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How will Web3 and the metaverse create opportunities?

The decentralized nature of Web3 and the metaverse will change the competitive landscape for financial services firms presenting both opportunities and challenges.

  • A Web3 decentralized model seeks to manifest a digital experience that is more resilient, more inclusive, and prioritizes peer-to-peer connection.
  • In Web3, value creation, storage and exchange are decentralized across communities and technology infrastructure.
  • Web3 and the metaverse are interdependent but not dependent. Many believe Web3 will accelerate adoption of the metaverse.

Web3 – decentralization, disruption and digital assets 

Decentralization has become both a rallying cry and a catalyst for all that Web3 promises. But beyond a buzzword for the media and a mantra for the true believers – what is Web3 and why does it matter? How will decentralized infrastructure and design principles be both an equalizer and a disruptor for the next generation of the internet? And how do digital assets and decentralized finance (DeFi) play a role in the emergence of the metaverse? In this second in a series of articles on the metaverse, we will explore how these elements impact the opportunities and challenges for the financial services industry.

The promise of Web3 

According to The Gartner Group, it’s projected that by 2026 about 25% of people will spend at least one hour per day in the metaverse. Further, they expect that 30% of organizations will have products and services ready for the metaverse. Web3 is foundational to enabling this new form of commerce and will be the engine driving the creation, storage and exchange of value in the metaverse.

It’s sometimes difficult to distinguish between Web3 and the metaverse — they are not the same thing. They are not dependent, but they will be interdependent if the true vision of the metaverse is to be realized. The metaverse and Web3 meet in the middle at the intersection of online identity and digital assets, where users are not only participants in three-dimensional communities but owners in a shared digital experience.


Web3 is one part technology and one part approach to building an internet that empowers individuals and communities beyond the interests of centralized entities. Anchored largely in technologies like blockchain and IPFS (InterPlanetary File System), its foundation exists on the concept of decentralized infrastructure, design, storage and access. This decentralized model seeks to manifest a digital experience that is more resilient, more inclusive and less prone to censorship, and prioritizes peer-to-peer connection over facilitation by intermediaries. In Web3, value creation, storage and exchange are not the exclusive realm of brands or platform providers. Users create and own digital assets, both creating and exchanging value in a decentralized storage model. Our identities are not validated exclusively by the platform on which we operate, but by tools such as digital wallets that allow us to validate ourselves.

Taking inspiration from the open-source community, Web3 developers embrace open standards and public technologies like blockchain and distributed storage solutions to develop cryptocurrencies, nonfungible tokens (NFTs) and decentralized autonomous organizations (DAOs) to build resilient peer-to-peer decentralized networks and applications.

For all of the benefits the previous iterations of the internet have given us, Web3 in many ways is a reaction to the centralized dominance of a handful of technology giants. Users lack choice and control over how they trade personal data for services, and upstarts find it difficult to break into markets where dominant players control so much of user access and experience. But is the current state of centralization itself bad? Isn’t there a tremendous level of security and utility to centralization? The fact is that centralization is convenient – until it’s not.

To fully understand this vision and why it’s become so compelling for the future, it helps to understand how we arrived at our current version of the internet.

How did we get here?

In the ‘90s, we witnessed the emergence of the internet as one of the most important productivity tools of the modern age. Built first as a read-only resource, information was uploaded, catalogued and accessed globally, similar to an online version of an encyclopedia.

But this model of the internet, which looking back we now label Web1, was a single direction resource and therefore limiting. Users consumed content created and served by providers and the monetization methods were narrow. Advertisers flocked to this new medium to piggyback alongside content served up by emerging media giants. Search engines began to emerge as the central governing authority over content creation, aggregation and discovery (the most notable use case for search engines) and the business model was advertising driven.

Slowly, the internet began evolving into its next iteration, Web2. It shifted from pure content and search providers to platform providers. “Free” services offering social connectivity, messaging, productivity applications and other content creation tools became dominant on-ramps for digital access. Artificial-intelligence-powered platforms with integrated functionality and impressive, albeit 2D user experience also became hubs for e-commerce.

To benefit from the convenience offered by these “free” platforms, users allowed them, most of the time unknowingly, to collect data every time they logged in with their credentials, made a purchase or simply engaged with any type of content or service. Identity, social engagement and preferences, even basic personal financial information, became centralized on fewer and fewer platforms. Not only did this place a tremendous amount of power in the hands of a few companies, it also created major security and privacy risks with so much personal data in the hands of so few.

