Technology is creating new types of assets. Leaders need to build new systems for managing them.
One of the most profound consequences of the fast-moving evolution of technology is its impact on the very nature of wealth. In the digital age, blockchain and smart contracts mean that digital assets can now be identified, circulated and secured in the metaverse. This opens up a new world of economic opportunities. Significant digital wealth can be accumulated through various new activities. Understanding the value, forms, attributes and allocation methods of digital wealth in the metaverse is crucial for leaders – and essential for identifying where old boundaries need to be broken to maximize future value.
The essence of digital wealth: data becomes an asset
The transition from the traditional internet to the metaverse represents a shift from an information-based internet to a value-based internet. The core change is the shift from an ‘open but untrusted’ internet to one that is ‘open and trusted’. The information-based internet relied on copy-pasting to facilitate the efficient exchange of information. However, the metaverse, blockchain-based internet, requires all information and data to be authenticated for ownership, enabling encrypted and secure information exchange. This represents a significant upgrade to the underlying value logic of the internet. Authenticated and encrypted information ensures that valuable data is not destroyed by copy-paste transmission.
As a result, the value of digital assets is undergoing a transformation in the metaverse, where data is becoming an essential asset. The emergence of blockchain technology offers a solution to the problem of data rights protection and assetization. By acting as an ownership confirmation machine, blockchain provides a low-cost data authentication service, enabling data transactions and value distribution through smart contracts, which are self-executing computer programs that automatically enforce the terms of a contract. This mechanism makes data a true asset for everyone, maximizing its value in the metaverse.
Axie Infinity – a blockchain game that became popular in Southeast Asia in 2020 – offers an example of data assetization in the metaverse. In this game, players are recognized as creators of the data assets they produce during the game, and their in-game items are authenticated on the blockchain, making them unique NFTs that players truly own.
Enabling users to truly own their data and benefit from its value is how blockchain technology provides a new solution to the problem of data rights protection and assetization. Governments and businesses must work together to develop a standardized system for managing data assets and protecting the privacy rights of users. Such a system would ensure that the metaverse can fully realize its potential as a new economic system, creating a better society where data is used for the benefit of all.
The attributes of digital wealth: a super asset
In 1997, financier Robert Greer published a paper titled, ‘What is an Asset Class, Anyway?’ in which he divided all assets into three classes: capital assets, consumable/transformable (C/T) assets, and stock of value (SOV) assets.
It is worth noting that a specific asset can have multiple attributes. For example, the main attribute of gold is its SOV asset characteristic, but it is also used in industry, for example as a raw material in the manufacturing of semiconductor devices. That means gold also has the attributes of a C/T asset. Or take real estate: it can generate cash-flow income when it is used for rental, giving it the attributes of capital assets – but at the same time, it is scarce, restricted by land supply, so it also has the attributes of an SOV asset. Most assets only have one or two such attributes. However, some digital assets based in the metaverse may have all three attributes, forming a ‘super asset’ spanning the categories.
ETH, the token of Ethereum, is a prime example. First, the ETH has certain characteristics of C/T assets, like oil and natural gas. Following a 2021 upgrade, for example, a small amount of ETH is paid by users as part of handling fees and then ‘burned’ – destroyed and removed from circulation. Usage demand has also become a key factor – the greater the demand, the lower the circulation, which affects the value of the entire system.
Second, there are similarities to capital assets. When Ethereum upgraded from ‘proof-of-work’ (PoW) to a ‘proof-of-stake’ (PoS) validation system – a much more energy-efficient and cost-effective technology – holders were able to pledge ETH to the system’s betterment efforts, receiving digital asset rewards in return. In that way, ETH can bring a form of cash flow to its owners.
Third, there are similarities to SOV assets. Following the switch to the PoS mechanism, the annual ETH supply growth rate (like an inflation rate) may gradually decrease, and could even become negative, which would amount to deflation. Moreover, many decentralized finance (DeFi) platforms support ETH being locked in smart contracts as collateral to lend other digital assets or issue new ones as reserves, which shows that ETH has the function of asset derivation. In scenarios such as NFT trading, the ETH is the main medium and it can be circulated on multiple blockchains through cross-chain bridges. In that respect, it has the attributes of a ‘universal equivalent.’ This is something like the position of gold in the world economy, which aligns with the definition of an SOV asset.
The emergence of Ethereum’s super asset marks a pivotal moment in the evolution of assets in the metaverse and signals the shift in value migration. Leaders should pay close attention to the distinct attributes and potential of diverse asset categories, as well as the transformative impact they can have on business. The rise of these assets opens up exciting possibilities for entrepreneurs to leverage new business models and create new types of wealth.
The allocation of digital wealth: a new distribution model
In the metaverse, the symbiotic relationship between content creators (that is, data contributors) and internet platforms is one of two-way empowerment. As the internet platform economy continues to develop, data contributors are becoming increasingly prevalent, and their numbers are growing. These contributors serve as critical nodes in the platform network and are responsible for creating the key value of the platform. However, they are often faced with limitations, including passive acceptance of platform rules, exclusion from platform governance, and inadequate participation in platform value distribution. Moreover, the profits they generate are increasingly absorbed by the platform.
