The ‘metaverse’ technologies championed by Mark Zuckerberg pose a threat to financial stability, the Bank of England has warned.
A report by the Bank found financial problems within metaverses – a catch-all term for virtual worlds where people interact via digital avatars – could have severe real-world financial consequences if controversial crypto technology is tied to their operations.
It warned that in a future where people have jobs and own swathes of assets in virtual worlds, movements in highly volatile crypto markets could spill out.
Crypto assets have been rocked by a heavy sell-off over recent months, with investors suffering steep losses amid what has been called “crypto winter”. Andrew Bailey, the Bank’s Governor, has warned crypto assets have “no intrinsic value”.
Researchers said a crisis within a “sizeable” cryptoasset-linked metaverse could deal a hit to households and businesses, prompt jobs losses and force some investors into asset “fire sales”.
Such assets include cryptocurrencies such as bitcoin, and non-fungible tokens (NFTs) – a form of collectible verified through a digital ledger.
They warned in a post for the Bank Underground blog: “The importance of cryptoassets in the open-metaverse means that if an open and decentralised metaverse grows, existing risks from cryptoassets may scale to have systemic financial stability consequences.”
Mr Zuckerberg has thrown the weight of his social media giant Meta, formerly known as Facebook, behind developing a metaverse platform. Several other major tech companies including Microsoft, Apple and NVIDIA are also developing metaverse-related products.
There is no clear definition of what entails a metaverse, although the concepts being prominently presented by developers include virtual workplaces, galleries and shopping centres.
No consensus has emerged over whether metaverses should be linked or siloed, and whether they should be developed in a centralised fashion by corporations or as a community-developed “open metaverse”.
Bank researchers Owen Lock and Teresa Cascino said cryptoassets could be “enablers” of an open metaverse by allowing for digital items and money to work across different platforms.
Through such systems, households “may hold a greater share of their wealth in cryptoassets”, they said. Companies may also rely more on metaverse-based revenue streams, and some people’s jobs could be tied to the metaverse.
They said: “This evolution of the metaverse is uncertain, and the above scenario is a possibility, rather than a certainty.
“That said, were these exposures to materialise, a cryptoasset risk crystallising could result in: balance sheet losses for households and corporates, an impact on unemployment, fire-sales of traditional assets from non-banks to meet margin calls on cryptoasset positions, and negative profitability impacts on exposed banks.”