Autor Cointelegraph By Nitin Gaur

In a previous article, I discussed the evolution of Web3 economies and current volatility, focusing on the participatory nature of Web3, which is the foundational technology enabling the creator economy. The term “metaverse” — meta and universe — often describes the anticipated future iteration or evolution of the internet powered by Web3 technologies like blockchain and decentralized resource distribution and consumption principles. Although the focus has often been on metaverse modalities such as augmented reality (AR), virtual reality (VR), gaming, Second Life, avatars and so forth, in my view, these modalities represent an interesting evolution or shift from the digital transformation of recent decades to the “transformation of digital.” That is exactly what the Metaverse aims to achieve. It might seem abstract and clunky today, but if we dissect the components that make up the Metaverse, we get a glimpse of a transformed digital future.Our identity can persist with our avatars and AR/VR representations and be certain, deterministic and applied with non-repudiation. The things we value are represented in the form of tokenized assets with valuation vehicles that not only prevent double-spending but also leverage blockchain as a transaction system, which brings the fundamental tenets of blockchain (trade, trust and ownership) to the Metaverse. The avatars that represent us can interact with various universes and their value systems, and we reserve the right and ability to monetize our data, effort, talent and all the value they generate. And, as our representation traverses various modalities — such as our avatars via VR to in-game representations — we can use things we value and apply that to an economic and value system of our choosing. Related: Basic and weird: What the Metaverse is like right nowThe vision and foundation of metaverse success relies upon seamless interoperability and the transfer of value (tokenized or other semantic web constructs) across universes supported by layer-1 and layer-2 networks. All of this supports the interactive modality I see in the Metaverse. So, we have a lot of work to do. We should look at the commercial aspects of the Metaverse and how it is monetized today and presents an opportunity to conduct business tomorrow.Monetizing the Metaverse: How do we do business in the Metaverse? Because Web3 and the Metaverse deal with a construct of tokenized value, we need to look into the financial aspects as a starting point. For instance, an area of my focus is what financial services mean in the Metaverse. We see pervasive financialization of NFTs and the emergence of other asset classes, but what does it mean to monetize the Metaverse? Let us break it down into consumable monetization categories to understand this better.Category 1: Commercializing protocolsThis category represents the current landscape of infrastructure and projects that rely on community development and broader infrastructure development and support services. These projects monetize in the following ways:Token-based models: Operation fees to write to the blockchain-powered business network’s distributed database.Tokens as a medium of exchange: Lending or selling a token as a “step-through” currency, such as with in-network tokens.Asset-pair trading: Monetizing margins.Commercialization of the protocol: Technology services including cloud and software labs and consulting services.The power of networks: Extrapolating the power of networks and exponential power of co-creation models, leading to new business models and resulting in economic value.Related: The metaverse will change the paradigm of content creationCategory 2: Simple token salesWhile broad, the second category applies to the majority of projects that rely on token sales. Tokens are used as a funding mechanism to fuel development. In many cases, these fit a classical definition of security, which is a token sale with a profit expectation. While these tokens can be viewed as in-network token currency, the expectation is that if they become ubiquitous, that ubiquity subsequently extends itself to fungibility and these tokens take on the status of a currency. These concepts are laden with new terms, definitions and twisted economic models and often face regulatory headwinds, but we are just discussing the state of the industry as it evolves.One of the subcategories here is nonfungible tokens (NFTs), where the NFT as an asset class begins to surface as a symbol and community belief instrument, valued by a section or subsection of the community. In gaming, for instance, there are game artifacts; in other ecosystems, they represent art, identity or a substrate of a niche social movement. NFTs seem attractive investment instruments with symbolism and cultural obscurity. We have seen this transformation fuel the end goal of the Metaverse, and NFTs have become a de facto representational instrument in the parallel digital realm.The financialization of NFTs in the digital realm can be compared to an analog to the mobile payments movement triggered by M-Pesa — a concept that started almost two decades ago and in its infancy reached a transaction volume of over $22 million a week with absolutely no financial intermediary, just preloaded conversational minutes traded to move money. While