Why Brands Need to Differentiate Between Crypto, Web3, and the Metaverse
The metaverse discourse is being muddled by crypto startups and getting lost amid web3 hype, but innovation-forward brands should not lose sight on why it truly matters
After two years of virtual events, the SXSW festival returned to in-person gathering earlier this month. Judging by all accounts, attendees were bombarded with a sludge of crypto-related activations and web3 products that dominated downtown Austin during its run. From immersive activations designed to promote whimsical NFT collections, to outrageous parties hosted by web3 startups that used NFTs as admission tickets, nearly every buzzy SXSW experience this year seemed to promise a sneak peek into the amazing, decentralized future of the internet via a blend of crypto, web3, and metaverse concepts — or at least in a way that name-checks all three buzzwords du jour.
Take the so-called “Dollyverse” for example. Blockchain Creative Labs, an NFT studio owned by Fox Entertainment, announced a few NFT projects at SXSW, including Dolly Parton’s Dollyverse, which promises fans a chance to own tokens of the beloved country superstar’s live performances at SXSW this year, which also streamed free on the blockchain-backed content platform Eluvio along with a collection of Dolly-themed NFTs. Despite what the name hints at, there’s no real deployment of metaverse-related technologies involved. Even a national treasure like Dolly Parton can’t magically conjure up a metaverse full of NFTs and co-created fan experiences today.
Not to be outdone, earlier this week, Yuga Labs, creators of the popular Bored Ape Yacht Club (BAYC) NFT collection, announced the upcoming launch of its metaverse called Otherside, which is reportedly envisioned as a MMORPG game centered around BAYC tokens and its own ApeCoins at launch. The announcement comes just weeks after Yuga Lab acquired CryptoPunks and Meebits from Larva Labs, as it aims to leverage its leading market position to build the broader NFT universe. As Jacob Kastrenakes acutely pointed out at The Verge: this means Yuga Labs is essentially trying to build a gaming company from scratch, off the back of a hugely lucrative NFT art project.
Ever since the metaverse entered the mainstream discourse thanks to Facebook’s rebranding, crypto startups have been smudging the boundaries of these three concepts in order to refuel its waning hype and, more importantly, tantalize curious outsiders with grand promises of an immersive future beyond costly JPEG files. Yours truly is in no way immune to the industry hype machine either — in fact, I just wrote a whole piece six months ago on how NFTs could become the economic foundation for the metaverse, following the sudden rise of Axie Infinity, an NFT-based mobile game. Fast forward to now, however, and all of the theoretical potential I laid out in that article has been overshadowed by the blatant manipulations and hasty merging of these emerging innovations.
Given that all the crypto companies just recently tried to hinge their multi-million-dollar Super Bowl commercials on FOMO rather than actual products, it should come as no surprise that they have been rebranded crypto as “web3” — which is like insisting on calling rice “starch” — while attempting to hijack the conversations around the metaverse, a separate innovation territory whose development intertwines with, but does not necessarily depend on, any crypto or web3 technology.
Therefore, for brands that are understandably intrigued by the buzz and wish to learn more about this proposed “next iteration of the internet,” it is important to go in with a clear set of eyes that look past the intentional smudging and focus on what truly matters: building the necessary stepping stones to enter the metaverse.
Redrawing the Boundaries
Crypto, short for cryptocurrency, has been around for nearly a decade now. Bitcoin is the most popular one, but others like Ether and Solana have also been gaining momentum. It also includes meme coins and stable coins — the former relying on memes to spread and acquire buyers, and the latter tout their stability of value (an inherent problem for most cryptocurrencies) by tethering their values to fiat currencies or other real-world assets. Although some businesses have been accepting Bitcoin as a form of payment, for the most part, crypto has remained primarily a speculative investment vehicle.
Crypto is not the same as web3, but rather a sub-category of web3 technologies, which refer to any technology built on blockchain. Short for web 3.0, web3 is a proposed evolution of the “web 2.0” era we currently live in, whose infrastructure is dominated by centralized servers and cloud-based services. Web3 promises to disrupt this predominant setup with a host of decentralized applications built on blockchain. Beyond cryptocurrencies, web3 also encompasses concepts such as NFTs (non-fungible tokens), DAOs (decentralized autonomous organizations), and social tokens.
The metaverse is a popular vision for the next iteration of the internet’s user interface. It promises to improve on today’s primary digital interface, the 2D screens, by adding a layer of immersive presence and interactions on top. Most people tend to think of the metaverse either as a virtual venue in MMO games, like Party Royale in Fortnite, or as a digital world for VR users to explore, a la Ready Player One, and while both iterations are valid, neither really have anything fundamental to do with web3 technologies that ecompasses the likes of cryptocurrencies and NFTs.
The concept of the metaverse has existed long before web3 technologies came onto the scene, and its development is essentially independent of how web3 develops. Now, granted, some of the web3 principles of decentralization and permissionless trust could be quite helpful in enabling the kind of platform-agnostic interoperability and virtual economies that the metaverse would strive for in its ultimate form, but it is hardly a prerequisite for its development at this stage.
Taken altogether, crypto is a popular use case of the blockchain-powered web3 technologies that aim to decentralize the infrastructure of the internet, whereas the metaverse is about creating a new interface for the internet that builds on top of existing digital infrastructures — both centralized and decentralized. Therefore, lumping the metaverse into web3 would be nonsensical and categorically false.
The metaverse is an interface layer that exists on a higher level than web3 and immersive technologies. Its development draws from innovations from both domains, but is mostly independent of either. To make a retail analogy, Web3 is a logistic innovation that will change the backend operations, but the metaverse is creating a whole new store format. NFTs and crypto are like loyalty programs or BOPIS options you can build atop modern CRM and logistic systems, but the shopping experience is largely determined by how user-friendly and engaging the interface layer, where the metaverse sits, is.
