Metaverse momentum: analyzing financial system risks in an expanding virtual landscape

Deepali Gautam and Puja Singh

Journal of Credit Risk

Abstract: The metaverse is a rapidly evolving concept centered on creating an ecosystem of interconnected virtual platforms, enabling its users to engage in real-world-like activities through digital avatars. In recent years, the metaverse’s ability to create immersive experiences on these parallel virtual platforms has been increasingly appreciated by its users. However, creating and maintaining such metaverse platforms has entailed an extensive reliance on myriad unconventional and evolving technologies, which include hardware, such as highly sophisticated augmented reality or virtual reality headsets and accessories; software supported by extensive data to create and run the virtual platforms; and digital ledger technology to record transactions or execute smart contracts. Despite this, the metaverse has not attracted significant regulatory attention thus far, perhaps owing to its having few implications for financial stability given its current modest scale. This paper evaluates the vulnerabilities in the metaverse stemming from technological inadequacies, unregulated data collection, the dominance of Big Tech and the risks of fraud and manipulation. It also draws attention to emerging issues, such as market conduct, integrity and investor protection in the metaverse, which may necessitate supervisory attention.

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