Who will govern the metaverse?

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Cathy Li, Head, Shaping the Future of Media, Entertainment & Sport; Member of the ExCom, World Economic Forum

• The metaverse is set to change the way people and businesses communicate, and operate, in innovative yet unpredictable ways.
• Its disruptive potential could have significant impacts on society as technologies become more widespread and sophisticated.
• Metaverse governance is a multifaceted challenge which needs to consider interoperability, privacy, safety and security.

The metaverse may be a concept long familiar to technologists, but it’s only recently been recognized as anything close to a household name. The term – which in its simplest definition refers to a unified and persistent virtual environment accessed via extended reality (XR) technologies – is most useful as a lens through which to view ongoing digital transformation. The belief is that virtual worlds, incorporating connected devices, blockchain and other tech, will be so commonplace that the metaverse will become an extension of reality itself.

This will have significant impacts on society. Just as the internet and smartphones transformed our social and commercial interactions, the metaverse could change the way people and businesses communicate, and operate, in innovative yet unpredictable ways. Already, examples are emerging of the value – and disruption – that the metaverse will create. Fortnite, a video game developed by Epic Games, sells over $3 billion of digital cosmetic items to players each year, making it a larger apparel company by sales than several global fashion houses.

Metaverse technology as a ‘regulated industry’

As such trends continue, entire industries could be reshaped by changes in the value chains they have historically relied on. According to Yat Siu, the co-founder of video game software developer Animoca Brands, the greatest economic opportunity of the metaverse is its promise to “assetize” digital content, creating a framework of digital ownership for users.

The technologies for doing so are still being developed, but as they become more widespread and sophisticated they will bring with them governance questions that are as distinct and complex as the tools themselves. Analyst Benedict Evans has predicted that this will lead to the tech industry being regulated, requiring separate rules, on top of the general laws of society, to mitigate its unintended consequences.

Identifying what these externalities will look like in the metaverse is underway. Brittan Heller, a technology lawyer, has called for “reflex” ways to report harassment in virtual environments, while Microsoft, one of several tech companies claiming to be building the metaverse, has outlined scenarios of metaverse security breaches that “could be deal-breakers for enterprises”.

Good product design can strengthen governance at the point of use

These are just two examples of governance challenges in the metaverse, which also include accessibility, interoperability and privacy. Some of these could be addressed through product design, for instance by applying uniform industry standards and protocols to XR hardware, which is expected to represent the main entry point to the metaverse. The World Wide Web Consortium’s (W3C) XR Accessibility User Requirements is one attempt to establish and categorize the needs of people with disabilities as they use XR; others also exist.

Applying standards to product design also extends to software. Experts believe that making virtual environments interoperable is one of the defining features of the metaverse, because it will allow users to participate in unified, socio-cultural activities – just like the real world. Interoperability can apply to different layers of the metaverse and is still being defined, but the ambition behind it is to strengthen competition by reducing the power of network effects and lowering barriers to entry. It has become a principle of antitrust policy for the internet that may transpose itself into discourse on metaverse governance.

Applying real-world models to the metaverse

That said, standards can only go so far before policies might be required. Nowhere is this more apparent than in the debate onhow best to moderate online content. All social platforms encounter content moderation issues, with executives having to find ways to apply sometimes dated, national rules on speech to borderless online spaces – placing significant power in just a few hands.

One response has seen companies apply real-world governance models to their decision-making processes for moderation. Meta’s President of Global Affairs, Nick Clegg, has described the company’s Oversight Board as a mechanism to devolve its power and hold it to account. But not all legislators are satisfied; some have developed regulations for content moderation. Europe’s Digital Services Act is the most recent in a growing list of attempts to do so – the question is likely to persist well after the metaverse becomes a reality.

What is the World Economic Forum doing about the metaverse?

Experts believe that the metaverse will come to represent the next major computing platform, transforming consumer experience and business models across industries.

Fashion brands are one example. Over years, apparel companies have perfected the design, manufacture, and distribution of clothing to anticipate consumers’ wants and needs in line with seasonal changes. But today, most of their revenue is surpassed by the $3bn worth of sales of digital cosmetic items in Fortnite, which have a cultural significance that extends far into the physical world.

This is one of the economic opportunities of the metaverse – the possibility to “assetize” digital content, creating a framework of digital ownership for users. If it is replicated at scale and across sectors, then entire industries will be reshaped by changes to their traditional value chains.

However, the promise relies on the advancement of several key technologies, including augmented, virtual and mixed reality (collectively known as XR), as well as blockchain, connected devices and artificial intelligence. How should these be governed in a way that promotes their economic upsides while protecting individuals’ safety, security and privacy?

The World Economic Forum is bringing together leading voices from the private sector, civil society, academia and government to address this precise question. Over the next year, it will curate a multistakeholder community focusing on metaverse governance and economic and social value creation.

It will recommend regulatory frameworks for good governance of the metaverse and study how innovation and value creation can be strengthened for the benefit of society. Updates will be published on the World Economic Forum website on a regular basis.

The dilemma of distributed governance

The challenge may be exacerbated by the emergence of alternative governance structures, which are increasingly popular among “web3” advocates. They argue that users, rather than executives, should have decision-making authority within a company. In its purest form, this manifests as decentralized autonomous organizations (DAOs), which issue users with blockchain-based tokens (NFTs) that give owners economic and governance rights.

Many virtual worlds are selling digital assets – such as cosmetic items and real estate, as NFTs – with the rules for these worlds and assets being set by DAOs. In theory, the model could be applied to any governance question; DAOs simply put issues to members to vote on. Indeed, it’s been argued that DAO mechanics can be applied to the challenge of content moderation as well.

While the theory is appealing, distributed governance does not provide an obvious recourse apparatus for when governance challenges get out of hand. If a virtual environment run by a DAO becomes toxic, who is responsible? Proponents would argue that a “healthy and successful” decentralized application is one that produces more usage, so rule changes are only likely to be approved if they serve the interests of the community using it. Since a toxic environment would turn off participants, moderation happens naturally without enforcement – though the principle has yet to be tested.

More questions than answers

Metaverse governance is a multifaceted challenge – which is unsurprising given the nascent technology. The products that the metaverse will be built on will produce difficult trade-offs between interoperability, privacy, safety and security which are going to be hard to neatly manage.

Furthermore, what has worked in the real world may not apply easily to the metaverse, while new models will require careful experimentation before they can be relied on at scale. Ultimately, there are more questions than answers right now about how to govern the metaverse.

A recently launched World Economic Forum initiative, Defining and Building the Metaverse, will aim to address some of these governance issues. Looking at the economic opportunities, regulatory frameworks and technology choices that will be made as the metaverse comes to life, the initiative will consider how to develop principles for governing the metaverse with this holistic perspective in mind.