Hungry Hungry Cryptos
As we mentioned in the intro, it seems like most web3 ventures today wouldn’t hesitate to tout a metaverse vision, or vice versa, despite being distinct concepts. So, why has everything got swept up in the crypto-web3 mania?
The short answer is as old as capitalism itself: because there’s a lot of money to be made.
The longer answer, however, requires understanding that the crypto community is desperate to find mainstream use cases for a theoretically promising innovation that has primarily morphed into merely a speculative financial asset.
The DeFi movement has been gathering steam over the past few years, as a new generation of retail investors grow wary of financial institutions and start to seek alternative investment vehicles. Beyond the popular cryptocurrencies, hundreds, if not thousands, of “alt-coins” or “meme coins” have been created; most failed to go “viral” and faded away to nothing.
Then, in early 2021, NFTs had a mainstream breakthrough, thanks to digital collectibles like NBA Top Shot and CryptoPunks that leveraged the digital scarcity created by NFTs to generate social capital via provable ownership. Part of the early buzz that NFTs received was from the exact same crowd that has been hyping up crypto, but with more and more celebrities and brands jumping on the bandwagon, NFTs went mainstream in a remarkably short period of time and brought more people into the fold of web3 assets.
By the end of last year, NFTs had generated $14 billion in total sales volume. And since NFTs are based on the same blockchain technology as the cryptocurrencies, albeit deployed in a different way, the crypto movement quickly rebranded itself as web3 to capitalize on the intensifying hype around NFTs. What’s more, The New York Times reported in November that $27 billion globally had been invested into web3 startups, most of which deal in either crypto or NFTs.
Yet, by most measures, the crypto crowd still had an awful year. It’s not just that the prices of Bitcoin, Ethereum, and other digital currencies are down across the board — increasing regulatory attention following the r/WallStreetBets saga and the huge amount of crypto and NFT scams are also stalling the further legitamazation of digital currencies.
In the first few months of 2022, it felt like the undertow of web3 skepticism had started to grow into a cultural backlash. The negative reactions towards Twitter introducing NFT profile pictures for paid users is a recent example, so is the swift backlash against Mark Zuckerberg’s announcement at SXSW that NFTs may be coming to Instagram soon.
The backlash has started to affect the value of NFTs as well. The average selling price of an NFT has dropped more than 48% since a November peak to around $2,500 over the past two weeks, Financial Times reports. Daily trading volumes on OpenSea, the biggest marketplace for NFTs, have plummeted 80% to roughly $50 million in March, just a month after they reached a record peak of $248 million in February.
But it is too late for the web3 stake-owners to stop now. Ownership of NFTs is concentrated to just a few hundred thousand people, a new study from blockchain analysis platform Chainalysi revealed. The study found less than 10% of all owners hold 80% of the total market value of NFTs, meaning it is dominated by so-called “whales’ ‘ who stand to profit handsomely if the web3 hype train can keep going.
Therefore, the web3 development has fallen into an ironic paradox: despite all the promise of decentralization, most web3 assets have been consolidated into the hands of a small group of crypto whales. Even the technical foundation of blockchain-based decentralization is being abandoned for centralized exchanges and trading platforms in the name of scale and speed.
Technologist Casey Newtown noted this glaring paradox in his excellent Platformer newsletter following the launch of the aforementioned ApeCoin:
DAOs are created, but distanced from the core intellectual property. Token holders are granted votes, but on fringe issues. Nearly half of any tokens (38 percent, in the case of ApeCoin) are given for free to an inner circle. Decentralization becomes a marketing pitch — a forever promise of rewards to come, if you only buy and hold those tokens — but it’s all still centralized where it counts.
Therefore, it is no wonder that the hype men of web3 have seemingly decided it is time to subsume the metaverse as the concept broke through into mainstream consciousness following Facebook’s high-profile rebranding last fall. Cue the Dollyverse and BAYC-verses!
Time for a Conscious Uncoupling
If the metaverse were to escape from being subsumed by the impending crypto “bubble pop” moment, its stakeholders must resist the temptation of the hype and start building something that actually has value beyond the usual web3 sales pitch of “this is cool and could be worth a lot of crypto coins if more people buy into this.” In other words, it is time for the metaverse to consciously uncouple from web3.
For brands, it is time to focus on developing a metaverse strategy that is rooted in building immersive virtual experiences rather than pointless virtual land grabs. That starts with being cautious with platforms like Decentraland, which, as our own Adam Simon puts it, “has 0.01% of the daily users of Roblox,” yet deploys “web3 as a monetization scheme and marketing gimmick” to draw in unsuspecting brands that got swept up in the hype and seeking an easy activation.
At a time when scammer culture is back in the media zeitgeist, plus a trio of tech scandal shows airing simultaneously, brands would be smart to sidestep growing consumer skepticism towards controversial and over-hyped innovations like web3 and crypto. Instead, brands should be aiming for something more concrete and experimenting with 3D assets with no crazy price tags attached.
The same principle also applies to figuring out the roles brands may play in the metaverse, where media opportunities may be even more creator-driven. Today, the increasing time and attention spent in gaming are severely under-utilized by advertisers, so testing out gaming channels would be a great place to start for most brands to prepare for the metaverse.
For example, Nike’s decision to build a Nikeland in Roblox for fans to play branded mini-games, and American Eagle’s metaverse debut with a virtual “member’s club” co-created with Livetopia, a top role-playing game on Roblox, both stood out as recent brand examples that smartly separated the metaverse from the web3 hype and chose the right entry points.
If you wish to discuss more about the right platform strategy and audience insights for finding the right path into the metaverse, the Lab is here to help! Please reach out to our Group Director Josh Mallalieu at email@example.com to start a conversation.