Section I: Overview of the Metaverse

One financial institution described the metaverse as a “seamless convergence of our physical and digital lives, creating a unified, virtual community where we can work, play, relax, transact and socialize.”14 At least one prominent international body similarly expressed that the metaverse is not a single space, but rather, a “collection of shared digital spaces for real-time interaction and activities—a continuum that blends digital worlds with the physical world”15 that “can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence and with continuity of data.”16 Certain industry observers explain that fundamental characteristics of a metaverse include an immersive and persistent experience, connectivity to other users and a sense of presence.17 Others believe that a “proper” metaverse also includes aspects such as spatial boundlessness,18 decentralization and interoperability.19

According to some analyst reports, over three billion people reportedly accessed some version of a metaverse daily. In addition, 70 percent of U.S. consumers say their digital identity is as important as their real-life identity, and 95 percent of business leaders expect the metaverse to have a positive impact on their industry within the next five years.20 This impact is already starting to take root, with approximately 60 billion messages reportedly sent between users on the immersive online gaming platform, Roblox, every day.21 GDP for Second Life, an online multi-media platform where users can create avatars, reportedly reached $650 million in 2021.22

The technology driving experiences within the metaverse include:

  • Virtual Reality (VR): a fully immersive three-dimensional (3D) simulation of images, using computers and wearable devices such as head-mounted displays—smart goggles or headwear that can be strapped around one’s head—to replace or occlude a user’s physical environment (e.g., a recreation of ancient Rome);
  • Augmented Reality (AR): an overlay of digital computer graphics on top of a real-world visualization (e.g., a car windshield that displays upcoming traffic conditions); and
  • Mixed Reality (MR): an interactive blend of a real-world experience with digitally created content allowing users to experience simulated experiences within their physical environments and to manipulate and interact with virtual elements in real time (e.g., a surgeon repositioning a 3D image of a patient’s heart in her virtual workspace). 23

These VR, AR and MR technologies are all components of the concept known as extended reality (XR), which serves as an umbrella term to describe different types of systems that may comprise various metaverse environments. As discussed below, developments in these environments have been influenced by changes in the computer gaming industry, demographics and hardware systems. 

  • Computer Gaming: Today’s most popular metaverse platforms (e.g., Roblox, Fortnite) are computer gaming environments. According to one estimate, approximately 87 percent of Generation Z polled indicated that they are actively engaged in gaming. With a total value of over $200 billion, the gaming sector is larger than movies and music combined.24 Time spent in the metaverse has also reportedly been on the rise; for example, the number of daily active users for Roblox has grown from about 14 million in 2018 to about 78 million in Q1 of 2024.25 Market participants are also exploring social engagement systems that entice users to spend more time in other types of virtual spaces via gamified incentives that are not obviously “games.”26 The gamification trend that started on mobile devices is also present in immersive metaverse spaces, fueled by targeted advertising and features such as leaderboards and loyalty points.27
  • Demographics: Market participants have noted that the younger generations—Generation Z and Generation Alpha—are the driving force behind metaverse adoption.28 While older generations, such as Baby Boomers and Generation X, may still use phones to communicate with friends and family, their younger cohorts may make less phone calls and instead use their devices to connect with others over text, video and voice within metaverse spaces. Commercial enterprises recognize this and are “meeting them where they are” by introducing brand awareness within virtual platforms.29 For instance, one yoga brand has sold more digital yoga pants in the metaverse than in the physical world.30 This may come as no surprise, considering that 52 percent of Gen Z reportedly better identify with their avatars than their real-life selves.31
  • Hardware: XR hardware technology systems combine space and computational power using an interface accessed through devices such as smartphones, head-mounted displays, tablets and smart glasses.32 Advances in computing power and XR hardware have been catalysts for metaverse adoption. Nearly 80 percent of hardware within XR headsets is similar to that for mobile phones; the remaining 20 percent includes expensive advanced optics (e.g., vergence accommodation and eye tracking); motion technology (e.g., inside-out tracking and hand-gesture pattern recognition); and haptics (e.g., sensory gloves and digital scents). The largest hinderance to XR hardware adoption may be linked to the need for more advanced technology and resulting increased price tag.33

Industry experts have noted that the metaverse may impact many commercial sectors in some way in the coming years, while some business leaders are already asking their staff to consider developing a metaverse strategy.34 According to some estimates, by 2025, 25 percent of people will spend at least one hour per day in a work-related metaverse space 35 and, by 2030, the economic impact of the metaverse is expected to reach $5 trillion, including the various live events that will occur in these spaces.36 Even further into the future, another study found that 54 percent of the industry polled expects that, by 2035, the metaverse will replace mobile phones as the primary gateway to digital content and, by 2040, the metaverse will be fully refined and immersive such that the internet will be a place that people can spend significant time visiting and exploring each day.37

In response to these thematic tailwinds for the metaverse, investors have poured billions of dollars into metaverse projects. There are currently over a dozen exchange-traded funds (ETFs) that thematically invest in only metaverse-related publicly traded companies, including investing in some of the largest technology companies in the world (e.g., Apple, Meta, Alphabet) as well as those that focus specifically on metaverse platforms and virtual modeling (e.g., Roblox, Ansys, PTC).

However, despite the enthusiasm, metaverse adoption may still face challenges in the foreseeable future. These challenges include cost, accessibility of hardware, the ability to build a proper network infrastructure, interoperability, data security and privacy.38 In addition, operating in a new virtual environment will entail review to ensure compliance with legal and regulatory considerations.39