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Hi Name,
This week we switch things up a bit as we dive into the metaverse. Specifically, we explore what a metaverse ran by current tech giants would look like versus one led by decentralized communities. We cover a broad spectrum, from incentives to network effects to security. Hope you enjoy and have a great weekend.
Weekly Fees - Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
Bitcoin saw network fees decline 14% as the spotlight switched to other crypto-assets
Ethereum fees climbed for the sixth straight week, with SHIB transactions making a high portion of network activity
Exchanges Netflows —The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
Both Bitcoin and Ethereum saw massive outflows of over a billion dollars, likely a sign of accumulation as they consolidate just below all-time highs
Crypto's Metaverse
As most will know by now, Facebook rebranded to Meta emphasizing its metaverse aspirations. Though certainly ambitious, Facebook's plans is subject to some of the inherent limitations of the web 2.0 model. Overall, this is expected to result in an opaque and less secure network where value created does not accrue to its users as would be the case in a decentralized platform like Ethereum.
Since its acquisition of Oculus in 2014, Facebook's vision for virtual reality has evolved. One key condition at the time of the acquisition was for users not to require a Facebook username to sign in. This condition has since been broken, with Facebook imposing mandatory sign ins to their platform. Moreover, this connects one user's information with their data across other Facebook platforms.
As Facebook has expanded, the relationship with its users has become more and more extractive. It's become a cliché but users are the product fuelling advertising revenues at the end of the day. This leads them to benefit at the expense of their user's time and information.
Companies building on top of Facebook's metaverse also risk competing against them if they decide to launch their own applications. Here, too, the relationship with complements is suboptimal.
Web 3.0 offers the potential to fix these issues by aligning users' and platforms' interests. This is the case as platform users, builders and owners can be one and the same in the decentralized web.
Tokens can serve as incentive mechanisms to attract users and builders and can then be used to vote on decisions about the metaverse. While this does not guarantee everyone will be happy with results, it does allow participants to have an impact on where the platform is going.
Users and builders don't have to trust an entity to act on their best interests. Through the blockchain people can openly validate activity taking place and if they don't like what is going on they could simply fork the network.
The simplicity to spin off a competitor also creates pressure for these platforms to develop avid communities. Users and builders would also have incentives to be vocal about the metaverse(s) they support in the form of tokens. This intensifies network effects as participants are incentivized to bring more users.
Crypto's strong network effects leads to periods of exponential growth as can be seen with Ethereum's transaction volume. These could lead crypto into having a more bottom-up adoption of a metaverse than the traditional ad-focused approach.
Another factor worth considering in a crypto metaverse is security. The recent Facebook outage is testament to the potential issues of having a central point of failure.
In crypto, security is distributed throughout a network of nodes working with each other. Most smart contract platforms which would serve as the natural base for a decentralized metaverse currently rely (or are planning to) on proof of stake to reach consensus and secure the blockchain. In Ethereum's case stakers have deposited over $33 billion worth of ETH to secure the network.
For anyone attempting to attack the network, they would need at least one third of the amount at stake to influence consensus. Moreover, since there are penalties for bad actors, attackers risk losing their assets if they jeopardize the network's security.
Inactive validators also get penalized, making sure those securing the network do so constantly. This has been the case with the launch of Ethereum's Beacon Chain, which has recorded 100% up-time and no known exploits.
Overall, there is a stark contrast between what a web 2 and web 3 metaverse could look like. While it is yet to be seen how these develop, a crypto metaverse promises a more inclusive aligned and secure network.
Upcoming Webinars
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The Evolution of DeFi - New Applications & The Multi-Chain Universe
Decentralized finance (DeFi) has quickly evolved throughout the past years. Asides from under $1 billion in value locked to over $200 billion, the panorama in DeFi has transformed significantly.
In this webinar we explore this evolution DeFi experienced, covering some of the newer protocols often classified as “DeFi 2.0”. We analyze the validity of that label in context of the DeFi bluechips that made a name for themselves during the summer of 2020. Finally, we explore the expansion to a multi-chain universe as DeFi leaps closer to mainstream adoption.
