What is MetaFi?

The growing popularity of the metaverses sphere has led developers to start creating blockchain-based solutions that provide additional user benefits.

What is MetaFi, and how is it organized?

MetaFi stands for Metaverse Finance and refers to a set of decentralized protocols focused on the field of metaverse. As it is easy to guess, MetaFi is analogous to decentralized finance (DeFi) and blockchain gaming (GameFi) and, in a way, combines both of these spheres.

Unlike DeFi, non-fungible tokens or NFTs are central to MetaFi ecosystems. Metaverses are virtual worlds in which users have their avatars (digital characters). Avatars on the blockchain can only be represented as NFTs, just like any other virtual world objects: buildings, plots of land, weapons, pets, and so on.

Metaverses can have their real economy. This is where interchangeable tokens (FT) come into play, with the help of which users can exchange NFT assets with each other.

What benefits does MetaFi bring to users and players?

Combining Web3 and metaverses can benefit both users and the companies themselves. Cryptocurrencies haven't reached mass adoption yet, but as it gets closer, the Web3 metaverse industry will attract more and more new users. Let's examine the main benefits of integrating Web3 into the metaverses sphere.

1. Actual ownership of your assets

Regarding centralized metaverses, we understand that users only get access to their assets (avatars, virtual currencies, and so on) but don't own them. All user data is stored on servers, and if someone gains access to a user's account, they can steal assets that don't belong to them.

With MetaFi, users store digital assets in their wallets, and no one can take away or block access to their funds. The wallets do not have any transaction limits or restrictions, and the user has complete control over their digital assets.

2. Monetization

All digital assets, such as NFTs or tokens, have real value. The user can freely sell their avatar on the NFT marketplace or exchange some game tokens for others through the DEX exchange. Transferring rights will not be a problem as all transactions are done securely through smart contracts.

Most Web2 games are not focused on monetizing the game experience, although trading of game assets is entirely developed on over-the-counter (OTC) markets. However, this exchange method has disadvantages, as buyers have to trust sellers and guarantors involved in transactions between users.

3. Lack of restrictions

Centralized services can block an account or deny access to it for any reason — sometimes even due to a mistake. As a result, users may temporarily or permanently lose access to their assets in the metverse.

Web3 users practically do not face this, but even in case of any blocking, it will be easy to find a way out because the wallet is easy to change. It is impossible to prohibit selling and performing other operations with assets unless the smart contract of the project does not have such a function.

MetaFi problems

First, DeFi protocols and blockchains may have vulnerabilities that hackers can exploit to steal users' assets. One of the most significant incidents involving metaiverse projects was the hacking of the Ronin network for more than $600 million in 2022, which was the basis for the popular blockchain game Axie Infinity.

The immutability and decentralization of blockchains are both their advantage and a severe problem: on the one hand, your assets will not be blocked or taken away by third parties, but on the other hand, in case of a successful attack, it will be impossible to stop the attackers.

Another problem lies in the high volatility of digital assets, which can rise and fall in value dozens of times quickly. This creates high risks for users, as MetaFi projects involve investments.

The future of MetaFi

According to analysts, the volume of the metaverse market in 2023 was estimated at $47.5 billion, while the capitalization of MetaFi projects as of January 2024 is $21.9 billion according to CoinMarketCap metrics, which is only 1.23% of the total crypto market capitalization.

The most significant MetaFi projects by capitalization at the moment are:

• Internet Computer — $5.92 bln;
• Stacks — $2.38 bln;
• Render — $1.44 billion;
• The Sandbox — $1.07 billion;
• Axie Infinity — $1.05 billion.

There are already hundreds of MetaFi projects on the market, including those focused on blockchain protocols, but only 29 have capitalization exceeding $100 million.

Experts predict that the volume of the metaverse market may reach $5.8 trillion by 2030, with an average annual growth rate of 45%. Analysts at the international bank Citi believe that in the next 8 years, the volume of this market will reach $ 8-13 trillion.

According to data for 2022, the number of active users of metaverses exceeded 470 million worldwide, but in the Web3 sphere, their number still reaches only a few million.

Few would doubt that the blockchain industry will significantly get its share of this market as the demand for cryptocurrencies and blockchain projects is growing again.

Some big companies have already become part of the Web3 metaverse. For example, the well-known company Heineken opened its virtual brewery, and one of the largest banks in the United States opened a digital banking branch in the Decentraland metaverse on the Ethereum blockchain.