The Metaverse's Emerging Economics

While Elon Musk, Jeff Bezos and Richard Branson are trying to get off the Earth, Mark Zuckerberg has his sights set on a different escape.

In an interview with the Verge, he tells us of Facebook’s plans to contribute to the "metaverse" – a development rooted in the company's Oculus virtual reality division, but also connected to the DNA of social networks and identity. (For prior reading, see our essay here, interview with Outlier Ventures here or their full thesis, and Matthew Ball’s essays here.) The full discussion is worth reading, but here are some of the juiciest bits for us:

According to Zuck, the metaverse is a more integrated media internet. Instead of living inside your small phone or staring at a flat Zoom screen, you embody and inhabit social spaces that are rendered in your mind by technology. These spaces are places you are, augmented with interfaces, or places you go, teleporting your avatar into work and play environments.

To any sci-fi reader, all this is familiar stuff. And we are getting there very slowly through gaming, with about three million headsets connected to Steam in mid-2021.

There is no discussion of the internet of value, of blockchain-based money and software. Given that Libra/Diem ended up as a collateralized USD bank money, perhaps deeper fintech and DeFi (decentralized finance) metaverse platforms are still under wraps. Or perhaps that is something for those other, non-Facebook metaverse participants to bring to the table. Zuck says this global community must be open-source and interoperable, connected to thousands of third-party actors, and it can and will not be built by a single player alone. It is multiplayer by default:

For the cryptonauts out there, the interesting bits are the infrastructure plumbing. Something has to compute all that's in the digital world. Something else has to deliver permissionless identity, financial services and exchange. Something else has to store all the data and serve it up to a billion people and a trillion robots. If you understand Ethereum, you understand where all this is going from an economic perspective.

For Facebook, however, it is about the mushy human psyche at scale – connected into tribes through social networking and pictures of sunsets and evening dinners. In that slice of the world, the company mediates identity through logins, battles the monsters of misinformation with more than 30,000 staff and who knows how many advanced machine learning algorithms, and sells the Oculus hardware bundled with modern entertainment experiences. If Facebook lives on a digital, decentralized blockchain in the future – likely not of its own making – then the least it can do is continue to own distribution and the human dopamine receptors.

To advocates of universal basic income (UBI) like Andrew Yang, robots will automate both blue collar and white collar work, such that only the worst, most menial, frustrating and low-value emotional work remains. People will simply go nuts. Social inequality will continue to rise as capital accrues to robot owners (this part is pretty true), and the government will have no other path but to print out UBI checks. BRRRR! This is certainly the direction we are heading in.

What’s a bit more novel is to notice how the alternative to work is beginning to form. The venture capital bingo euphemism for making money in virtual worlds is called “the creator economy.” The brightest example of virtual worlds crashing through the legacy physical one is Axie Infinity, a crypto based Pokemon-like video game. Since the end of last year, if you lived in the Philippines, or likely anywhere else in the world, your local minimum wage paid you less than playing Axie.

We’ve established the economic metaverse – a place where people will express themselves through social, relational and creative labor. What comes next is establishing the social hierarchy. In the traditional economy, the best signal you could get was a college education. Since the 1970s, college attendance doubled to about 6% of the population of the United States, or 20 million students. However, going to college is a low-quality signal. It is not sufficiently hard to achieve to differentiate into the top-paying careers.

Therefore, you’ve got the Ivy League – a gold star of prestige. Demand for Ivy League diplomas continues to increase, with the most recent admission rate of 7%, down by over a third from an 11% admission rate 10 years ago. If you subscribe to the theory that much of undergraduate education in the U.S. is signaling rather than learning, as we do, then it makes sense that the 20,000 top school spots in the U.S. are badges of selection filtering and that they are getting more scarce relative to the availability and commodification of the education “good” itself.

What about credentials in the metaverse? 

Let’s say your community ethos is to reject traditionalism and invent your own online nation. You are allergic to people in suits. Your millions have been minted in internet forums, hacker jobs and DeFi speculation. You care about being early and right, and this has been rewarded through access and capital gains. Your team can move markets, shallow as those markets are, and your gang collectives are called DAOs (decentralized autonomous organizations). Together, you combine assets from all over the world to build a web free from Silicon Valley monopoly, nodes networked to compute software, twitchy Twitter tweets at the ready.

You select a banner of 10,000 CryptoPunks – there aren’t that many of you yet anyway. Each one is an avatar, a certificate of authenticity from a community in which your economic self is instantiated. It starts as a game, because all of life is a game.

Like Harvard degrees, Punks are limited in supply. For early adopters, they were affordable and democratic, but we are not early anymore. Prices for the cheapest Punks are $50,000. The most expensive has sold for over $10 million, but the price has no limit. Unlike Harvard degrees, which are at least inflated every year to accommodate new students, Punks have no inflation. There is no room but for the OGs (original gangsters). Supply is fixed and demand increases – everyone in the metaverse needs a flag.

But wait! Like colleges, we can make more flags. There are only 20,000 Ivy League spots, but 20 million students. The premier spots have already been given away. So we have to create more signals for the latecomers. The next metaverse avatar is Masks. And then Apes, and Bored Ape Kennel Club, and MoonCats, and Cool Cats, and Wicked Craniums, and DeadHeads, and so on. This will happen until we have enough avatars for everyone, with different levels of wealth, cultural and prestige signaling.

The formula is pretty clear – a 10,000 generative print of digital avatars that look good on a Twitter profile, cost ETH 0.1 to mint, and very quickly appreciates in value, leading to a speculative run-up. Everyone is buying the signal of participation in the non-fungible token game. In fact, it is the price of admission. A collective game to build social capital and credibility in the metaverse is well underway. Of course, Facebook wants in. It digitizes, mechanizes and weaponizes our connection to each other.