GED113 Understanding Metaverse – Trends & Applications

Exploring the Mechanism of NFT and Cryptocurrencies

Aaron GAO
hgao@hksyu.edu
12/03/2024
 Key segments of NFT commercialization

From Navigating the Metaverse - A Guide to Limitless

Possibilities in a Web3.0 World
• Marketplaces
• Fan Tokens
• Fantasy Games and Collectibles
• Metaverse dApps

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 Marketplaces

• Buy, sell and trade NFTs

• Watch the NFT market to make smart investments
• Collect NFTs as a hobby or to "flip" them at the
right moment
 Pros of Marketplaces

• Fast time to market to reduce resource

requirements and NFT development time
• Quick learnings with rapid experimentation that
allows for quicker pivots and iteration
• Many marketplaces to choose based on vendor
agreements, Service Level Agreements (SLA),
market reach, etc.
• Secondary market for NFT reselling that gives the
original creator a commission
 Cons of Marketplaces

• Quick cash-in at surface-level, transactional

relationship between the brand and consumer is
shallow
• Low engagement with consumers that they're
easily forgotten
• Discoverability of your NFT is critical to success
• Gas fees on Ethereum or Bitcoin can get expensive
 Fan Tokens

• Engage with brands more directly

• Acquire tokens and NFTs
• Earn access to exclusive content
• Vote to influence a brand's decisions
 Pros of Fan Tokens

• Novel offering with innovative fan tokens to engage

with brands
• Simplicity to understand the token concept
• Exclusive content and "backstage" access to top
users puts premium value in fan tokens
• Real-world impact is higher as owners can vote on
significant changes
 Cons of Fan Tokens

• Less mass appeal as fan tokens may only attract the hardcore
fans
• Finite utility of fan token games as it's a narrow scope though the
experience might be great
• Potentially divisive among fans as some fan token games with
voting may lead to real outcomes brands must honour
 Cons of Fan Tokens (cont’d)

• Market applications limited as sports clubs are currently top fan

token application
• Feet to fire as sometimes giving power to people can backfire,
and so brands need to balance a rewarding fan experience
without losing too much control
• Brand tokens might risk being seen as speculative investments
for non-crypto users and backfire on the actual brand, especially
when the token loses its value
 Fantasy Games and Collectibles

• Collect NFTs of different rarity of their favourite

athletes
• Compete with other players for prizes
• Sell and trade inside a niche marketplace
 Pros of Fantasy Games and Collectibles

• It resonates with real world collectibles and fantasy

leagues
• Modernizes a hobby with this new wave of
collectibles as compared to buying card packs
• Gamifies fandom just like the fantasy football game
• NFT utility is high as they are essentially athlete
cards that help players compete
 Cons of Fantasy Games and Collectibles

• Less social as interactions lean toward

transactional NFT swapping instead of community
building
• Narrow focus for such games as they will draw the
attention of a dedicated community, but has little
value for converting people outside the established
player base
 Metaverse dApps (decentralized applications)

• Play-to-earn
• Play-to-own
• Casual play
• Socialize in like-minded communities
 Pros of Metaverse dApps

• High retention with increased engagement, players

have more interest in staying inside these worlds
• Community-first such that players and brands co-
create an immersive experience beneficial to all
• Cross-medium among metaverses, real-world, and
other digital channels
 Pros of Metaverse dApps (cont’d)

• Cross-pollination may bring various interest-

based groups onto a single ecosystem, giving
your brand and products exposure to wider
audiences
• Fit brand image, style, and other requirements as
there are many genres, including real-world
simulations, fantasy role playing, sci-fi, shooters,
racing, pet training, and more
 Cons of Metaverse dApps

• High-touch of NFTs that are part of designed

experiences that likely require tight collaboration
with the dApp operators
• Longer development that prolong the speed to
market as more dynamic experiences may come
with more logistics and requirements
• Not all brands perfectly translate from the real
world to metaverse dApps, and need outside-the-
box ideas to make a project work
METAVERSE AND MONEY Decrypting the Future

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 In-game Tokens

• In-game tokens of decentralized games like

Decentraland and The Sandbox implement the
ERC-20 standard, which makes them interoperable.
The tokens are freely tradeable and exchangeable
for other cryptocurrencies.
• By contrast, in-game currencies of centralized
platforms have specific rules around withdrawals.
Roblox specifies that developers can only cash out
once a month and the exchange rate is set by the
platform.
Market Capitalization of In-game Tokens
 What is Cryptocurrency?
• A cryptocurrency is a form of digital asset based on
a network that is distributed across a large number
of computers
• This decentralized structure allows them to exist
outside the control of governments and central
authorities

https://www.investopedia.com/terms/c/cryptocurrency.asp

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 Pros & Cons of Cryptocurrencies

• The advantages of cryptocurrencies include

cheaper and faster money transfers and
decentralized systems that do not collapse at a
single point of failure
• The disadvantages of cryptocurrencies include
their price volatility, high energy consumption for
mining activities, and use in criminal activities
 Types of Cryptocurrencies (I)

• Utility: Ripple’s XRP and Ethereum’s ETH are two

examples of utility tokens. They serve specific
functions on their respective blockchains
• Transactional: Tokens designed to be used as a
payment method. Bitcoin is the most well-known
of these
• Governance: These tokens represent voting or
other rights on a blockchain, such as Uniswap
 Types of Cryptocurrencies (II)

