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The Metaverse is So Hot Right Now: Here’s How Top Investors are Separating Opportunity from Hype

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It’s happened. The metaverse is rapidly entering the hypiest part of the hype cycle. It’s all over the place, and it isn’t just Mark Zuckerberg’s rebranding of Facebook’s corporate name to Meta that’s cranked up the buzz. Metaverse was huge long before the embattled Big Tech chieftain signed on.

There’s been a flurry of blockbuster deals aimed at developing metaverse projects. An investment firm called Sfermion recently raised $100M from the likes of Marc Andreessen and Chris Dixon. A Google Trends search shows worldwide queries for the “metaverse” skyrocketing during  the week that Facebook rebranded to Meta in late October.

Google searches for metaverse skyrocketed in recent weeks.

But what exactly is the metaverse

It depends who you ask. To some, it’s an extension of Web3, a pseudonymous virtual world running on blockchains where people zoom around with NFTs interacting with each other as well as decentralized protocols.

To others it’s about dwelling in immersive environments enabled by VR and AR technologies. So think of haptic technology which allows us to dance or box with each other from other sides of the globe.

One key aspect to thinking about the metaverse is that it’s a gradual change. Blockchains take us part of the way already. VR headsets do, too. Advances in both technologies, and others, will take the world deeper into the metaverse, and most intriguingly, stimulate tokenized economies inside these platforms.

While some version of the metaverse appears inevitable, how it develops is up for grabs. Where will value in the metaverse accrue? And what changes are coming as the race to build the metaverse heats up? To get insight on these questions, The Defiant interviewed three of the most influential investors in the space. 

Jamie Burke, CEO and Founder of Outlier Ventures

Burke started Outlier Ventures, an accelerator that operates under what it calls the “Open Metaverse thesis.” Outlier has invested in NFT42, a project pushing NFTs on-chain, which billionaire crypto enthusiast Mark Cuban is supporting.  Burke is focusing on how NFTs will be more than collectibles and offer branding opportunities and other forms of utility to collectors and creators.

“We’re really investing in the companies that are either building out metaverse primitives, so infrastructure that allows for next generation NFTs, increased utility or investing in startups that are going on to create NFT franchises, that could be digital wearables, digital couture brands Auroboros, it could be people building out specialized marketplaces for certain types of NFTs, and we’re seeing a broadening of that.

“Keeping in mind as an accelerator we are typically operating 6-12 months ahead of the wider market, one of the emergent trends we are seeing likely to emerge in 2022 is an experiential layer for NFTs, be that social, retail or a combination in a number of formats from a 3D browser, AR or VR spaces.

“The social component is obviously critical because whilst you might use a PFP in your Twitter profile or you might create a landing page for your collection on OpenSea, the reality is that they’re not inherently social experiences. So we’ve got people in VR worlds, AR worlds, galleries, shopping experiences, and that kind of thing.

“Increasingly NFT are going to become more than just the specific NFT itself. So people are baking in lots more utility into these things where, yes, you might have bought, say, a virtual digital wearable, but having that wearable function as a digital subscription to that franchise to future drops, access in real life or in virtual experiences.”

Andrew Steinwold, Managing Partner and Founder at Sfermion

Steinwold founded Sfermion with personal capital in 2019, and accepted outside funding in early 2020, just in time to capitalize on the NFT boom. Sfermion has invested in OpenSea, Art Blocks, done a seed round in Yield Guild Games, the play-to-earn gaming guild, as well as investing directly in NFTs. Taking a macro view, Steinwold believes NFTs will be widely adopted as a staple in the Web3 universe.

“The metaverse is a very nebulous term. It’s like saying ‘internet.’ And how I differentiate the internet and the metaverse, it really is just all about ownership. So in the internet, we are renters. It’s a communist system where we as users add value to some central entity like Facebook, for example, but we do not get any compensation, and we do not own our profile, own our photos, or anything. They could delete our profile today and you could do nothing about it.

“Direct NFTs represent a great new market that people are not very savvy about and retail investors actually have a massive edge because it takes a lot of time and effort to really understand each one of these submarkets. On top of that you have to understand each one of these products or projects within the submarket.

“I see technology as a steamroller that just doesn’t stop. So no matter what, NFTs will be adopted and in the future NFTs will represent all forms of value in the world, whether it be online value or offline value, so on-chain and off-chain value will be represented on-chain, as an NFT. That is something I’m very very certain about. And that could be a building or a pair of shoes.”

Richard Muirhead, Managing Partner at Fabric Ventures

Muirhead is the Managing Partner at Fabric Ventures, which participated in Decentraland’s seed round in 2017, long before the term metaverse was well known. More recently, Fabric participated in metaversal plays, including investments this year in Sky Mavis, the producer of  Axie Infinity. Muirhead focuses on the infrastructure angle in the metaverse. 

“As long as VR/AR is not mainstream and refined, gaming will probably continue to have superior traction to the pure virtual world projects focusing on building, exploration and social (superior dopamine rush, less deceptive experience) Eventually the two will merge.

“Interoperability standards and infrastructure have not emerged in the Web3 metaverse. Everyone is trying to build open networks but everyone is also trying to be center stage in this new universe. There are technical challenges around media compatibility in different environments and the limitations of the current NFT standards don’t help as well.

“The strategies to bootstrap and then defend network effects in Web2 social and gaming platforms were based on advertising and data silos. In Web3, strategies revolve around incentivisation. 

“Can Web2 platforms survive in this new paradigm and dominate the next phase of virtual social interactions? Their distribution power is unprecedented in history but their model is obsolete. If AR/VR dominates the metaverse interactions, incumbents probably have a higher chance to dominate the metaverse, which probably explains Zuck’s focus.”

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