The Integration of Metaverse and DeFi - MetaFi
The Metaverse has surely become one of the trendiest topics in the second half of 2021. The Metaverse, being a virtual realm that exists alongside reality, will have its own ecosystem. All objects in the Metaverse will be given economic value attributes thanks to NFT. It enables the Metaverse to become an independent operating economy, although the economic value of the Metaverse is still in a relatively primary stage. Although the exclusive and custody ownership in centralized finance has been broken through NFT, it has not yet made it possibly become a sustainable circular economic system. At present, the Metaverse has been integrated with DeFi. after GameFi and SocialFi, another innovative integration in the field of DeFi has emerged — MetaFi.
If NFT is the medium that gives economic value to all elements of the metaverse, DeFi will be the bridge that maps the financial system to the Metaverse. The final form of the Metaverse is a virtual society that maps everything in the real world to the decentralized digital world and can operate on its own without relying on the real world. In the future, in addition to the virtual reality experience, the Metaverse economic system will be a very important part, and the Metaverse economy will precede the Metaverse experience. Through the combination of Metaverse and DeFi, MetaFi will bring the principles of Defi to the wider Metaverse, making the Metaverse economy a full-fledged parallel economy. Currently, certain DeFi services are working on establishing a metaverse economic structure. Some digital currencies and virtual assets are also imitated by the requirements of the real financial system, and an asset reserve system has been established. Digital currencies, virtual assets, and virtual commodities correspond to a certain proportion of real assets and commodities. In these ways, the Metaverse provides a parallel economic system of decentralized ledgers that is secure, transparent, and crypto-native.
In order to fully understand MetaFi, we have dismantled the framework of MetaFi, which is mainly divided into base layer, protocol layer and application layer. The base layer is the core underlying of a complete blockchain, such as Ethereum, Solana, and Polkadot, on which various protocols and applications are built; the protocol layer is composed of Defi protocols, the most representative of which are various financial protocols on Ethereum, realizing complex financial dynamics through smart contracts; the application layer is the parallel metaverses in various fields, constituting the whole of the Metaverse. Under this framework, various MetaFi are built, and various digital assets realize basic property rights, interoperability, and permissionless value transfer. However, in order to fully realize the above functions, there are still some problems in the MetaFi framework that need to be solved:
1. From the current market, most Metaverse projects are deployed on one chain, which leads to the “ecological island” issue of the Metaverse, resulting in poor scalability and an inability to achieve cross-chain communication, thus restricting the economic liquidity of MetaFi and the Multiverse cannot achieve cross-chain interoperability.
2. MetaFi is supposed to tackle the difficulty of constructing the Metaverse’s financial system, while financial services and activities such as trading, leasing, and staking will be realized with the help of NFTs. In this case, holders need to understand the value of NFTs, however in the Defi world, only peer-to-peer asset pricing can be achieved, and fairness cannot be guaranteed.
3. As an emerging technology, blockchain has high technical requirements for participants. Nowadays, various security incidents occur frequently in the Defi world, and it is vulnerable to hacker attacks, resulting in the loss of a substantial quantity of digital assets, posing a significant challenge to the MetaFi system’s design.
Now, MetaFi is in its infancy, relying mostly on NFT to realize asset confirmation and value transfer in the metaverse, demonstrating the phenomenon of fungibility and non-fungibility intersecting. In the future, exploring the application of Defi in the Metaverse will also rely on the implementation of NFTs. The combination of DeFi and NFT can expand the content, intellectual property rights, records, identity certificates, financial documents, etc., support the construction of a transparent and autonomous financial system of more various assets and more complex transactions. After endowing NFT with financial attributes, NFT will not only be used as a collectible but also can be traded, leased, pledged, and held in fragments, and with the further exploration of the combination of Defi and the Metaverse in the future, more protocols will emerge, which greatly enrich the financial ecology of the Metaverse.
Although MetaFi is still in its early stages, some of functionalities it offers have already brought potentials in terms of a larger market area. Because more mature MetaFi applications on the market today include virtual land, PFP, games, and access tokens, among others, which does not exist in isolation, but rather interact with one another to generate greater value. It is likely that we will see more MetaFi category combinations and the creation of new MetaFi categories in the near future. At the same time, MetaFi will benefit from DeFi2.0’s additional innovation, particularly in terms of legal and governance challenges, as well as the combination of NFT and DeFi.
Overall, we believe that MetaFi will introduce new vitality into the development of the Metaverse and DeFi, which builds a metaverse financial system to develop into an economy parallel to the real economy. However, MateFi is still limited by technology and equipment, such as virtual reality and augmented reality, which has not been widely popularized on a large scale, the underlying blockchain technology needs to be optimized urgently, and MetaFi still has a long way to go.