• Platform: These tokens support applications built

to use a blockchain, such as Solana
• Security tokens: Tokens representing ownership of
an asset, such as a stock that has been tokenized
(value transferred to the blockchain). Millenium
Sapphire’s MS Token is an example of a securitized
token. If you can find one of these for sale, you can
gain partial ownership of the Millenium Sapphire
 Risks of Cryptocurrencies (I)
• User risk: Unlike traditional finance, there is no way
to reverse or cancel a cryptocurrency transaction
after it has already been sent. By some estimates,
about one-fifth of all bitcoins are now inaccessible
due to lost passwords or incorrect sending
addresses.
• Regulatory risks: The regulatory status of some
cryptocurrencies is still unclear, with many
governments seeking to regulate them as
securities, currencies, or both. A sudden regulatory
crackdown could make it challenging to sell
cryptocurrencies or cause a market-wide price
drop.
 Risks of Cryptocurrencies (II)
• Counterparty risks: Many investors and merchants
rely on exchanges or other custodians to store their
cryptocurrency. Theft or loss by one of these third
parties could result in losing one's entire
investment
• Management risks: Due to the lack of coherent
regulations, there are few protections against
deceptive or unethical management practices.
Many investors have lost large sums to
management teams that failed to deliver a product
 Risks of Cryptocurrencies (III)
• Programming risks: Many investment and lending
platforms use automated smart contracts to
control the movement of user deposits. An investor
using one of these platforms assumes the risk that
a bug or exploit in these programs could cause
them to lose their investment
• Market Manipulation: Market manipulation
remains a substantial problem in cryptocurrency,
with influential people, organizations, and
exchanges acting unethically
 Stablecoins
Given the high volatility of most cryptocurrencies,
stablecoins, with their relative stability, usually linked
to fiat, are already showing promising adoption as a
medium of exchange.

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 Wholesale Central Bank Digital Currencies
(CBDCs)
• In 2017, the HKMA commenced Project LionRock in
collaboration with the three note-issuing banks and
the Hong Kong Interbank Clearing Limited. This
Proof-of-Concept (PoC) project studied potential
applications of CBDC in handling large-value
payments and delivery-versus-payment settlement.
• In 2019, the HKMA and the Bank of Thailand (BOT)
initiated Project Inthanon-LionRock to study the
application of CBDC to cross-border payments.
 mBridge Project

Project Inthanon-LionRock entered the second phase

in 2020. With the joining of the Digital Currency
Institute of the People’s Bank of China (PBC DCI) and
the Central Bank of the United Arab Emirates (CBUAE)
in February 2021, and with the strong support of the
Bank for International Settlements Innovation Hub
(BISIH) Centre in Hong Kong, the project has evolved
into the third phase and was renamed to Multiple
CBDC Bridge (mBridge).
 mBridge Project

mBridge: Building a multi CBDC platform for international payments (youtube.com)

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 mBridge Further Development

• The mBridge project further explores the

capabilities of DLT, through developing a trial
platform, to facilitate real-time cross-border
foreign exchange payment-versus-payment
transactions in a multi-jurisdictional context and on
a 24/7 basis.
• The mBridge project also explores business use
cases in a cross-border context using both
domestic and foreign currencies.
 mBridge Pilot Run

• In Q3 2022, the mBridge project entered the pilot

phase. During the six-week pilot, 20 banks in four
jurisdictions used the mBridge platform to conduct
over 160 payment and foreign exchange
transactions totalling more than HK$171 million.
• It was among the first multi-CBDC projects to settle
real-value, cross-border transactions on behalf of
corporates. A report was published in October
2022 to deliver the results and key lessons learnt of
the pilot.
 Retail Central Bank Digital Currencies (e-HKD)

• Building on the model for retail CBDC jointly

investigated by the HKMA and the BISIH Centre in
Hong Kong, a technical whitepaper was released in
October 2021 to explore potential technical design
options for issuing and distributing retail CBDC.
• The whitepaper is the first among similar papers
published by central banks to unveil a technical
architecture that includes a ground breaking
privacy preservation arrangement that allows
transaction traceability in a privacy-amicable
manner.
 Retail CBDC (e-HKD)

• After the two rounds of market consultation, the

HKMA published a position paper in September
2022 to set out its policy stance on e-HKD and
outline its next steps.
• It also announced that it will start paving the way
for any possible e-HKD implementation in a
prudent manner by adopting a three-rail approach.
 e-HKD Three-Rail Approach
Our work under the first two rails should help lay the
foundations and put in place some essential building
blocks for any future implementation of e-HKD. Rail 3
is concerned with launching e-HKD.

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 Financing Real-World Asset (RWA) Market

• Centrifuge, one of the leading protocols in the RWA

tokenization space, allows anyone to launch an on-
chain credit fund, creating collateral-backed pools
of loans.
• Centrifuge’s privacy-enabled NFTs are tokenized
representations of individual assets, keeping some
of the assets attributes private on a peer-to-peer
(P2P) protocol, while the Centrifuge Chain (a
public, decentralized ledger) tracks the asset
ownership.