The metaverse was the biggest tech buzzword in the past year. It caught not just the attention of the web3 zealots and purists, but even the big web2 tech and the mainstream media. Not only did it pique their interest, companies like Facebook went all in by rebranding to Meta, to better position themselves for the potential trillion dollar technology as opined by JP Morgan.
The transformational potential of the metaverse can almost be seen and felt from the various proof of concepts already under development and usage. Moreover, an exaggerated depiction of how the Metaverse could change our daily lives can be seen in the Sci-Fi adventure film, Ready Player One, based on the novel by Ernest Cline.
Given the scale of this groundbreaking technology, a number of investors are curious as to how to own metaverse correlated assets in order to harvest some of the potential. Assets related to the metaverse can come in various forms, and this article is aimed at distinguishing two of such primary assets - metaverse stocks & metaverse tokens. Interesting to note, tokenised stocks are also gaining some popularity, even for metaverse associated companies.
Contrary to the popular opinion and the meaning suggested by the definitive term, the metaverse is not a singular world, but it refers to one of the immersive digital experiences built independently by different projects. The term "Metaverse" refers to a virtual world, most often in three dimensions, that is shared by multiple users. It often includes elements of augmented reality or virtual reality.
Basically, how the metaverse works is it represents the user with an avatar within the virtual 2D or 3D world which the user has full control over. With virtual reality headsets/controllers, a joystick, or even a mouse the user can control this avatar to explore the world and interact with other users. Examples of the metaverse include the Step App and XANA.
Metaverse stocks and metaverse tokens are two types of assets that are associated with the metaverse. Metaverse stocks are the traditional equity route taken to gain ownership in a company that is involved in development or operation of a metaverse application. Metaverse tokens, on the other hand, are on-chain assets which are used within the metaverse itself or comprises the metaverse itself, like its land parcels and building blocks.
Understanding the differences between Metaverse stocks and metaverse tokens is important for investors considering metaverse assets. In the following sections, we will explore these differences in more detail.
The nature of ownership these assets represent is one of their key differences.
Owning metaverse stock in a company implies that you own a part of that company, and it’s not the same when you own a metaverse token of that same company. When you own metaverse stocks, you are essentially becoming a shareholder in the company and are entitled to a portion of its profits and assets. The value of your metaverse stocks is highly dependent on the company’s financial performance and it entitles you to dividends.
Unlike metaverse stocks, metaverse tokens do not represent ownership of the metaverse. The most rights it can give to a holder is voting rights, and that’s only if there’s a DAO related utility associated with the metaverse token. They are simply tokens utilised within the virtual world for different reasons. Although issued by the metaverse developers, metaverse tokens have many differences in comparison to metaverse stocks. Metaverse tokens do not do not entitle the holder to any dividends, and there are no profit sharing stipulations associated with metaverse tokens either.
Pointing the spotlight at FITFI, Step App’s primary token. Owning a a large amount of these tokens doesn’t give the holder any ownership right over the Step App, since Step is a decentralised ecosystem. Although, due to the modular ecosystem design approach taken by the project, the tokens will provide voting rights to proposals in the Step ecosystem.
Regulations around metaverse tokens are still undecided for the most part, but the regulatory framework around metaverse stocks is fully formed and set!
Metaverse Stocks are typically regulated by securities laws as they represent ownership in a company and yield returns based on the company’s performance. There are strict rules governing the trading of these stocks to prevent fraud and manipulation. Legal requirements and protections are put in place to ensure the integrity of the securities markets and to protect investors. For example, companies must disclose certain financial and operational information to the public when they issue metaverse stocks.
Metaverse tokens on the other hand seems to be in a grey area and the debate still exists on what's to be classified as security and what’s not. Some metaverse tokens may be classified as securities dependent on if it passes or fails the Howey’s securities test and be subject to similar regulation as metaverse stocks. Other metaverse tokens will most likely be treated as commodities and be subject to different types of regulation.
One approach that the Step App has taken is to use a fair model of distribution to ensure that the ecosystem tokens are well distributed. This primarily ensures that the Step ecosystem is decentralised, and spread among a wide community. Additionally, this wide distribution also reduces the chances of it being classified as a security as it’s been debated for Ethereum since the merge.
Metaverse stocks are always issued by an established metaverse company. It’s not the same for metaverse tokens.
Metaverse stocks can only be issued by a project that has completed the legal requirements of company establishment because of the regulatory drudgery involved. These companies may issue metaverse stocks to raise capital for their business or to provide an opportunity for ownership in the company to be dispersed among a larger group of shareholders.
Metaverse tokens, on the other hand, may be issued by a variety of entities, including companies, individuals, or decentralised organisations. There is more leeway as to who can issue a metaverse token. However, It’s worth noting that the process of issuing metaverse tokens may vary depending on the specific use case and the underlying technology that is being used.
Some metaverse tokens may be issued through initial coin offerings (ICOs), IDOs, POAP, or any other novel initial web3 offerings that exist today. Note that this can happen even before going through any regulatory paper work of establishing the project as an enterprise.
Technically, metaverse tokens have a myriad of use cases, whereas metaverse stocks only really have one: equity in the underlying company. Although for the developers of the metaverse they both usually serve the same purpose of raising funds.
Both metaverse stocks and metaverse tokens are at some point used for fundraising. Metaverse stocks only have one use case, and that’s providing equity, so selling them implies selling a portion of the company. As such, metaverse stock owners are entitled to a share from the profits of the company. Metaverse companies can use various methods to distribute profits to metaverse stock owners, such as: stock buybacks, and dividends. Although, even if the company uses its profits to acquire more assets, the metaverse stock owners technically benefit, since they own a share of those assets.
