Digital Identities – Who will we be in the Metaverse
The Sandbox Nomad Avatar (2022)
Everyone is talking about the metaverse – a new paradigm of human interaction. It is set to
become the next trillion-dollar opportunity in tech, with a rising number of firms showing
interest in immersive virtual places that will allow customers to travel beyond what is
physically possible. The steep growth of its attention has been fueled by heavy investment
from corporates, looking for new ways to interact with customers, and venture capitalists
looking to fund the next generation of unicorns. The protagonists in the driver seat – bold
entrepreneurs – are building new worlds and creating innovative ways for people to interact,
thereby making use of a broad spectrum of leading-edge developments in technology – first
and foremost blockchain and crypto.
It is still to be seen if the hypothesis of the metaverse taking up an ever-increasing part of
our everyday interactions – will live up to its high expectations. If it does, in any shape or
form whatsoever, one pivotal question will move us going forward:
“Who will we be in the metaverse?”
As this question will majorly dictate who will participate in value generation, there are
naturally a range of different stakeholders with diverging interests.
Tech giants like Meta are working to connect real identities with human-like avatars to
bridge the gap between social media and metaverse personas.
The web3 community has its different camps. Closest to its core ideology of decentralization
and community-ownership, the voices demanding anonymity and diversity in the virtual
realm are strong – aiming to overcome real-world limitations and old-entrenched patterns
that dictate one’s individual success based on random life situation factors.
Now is the time to develop concepts for the base layer of the future of human interaction.
Forward-thinking participants who dare to take responsibility in shaping these concepts
have the chance to shape our society and, if steering in the right direction, will be
handsomely rewarded. Besides founders, companies and investors who decide what should
be built, it is up to the end users and society as a whole to make their voices heard.
The web3 Studios Team
A special thanks to all contributors and experts who generously shared their perspectives on
the current state and future outlook of digital identities, in order of appearance:
COO & Co-Founder of
Web3 Knowledge Leader &
Founder of Metaverse Ecosystem
at Polygon Studios
Global Creative Officer
Founder of admit one and 9dcc
Founder of Ready Player Me
OG web3 investor,
Founding Member of Red DAO
founder and DJ
and Co-Founder of FirstLight
Founder of The Fabricant
Web3 Influencer &
Product at Coinbase
Founder of Somnium Space
CEO & Co-Founder of Improbable
A huge thank you to each and every one of you!
I. What is the Metaverse?
II. Digital Identities: Who will we be in
III. Digital Identity Market
IV. M&A – An evolving landscape
Concluding thoughts & Why now
The key insight for us is that the digital identity market is still in its infancy – but will grow
exponentially over the next years.
We forecast the digital identity space may generate more than $600bn by 2030.
And the more our lives shift into the digital realm, the more important it becomes to find
answers to some of the core questions of digital identity that guide this report:
What should our digital identities look like in the future and why?
What do web3-native companies and established brands do?
What happens in terms of M&A activity in the space?
Leading-edge companies are laying the foundations of the digital identity infrastructure and
creating a landscape that is divided into various core pillars:
The metaverse is being touted as one of the biggest
opportunities in tech. And while definitions are still
evolving, it’s clear that a new kind of digital identity
is needed to navigate it seamlessly.
We have seen the move from physical, over online to
metaverse identity, which in the ideal state should
allow you to share only the information you want.
In the expression of one’s digital identity in virtual
space, avatars play an important role today. While
many companies focus on the virtual representation
of one’s real-world features with human-like avatars,
other innovators are moving towards borderless
avatars that open up creative freedom to enable new
“The Avatar is your entry point into the Metaverse; it allows you to
engage in immersive experiences with new social interactions.
Web3 technology lets you own your Avatar – not the platform it was
created on – and use it across decentralized virtual worlds like The
Sandbox. Come as you are and play with Avatars from your favorite
projects or community, each being unique & interoperable as NFTs.
In the future, Avatars will become our new digital identity, meaning
you’ll also build our reputation online and carry your wearables and
equipment but also your achievements and your progress across the
COO & Co-Founder of The Sandbox
Where activity will center remains to be seen and will largely be
determined by the individual interests of market participants,
especially the big tech players and emerging web3 native companies.
Verticals that enable digital identity come to the forefront. First and
foremost, digital fashion offers a way to enable self-expression in the
digital space on a granular level. Market-leading established brands
are starting to recognize the value and are investing heavily in the
fundamental concepts behind it.
