. The issue is whether it makes sense to mimic the existing system or, given the opportunity that defi presents, try to forge a new system that is more equitable. In the case of the lending protocol, the person with $1 million locked in will have a much greater say than the person with $10.

In my mind, this approach is exactly what’s wrong with modern capitalist democracies. Those with the most resources have a significantly larger impact on policy than those with few resources. Why, then, would we design decentralised governance to reward those who have a disproportionate share of resources? This runs contrary to the democratic ideal of one person, one vote.

This is not to say that there is an easy solution. Sushiswap recently tested an approach in which each wallet could vote for the nine signers of the protocol’s multisig wallet. These 9 individuals are, effectively, a board of directors for the protocol. Naturally, theories of resource-rich individuals delegating voting power to “protocol politicians” were soon to follow.

Where do we go from here?

A World Bank study found that the number one reason (70% of respondents) why adults didn’t have a bank account was because they felt they didn’t have enough money to justify opening one.

The interesting thing is that defi has the potential to help. Putting the centralisation/decentralisation argument aside for a second, fintech companies can tap into defi protocols to provide financial services to rural areas while making the user experience simple and convenient.

The problem, I fear, is that these solutions will end up neglecting the unbanked the same way that banks do. Why?

Money.

It’s expensive (and not profitable) for banks to set up village branches or reach rural farmers. It’s no different for fintech companies and defi protocols. Nobody wants to spend money educating and building trust without a return.

Defi, and the solutions that leverage it, has a chance to be different. Sadly, it appears to be yet another victim of our exclusionary financial system.

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