financial institutions salivated at the volume, M-Pesa eventually ended up becoming regulated, and financial institutions got into it via a telco-bank relationship structure. This modality morphed and took the form of actual payments over mobile devices using telco as rails.Comparing this to the digital realm context, the modality of the Metaverse today is represented by elements of virtual and augmented reality, digital art, gaming and Second Life. The underlying economics involving transfers of value is the real goal and the element that has the power to change the world. Related: Understanding the systemic shift from digitization to tokenization of financial servicesBut, as with the M-Pesa case, I want to question and discuss how the current forms of the modality shape the actual form of value transfer and payments.Category 3: The emerging crypto market structureThe third category is an important one, as it represents the market structure that has the power to facilitate exchange, interoperability and seamless value transfer — all the tokens and forms of valued assets exposed to some form of financial primitives. These basic financial primitives include buying/selling, borrowing/lending/collateralization and others. Just as in the case of M-Pesa, which ended up being served by regulated entities but changed the payments landscape, I expect financial institutions to make inroads into the Metaverse. These include not only traditional financial institutions but also de novo digital banks and decentralized autonomous organizations (DAOs). This change will bring leverage, financing, loans and so forth, but it may have a unique metaverse flavor to it. This implies a protocol-driven model that provides exchange, value and collateral locking and borrowing — a glimpse of which we already see with concepts like DEX (decentralized exchanges), liquidity pools, automated market makers (AMMs) and NFT marketplaces.Implication and challengesThe business of the Metaverse is complicated and not without pitfalls and uphill battles. Just like any new venture, it has a risk component, licensing or regulatory challenges, and staffing issues, and these challenges may be particularly acute for the Metaverse. The challenges include, but are not limited to, the following:Regulation and compliance: The industry is aware of the changing attitudes and regulatory posture around the globe. There is a pervasive lack of regulatory clarity on basic digital assets, as there are many exotic tokens and digital assets emerging and entering the Metaverse. That is to say that taking advantage of what used to be regulatory arbitrage is now an impediment in the global movement of various asset classes in the Metaverse. The broader industry will need to dedicate some capacity to help craft a relevant and fair structure or framework.Technology or protocol risk: Technological challenges around interoperability and identity are still massive roadblocks to the progress and promise of blockchain and, eventually, the Metaverse. If we want the Metaverse to go beyond modality and have an interchangeable mix of digital assets, we need it to be interoperable across various networks and universal ID transactions to be a seamless process with non-repudiation. Incidentally, this also will help with regulatory simplicity.Talent: Industry has a profound shortage of talent, including technologists, token economists and business leaders, to create a team that can stay in place to build, maintain and improvise on projects. This is a huge issue. We also see so much capital chasing too few projects, which historically has never been a good balance to attract talent and incentivize the development, retention and commitment of the right people.Related: Decentralization revolutionizes the creator’s economy, but what will it bring?ConclusionThe Metaverse today is a representation of the rhetoric of interaction modalities. The promise to realize the vision relies on robust investment in Web3 infrastructure, regulatory and compliance frameworks and talent, which will enable the transfer of various value artifacts from one universe to another and adaptation of the value system of various networks with exchange, fungibility and interoperability. The seamless movement of user-controlled value in tokenized or data forms will render these modalities effective. We see glimpses of these today in the financialization of NFTs and decentralized finance (DeFi) constructs like DEXs, AMMs and DAOs.So, I would say a revolution is underway. It is up to us to understand it, participate in it and monetize it.This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.Nitin Gaur is the founder and former director of IBM Digital Asset Labs, where he devises industry standards and use cases, and works toward making blockchain for the enterprise a reality. He previously served as chief technology officer of IBM World Wire and of IBM Mobile Payments and Enterprise Mobile Solutions, and he founded IBM Blockchain Labs, where he led the effort in establishing the blockchain practice for the enterprise. Gaur is also an IBM-distinguished engineer and an IBM master inventor with a rich patent portfolio. Additionally, he serves as research and portfolio manager for Portal Asset Management, a multi-manager fund specializing in digital assets and DeFi investment strategies.

