n March 2022, Global Perspectives & Solutions, the GPS division of Citibank, released this heavyweight 184-page report, “Metaverse and Money: Demystifying the Future,” stating that the metaverse could be the next generation of the Internet, with a potential market size of between $8 trillion and $13 trillion for the metaverse economy by 2030, and The potential users could be as high as 5 billion households. Since the current Internet infrastructure is not suitable for creating a fully immersive metaverse environment that supports users to switch seamlessly between different experiences, significant investment in technology convergence will be required in the future. And as the currency in the metaverse, the future metaverse will contain more digital native tokens, but will also embed traditional forms of currency, which can exist in different forms, namely cryptocurrencies, stable currencies, and central bank digital currencies (CBDC). The report notes that as the meta-universe grows, a range of financial services will be needed to support its activities. MetaUniverse Finance (MetaFi) is likely to be a combination of decentralized finance (DeFi), centralized finance (CeFi), and traditional finance (TradFi), with new products designed to meet the unique needs of the new ecosystem. In particular, the report notes that MetaFi will increasingly be used as a new term that combines two of today’s major technology trends: metaverse and DeFi, referring to the “decentralized financial tools of the metaverse” that will drive much of DeFi’s growth.
We believe that Citibank’s report reflects the importance that large multinational banks attach to the frontier of the current FinTech revolution, and has made an in-depth study and forward-looking judgment on the internal logic and development trend of blockchain, NFT, DEFI and meta-universe, which has important implications for the digital transformation of commercial banks in China. The summary of the report is translated here, and a link to the full report in English is attached for your appreciation.
0. Introduction
Have you ever had one of those “aha” moments when you realize that your mastery of technology, or lack thereof, shows your age? One of those moments hit me hard this week when I was asked to create my own incarnation in the metaverse. I did create something practical and decent. What I didn’t do, or should I say couldn’t do, was operate my incarnation – make it walk or interact. Given the speed at which the metaverse is evolving, I need to learn this quickly because it is clear that I am a non-savvy older person in the metaverse.
The metaverse has existed as a concept for decades. However, interest in virtual worlds is soaring by the end of 2021 as non-homogeneous token (NFT) sales grow and statements from large tech companies indicate their interest and investment in the space.
Today, the most popular way to experience the metaverse is through playing video games on a virtual reality (VR) headset. But in the next report, we discuss the possibility that the metaverse is moving toward becoming the next iteration of the Internet or Web3. This “open metaverse” will be a community-owned, community-managed, freely interoperable version that ensures privacy by design.
Users should increasingly be able to access a vast array of use cases, including business, art, media, advertising, healthcare, and social collaboration. The metaverse can be accessed through personal computers, game consoles and smartphones, resulting in a vast ecosystem. According to this broad definition, the total potential market size of the metaverse could be between $8 trillion and $13 trillion by 2030, with a total of about 5 billion users of the metaverse.
However, infrastructure investments will be required to reach this market level. A metaverse content streaming environment may require a 1,000x+ increase in computational efficiency. Investments will be needed in areas such as computing, storage, network infrastructure, consumer hardware and game development platforms.
The definition of what is used as currency in an open meta-universe can also be very different from what is used as currency in the real world today. Interoperability and seamless exchange between underlying blockchain technologies is critical to ensure a frictionless user experience. Different forms of cryptocurrencies are expected to dominate, but given the multi-chain trend in the cryptocurrency ecosystem, cryptocurrencies are likely to coexist with fiat currencies, central bank digital currencies (CBDCs), and stablecoins.
Finally, if the metaverse is indeed the next generation of the Internet, it is likely to attract more scrutiny from global regulators, policymakers and governments. Issues such as anti-money laundering rules for exchanges and wallets, the use of decentralized finance (DeFi), cryptocurrency assets and property rights will all have to be addressed.
The metaverse opportunity looks exciting, so I’m going to find a seven-year-old to teach me some incarnation moves.