A decentralized vision

In the face of this centralization and the 2008 financial collapse, blockchain and its first use case, bitcoin, were born. With visions of Web3 as their north star, the blockchain faithful proposed the idea of remaking the internet and the financial system itself, in a decentralized model.

Built on the foundations of what came before, Web3 seeks to decentralize control over the governance, infrastructure and transactions that will make up our metaverse experience. And while a decentralized internet is not absolutely required for the metaverse to become a reality, it is “philosophically inconvenient” to have a metaverse only based on a centralized internet where one cannot absolutely own a digital asset (e.g., digital art, land, movie) free and clear as we do in the real world; the platform provider today could simply shut down the server or ban the user from the platform.

But before this vision of communities and infrastructure organizing and governing themselves becomes a reality, there is work to be done. This new approach will present new risks and new challenges for financial services firms. These risks span from brand risk to firms that establish and manage their presence in a Web3-powered metaverse to how to they’ll protect the security and identity of users. Users will want the ability to conduct commerce via Web3 in both familiar and new ways, leveraging its decentralized nature to place more power in the hands of consumers and creators.

What does decentralization really mean?

Decentralization can be defined as the lack of central control, whether that control is the method by which people communicate, how they consume content or how they choose to do business with each other. True decentralization for Web3 would include building critical components of infrastructure, including storage, in a resilient global network where no one person or entity could take down or otherwise control access. This is a core tenet of public blockchain infrastructure and its central design principle of Web3.

This direction is in stark contrast to our current approach and has profound implications for the financial services firms that will build and support the rails of commerce in Web3. Everything from identity to security to basic infrastructure must be reimagined for a decentralized model, including how financial services firms acquire and serve customers.

Digital assets and user-driven economies in the metaverse

A decentralized financial world begins with a foundation of digital assets. In some ways, the trading of these new assets in the form of cryptocurrencies and NFT, as examples, has become a distraction to the underlying value of Web3. But nonetheless, digital assets form the cornerstone of how value can be created and exchanged in the metaverse.

Blockchain allows developers and the projects they support to tokenize value and create digital assets. This can be in the form of a cryptocurrency, a utility token for transactions on a blockchain network, stablecoins pinned to the value of a sovereign currency or an NFT representing digital art or real-world benefits such as membership in an organization. A key distinction between these assets is fungibility. Can they be exchanged in kind for like tokens (cryptocurrencies) or are they unique like NFTs?

These digital assets manifest their value based on the market economics of the blockchain they sit on and the perceived value of the asset by the broader market. No single centralized authority issues these assets or seeks to control their supply or value. In a Web3-powered metaverse, assets can be traded freely and directly in a peer-to-peer manner, without the need for intermediaries. Proof of ownership of the asset exists decentralized across the blockchain, providing resiliency, privacy and security. Assets can be programmed with smart contracts to automate financial transactions.

Decentralized finance

In an effort to apply this decentralized approach to the broader economy, Web3 developers seek to remake our financial system in a new model. Enter DeFi, or decentralized finance, to challenge the current model. In fact, the terms DeFi and TradFi (traditional finance) have become the monikers for cross-town rivals, representing the future of finance for the former and status quo for the latter. We’ve also seen companies emerge in the gray areas between the two, often referred to as CeFi, or centralized finance: these firms blend elements of both models offering users secure access to Web3 financial rails with more traditional financial controls. Centralized crypto exchanges such as Coinbase are the best example of this.

To understand DeFi as a whole, we need to talk briefly about smart contracts. Smart contracts codify shared business logic that runs autonomously on a blockchain network – needing only a transaction to execute functionality. The automation offered by smart contracts empowers blockchain builders to encode “trust” into the blockchain, defining if-then transactions. Execute a sales contract on your home and a smart contract automatically records the new owner on the blockchain.

Smart contracts came about with the introduction of Ethereum and first enabled standard representations of value as tokenized assets, be they fungible assets like stablecoins or unique like NFTs. This became foundational to the creation of digital assets.

It’s this combination and connection of smart contracts and digital assets that underpins next evolution and lets us apply different financial models to these assets. Builders of DeFi started with replicating traditional financial models like exchanging and lending on blockchain but are now creating entirely new financial models and instruments (e.g., perpetuals) not possible in traditional finance. The global, public, 24/7/365 access from anywhere internet is available and also presents a very different operating model from traditional finance.

