Recently, JP Morgan announced that it would be the world’s first bank to open a branch in the Metaverse, specifically within the world of Decentraland. While this is an interesting development, it has also spurred a wave of people curious about the extent to which this initiative could develop.
With an international banking powerhouse such as JP Morgan entering the space, what other businesses and financial institutions could migrate into the space with their product offerings in tow? But, will this jeopardize the decentralized economy forged by blockchain, and what does it mean for the future of the Metaverse economy?
That is exactly the question both developers and financial managers are trying to answer right now. The good news is that there are ways to “tokenize” virtually any commodity or asset in existence, and some firms are already getting to work. On the other hand, there are still a lot of details to be ironed out before this is ready for global adoption.
How the Metaverse Will Change Finance
Over the last year, it has become increasingly likely that the Metaverse is going to be the next form of the internet – serving as an interconnected ecosystem of Web3 platforms and services. The entire infrastructure will be designed to transfer data and value across all of these offerings in a way that is cryptographically secure and verifiable, helping to curb fraud and human error. What is now known as decentralized finance, or DeFi, will form the foundation for a new interoperable economic system that will be accessible to anyone on the planet with an internet connection.
Not only will this be a new frontier for decentralized economics, but it will also have a serious impact on legacy finance. The traditional banking world is already beginning to take note of this shift, and in the coming years, it will only become more pronounced. Soon it is plausible that users will have access to not only the full array of DeFi services but also CeFi ones, all via the Metaverse.
However, for this new age to emerge, we require an evolution of our existing financial services. Firms that offer these types of products are going to have to hold a deeper understanding of digital assets, blockchains, and smart contract technology. Doing so will allow them to bring decentralized, Web3 versions of their services to all of their clients.
To best position themselves in this new playing field, these companies also need to have some form of “presence” in metaversal worlds. This could mean an actual 3D location for customers to visit, or it could mean integrating some of these offerings into attractions throughout various platforms.
Take the aforementioned JP Morgan for example. The investment bank opened an interactive lounge in the Metajuku Mall in Decentraland after the issuance of an 18 page report detailing the metaverse’s ‘one trillion dollar opportunity’ amid discussion of the potential of legacy financial products in the metaverse.
Similarly, HSBC unveiled a new headquarters in The Sandbox for an undisclosed sum after announcing the closure of 69 of their in-person branches in favor of digital banking services, suggesting the metaverse could be encompassed under this facet of banking in the near future.
Even advertisements will be essential, to keep the brand and service in front of the eyes of consumers. However, what will be most important is to offer solid services that highlight the benefits of Web3 technology.
What Would these Products Look Like?
There are a variety of different products that could be possible, but firms first need to understand how to translate their financial assets directly onto the blockchain. This can be done by taking a verified audit of what the company offers and then using smart contracts to tokenize them.
Once tokenized, all of the firm’s commodities would now act as true digital assets, in the form of Non-Fungible Tokens (NFTs). These NFTs would still represent an existing commodity or contract, but would gain all of the benefits of being on a blockchain. They could be bought and sold by investors all over the world, all while still being completely cryptographically proven to represent what it claims to be.
Tokenization would make the trade for many legacy assets far safer and more efficient, thanks to the veracity of decentralized ledgers. In time, this could lead to a financial arena where all parts, from collateral and credit to customer data and payment channels can all be on-chain and automated. Any existing currency could be tokenized and used in such a system, but more likely native Metaverse cryptocurrencies will be used for settlement.
With this in mind, tokenization can usher a new era of finance, where legacy systems can be infused with blockchain to drive efficiency. Take fractional ownership for example, with metaverse land prices soaring, a majority of general consumers cannot afford to own digital plots outright. This allows digital landowners to lease and loan out their property comparable to legacy leasing systems.
However, with the incorporation of smart contracts to consolidate the fractionalized agreement, this process can be seamlessly simplified and conducted visibly on-chain to mitigate the risk of any illicit activity.
Not Just a Good Idea
This paradigm shift is already beginning, with a variety of companies exploring ways that blockchain and NFTs can overhaul their existing systems. For example, everything from real estate, fundraising, and even trading whiskey casks, is being explored right now. There is still a lot of work to be done, but the opportunities offered by tokenization are too many to ignore.
The Metaverse is coming, and with it comes a myriad of new possibilities for trade finance. However, in order to tap into the potential here, financial firms need to evolve. They need to embrace what Web3 can offer, and find ways to bring their legacy products into the decentralized realm. Doing so will usher in a whole new economic landscape that stands to be smarter, more efficient, and best of all more lucrative for everyone.
By Ralf Kubli, Board Member at Casper Association.
Kubli is an experienced executive with a strong background in blockchain, cryptocurrencies, and decentralized technology. His career spans roles in M&A, sales, and executive management positions in large corporations and technology startups. He discovered blockchain through a fintech investment in 2015. Kubli holds an MBA from Cornell and an M.A. in History from the University of Zurich.