Web3 is hailed as a technology paradigm that is fueled by the creator economy and is in the future, or rather, the next evolution of the internet. As we draw evolutionary comparisons of the technology that underpinned everything from information consumption to content creation, Web2 contributed an unparalleled economic growth and represented a significant era in human evolution with new ways to work, consumer information and progress in human civilization. So with this enormous success of Web2, why is there a need for Web3?As we rethink the internet, which relies primarily on a few centralized entities that have devices, channels of information that feeds the social media, mobile apps and provides connectivity points between service providers and seekers of these services, the control over these channels provides the custodian of this infrastructure not only monopolistic control but also a “too big to fail” economic choke point. So rethinking the internet, which was designed primarily to move information and morphed into moving value and truth, is a fundamental shift in empowering creators and participants and not just the custodians on the infrastructure. The drivers that fueled this disruptive thinking were excessive valuation and control of Web2 companies, censorship enforcement by the existing control of information channels and the rapid dissemination of information, which was a force for good as in knowledge transfer but is now weaponized with the velocity and veracity of information and the dissemination of bias, mistrust and misinformation — making it difficult to discern between signal and noise. These drivers indicate not only the dawn of a new era but also the creative nature of the human species to rethink, redesign and renew, shaping the next era of our evolution.Related: What the hell is Web3 anyway?Web3 imperatives So how do we envision this new paradigm taking shape? As Web3 aims at theorizing that the internet takes another step to be self-sufficient — leading to a whole new set of technology and protocol development, which will then be a foundation of a creators-controlled economy that embarks on information and value movement, and has discernable channels with built-in trust enabled by protocol. Blockchain and decentralization are often touted to be the enabling foundational concepts that are deemed essential to the development of such a platform. But before we drink the decentralization Kool-Aid, I think we ought to take a step back and reevaluate the success (and failures) of Web2 and more importantly, a transition to this new paradigm, as I suspect the challenges are not just technology-driven.Related: Web3 might be crypto’s key to the mainstream marketTo enable a Web3-led creators’ economy that empowers creators and participants, we need to first understand the imperatives of participatory economics, where the focus is largely driven by self-governance, efficiency, sustainability and the creation of a decentralized economic system devised with strong incentives and protected by protocols that entail social ownership, self-managed works and accountability for outcomes. Participatory economics originates from previous centuries of thought and experimentation around the idea that people should be able to manage their own lives with others (on the same network plane) cooperatively and fairly with rules embedded in the incentive economy that rewards participation and penalizes wrongdoing and activities that the network views as unfair. In other words, for Web3 to work and deliver on its promise, we need participation. At a very basic level, participation, much like in the real world, can come via commitment of resources — such as systems, protocols, skills, intellectual capital and expertise etc., and value created should have an equitable distribution among the various participants based on the fundamental tenets of demand and supply to address the fairness element. The economic value created would then need to be realized, accounted for, disseminated and exchanged with other fungible and nonfungible assets to maintain a balance in any economic network — all of this without any central accounting system or authority — to address the self-governance and protocol induced equitable structure. Web3, in its current context, begins to look like a stateful system of tokenized networks. Where these tokenized networks are not only attracting capital, talent and technology giving them a nation–state (with their economic structure and in-network currencies) status but also are market places and laboratories of co-creation between various projects. We have begun to see these manifest in various decentralized finance (DeFi) and nonfungible token (NFT) projects, and in a true sense, they are creating metaversical synergies between various tokenized networks.Related: How NFTs, DeFi and Web3 are intertwinedTo provide a true peer-to-peer, multi-token network (in a true sense, it’s metaverse) where projects and individuals can co-create and bring their participative energy is essentially the foundation infrastructure needed to deliver the Web3 promise. While we have seen unprecedented growth in the token-driven economy and exponential growth in investment and valuation of these projects, I think many of these projects neither embody the Web3 principles of participation nor have an economic output that adheres to Web3 tenets. The fundamental ingredient lacking here is — participation. Evolution of Web3 economies and current volatilityTwo fundamental technology concepts that allow us to discern between data (for validation and truth) and value transfer (for the participation economy) are the Semantic Web and decentralization, which will shape the future and facilitate the transition from the existing rapidly growing Web2 to the newer ownership-driven Web3. The Semantic Web extends the notion of document/information on the web to data that is of value, facilitating information that becomes more meaningful (and valuable) when semantically linked with data. Data is then converted to things of value — leading to monetization and the accountability elements of Web3 principles.Decentralization, on the other hand, facilitates peer-to-peer networks such