What’s in a Name? Valuing Metaverse Assets
Daniel Ryan
As the metaverse gains steam, intellectual property risks abound in the virtual economy
The concept of the “metaverse” burst into the mainstream in late 2021 and has since become a buzzword. A longstanding sci-fi construct dreamt up by writer Neal Stephenson as part of his 1992 novel Snow Crash, the metaverse has recently captured the imaginations of consumers and some of the world’s largest firms. At the same time, many questions remain about what this seemingly limitless concept entails, how these virtual worlds might interact with the physical world as they coalesce into one—possibly connected—metaverse, and its disruptive potential.
Regardless of the unknowns, established players across, but not limited to, the technology, private equity, venture capital, retail, and consumer industries have been pouring time and money into the perceived opportunities presented by the metaverse. According to a recent report, metaverse digital asset marketplaces will be a $224.9 billion opportunity by 2027, with user-generated content and social networking within the metaverse expected to reach $82.9 billion by the same time. McKinsey & Company estimates that the metaverse may generate up to $5 trillion in value by 2030—the size of Japan’s economy today.
Emerging Litigation around Virtual Assets
Growing interest in the metaverse may also be matched by an increase in related litigation proceedings—the first of which already have begun. The recent intellectual property (IP) infringement lawsuit by French luxury brand Hermès against the nonfungible token (NFT) artist and creator of MetaBirkins, Mason Rothschild, was a landmark victory for the retailer. With the legal frameworks that govern IP standards in the virtual world far from defined, the case serves as an important precedent—particularly with other cases underway.
A number of global law firms are actively involved in the debate on metaverse-related issues, including around the absence of specific regulations overseeing IP rights in the virtual world, the anonymity the metaverse affords participants of its marketplace and the difficulty to determine which courts would have jurisdiction over cases not bound by any one geography. Progress is underway with various jurisdictional authorities exploring ways to protect IP owners.
The Difficulty of Valuing IP in the Virtual Economy
Another major challenge yet to receive significant attention is the valuation of IP—and other dematerialised assets—in the metaverse. Building on BRG’s established expertise in damages and valuation across all types of assets, including intangible assets, BRG professionals recently embarked on a new research project exploring in more detail the matter of asset value in the metaverse. This has been underpinned by discussions with some of the world’s most renowned legal experts in the digital assets field, with a view to advancing the debate around asset valuation in the metaverse and uncovering immediate hurdles to be addressed.
The conversations to date have been fascinating and highlighted the wide range of issues that should be considered by corporates and individuals venturing into the metaverse, as well as by law firms developing their understanding of this alternative marketplace and associated litigation risks.
For example, looking at the burgeoning real estate market in the metaverse—if a user owns a building in the real world, does that give them any rights to its digital twin in the metaverse? And while land plots in some of the more popular metaverse environments can sell for tens or hundreds of thousands of dollars, with some even generating millions through sales, how can the true value of such assets be assessed?
Monetizing metaverse assets can be challenging, as the end user often does not own the underlying IP of the asset. What is more, not many platforms offer mechanisms to protect user assets created on these platforms, which is a concern in the event of platform or service discontinuation.
The metaverse can also make it difficult to apply traditional economic theories to asset valuation. For instance, the law of supply and demand in the physical world generally stipulates that prices will rise if demand exceeds supply. Real estate assets in sought-after locations serve as a good example in this context. In the metaverse, however, a platform operator could decide to alter and increase the supply, changing the underlying value of a product sold.
Metaverse asset valuation is a vast and wide-ranging issue—and not one easily distilled into any number of research papers. That said, we hope that our upcoming papers will help uncover some of the key considerations and act as a valuable contribution to the growing discussion on this important topic. To our peers in the legal industry, we encourage you to get in touch with any views so we can collectively advance this conversation and benefit the industry as a whole.
Daniel Ryan is the head of BRG’s London office. He has over thirty years of experience in valuing businesses, shares, and intellectual property assets in both contentious and non-contentious matters.
Email: dryan@thinkbrg.com
Phone: +44 (0) 203 725 8358