A decentralized payment and transaction infrastructure, for example, would mean individuals could control their own assets in digital wallets, traverse the metaverse with a secure online digital identity recognized across the network and conduct transactions directly with other users without the need for an intermediary. It would also mean decentralized storage and access to content, with multiple parties validating transactions and facilitating access to content. While some see this as complete freedom from the traditional financial system, it will more likely be a hybrid melding of today and tomorrow. Driven by regulatory guidance and the need to protect both consumers and businesses, Web3 operators have adopted, and will continue to adopt, know your customer policies to understand who they are doing business with.

DeFi providers seek to free individuals from a reliance on intermediaries and put more control in the hands of consumers. It is in this model of decentralized finance where both the opportunities and challenges for financial services firms exist. How will financial services firms make money if just being in the middle of a transaction is no longer enough? If sovereigns issue digital currency, which banking services are still necessary? Will trust in blockchain technology really supplant the trust built by institutions over hundreds of years? And ultimately, how will governments regulate all of this?

Disrupt or be disrupted

The decentralization of resources and services driven by Web3 will change the nature of finance in meaningful ways. Both the risk of disruption and the opportunity for leadership exist. For example, decentralized exchanges for digital assets operate connecting asset owners directly to each other for transactions. Ownership can be validated and transferred directly via the blockchain, removing the need for traditional clearing or brokers. These exchanges rely on liquidity pools, funded by independent owners of digital assets, and provide fees directly to them for facilitating the transaction. Traditional exchanges cannot compete with the efficiencies of a smart-code-powered transaction or a distributed fee structure.

Lending is another place Web3 models are transforming business as usual. Blockchain-powered lending anonymizes credit and lending, where any user who can pledge collateral can borrow. No credit checks are necessary and risk is “self-managed” in the form of smart contracts that liquidate assets on chain when loans meet risk criteria. While recent struggles in the crypto lending space have become high profile and contributed in part to the perceived “crypto winter,” the mechanism for identifying risk worked, shining light on structures that posed greater risk to the overall system. This more direct lending model challenges the dominance of traditional banking both in risk calculation and inclusiveness. Anyone who’s ever purchased a house knows that the lending process could use some Web3 streamlining.

Financial firms must begin to grapple with this shift. Web3-powered lending, payment infrastructure, asset exchanges, insurance and custody services already exist today in both crypto native and leading-edge financial services firms. Metaverse adoption will only accelerate these trends as users conduct more transactions in these environments.

How will this enable the metaverse?

To many skeptics, the metaverse is simply the application of gaming technology to make online experiences more immersive. There is some truth to that statement. Technologies such as virtual reality, augmented reality and extended reality are creating opportunities to interact with brands and individuals in ways much more compelling than two-dimensional images. But realizing the full value of the metaverse as defined by metaverse visionaries may be tied to or even accelerated by Web3 technology. The value of digital land in the metaverse, for example, is dependent on the ownership rights conferred via smart contracts on the blockchain. Rich and diverse experiences are created in Decentraland and The Sandbox precisely because they are user driven, albeit currently without a governing authority to monitor or censor. In the future, digital assets will move seamlessly across metaverse(s) via a mesh of blockchain networks powered by smart contracts.

The open-source, collaborative nature of Web3, leveraging public infrastructure, will support innovation and accelerate adoption of the metaverse at a speed far greater than the centralized development model of Web2. In addition, the very nature of Web3-based decentralized metaverse platforms means that the environments are persistent and resilient, more immune to outages than centralized systems. Functionality providing security and resiliency can be designed into open-source infrastructure where the entire ecosystem can benefit, instead of a reliance on each individual platform provider.

All of this unlocks opportunities for a myriad of financial services to help users leverage their value. In the end, the real value of the metaverse may be that Web3 facilitates user-driven economies with less friction, rather than a curated, centralized experience controlled by intermediaries.


Many see Web3 as the true and defining characteristic of a fully functional metaverse. What is certain with Web3 is that the financial services industry is at an inflection point. In this new digital realm, our avatars will buy digital goods and build wealth through digital assets. We’ll extend and accept credit through assets encoded in smart contracts. Institutions will engage customers and employees in new ways.

Behind all of this will be a next generation of decentralized financial infrastructure providing the rails of secure commerce for Web3 and the metaverse.

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