as blockchain and enables us to move tokenized value — be they systemically created (cryptocurrency) or induced (tokens that represent value) — and address the self-governing and protocol-induced fairness elements of Web3 principles. At a very basic level, as we frame various interdependent ecosystems emerging on Web3 principles, it is fair to assume that their economies are interlinked. And as we build a strong foundation of Web3 with decentralized processing, interconnections and storage as foundational building blocks, they resemble the Web2 cloud infrastructure but with a different economic structure and control points. Related: DAOs are the foundation of Web3, the creator economy and the future of workAs projects develop and evolve, these tokenized values would be inclusive of the collective value of the underlying infrastructure, services and talent layers. This interdependent ecosystem as manifested in the natural system will thrive; and a successful ecosystem and economy will attract talent, capital and resources with preserved mutual interest.For instance, a metaverse project that includes NFTs and liquid crypto assets for fungibility will also have as the source of its success decentralized storage for artifacts, curated data model and analytics for its operation, decentralized processing and so on, lifting all the services ecosystem that would comprise Web3 ecology. Now, many of these services are centralized so they that the challenges of the current economic system are also inherent in them, meaning they embark on on the promise of Web3 but lack its principles. This is quite evident with the volatility of crypto and increased liquidity provisioning from traditional finance in the form of stablecoin or banking on-ramps that enable the free flow of liquidity from traditional finance, thus preserving not only the growth but also the challenges of the existing financial system. So this linkage of volatility and stability of crypto markets is something we ought to discuss and the impact of this on volatility and what it means for the parallel financial systems of yield and returns. For instance, a high yield in crypto markets will attract liquidity, and while the risk-on risk-off equation at play will attract capital and issuance of stablecoins, it also inherits the mechanics of global macro, which implies that any shifts in traditional finance capital markets, interest rates, money supply, inflation etc., which plays an important role in calculus that goes into asset valuation, begin to impact the crypto market, which, in principle, is meant to be independent and disruptive. What if we aim for self-sufficiency with truly crypto liquid and fungible assets and let the economic system work and self-correct? I find this equation worth the study and interesting, but also ironic.This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.Nitin Gaur is the founder and director of IBM Digital Asset Labs, where he devises industry standards and use cases, and works toward making blockchain for the enterprise a reality. He previously served as chief technology officer of IBM World Wire and of IBM Mobile Payments and Enterprise Mobile Solutions, and he founded IBM Blockchain Labs, where he led the effort in establishing the blockchain practice for the enterprise. Gaur is also an IBM-distinguished engineer and an IBM master inventor with a rich patent portfolio. Additionally, he serves as research and portfolio manager for Portal Asset Management, a multi-manager fund specializing in digital assets and DeFi investment strategies.

Decentralized autonomous organizations (DAOs) started out as a simple concept envisioned as organizations, created by an idea and fueled by developers, that automate business functions and processes by leveraging smart contracts and all the fundamental tenets of blockchain. The core idea was to flatten the complex business process that various organizations are mired in and facilitate movement of assets to a very future-oriented digital interaction that needed no intermediaries — promising faster, cheaper and more transparent transaction processing. By replacing many intermediaries, the DAOs themselves acted as digital intermediaries that provide transparency and scale, giving them the stature of an organization without the traditional organizational constructs of entities, groups, management, charters and other forms of collective action. While the traditional centralized organizational structure is being challenged, the key organizational elements that remain are fueling a new economic revolution that is giving birth to a new creator economy and bringing artists, lawyers, developers and creators together from all around the globe to create ideas and monetize them at global scale in permissionless crypto economic systems built upon blockchain and Web3 technologies — and essentially defining the future of work.Reduced dependence on trusted parties, tokenization of assets, and new stores of value enabled by blockchain technology can themselves enable new types of organizational structures and reduce the power of intermediaries. Ronald Coase’s famous essay on the raison d’être for the firm, “The Nature of the Firm,” explored why firms exist and what elements comprise them. From a transaction cost perspective, the firm creates an economic structure where the transaction cost within its boundaries is reduced by greater control of standardized contracts with its employees and ownership of resources. As the cost of internalizing resources increases, contractual arrangements with other firms in specialized areas result. Transaction costs associated with contracting can be drastically reduced by the decentralized verification and smart contracts enabled by blockchain. While this was the initial thesis behind DAOs, with speed, efficiency and costs bring primary objectives, DAOs now represent a significant piece of the mindshare governing and the primary driving force behind value extraction from the base layer, or layer one blockchain platforms. These layer one blockchain platforms represent the emerging Web3 technologies that aim to provide greater control to participants by fundamentally decentralizing computing, storing, and