Understanding the Metaverse Investment Opportunity
Grayscale Investments
Let’s get digital
For investors looking for new opportunities to expand their crypto portfolio, the developments in the metaverse present unique opportunities. In this piece, we examine the investment opportunity and ways to invest in the metaverse, including the Grayscale Decentraland Trust.
Our lives have become increasingly digital. Today, on average, around one-third of our lives (~8 hours per day) are spent on leisure activities, such as watching TV, playing video games, or scrolling through social media. That amount of time spent online will likely increase as remote work continues to normalize.
FIGURE 1: US AVERAGE DAILY HOURS SPENT ON SELECT LEISURE ACTIVITY
Source: Goldman Sachs
As our digital world and physical world become increasingly blended, a fast-growing virtual goods consumer economy is emerging alongside the convergence of our social lives and online gaming. It is estimated that revenue from virtual worlds could grow from ~$180 billion in 2021 to ~$400 billion in 2025.
This -- compounded with the news of Facebook’s rebrand to Meta -- is partially why the metaverse is generating so much excitement. As such, investors need to understand this new digital reality.
Unpacking digitalization and the evolution of the internet
The internet has always been about connecting people. Over the past three decades, internet technology has evolved, and the way we all interact with the web has evolved with it. Much has changed, but three key areas of online-based communities could be thought of as:
Web 1.0 – Netscape connected us online
Web 2.0 – Facebook connected us to online communities
Web 3.0 – Decentraland* connected us into a community-owned virtual world
Source Grayscale Investments
Decentraland is a virtual world hosted on a platform powered by Ethereum. Gamers in Decentraland can earn digital tokens (MANA) for their time spent in the game, which hold real-life value. Decentraland is one of the first examples of a Metaverse. While the Metaverse is still taking shape, the market opportunity for bringing the Metaverse to life is estimated to be worth over a trillion in annual revenue and will compete with Web 2.0 companies worth ~$15 trillion in market value today. This potential has attracted companies like Facebook to pivot towards the Metaverse, which may serve as a catalyst for other Web 2.0 tech giants and investors to follow.
The table below maps out the key features of Web 1.0, 2.0, and 3.0, to mark how the digital world has evolved with each new generation.
FIGURE 2: ILLUSTRATIVE KEY FEATURES OF WEB 1.0, 2.0 & 3.0
Source: Grayscale
The features of Web 1.0, 20, and 3.0 reflect the social, political, and cultural environment of the time in which they surfaced. For example, the widespread growth and popularity of decentralized finance and cryptocurrencies put traditional ways of doing business into question. The influence that Blockchain technology has had and the ideas it poses around collective ownership through a decentralized authority has forced us to question many other aspects of regulation and traditional governance structures in our lives. We started to wonder why other aspects of our lives weren’t democratically controlled. Why not the internet?
Enter the age of the Metaverse.
So, what is the Metaverse?
Simply, the metaverse is where digital experiences happen. The Metaverse is a set of interconnected, experiential, 3D virtual worlds where people located anywhere can socialize in real-time to form a persistent, user-owned, internet economy spanning the digital and physical worlds.
Today, the digital world is a hallway with many doors each requiring unique credentials to gain access. In the metaverse, users will have seamless, real-world adjacent interactions with entire digital communities. Building applications on open networks, like Ethereum, removes the unnecessary barriers between digital ecosystems.
Open networks, like Ethereum, also give users true ownership of their digital items. For example, in an open network, Instagram wouldn’t “own” your photography, but instead would enable you to display them in a virtual setting by connecting your wallet. Similarly, you would be able to seamlessly remove these photographs from one virtual setting and move them to another — without having to close your account or revoke your credentials.
Source Grayscale Investments
The Metaverse is still emerging, but many key components have started to take shape and are revolutionizing everything from e-commerce to media & entertainment, and even real estate. Our Grayscale Decentraland Report and Decentraland Tour make this concept more tangible by introducing one of the leading blockchain-based virtual worlds—Decentraland.
Grayscale Decentraland Trust is a unique investment opportunity to help qualified investors gain exposure to MANA (the native token of Decentraland). The trust is solely and passively invested in MANA, enabling investors to gain exposure to MANA in the form of a security while avoiding the challenges of buying, storing, and safekeeping MANA directly.
The new metaverse economy
The continued shift of game developer monetization is a key dynamic within this growth trend. Most gamers today spend their money and hours of their time building digital wealth within Web 2.0 closed corporate metaverse worlds. Most game developers don’t let players monetize their investment and efforts. Developers often prohibit players from trading items with other players and keep these worlds closed so players cannot transfer their in-game wealth to the real economy.
Web 3.0 open crypto metaverse networks eliminate the capital controls imposed on virtual worlds by Web 2.0 platforms. This new paradigm allows users to own their digital assets as Non-Fungible Tokens (NFTs), trade them with others in the game, and carry them to other digital experiences, creating an entirely new free-market internet-native economy that can be monetized in the physical world. This evolution of the “creator economy” is known as “Play to Earn”.
Source Grayscale Investments
Projects like Decentraland, for example, are creating an open-world metaverse where users can log in to play games, earn MANA with which users can purchase NFTs (including LAND or collectibles, and vote on economy governance), or create NFTs, giving them real world interoperability for the value of their time spent in-game.
Gaming is just one of the most immediately addressable segments where value is already starting to naturally shift to Web 3.0, but the Metaverse opportunity extends far beyond gaming. It has been estimated that the Metaverse is estimated to be a trillion-dollar revenue opportunity across advertising, social commerce, digital events, hardware, and developer/creator monetization.
The total market cap of the leading Web 3.0 Metaverse crypto networks sits at ~$27.5 billion. This pales in comparison to the ~$900 billion market cap of Facebook, ~$2 trillion market cap of the gaming sector, and the $14.8 trillion market cap of Web 2.0 companies that could shift to the Metaverse or risk disruption.
Compared to other Web 3.0 and Web 2.0 segments, Metaverse virtual world users are still in their early innings, but if growth rates continue at the current trajectory, this emerging segment has potential to become mainstream in the coming years.
To learn more about Grayscale’s Metaverse offerings, please reach out to Rayhaneh Sharif-Askary, Director of Investor Relations at Grayscale.
