“Metaverse” is generally used to describe any virtual world where users can interact using digital avatars. There are seven layers to any metaverse: infrastructure, human interface, decentralization, spatial computing, creator economy, discovery, and experience (such as games, social interactions, esports, theater, and shopping). Users create an avatar and can then enter existing metaverses through a virtual reality headset or from a computer, tablet, or phone.
As part of our 2022 Asia Technology Innovation Series, our international team provides an overview of the metaverse, takes a look at how it is being regulated in China and Singapore, and highlights key considerations for engaging with and stepping into the metaverse.
Like many jurisdictions globally, China recognizes the importance of developing its digital economy amid rapid developments around the world. Although it does not reference the metaverse directly, China’s Plan for Development of the Digital Economy includes terms and covers concepts that would be applicable to the metaverse, such as blockchain and virtual reality. However, there are significant concerns regarding money laundering and the potential impact of the metaverse on China’s financial markets, its currency stability, and foreign exchange, among other areas. For these reasons, China has a particularly robust stance on cryptocurrencies, which have been effectively banned in China since September 2021.
China’s Banking Association, Securities Association and Internet Financial Association issued a set of guidelines for the non-fungible token (NFT) industry, which include stating that underlying assets of NFTs should not include bonds, insurance, securities, precious metals, or other financial assets, and obligations for platforms to verify identities on NFT issuance, sale, and purchase, among others. Despite restrictions, certain NFT markets remain strong, such as the digital art collectibles market, which operates on permissioned blockchains, with transactions conducted in Chinese Yuan and not any cryptocurrencies. With many new digital collectible platforms launching every month since early 2021, the buoyant trend seems set to continue well into 2022.
We have yet to see any targeted legislation addressing the metaverse; however, there are some regulations that would affect offerings made therein. For example, Singapore’s Remote Gambling Act explicitly prohibits online gambling. If online gambling operators set up a casino in the metaverse, they will need to consider steps to disable access by Singapore users to avoid contravening the law.
With the explosion of cryptocurrency offerings, some casino games in the metaverse may conduct these games with utility tokens for rewards. If these tokens are not considered “monies worth,” then the Singapore law will not treat those as gambling activities. However, if these tokens are exchangeable for fiat currency or other “monies-worth” items, these would be prohibited.
Separately, operators who offer tokens exchanges on the metaverse may be conducting digital payment token services, and these activities are regulated under the Payment Services Act and the Financial Services and Markets Act of Singapore. Again, those operators in this space may need to explore restricting access from Singapore users to adhere to the laws.
In five to 10 years, it is very likely that we will see additional legislation from the region relating to the metaverse and a possible convergence of approach as we learn more from what the metaverse has to offer and how it operates. It is also worth noting that “real-world” regulation, particularly in the financial services space, would likely be sought to be replicated in the virtual metaverse space.