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Many of the most exciting innovations impacting the cryptospace – such as decentralized autonomous organizations (DAOs), decentralized finance (DeFi) and non-volatile tokens (NFTs) – are the foundation for perhaps the most important development of all: the emergence of the metaverse.
The metaverse refers to digital environments characterized by increasingly complex forms of interaction, including the potential for users to access a range of financial services in a fully virtual environment.
The metaverse includes decentralized gaming environments such as Decentraland, The Sandbox and others. Corporations are increasingly exploring the potential for the metaverse to spark new economic opportunities – the most obvious case being the recent rebranding of Facebook to Meta.
A wealth of possibilities
Citi estimates that the metaverse economy could ultimately be worth up to $13 trillion. Meanwhile, big brands like JPMorgan, Coca-Cola and others are already experimenting with launching services in the metaverse in anticipation of this opportunity.
Some governments are also interested in the opportunities – with countries such as South Korea, Japan and the UAE announcing metaversal strategies aimed at boosting future job creation and economic growth.
In 2023, activity in the metaverse will continue to evolve and we expect to see an increasing regulatory focus on how to manage this new virtual space.
As we have described in detail in our “The Future of Financial Crime in the Metaverse” According to the report, criminals are already beginning to explore ways to exploit these new virtual worlds. This includes hacking and theft of digital assets belonging to users of services in the metaverse, as well as scams and scams targeting users. Elsewhere, the proliferation of “wearables” – or digital fashion and luxury items – could open new avenues for digital money laundering.
Regulators are inserted
In October 2022, Europol published a report on “Police in the Metaverse” which highlights the key challenges law enforcement agencies face when pursuing criminals in these virtual environments.
During 2023, we think that regulators and supervisory authorities will turn their attention to reducing the risks of financial crime emerging in the metaverse as well. In some cases, this may simply involve clarifying where pre-existing regulation extends to activity conducted in the metaverse.
In other cases, it may require new approaches – such as using regulatory sandboxes to engage developers in the DeFi space, as is being done in the Abu Dhabi Global Market, or potentially even regulators establishing a presence in the metaverse, such as the Virtual Asset Regulatory Authority Dubai already done.
To learn more, click below to download our brand new Regulatory Outlook report.
Click here for parts one, two, three and five of our excerpts from the regulatory review report.