–Kathleen Boyle, CFA, Executive Editor, Citi GPS
1.Report Summary
Citi analysts believe that the metaverse could be the next generation of the Internet, combining the physical and digital worlds in a persistent and immersive way, rather than a purely virtual reality world. The metaverse could be accessed through personal computers, gaming consoles and smartphones and would form a very large ecosystem. The report predicts that the potential market size of the metaverse economy could be between $8 trillion and $13 trillion by 2030, and projects that the number of metaverse users could be as many as 5 billion (the broad definition is taken here, i.e. the number of unique Internet users. The narrow definition, i.e., the VR/AR device user base, has 900 to 1 billion users and a potential market size of between $1 trillion and $2 trillion).
Meta-universe use cases: With the current domain dominated by immersive and multiplayer experiences, gaming is seen as a key use case for the meta-universe in the coming years, and eventually, the meta-universe will find new and enhanced ways to carry out all current activities, including business, entertainment and media, education and training, manufacturing, and general enterprise use cases. Enterprise use cases for the metaverse in the coming years are likely to include internal collaboration, customer contact, sales and marketing, advertising, events and conferences, engineering and design, and employee training.
Meta-universe infrastructure building: The current Internet infrastructure is not suitable for creating a fully immersive, content streaming meta-universe environment that supports users to switch seamlessly between experiences. To realize the metaverse vision, Citi expects a significant investment in technology convergence will be required. Low latency is key to creating a more immersive user experience.
Currencies in the meta-universe: The report says that the future meta-universe will contain more digital native tokens but will also embed traditional forms of currency, and that currencies in the meta-universe can exist in different forms, i.e., cryptocurrencies, stable currencies, and central bank digital currencies (CBDCs), which are not applicable in the pre-blockchain virtual world.
1.1 Ten key points of the report
1. What will we do in the meta-universe? The metaverse could be the next generation of the Internet. It will combine the physical and digital worlds in an immersive way. It may include all the things we use the Internet for today: games, business, art, media, advertising, smart manufacturing, healthcare, virtual communities, and social collaboration (both corporate and educational).
2. How big will the metaverse be? With the current field dominated by immersive and multiplayer experiences, gaming is seen as a key use case for the metaverse in the coming years, and eventually, the metaverse will find new and enhanced ways to conduct all current activities, including business, entertainment and media, education and training, manufacturing, and general enterprise use cases. Analysts estimate that the potential market size of the metaverse economy (Total Addressable Market: TAM) could range from $8 trillion to $13 trillion by 2030. Expert contributors from Citi’s Global Insights & Solutions division noted that the potential range of metaverse users is as high as 5 billion, depending on whether a broad definition is used (i.e., the number of unique Internet users) or whether it is based only on a more narrowly defined billion users (i.e., the virtual reality/augmented reality device user base).
3. Is the metaverse the same as virtual reality? No, the metaverse is not just virtual reality. In the foreseeable future, most users will likely access immersive Internet experiences via cell phones, and only a fraction of metaverse participants will use VR devices. However, we expect the availability of virtual reality (VR) and augmented reality (AR) to improve in the coming years as many consumer hardware manufacturers build on the success of the Oculus Quest in the U.S. in 2021.
4. What infrastructure needs to be built? Latency needs to be improved and faster connection speeds are needed. By 2025, only 25% of the global population is expected to have access to 5G, so network bandwidth needs to be increased and delivered. The lag, packet loss and network unreliability witnessed in today’s world make the current state of the infrastructure unsuitable for building the envisioned metaverse experience.
5. What does the currency in the meta-universe look like? The future meta-universe may contain more digital native tokens, but also traditional forms of currency. Currencies in the metaverse may exist in different forms, namely in-game tokens, stablecoins, central bank digital currencies (CBDC) and cryptocurrencies. Current payment tracks are typically domestic real-time payments and expensive cross-border payments, which makes them unsuitable for a borderless global metaverse ecosystem where decentralized finance (DeFi) and existing traditional financial systems are expected to be able to coexist.