Besides working on the visual expression side, many smart minds are
trying to solve the trust gap in digital identities. For this, the concept
of cryptographic credentials seems to offer the first promising
practical concept to combine safety, security, and privacy controls.
Two main aspects are driving M&A activity in the space: (i) large
players in established industries are trying to get involved by
acquiring smart teams and internalizing their technologies, and at the
same time, (ii) the first wave of consolidation emerges as network
effects and economies of scale become more apparent and large
players expand their offering horizontally by acquiring adjacent
businesses or vertically by integrating parts of the value chain.
“It’s fairly clear that in an increasingly digital world people will switch
between digital identities – you are not going to always have to use the
same persona across different applications and in various use cases
over the next 50 years.”
Web3 Knowledge Leader
& Founder of Metaverse Ecosystem
I. What is the Metaverse?
1. Metaverse Characteristics
The metaverse hype comes with an intrinsic paradox – everybody is excited about it, but
nobody can clearly define what it actually is.
Are we only in the metaverse when we interact, play, or work, in a fully immersive, spatial,
digital 3D world? Or is the seamless switch between interconnected digital experiences with
one overarching identity already enough to say “we are in the metaverse”?
While the analogy of the metaverse to virtual gaming worlds is an easy one to look at,
especially to support imagination, it comes with constraints of a virtual world realm. Aren’t
there many more forms of interaction in the digital realm, besides spatial 3D worlds
replicating what we know from real life?
“The Metaverse represents a new digital frontier that stands to
ameliorate the relationship between consumers and businesses. Digital
identity will play an outsized role in this, entitling users to claim
ownership over their data and dictate when and how it’s used. We’re
increasingly seeing both big tech and traditional corporations recognize
the immense potential of the Metaverse, but it’s integral to steer these
interactions in the right direction. That’s why Polygon is committed to
working with innovation leaders in traditional industries to counsel on
the best practices of Web3.”
Metaverse Lead at Polygon Studios
The philosophical discussion about what falls under the term is ongoing and knowledge
leaders, as well as institutions, are no short in aiming to coin a definition.
In our view, a crystal-clear definition is not needed right now and misses the point.
We should get comfortable with our perception of the metaverse evolving over the course of
the next years. Not only because it is cumbersome to come up with new definitions while
the space is evolving so rapidly, but even more to eliminate the mental constraints these
definitions put on our imagination. At the end – who would have imagined what the
internet could be 10 years ago?
Our goal is to keep our minds as open as possible to truly embrace the opportunity to
reshape parts of human interaction. Hence, here are some directional features to guide your
Interoperable identity – You take your identity with you across virtual worlds and services,
such as how you look and what you have accomplished. Nonetheless, you are not bound to
one single identity for all purposes.
Convergence of digital and physical lives – You transfer parts from the offline world to your
metaverse persona – and vice versa. For example, a POAP (Proof of Attendance Protocol) is
added to your digital identity when you attend an offline event.
Ability to own the digital – Digital can now be yours. Being able to carry your identity and
possessions through an NFT across multiple decentralized applications and virtual worlds is
breaking up silos.
Movement across spaces – You seamlessly move across different worlds and services,
without the need to overcome individual entry barriers.
Real-time human interaction – You move, work, and play, with other humans at the same
time and at scale in mutual interaction.
“The metaverse and NFTs as its fundamental cornerstone are going to
transform every industry. Essentially, everything in the real world is a
NFT – so as things become digitized and represented on-chain, the
physical and digital worlds will converge more and more.”
Founder admit one and 9dcc
1. Opportunity for Brands
Most probably there will not be the “one Metaverse”, but many individual ones – just like
there are many websites or countries. There will be thematic Metaverses, like an educational
Metaverse, a work Metaverse, or an event Metaverse. Likewise, some of them will be linked
to create interconnected Meta-Metaverses that enable interoperability – allowing users to
travel through virtual worlds without having to think about how to cross borders with their
digital identity and assets.
As these dynamics enable people and companies to own parts of digital worlds and realize
the underlying economic potential, brands and creators are beginning to experiment with
what role they could play in this new paradigm. We have seen strategic moves by large
players, such as Nike acquiring RTFKT*, or Adidas closing NFT collaborations*.
That’s why a wide array of consumer-oriented brands in fashion, food, and consumables
have entered the stage to explore new design spaces and iterate on ways to create value.