Sales of metaverse tokens does not imply ownership. Rather, they are most often sold on the premise of being a token to access some utility at any point in time. Some metaverse tokens may be used as a means of exchange, allowing users to trade them for other goods or services between the virtual and real world. Other metaverse tokens, like land parcels, provide utility by allowing users to develop them into some kind of Metaverse event/attraction. An example of a Metaverse attraction would be a virtual concert hall on the Metaverse. Some metaverse tokens serve as access cards to various exclusive areas and features within the virtual world.
The FITFI token primarily serves as a medium of exchange to buy the SNEAKs in app. These SNEAKs are employed as a means of access to join Step App’s Move to Earn programme, and fitness challenges within the Step fitness ecosystem.
The liquidity levels found in the market of metaverse stocks and metaverse tokens is another important difference between these two types of assets.
Metaverse stocks are operating in the global stock market, which are significantly bigger, and more liquid than the crypto market. Metaverse stocks have the ability to be listed on major stock exchanges like NYSE, NASDAQ, etc, with liquidity that is magnitudes larger than any crypto exchange. As a result of these factors there is also an immensely larger pool of potential buyers, and sellers for metaverse stocks relative to metaverse tokens. In short, metaverse stocks are just operating in a market where the sheer volume of liquidity is much higher, therefore they have the ability to attract a lot more liquidity.
The market of metaverse tokens, on the other hand, usually has lower liquidity due to a smaller pool of buyers and sellers as well as having relatively smaller trading platforms. As a result of less market participants, and smaller institutions in the crypto market, the amount of liquidity a metaverse token can attract is limited, and at a much smaller scale compared to metaverse stocks. Although, crypto markets continue to gain more adoption, and the decentralized metaverse powered by metaverse tokens could be one of the biggest catalysts for growth in the crypto markets.
The primary tenet of web3 is decentralisation. Same applies to all of its applications or Dapps as it is referred to in the space. Metaverses are not excluded. Governance of most blockchain-based immersive worlds is usually done by a decentralized autonomous organization. Only metaverse tokens are designed to include a holder in such DAOs and their voting weight is directly proportional to how much tokens are held. They are designed so because DAOs are aimed towards eliminating management hierarchy.
However, not all metaverses are decentralised. For centralised metaverse companies, where control is decided by a single central authority, metaverse stocks are voting and governance rights and vested on the associated company stocks. While such metaverses may still include tokens within their virtual society, its utility is most often restricted to being a medium of exchange or for toll payments.
The divisibility of Metaverse Stocks and metaverse tokens is worth considering. For Metaverse stocks divisibility is not really considered a very important factor, because all they offer is equity of a company. Although, it is nice to be able to buy partial amounts of metaverse stocks since it enables you to play around with your investment strategy.
Metaverse tokens are highly divisible, and they need to be divisible so that they can carry out their functions within the metaverse economy. Earlier in the article it's mentioned that metaverse tokens get their value within the metaverse through 2 things: acting as a medium of exchange or providing utility within the metaverse. To act as a medium of exchange it is essential for metaverse tokens to be divisible, and in certain cases it is necessary for utility metaverse tokens to be divisible as well.
Some metaverse tokens come in the form of NFTs (non-fungible tokens) and these metaverse tokens cannot be divisible due to their nature, but all fungible metaverse tokens have smaller fractional units as they have the ability to act as a medium of exchange.
Metaverse tokens have more freedom to transfer ownership whilst metaverse stocks do not. The regulatory climate facing metaverse stocks is one of the biggest factors restricting their transferability, but another really important factor that makes transferring metaverse tokens significantly easier is the use of blockchain technology.
For the sake of regulatory screening, and preventing market manipulation, metaverse stocks most often have restrictions on their transferability. The restrictions levied on metaverse stock transfers include but are not limited to: holding periods, transfer fees, purchase qualifications, and KYCs. On the other hand, metaverse tokens may be transferred almost instantly and with minimal fees, making them a more convenient means of exchange.
However, it is important to note that some metaverse tokens may have their own restrictions on transferability, especially when it’s vested by the project team for a while before release or staked for some yields.
Transferring Step App’s FITFI tokens only requires both parties to have the Step wallet and some tokens in it. Unless staked, it’s as easy as it gets. No restrictions on ownership transfers.
There exists an established and stringent regulatory framework over metaverse related stocks. Most of the parameters describing the do’s, don'ts as well as the continual commitments like financial reporting are well laid out. It’s much easier to control and mete out penalties on defaulters and the clarity gives regulators an acute speed of swinging into a case that needs resolution. This makes metaverse stocks much safer than its counterpart metaverse tokens.
Metaverse tokens have no defined framework yet. There’s a blurry line about what the ethics are and what they are not. There’s also a complete absence of consumer or investor protection laws for these tokens. It has given room for fraudsters to be founders and conmen, CEO’s.
It is much more riskier to deal with metaverse tokens than metaverse stocks because of the blurry veil of regulation, if not even its complete absence, that surrounds it.
There are several key differences between metaverse stocks and metaverse tokens and It is important for investors to understand these differences when considering metaverse assets as part of their investment portfolio. Understanding the nature, regulation, issuance, use cases, liquidity, market cap, divisibility, transferability, volatility, and potential returns of metaverse assets can help investors make informed decisions about its risk and potential value.
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