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As the metaverse coalesces, big players in the space are making enormous investments. And while there are many business opportunities in the various metaverses for studios of every size, there’s a large, and growing, number of considerations to be mindful of as they build out their business plans. Companies need to start taking a hard look at what this new market will demand, from how to monetize user experiences safely to the legal and taxation requirements that will spring up, to the minutia of virtual economics.

At the 2nd Annual GamesBeat and Facebook Gaming Summit, Chris Hewish, president of video game commerce company Xsolla was joined by James Gatto, partner at the law firm of Sheppard Mullin, and games, blockchain and fintech leader, and Emily Stonehouse, chief compliance officer, Linden Lab Second Life to discuss these issues and more.

Self-governance versus government regulation

Too often, technology companies innovate first and then figure out the ethical thing to do later. But growth slows when outside regulations are imposed, and innovation stalls. As the metaverse looms, the question of self-regulation becomes more urgent.

The short answer is that there really is no one size fits all, Gatto said, particularly because the metaverse won’t be just one big world, but likely will be composed of a variety of spaces.

“The simple answer is that there are certain aspects of what happens within a metaverse that can fall into the realm of self-governance,” he said. “Just like any other online platform, a social media platform or otherwise, assuming you create a valid and binding terms of service, you can set certain rules, community guidelines, and other parameters of what the platform will or will not permit within that metaverse. There’s a fair amount of flexibility. However, it’s not infinite.”

But to the extent that the metaverse will be a transactional space, governmental regulation will apply whether it’s a walled garden or not, for instance on ecommerce and other internet-based transactions to some extent. You can’t totally escape government regulation. Commerce engenders tax issues, the movement of money requires money laundering laws, and so on. Real-world intellectual property (IP) law will apply by default absent some contractual agreement to the contrary. Decentralized governance through blockchain technology has much to recommend itself, but you can’t completely decentralize, and you can’t avoid real-world law.

Stonehouse also pointed to the issue of the bad actors who can poison any online space. Our experience with 2D social arenas has only proven that social will always require some kind of moderation.

“Just like the real world, if you have X number of people, there will be a certain number of people who are bad people, who want to troll people, grief people,” she said. “You need to have a way to protect people. There’s some kind of governance you need to set up. You need to have rules and terms of service and community standards to say, these things are acceptable in our world, and these things are not.”

Very basically, it’s about ensuring that your community is functioning correctly, and community members are safe. These kind of regulations could possibly be built into smart contracts, so that violations can automatically be enforced if they’re violated, in a new kind of self-governance Hewlish suggested.

DAOs (decentralized autonomous organizations) can also potentially be used as a way to enforce regulations. DAOs run like corporations, with token holders who vote on the activity of the DAO. A community member might get voted off the island if enough token holders think someone is not operating in a way that adheres to the community guidelines. And drilling down, each platform in the metaverse might have its own overarching community rules, and then each region within those larger communities might have their own — an 18-years-of-age-and-over area, for instance.

Combating fraud in the metaverse

Digital commerce in the real world already has so many money laundering, phishing, piracy, and fraud concerns — it’s inevitable that the metaverse will have its own variety of schemes.

Any game with an economy, creators making things and selling things, and money being transmitted, will be subject to a broad array of regulations, from money laundering to cybersecurity, privacy and consumer protection, Stonehouse said, but establishing and enforcing these regulations is on the the money transmitter. Linden Lab created its own for Second Life, and is expanding that money service business, Tilia, into other games.

The benefit of blockchain in these virtual worlds, is that players can also purchase NFTs and trade them across platforms. And even if a game company shuts down, that asset may be usable in other contexts. Once the interoperability portion of the equation is nailed down, that will create even greater value for NFTs.

The issue of data privacy and identity

The amount of personal information that’s being gathered about players in the metaverse can’t be ignored. It far exceeds what’s gathered in the flat-screen world. In the AR/VR version of the metaverse, so much more behavioral information will be gatherable, when things like eye movement can be tracked and logged.

“One thing people need to be aware of when they’re in these metaverses is, what is this game taking from me? How are they making money? How are they using my data?” Stonehouse said. “If you’re in a game or in a metaverse where that metaverse is relying on selling your data, be aware of that.”

Another interesting issue is that folks in the metaverse will have multiple identities, whether that’s your actual identity in a professional context, to your friends-and-family identity, to your fantasy persona, which you wouldn’t want connected to your real life.

“Part of this is trying to figure out, in addition to all the traditional data privacy issues Emily mentioned, when someone has multiple identities, can you link those together if they want them separate?” Gatto said. “If you’re using the same device for everything, if it’s all device-based, you can track at least the user of the device, although it could be one user or more than one.”

Companies like Microsoft are working on standards now. The concept of decentralized identity has been raised, or self-sovereign identity, where people control their identity through blockchain technology and limit what they disclose to whom, in what level of detail. That would take the control away from platforms and keep consumers safer.

But all these issues only scratch the surface, Gatto said. The most important thing to consider is that whether you’re building platforms for the metaverse, or using someone else’s platform and building some capacity within that metaverse, you need to talk to a lawyer who’s knowledgeable in these areas early on to understand the issues.

“Don’t wait until you’re getting ready to launch to get legal review, because there are a lot of legal pitfalls,” he added. “You have to build things into your platform to do it right from the beginning. It’s much easier to do that than try to fix it later on.”

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