Pantera Capital Partner: What exactly is the Metaverse? How are the two camps divided?

Author: Paul Veradittakit, Partner at Pantera Capital

Compiled by: Wang Xin, Chain Catcher

"NFT" has become the word of the year, and the concept of the metaverse exploded in 2021.

It can be sensed that everyone is talking about it. Additionally, influenced by the COVID-19 pandemic, digitalization has become increasingly prevalent in our lives. This includes recent discussions about Facebook rebranding to Meta, column articles in The New York Times, and casual conversations at the dinner table.

1. What exactly is the metaverse?

First, it can be defined that the metaverse is currently an impossible task.

On one hand, it is too early to predict what the metaverse will become and ultimately mean to us, much like predicting Snapchat immediately after the iPhone was released.

On the other hand, there are too many semantic battles regarding the metaverse. Some people believe "metaverses" (plural) is more appropriate, as there will be various different virtual experiences accessible through various interfaces. Some people dislike using the term at all because it has become a buzzword—"metaverse" almost encompasses anything in the virtual world.

At present, it is at least useful to attempt to define the concept precisely. The best article I could find comes from Matthew Ball, an investor whose writings on the metaverse are essential reading. Although he acknowledges that a perfect description is impossible, he defines the metaverse as:

"A massive and interoperable network of real-time rendered 3D virtual worlds, where an effectively unlimited number of users can synchronously and persistently experience, with a sense of personal presence and continuity of data, such as identity, history, rights, objects, communication, and payments."

There is a lot to unpack there, but some prominent elements are: it is 3D, open to an almost unlimited number of people, and has some continuity elements similar to real life.

Source: Matthew Ball

For some, this may evoke memories of the early 2000s popular MMORPG, Second Life. While this analogy has some merits, it represents a single type of metaverse. In reality, the design space for metaverse builders will be vast and ultimately driven by us users.

Source: Second Life

So, who is building the metaverse? So far, they can be divided into two camps: non-crypto and crypto metaverses. Until recently, they have been building more or less in parallel.

2. Non-Crypto: The Metaverse of Big Tech Companies

Due to the long-standing association of the metaverse with virtual reality, we believe that "the metaverse" has been developed by many VR companies for several years. For example, VRChat and AltspaceVR have been two of the most well-known platforms for working and socializing in virtual reality.

This year, two major tech companies—Facebook (now Meta) and Microsoft—have placed big bets on the future of the Metaverse, incorporating it directly into their recent roadmaps.

For Microsoft, here is what Satya Nadella announced in May regarding their new Azure product suite as part of expanding the "enterprise metaverse":

Finally, as the virtual and physical worlds converge, the metaverse, composed of digital twins, simulated environments, and mixed reality, is becoming a first-class platform. With the metaverse, the entire world will become a canvas for users' applications. Azure Digital Twins can model any asset or place using Azure IoT, keeping the digital twin real-time and up-to-date. Synapse tracks the history of digital twins and discovers insights to predict future states, and with Azure, autonomous systems that continuously learn and improve can be built. The Power Platform enables domain experts to extend and interact with digital twin data using low-code/no-code solutions. Mesh and Hololens bring real-time collaboration.

This is certainly not as exciting as a virtual reality rock concert, but this enterprise perspective may be how the metaverse and virtual reality initially address a real problem: remote presentation and collaboration.

Of course, Facebook later this year rebranded to Meta and launched their own Horizon Workrooms product for VR-based teamwork. However, they seem to have larger ambitions, not only from a financial perspective (about $10B annually for various metaverse-related R&D) but also in scope. At least from Zuckerberg's public statements, it seems he "understands" why interoperability and openness are important, and because he believes this is a new era for the company, he claims they are moving in that direction.

In his words:

I think it might be more like peer-to-peer, and I think the vocabulary around this is somewhat important. We don't think of it as different companies building different metaverses. We think about it in terms of mobile internet. You wouldn't say that Facebook or Google is building their own internet, and I think it doesn't make sense to say that we are building our own metaverse in the future either. I think each of us is building different infrastructures and components that we hope contribute to the overall build, and I think those pieces need to work together in some way.

We are working to help build a set of foundational technologies and platforms to enable this. There is a lot on the hardware side—there are VR headsets, AR glasses, input EMG [electromyography] systems, and so on. Then there are platforms around business and creators, and of course social platforms, but there will also be different other companies building each of these things that will compete with each other, but also hope to have some interoperable open standards.

Actions speak louder than words, so we will see what Meta ultimately does. After all, they are still deeply rooted in the profit-maximizing, zero-sum competitive cycle of Web2 technology companies, so I do not expect them to necessarily build the metaverse we hope for. But I also won't jump to conclusions too quickly.

3. Crypto: The Community-Owned Metaverse

In our industry, the approach is different. The core principles of decentralization, trustlessness, pseudonymity, and community ownership have been ingrained from the very beginning.

Some of the earliest virtual worlds created using blockchain technology include The Sandbox, Decentraland, and Cryptovoxels. While each has different elements and world economies, the power of blockchain and NFTs allows for true digital land ownership, opening up entirely new types of activities, from leasing land to customizing homes for others.

Many early activities came from buyers hoping to preserve their land in the metaverse for future generations, but some interesting uses have begun to emerge. For example, in Decentraland, there are almost daily events that users can participate in and experience—you can find a complete list here. Brands like Domino's, Atari, and others have also purchased land to promote their products, host events, and build recognition in the virtual world.

Many games have also started to classify themselves under the "metaverse" category. Axie Infinity is a classic P2E game with different lands to purchase, different players can join guilds, and so on. GuildFi is one of our recent investments aimed at becoming a tool solution for game guilds built for the metaverse, rather than just another scholarship platform.

4. Where Do We Start

We have a long way to go before the metaverse becomes "mainstream."

It will start with enterprises (like Microsoft, Meta) and games (like Decentraland), and then slowly expand from there. Personally, I believe that an open, decentralized, and community-owned metaverse will defeat closed and surveilled systems, for many of the same reasons I believe Web3 will disrupt Web2. But this future is by no means predetermined; it needs to be built!

In many ways, we are still in the pickaxe and shovel stage of this industry. The metaverse needs its own currency—we have more or less covered that. But the metaverse also needs its own sovereign infrastructure stack that does not fail when AWS fails. Or a way for a group of people to easily collaborate with each other, from decentralized messaging to project management tools. Or standards for NFTs, as they intersect between the "metaverse" and different rendering environments. In short, a lot needs to be built for this new future.