Metaverse and regulation (February 2022)

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Foreword: METI Advisory wrote this report for SEBA Bank AG. The Metaverse is the latest step in the overall digitalisation of social activities and, specifically, the marketplace. It differs from the traditional marketplace in that it lacks the space dimension, is accessible 24/7, is essentially still unregulated and, being a digital construct, may feature artificial intelligence (AI)-driven characters. The virtual nature of this marketplace contrasts with the reality of the associated economic transactions: Its worth is estimated to reach USD 8 trillion by 2025. The virtual overlay to the traditional marketplace adds specific regulatory issues to the Metaverse marketplace. First, its essentially digital nature subjects its actors to an unprecedented scale and depth of data collection, storage, analyses, and utilisations to potentially influence behaviours. Second, the absence of the space dimension and unlimited accessibility characterising the Metaverse marketplace challenge competition rules and the geographical notion of jurisdiction. In the Metaverse, actors may operate simultaneously across marketplaces in a multi-tasking mode, anytime and anywhere. Therefore, the Metaverse marketplace compounds the consumers’ risks characterising of the traditional marketplace (frauds, manipulations, and lack of transparency, among others) with new regulatory gaps concerning data protection, competition rules, and enforcement ability/reference jurisdiction. The expansion of the Metaverse is expected to involve a growing number of users, making the noted regulatory gaps increasingly evident. Regulators may soon face the challenge of promoting a sustainable and universal new marketplace while sensibly mitigating consumers’ risks, ensuring fair competition and effective enforcement of rules. In recent years, the regulatory process for cryptocurrencies and cryptofinance has shown that a globally coordinated expectation management may lend stability to technologically-driven innovation. The growth of the Metaverse offers an opportunity to implement lessons learned.