6. How many metaversees will there be? If most users access the metaverse through their cell phones, the operating system (OS) will be the same. Consumer hardware manufacturers will be the gateways and potential gatekeepers to the metaverse. Similar to today, there could be a split between the US/international and China/firewall-based metaverse. There may also be a spectrum based on technology and business models, i.e., metaverse centralization vs. decentralization.
7. What do blockchain and Web3 have to do with the metaverse? The so-called “open meta-universe” is built on top of blockchains – mainly the ethereum chain – and overlaps with Web3. But it is likely that many Web2 centralized platforms will play an important role in the meta-universe, and even today’s Web3 relies on centralized elements.
8. Do users want Web3 or do investors want it? Web3’s goal of a decentralized, democratic Internet is an attractive one for some, but implementation issues remain. Most users want a better user interface (UI)/user experience (UX) and quality content, and current Web3 solutions lag far behind best-in-class Web2 solutions. Many Internet users, including gamers, do not like the financialization of online activities due to the addition of tokens to the business model.
9. What is the role of NFTs in the metaverse? Digital assets in the metaverse, such as non-homogeneous tokens (NFTs), provide a form of sovereign ownership for users/owners and are tradable, combinable, immutable and mostly interoperable. In recent months, there has been a growing interest in the NFT space from gamers, investors and corporations. NFTs in the metaverse are virtual items stored in a digital wallet that can be carried anywhere within the metaverse.
10. Are the laws and regulations ready for the metaverse? We have a lot of work to do. If the metaverse(s) is the new iteration of the Internet, it will attract intense scrutiny from regulators and policymakers around the world. all of the challenges of the Web2 Internet can be magnified in the metaverse, including content censorship, freedom of expression, and privacy. In addition, a blockchain-based metaverse will conflict with the still-evolving cryptocurrency and DeFi laws in many jurisdictions around the world.
1.2MetaFi: Finance in the Meta-Universe
The report notes that as the meta-universe grows, a range of financial services will be needed to support its activities. Meta-universe finance (MetaFi) is likely to be a combination of decentralized finance (DeFi), centralized finance (CeFi) and traditional finance (TradFi), with new products designed to meet the unique needs of the new ecosystem. From initial capital formation to supporting commerce within the meta-universe, financial services can play an important role in the evolution.
1. Property rights in the meta-universe – Specific property rights in the meta-universe may be recognized in certain jurisdictions, for example, non-homogeneous tokens (NFTs) that provide a digital ownership layer. – Such property rights will lead to use and commerce, and MetaFi can help support the demand around buying, selling, and funding these property rights.
2. Provide a common, consistent and resilient wallet infrastructure – With a myriad of cryptocurrencies, wallets and associated private key management options, financial institutions will be able to support abstraction of the complexities associated with wallet management, multi-chain environments and enable the flow of funds in a regulated manner within a meta-universe. – Institutions will also offer hosted services to enterprises with one or more trusted third parties to improve security and resiliency while providing easier and consistent access.
3. Payment Tracks in the Meta-Universe- The foundation of the meta-universe economic infrastructure will be a seamless and high transaction throughput financial infrastructure, working in decentralized implementations between centralized platforms and decentralized instances. It is expected that 24×7, always-on, instant micro-payments will become the primary payment method in the meta-universe. – While cryptocurrencies, stablecoins and central bank digital currencies (CBDC) are likely to coexist in the metaverse, an important role for financial institutions in payments is also foreseen, especially with the ability to deposit and withdraw funds, as well as support a myriad of commercial and consumer use cases.
4. Liquidity Providers and Automated Market Making – Financial institutions are expected to play a role in providing liquidity to the market, including for certain DeFi agreements. Institutional participants may help provide additional liquidity, facilitate price discovery, and make DeFi protocols more resilient. – The number of assets available to exchanges is expected to grow exponentially, and strong institutional liquidity will help stabilize markets and improve efficiency.
