Decentralized finance practitioners are keeping close tabs on the development of the Metaverse, a virtual world in which people will be able to play, interact, and make transactions.
The decentralized finance industry has benefited from the development of decentralized applications, decentralized exchanges, user privacy features, and security standards—all of which are likely to see further improvement with the Metaverse. However, the decentralized finance industry also holds what is perhaps one of the most exciting opportunities for blockchain technology: decentralized financial transactions.
The digital protocols inherent in blockchain technology could allow decentralized finance to play a much more prevalent role in the Metaverse.
The Metaverse will be a virtual world where users can create, share, interact, and make purchases. It will be like today’s social media platforms, but it will likely be much more immersive.
The idea of a decentralized, self-sustaining virtual world isn’t a new one. The earliest reference to this idea dates to Neal Stephenson’s 1992 sci-fi novel, Snow Crash. In his novel, Stephenson envisions a virtual world called the “Metaverse” that uses technology to bridge the gap between the real and virtual worlds.
Facebook (now “Meta”) used the same term that Stephenson coined to name its virtual world. Although the company “Meta” will likely maintain some control, it’s also probable that the Metaverse will follow the footsteps of social media and be populated primarily with user-generated content.
Economists and investors alike see financial potential in this model for a virtual reality platform. Those who operate within the Metaverse will eventually—if not immediately—need banks, financial institutions, and financial products to conduct transactions and exchange value, just as they do through social media today.
The Metaverse could also serve as a channel for companies to showcase their brands and sell their products, including financial products. According to one study, 35% of 18-to-34-year-olds already use social media to investigate possible investments.
However, finance might look somewhat different on the Metaverse than in real life. It’s still too soon to tell how it will evolve, but there is the potential that at least some portion of financial transactions will be solely digital. Indeed, as a new virtual world, the Metaverse could play host to any number of solely digital products and services.
It’s also possible that traditional banks and financial institutions will be left behind.
Traditional banks are already relatively slow on the uptake when it comes to new technologies. According to American Banker, “Over the next several years, U.S. banks are likely to become less relevant in the daily lives of their customers, less central in the economy and less profitable. The major culprit will be the rapid evolution of technology.”
As such, decentralized finance protocols may be the first to fill the need for financial products and transactions in the Metaverse.
A decentralized financial system would be an invaluable tool for the Metaverse. Decentralized transactions would allow users to conduct cross-border payments with minimal fees, and decentralized lending could help finance new and innovative projects in the virtual world.
DeFi protocols already operate in digital space, so translating them for the Metaverse would be a relatively simple process.
Nonetheless, major banks and financial organizations will undoubtedly be eyeing the Metaverse as well, and decentralized finance does have some work to do before it can match some of its centralized counterparts. The annualized protocol revenue in all DeFi protocols is estimated at $5 billion, compared to the $2.3 trillion global retail banking industry.
That said, DeFi has grown rapidly in just a few short years, and both regulation and the ongoing stabilization of DeFi markets will increase adoption in the years to come. Depending on just how decentralized the Metaverse is and how much freedom users have, DeFi could skyrocket in the virtual space and leave traditional banks far behind.
It also depends on when the Metaverse truly “happens.” Technically it is already here, as the underlying software that governs it will be released in 2022. However, the Metaverse may not reach a billion users until as late as 2031.
Regardless, decentralized finance could play a massive role in the Metaverse’s financial system.
EQIFi, the decentralized finance protocol for pooled lending, borrowing, and investing for ETH, has already launched the first decentralized financial branches in the Metaverse. Users can now conduct decentralized loans and decentralized trade transactions with other users on the EQIFi platform.
Are you preparing for the Metaverse? Register with EQIFi today to join the world’s first seamless bridge to Decentralized Finance.
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