While this conflict may appear to be a distribution issue, it is, in fact, a problem of governance, ownership and organizational structure. Such contradictions are commonplace in the era of the internet platform economy. The governance, distribution and organizational mechanisms of internet platforms do not align perfectly with their value-creation logic. Value creators are not being adequately rewarded. This is primarily due to the fact that while many internet companies are operating under a platform economy model, their organizational structure remains rooted in traditional company systems, which prioritize shareholder interests and rely heavily on capital. In this context, capital investment plays a decisive role in a company’s development and is often the key determinant of success.
However, this approach is no longer relevant in the digital age, where the source of value creation has shifted. In the platform economy era, success is the result of the collective efforts of all participants, including capital, entrepreneurs, employees and data contributors, who together form the overall ecosystem. For instance, the value of prominent internet platforms, such as Twitter and TikTok, is derived not only from capital investment and company management, but also from the contributions of content creators and users. However, these participants cannot share in the value they create, and are often excluded from the formulation and optimization of platform rules. Additionally, user data is frequently exploited by platforms, which can capture users’ browsing and search data and analyse it to deliver targeted content and advertising. While users provide data for free, platforms use the analysis results to generate profits for upstream traffic buyers and advertising sponsors, without sharing the profits with those data contributors.
By leveraging blockchain technology, users can maintain privacy while choosing to share browsing and other information with the platform and receive benefits according to the smart contract’s settings. For example, users can share their ‘attention’ to earn BAT (Basic Attention Token) rewards by using Brave Browser, a browser that is widely used around the world and based on the Web3 business model. This approach enables companies to create data value, protect content creators’ copyrights, and allow data contributors to maximize their personal data value, resulting in a win-win situation for all parties.
The rise of DAOs
In the past, digital wealth was managed and distributed by central entities, such as companies or financial institutions. However, today, digital wealth is managed and distributed through new decentralized organizational forms, such as DAOs (decentralized autonomous organizations). A DAO is an organizational form that employs smart contracts on the blockchain to write community-updated operating and governance rules, enabling it to operate independently of third-party interference. Through intelligent management methods and corresponding token incentives, DAOs allow communities to achieve maximum self-operation, self-governance and self-evolution, thereby maximizing efficiency and value circulation. DAO management and decision-making are completed through token holder voting, which includes project founders, investors, or regular users. They decide the operation and management methods of DAOs, including project development direction, investment decisions, financial management, and more.
Through DAOs, a more equitable and efficient solution for the distribution of digital wealth has emerged. This method has already been tested through ‘yield farming’ – a real-time value distribution mechanism where users lock and stake digital assets to provide liquidity for a platform, in exchange for digital assets issued by the platform through smart contracts. This process is similar to depositing money in a bank, but the bank does not just pay interest – it also rewards early customers with shares in the bank. For example, Compound, a distributed lending platform, uses yield farming to incentivize participants to deposit or lend more digital assets. Users are rewarded with tokens which they can hold for governance rights, use to propose and vote on updates to the project in the DAO, or sell for profit on the market.
Compared to traditional wealth distribution systems, yield farming offers several advantages. It uses new digital assets, such as governance tokens, to distribute both current profits and long-term value, creating a symbiotic relationship between data contributors and the platform. The allocation process is also transparent, fair and automatic.
In the future, DAO in the metaverse will become an essential economic form, where organizational goals will shift from maximizing shareholder value and company value to maximizing community ecological value. This shift will create a fairer, more inclusive, and more sustainable new paradigm for the digital economy.
The challenge for leaders
These changes in digital wealth underscore the significance of data as one of the most valuable assets for businesses in the digital age. Not only is data a core competitive advantage for firms, but it is also a vital driver for shaping future business models and developing new products. For leaders, it is imperative to comprehend the importance of digital wealth in the metaverse and to adapt to the rapidly changing digital landscape.
To achieve this, leaders must incorporate data as a core asset, strengthen data security measures, improve data utilization efficiency, and ensure the security of data. In conducting business operations, management should respect and protect users’ data rights and return data ownership to data contributors in practice. Furthermore, data assetization should be promoted, to make data a genuine production factor for businesses.
The new collaborative organization model characterized by platformization, community orientation and online capabilities is gradually becoming the norm within the metaverse. Managers should re-evaluate the sources and importance of external digital contributors, carefully considering how they contribute critical resources to the company, and whether the way that value is allocated to them is reasonable. Leaders need to be ready to break boundaries as they attempt to construct a new benefit distribution system that can achieve maximum ecological value.
Dr Jianing Yu is founder of Uweb. Ciara Sun is the founding partner of C² Ventures. They are joint authors of The Rise of the Metaverse: How Web3 is Enabling Our New Digital World (LID Publishing).