Outlook on the Creator Economy in the Metaverse: User-Generated Content is King

Author: Ishanee Nagpurkar, IOSG Ventures

Original Title: "Metaverse Creator Economy Outlook"

The Metaverse is the buzzword of the moment, exciting the world. Naturally, the concept of a virtual world is not as simple as it seems; to successfully create a virtual world, we need to integrate various elements such as images, game engines, economic models in the Metaverse, utility and IPs, as well as hardware solutions ultimately used to support AR/VR.

The Driving Force of the Virtual World

We believe the Metaverse is the next application layer for social interaction. Facebook (now Meta) is transitioning from a flat 2D social media platform to a fully immersive experience. The main appeal of the virtual world lies in the ability for people to engage in simulated activities with a certain degree of freedom compared to the real world. The greater the freedom, the more opportunities for design.

However, a higher degree of freedom does not always mean better: in the gaming world, rules are necessary to ensure a complete gaming experience.

The concept of the Metaverse originated from an experiment hosted by Linden Lab in 2003. They called their virtual world "Second Life," which gained some notoriety.

Today, we unconsciously consume the virtual worlds and the Metaverse through movies like Marvel and Star Wars, games like Grand Theft Auto and Horizon: Zero Dawn, as well as virtual world simulation games like Roblox, Minecraft, and Fortnite.

Centralized Metaverse: Roblox

Let’s start by analyzing the progress and influence of centralized metaverses. While blockchain metaverses can offer a lot, the innovations in pricing, business models, and products in centralized metaverses are remarkable and can be most easily transferred to blockchain metaverses.

Although Fortnite is one of the best-selling games, Roblox's business model has the strongest synergy with blockchain games/metaverses. Sandbox has been mimicking Roblox's vision and GTM.

Roblox provides underlying technology for 9.4 million game developers, allowing them to release over 40 million games on the Roblox platform, which are then distributed across all gaming platforms, including mobile, desktop, and consoles.

The platform and tools (Roblox's proprietary game engine) are free for developers, and once the released games are profitable, they can earn Robux (in-game virtual currency) — by the second quarter of 2021, Roblox developers had earned $248 million. From this perspective, the Roblox Metaverse is a distribution and publishing platform.

Roblox offers users both free and paid modes, introducing $Robux and allowing parents to pre-set wallets (minimizing the risk of unknown bank transactions) and convert this money into dollars when needed. Roblox earns approximately 1.25% from all Robux purchase transactions (about $12.50 for every 1000 Robux).

Finally, brand advertising, licensing, and royalties account for only a small portion of Roblox's revenue. These brand advertising agreements/licensing agreements are signed with companies like Disney's Marvel, LEGO, AT&T Warner Bros., and Walmart. Roblox expands its business scale by collaborating with developers and brands: developers retain full copyright of their IP, but Roblox retains the right to license that IP and charges royalties when the IP appears on websites, forums, etc.

"Four Major" Blockchain Metaverses: Sandbox, Decentraland, Somnium Space & CryptoVoxels

In Google searches, the terms most associated with the Metaverse are cryptocurrency and blockchain. Notably, in blockchain metaverses, people can customize land according to their preferences after purchasing it, which is something centralized systems cannot achieve. Governance tokens, such as $MANA and $SAND, allow users to participate in platform governance.
1) Somnium Space

Somnium Space is a cross-platform metaverse characterized by VR technology and is currently collaborating with Tesla Suit. Although the platform has gained attention in the metaverse space, its recent direction is focused on advancing the development of Somnium Space's VR headset, Somnium wallet, and incubating creators within its metaverse. Currently, Somnium primarily relies on Opensea for secondary market transactions.

The main products of Somnium Space are: WORLDS, PARCELS, AVATARS, and ITEMS.

• Human resources have been deployed on designing avatar SDK and API - helping creators create, tokenize, and trade avatars. Avatars generated over $500,000 in revenue for Somnium Space in 2021, which was just its first year of launch. This reflects users' love for UGC.
• WORLDS are small parallel universes built on the Somnium SDK, categorized by size into three categories - 75MB, 200MB, and 500MB. Users can freely traverse these universes.
• Somnium PARCELS allow for the purchase and customization of land. Each PARCEL has a permanent URL link, allowing users to access it via the web at any time.

