When the legendary Bitcoin appeared out of nowhere in the late 2000s, the concept of blockchains first saw real-world application. From there, we've seen a lot of ups and downs in terms of innovations that were approved by the so-called Web3 community. "People" replaced "Data," which had yielded trillions for Web2 corporate behemoths. Everything soon found an alternative - real or conceptual - in the people-centric Web3, making it a haven for novel ideators to realise long-forgotten dreams. Is MetaFi, however, such a long-forgotten dream? Is it a new combination of emerging Web3 industries? We need to know some important details first.
An Explanation of Metaverses
Metaverses, as we know, are virtual worlds where people can socialise digitally with one another. Blockchains host these worlds and the assets that inhabit them, while other technologies, such as augmented reality and virtual reality, enable people to access metaverses. Other Web3 elements, such as extensive data analytics, help to make metaverses as real-world-like as possible. But hold on! Metaverses are about having lives in the digital realm, not just having fun. People can conduct virtual businesses with the entire world as their target market, increasing their reach. Examples include Decentraland and The Sandbox.
DeFi: A Break with Tradition
Decentralized Finance (abbreviated DeFi) refers to all financial operations that use blockchain technology without the use of intermediaries. DeFi's importance has grown in recent years, as traditional economic systems appear to be on the verge of collapse. The addition of legal crypto adoption by many countries merely supplements the statement. DeFi can now be used to perform almost any financial transaction. To name a few, lending, borrowing, collateralizing, staking, and insurance. When discussing DeFi, it is important to note that it differs significantly from popular crypto exchanges and banks entering the crypto world, as they tend to exhibit some degree of centralization.
MetaFi: A New Discovery?
While MetaFi (expanded as Metaverse Finance) may appear to be a futuristic name, the concept is very novel because there is still a long way to go before we can even step there. MetaFi can be defined broadly as the decentralised financial operations carried out within metaverses. Such a concept would be feasible (even for testing) only if a significant proportion of the global population already has digital avatars living parallel, albeit virtual, lives. There are also many sub-elements to consider before drawing the borders for MetaFi, which we will go over in detail in the section below.
GameFi focuses on providing real-world rewards to gamers in exchange for playing games. In recent years, various mechanisms such as Play-to-Earn (P2E), Move-to-Earn (M2E), and NFT rentals have gained popularity. These games can be played in the same way as Web2 games or with special devices such as VR headsets and haptic gloves to simulate virtual reality.
SocialFi is based on the preservation of a thriving creator economy in which creators are in charge without the assistance of intermediaries (who typically enjoy the most benefits). This aspect of metaverse finance has helped numerous small businesses and creators earn fortunes during the 2021 NFT boom.
As user influx to these worlds increased following the NFT boom, metaverse real estate has become a thriving business trend. Companies began selling land parcels in Decentraland and The Sandbox as third-party resellers, while individuals purchased virtual plots as investments directly. Some started their own businesses on their land parcels, while others rented their land to entrepreneurs looking to capitalise on the emerging Web3 domain.
MetaFi: A Framework for Successful Execution
There are a few building blocks that must come together before MetaFi can be implemented as a viable economic trend.
MetaFi relies on foundations for hosting because it can only function if an L1, L2, or L3 solution is available. MetaFi cannot be used for commercial transactions unless functions are embedded in the framework.
DeFi is the main pillar of MetaFi that enables financial transactions to take place within metaverses. Transactions range from the simple provision of NFTs as collateral for loans to the complex combination of all MetaFi sub-elements.
Verses are virtual parallel worlds from which users can access MetaFi-based applications. Due to the numerous blockchains available for verses to exist in today's Web3 space, it is critical to choose wisely based on business needs.