5. Financing in the Meta-Universe – DeFi has a collateralized lending, liquidity mining protocol and is expected to co-exist with TradFi with unique credit risk management capabilities in multiple forms, including collateralized lending, off-chain and on-chain credit history assessment, crowdfunding and microfinance. – It is expected to enable DeFi to operate at its best, while TradeFi and CeFi facilitate further capabilities by conducting off-chain due diligence and credit assessments.
6. NFTs and Digital Native Assets as Collateral – Over time, it is expected that more and more traditional financial institutions will begin to use digital native assets such as NFTs and fungible tokens as collateral. – In today’s context, the volatility of mainstream NFTs and tokens is high, resulting in a significant reduction in value as collateral. It is expected that the digital nature of this activity could enable new risk models and create baskets of different classes of assets as the market evolves.
1.3MetaFi: DeFi in the meta-universe
MetaFi is increasingly being used as a new term that combines two of today’s major technology trends: the meta-universe and DeFi. The majority of DeFi’s growth.
1. Why choose DeFi? Virtual worlds like Roblox are not open today. In order to achieve openness, there needs to be ownership of digital assets independent of proprietary implementations. This is enabled by blockchains like Ether, whose market-based standards allow for fully portable ownership of digital objects in a metaverse implementation. Once property rights are established, it opens up avenues for the financialization of assets – leasing, lending and trading through property in a similar way to how we currently deal with it in the real world. Current traditional media are not yet interoperable with the open technologies and standards of the metaverse.
2. License-less, Trust-less and Decentralized Services – It is expected that the open metaverse will run primarily on license-less, trust-less and decentralized systems powered by DeFi. – Key use cases today include decentralized exchanges (DEX), lending, pledging, and liquidity, among others. Over time, DeFi is expected to work with an increasing number of assets – from traditional financial assets such as stocks and bonds to collectibles and in-game tokens.
3. Composability in DeFi – Smart contract applications that work as “cryptocurrency Lego blocks” can be stacked on top of each other in a trustless and permissionless manner, resulting in interoperable and composable services. – Users can exchange tokens on decentralized exchanges, deposit them into lending agreements to earn revenue, or use bridges to span the exchanged tokens into other blockchains. – In the context of the metaverse, composability and interoperability will enable different virtual worlds and NFTs to build on each other for transmission and exchange using the DeFi protocol.
4. self-directed financial accessibility- As the popular cryptocurrency adage goes, “If it’s not your key, it’s not your cryptocurrency.” It is expected that more and more users will self-custody their cryptocurrencies. – As the user experience improves on the front end of wallets, it is expected that self-custody and key management in cryptocurrencies will become increasingly easy, driving mainstream adoption. – The combination of self-sovereign accessibility and Web3-enabled single sign-on will allow metaverse users to seamlessly access the virtual world and carry their digital assets with them.
5. Early stages are too complex for the average user – The absolute number of tokens and currencies and the management of various assets may be too much for the average user. – It is expected that intermediaries will evolve (including the current centralized financial services) to address these complexities for meta-universe users or small business owners.
6. Interoperability of NFT and DeFi – DeFi can help unlock the value of NFT by using it as collateral for loans, especially for high-value NFT that cannot be unlocked today without an outright sale. – NFT segmentation also brings more liquidity through DeFi by combining NFT with tokens that can be traded on DEX (peer-to-peer) based liquidity pools. The nesting and packaging of irreplaceable and replaceable tokens opens up new use cases.
7. Real-world asset markets- The overlap of real-world assets and NFTs is expected to drive unique ways to unlock the potential of NFTs. – Two-way linkage – real-world assets being on-chain (e.g., tokenized real-world mortgages/REITs used with virtual plots) and also including on-chain assets being transferred to the real world (buying NFTs in the virtual world and redeeming them as e-commerce products in the real world).