We have seen strategic moves by large fashion players, such as Nike acquiring RTFKT*, or
Adidas closing NFT collaborations*. Luxury brands like Dolce & Gabbana followed and
participated in the first Metaverse Fashion Week, which was held in Decentraland*. 20 NFT
wearables were unveiled by the fashion label. Luxury brand MCM took a bold step into the
Metaverse, offering a virtual world where customers can explore and shop best-selling items
with their own customized avatars. At the same time, household brands like Coca-Cola are
entering the space with their own NFT collection, having the winning bidder receive a reallife refrigerator*.
“The luxury industry is starting to recognize the value that digital
fashion and objects have for personalizing one’s digital identity, and
with it the massive commercial opportunity behind it. We feel like
we’re still very early in seeing what luxury in the metaverse might
look like in practice, and we are very excited to be among the first to
experiment in this area.”
Global Creative Officer at MCM
3. Five Punchlines on the Metaverse
We get it, the Metaverse is shiny and new and everyone wants to play with it. At the same
time, however, it is hard to grasp. Hopefully, the Metaverse Pentagon gave you a first vague
impression of the forms the metaverse can take – so far, so good.
Now, to spark your imagination and sharpen your understanding, here are some helpful
punchlines about the Metaverse:
II. Digital Identities: Who will we be
in the Metaverse?
If the hypothesis holds true, and the metaverse takes up an ever-increasing part of our
everyday lives, and in many ways replicates or substitutes real world interactions – the
crucial question becomes who we will be in the metaverse.
1. From Physical to Metaverse Identity
But what does identity even mean in the virtual realm? How is it different from the forms of
identities we are accustomed to?
Your physical identity is reflected in a variety of ways, including your appearance, where you
went to school, and where you live.
The same is true for your online identity, which is a reflection of both your domain name
and virtual address.
This identity is based on data gathered about you, such as your search history, prior
transactions, demographic data, or chat history, which collectively form your online profile.
What we call the metaverse identity is you linking your physical, and online identity to a
digital one – only if you want to. Here, you are in charge of your interactions with others and
control the information about your personal identification. The support layer for this is a
decentralized platform built on public blockchain technology.
“Ready Player Me is driven by the belief that an open Metaverse with
millions of interlinked experiences, rather than a few large walled
gardens, will drive better user experience, creator experience and
economics. An interoperable user ID and avatar sits at the center of
the open metaverse to be a cohesive experience. And an open
marketplace of avatar assets will increase the size of the market and
allow developers in the metaverse to increase their revenues.”
Founder of Ready Player Me
2. Avatars: Digital Identities Taking Shape
An early, tangible expression of our digital identities is the world of avatars – which allows
us to visually express ourselves in the virtual world. Pioneering companies in big tech are
testing the waters with virtual conference calls, where employee avatars are present to
discuss business-related topics. For any virtual meetings where 3D avatars will be used as
the participants’ representations, for instance, Microsoft Teams activates the avatar
capability. As a result, avatars become a part of our digital identities and an extension of
who we are in the virtual realm.
There are no limits to how these avatars should look and opinions in the web3 community
often differ. Big tech players like Meta are striving to design avatars as close as possible to
our real identities and to equip them with purchasable clothing from well-known brands.
The core focus here is on the virtual representation of one’s real-world features.
Introduction of the Meta Avatar Store (2022)*
However, not all avatars are created equal. On the other side – closest to the original core
ideology of decentralization and community ownership – voices are being raised calling for
anonymity and diversity in the virtual world. These voices aim to overcome limitations of
the real world and long-established patterns that determine individual success based on
arbitrary life circumstances – such as the socioeconomic situation you were born into, the
gender you were assigned to, or the physical characteristics you were born with.
While we do not presume to judge right or wrong here, we clearly see the different
dynamics that are triggered by one side or the other. The real-world representation of
ourselves in the form of human-like avatars takes on the role of translating us into the
digital world. In the end, we need this 2D/3D version to use virtual services and interact
with each other. However, once we move towards borderless avatars, the tremendous
creative freedom that comes with them enables us to realize new perspectives on our digital
Authentic Self-expression – Borderless avatars enable people to show granular parts of their
characters, moods, or opinions and change them dynamically. Feel a little freaky today? Why
not live the day as a rainbow-colored cyborg fairy?
Social Mobility – Consider the stigma that individuals with physical immobility or other
impairments encounter on a daily basis. Borderless avatars can help differently-abled people
to represent themselves online without limitations, find partners or just interact freely in the
Open Diversity – Users have unlimited opportunities to represent their backgrounds and
communities, but also change their avatars to experience what it’s like to be a different race,
gender, or even species. It allows them to communicate with people who are not typically a
part of their communities.
Interaction Design – We can imagine how two human-like avatars would interact in the
virtual world. Talking to each other, dancing and playing games are some examples.