interconnecting. Many DAOs will emerge that represent the collaboration of a global talent pool, digital natives, and the ingenuity of a community that shares a common belief system — and bring the term “organization” to life.Related: DAOs will be the future of online communities in five yearsDAOs: Pillars of the creator economyA broad definition of a DAO would be an organization that records its membership, rules and responsibilities on an immutable ledger enabled by blockchain technology. Its charter and evolution are public and unchangeable. Generally, joining requires resources and community membership of sorts, in the form of tokens, to either participate or vote as a participant. Tokens are denominated in monetary assets (fungible or nonfungible tokens), whether crypto or fiat. Acquisition of tokens, in most cases, requires either time and talent participation, or a buy-in using fiat or crypto.DAOs provide a unique structure that naturally supports a creator economy, in which an economic model supports a structure through which you rent your talent and time, obtain flexibility and earnings, and leverage it to facilitate fractional ownership in the system supported and governed by the community. Blockchain and, by association, DAOs embody a natural governance structure for borderless online collaboration on crypto-native projects by digital natives which, incidentally, can be leveraged by traditional organizations that embrace the principles, similar to how brick-and-mortar businesses found an on-ramp to digital equivalents in the Web 2.0 era.While the issues around regulatory clarity and a framework for investor protection persist, these digital entities embody a digital reality like that of a nation — the state attempts to attract talent, capital, and innovation. Although the governance and rules of engagement may not be perfect, they are an ongoing experiment with innovation aiming to change the way we live and empower every willing community’s participation. While the arguments for autonomy and collectivization are employed to defend the lack of regulation, the ability to purchase voting power and the lack of protection provide a strong counter to this argument. If DAOs become digital analogs to existing corporate and organizational structures, will they continue to serve as an avenue to, or promoter for, a creator economy and support Web3 principles?Related: Bull or bear market, creators are diving headfirst into cryptoThe future of workWeb3 as a technology paradigm aims to provide rails for creation, tokenization and movement of value and assets. The Web3 aim to solve content ownership and provide portability of digital assets by tokenizing them paves the way to trade this tokenized value for other fungible tokenized assets, thereby enabling creators to monetize their work effort. These work efforts may include (but are not limited to) mining and the creation of content, such as art, music, and other forms of nonfungible tokens, that represent a stake in an ecosystem, much like game tokens. In a future where dynamic, borderless organizations without hierarchy can undertake much of the value creation, a supply of services is more conceivable with interconnected value networks, exchanges and bridges providing connectivity between these ecosystems. These decentralized exchanges or asset bridges not only provide an avenue to exchange various asset classes but also facilitate the global movement of assets, thereby creating truly global economies that attract digital natives and a talent pool.The innovation driven by decentralized and transparent token economic models aims to deliver great end-user and employee experience, while ensuring that the organization reaps the cost savings and competitive benefits of superior participant experiences. DAOs involved with DeFi, NFTs, and various other Metaverse projects deliver just that, where a handful of developers or founders conceive initiatives and pursue decentralized development via platform projects or crowdsource development with token incentives and participants who are not only consumers, but also earn from their meaningful participation.Related: DeFi and Web 3.0: Unleashing creative juices with decentralized financeDAOs represent the emerging trend that is driving a deep, long-lasting transformation of the workplace that combines cultural, digital, and philosophical belief systems. This is attracting investment from other token projects and talent from digital natives from across the globe, thereby creating an experience for all participants that results in a more resilient and empowered workforce and more community participation.This article was co-authored by Ananth Natrajan and Nitin Gaur.This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.Ananth Natrajan has over 18 years of experience worldwide in several roles, including research and development, business acquisition, systems engineering, product development, construction management and project management. His startup is building cybereum, a blockchain based platform for collaboratively managing complex projects with multiple stakeholders. He holds BEng & MS degrees in Mechanical Engineering, an MBA from IESE, and an MSc in major programme management from the University of Oxford. He is a professional engineer (PE) and project management professional (PMP). He has led multi-disciplinary teams in several complex projects and technology/product development efforts. Ananth has several patents in offshore wind turbines and blockchain technology.Nitin Gaur is the founder and director of IBM Digital Asset Labs, where he devises industry standards and use cases, and works toward making blockchain for the enterprise a reality. He previously served as chief technology officer of IBM World Wire and of IBM Mobile Payments and Enterprise Mobile Solutions, and he founded IBM Blockchain Labs, where he led the effort in establishing the blockchain practice for the enterprise. Gaur is also an IBM-distinguished engineer and an IBM master inventor with a rich patent portfolio. Additionally, he serves as research and portfolio manager for Portal Asset Management, a multi-manager fund specializing in digital assets and DeFi investment strategies.