2) Decentraland

Decentraland emerged around 2017 and provides a range of tools for creators. In the Decentraland metaverse, the community can establish a regional governance system (for example, Dragon City), and Decentraland has also released a framework to encourage such ideas. wMANA, LAND, and ESTATE are means of governance protocols.

Decentraland's LAND and ESTATE NFTs serve as identity layers within the ecosystem and help users link ENS addresses to their own land. MANA is the governance token distributed to landowners.

The uses of the MANA token include that the Decentraland marketplace charges a fee for each transaction, and MANA tokens will be used to purchase NFTs in the Decentraland marketplace, creating an inflationary and deflationary economic system.

Another interesting feature is that the land collateral in this metaverse is supported by the Ripio Credit Network, allowing people to establish a position for early purchases of Parcels. Additionally, this does not mean that the land is reserved; other users can still purchase land from the market.

Finally, Decentraland is quite focused on the development of UGC and Builder Mode, allowing creators and developers to design scenes, wearables, and different experiences. Currently, in terms of wearables, 10.2k users have purchased 71k wearables, with a transaction amount reaching 85.5k ETH. In terms of objects, 161k users have purchased 640k objects, achieving a transaction volume of 152 ETH.

3) Sandbox

Sandbox focuses on building a UGC ecosystem (similar to Roblox) and provides creators with tools like Voxel Editor, Game Maker, and Marketplace modules.

The governance token $SAND of Sandbox captures 5% of secondary market transaction fees, half of which is returned to $SAND stakers, while the other half is allocated to the foundation for research and development. Similarly, 25% of the fees charged for marketing and brand collaborations are also returned to $SAND stakers.

Recently, Sandbox launched a gameplay called Alpha Pass, allowing users to explore 18 different metaverse experiences while earning up to 1k $SAND tokens. So far, 200k Alpha Hub visitors have collectively received 5k Alpha Passes. The activity level of Sandbox Assets has reached 6.9k ETH, with traded objects being NFTs within the Sandbox metaverse.

4) Gamefi Universe

Virtual worlds/economies like Axie Infinity, Illuvium, and Star Atlas possess metaverse attributes and will give rise to other metaverses, but will have different gameplay rules.

Entering the Metaverse

You can participate in this universe by joining any of the companies mentioned above. If you are an experienced player, you will surely enjoy exploring the gaming universe. If you are a social enthusiast, you might find the concept of open worlds interesting, or you could be a speculator, in which case purchasing governance tokens and investing in the Metaverse Index could be a way to engage.

Predictions for the Metaverse (Mid to Long Term)

1) User-Generated Content is King

In the future, more and more products will test the waters in two-dimensional trading markets, providing opportunities for creators and brands to co-create and auction. This can extend to the Metaverse, avatars, and other in-game products. Skin trading and gambling already exist in the gaming universe, but in the future, games will integrate UGC into their native universes.

Other UGC concepts like Twitch streaming and tokenized video playback will continue to show dividends. As the Metaverse and its internal content mature, more native live streaming services and esports platforms will emerge, creating interactive experiences for users.

2) Explosive Demand for Head-Mounted VR

In December 2021, Oculus witnessed sales levels of 5.3M-6.8M, with daily usage increasing by 90% year-on-year. PlayStation announced the launch of PlayStation VR2. The CES 2022 conference also sparked extensive discussions around AR/VR devices.

3) Interoperable DID Creates Conditions for Immersive Metaverse Experiences

As more users become familiar with the Metaverse, especially blockchain metaverses, decentralized IDs will become an important component. Projects like Sismo, CyberConnect, DeSo, and Mem Protocol are empowering the construction of a new generation of identity systems.

4) Growth of Brand Metadata and Metadata Content

As consumers are attracted by shiny virtual reality headsets, more brands are beginning to capture consumer attention by establishing their own metaverses, such as H&M and Sotheby's Sandbox.

Previously, Disney's Marvel, which used the Sandbox game, applied for a patent for a "virtual world simulator" for a theme park metaverse. Musicians like Snoop Dogg, Deadmau5, and Travis Scott have already hosted concerts and parties in the Metaverse. Recur is another project that directly collaborates with brands, bringing their content into Web3 through NFTs and other experiences in the metaverse.

The year 2022 will be extraordinary for VR technology, content, and metaverse expansion. It is likely that companies will grow quietly for a while (due to the current highly competitive environment), but for creators and developers, they will continue to add value to existing platforms.