However, once we break avatar forms and experiment with shapes and ways of expressing
our thoughts, unprecedented forms of interaction emerge.
Creative Enhancement – Avatars that can express and interact in borderless ways open up
new design possibilities for creative fields such as virtual storytelling, visual art, and
“The potential of digital identities is huge. If developed in the right way,
they can even become brands themselves. This has allowed me to
build an entire business around it – today it’s mainly focused on music
and events, but given the strong community around it, I am already
exploring adding new verticals.”
OG web3 investor, founder and DJ
3.Digital Fashion: How will we dress in the
New web3 paradigms enable unprecedented opportunities with regard to the digitalization
of the fashion industry – one of the oldest and biggest industries in the world. We have
observed three main trends and players in digital fashion over recent years:
Newly created web3-native digital fashion brands
NFT-based digital fashion collections by physical brands
Digital fashion infrastructure layer (e.g. marketplaces, showrooms, creator tools)
According to McKinsey & Company, global spending on virtual fashion goods exceeded
$30bn in 2021, representing c. 2% of the global fashion market* – but the market
opportunity appears largely untapped with the rising adoption of the Metaverse and digital
identities ahead of us.
1 McKinsey & Company: The State of Fashion Technology Report (https://www.mckinsey.com/industries/retail/our-insights/state-offashion-technology-report-2022)
Contributor View: Megan Kaspar
Founding Member of Red DAO and Co-Founder and
Managing Director of FirstLight (formerly Magnetic)
“Overlooked by most, the dematerialization and digitalization of the fashion industry is a
sleeping giant mega-trend and one I have anticipated since 2015.
As an investor solely focused on blockchain technology and the crypto asset class; of the
five main sectors with themes having the strongest use cases for blockchain technology
innovation and disruption, the opportunity in digital fashion has the greatest potential for
global economic disruption and positive environmental impact, next to financial
Fashion industry statistics show that the apparel and textile sector is the 4th biggest in the
world. The revenue of the global apparel market was calculated to be ~$1.5 trillion in 2021,
and the beauty industry averaged $500 billion. While online shopping is a growing trend,
with global e-commerce retail sales at $4.9 trillion in 2021.
Over the next two decades, the fashion and beauty industry’s global annual revenues can
easily double from meta-commerce. Meta-commerce capabilities afforded by smart
contracts provide new business models to the creator economy.
Today, there are five main trending use cases for on-chain digital fashion –– speculative
investment, digital tailoring, 2D wearables, 3D wearables, and supply chain provenance.
I believe there are three drivers that could trigger the onset of digital fashion mainstream
adoption. One of them has recently occurred in China. China’s version of Instagram, Little
Red Book, or “Xiaohongshu”, with over 148 million daily users, recently launched an NFT
marketplace. AR digital fashion is the main driver of sales and the platform’s most popular
use case for NFTs.
DressX is partnering with Roblox for its first collection of digital wearables (2022)*
Physical fashion is very limited in terms of the unlocked capabilities on-chain 3D, AR
wearable technology provides, with digital merchandise that cannot be copied or
counterfeited, yet can be instantly traded to anyone in vast global secondary markets with
verifiable provenance and ownership.
As the fashion industry reinvents itself through this new immersive, interactive and
experiential era, Red DAO was formed last year with the goal of expanding digital fashion
through the crypto ecosystem. The DAO achieves this objective through its investment
framework in the emergent narrative and opportunities around web3 digital wearable
fashion and apparel trend powered by blockchain technology.”
“A digital identity enables us to express ourselves in ways that
weren’t possible before. The Fabricant adds a sensory-rich layer to
that. That is digital fashion, an entirely digital, interactive, and
emotionally engaging fashion experience enabling people to show
their authentic self online.”
Founder of The Fabricant
1 Credits to DressX (https://nft.dressx.com/)
4. Bridging the Trust Gap of Digital Identities
Contrary to the actual world, digital identification employs a cryptographic root of trust
rather than a humanistic root of trust. When we interact in the real world, I trust you
because I can see you and know who you are. These crucial elements aren’t present online.
You never know whether the person you’re interacting with is real. When I first see you
online, I have a moment of faith and accept that you are whom you claim to be. This raises
the possibility of fraud.
If we now move from online identity to metaverse identity and we want to give users in
certain services and worlds the choice of whether to reveal their real identity, a familiar
element of trust is lost. So we need new ways to maintain the security we are so
accustomed to and still take advantage of the new possibilities of the blockchain-based
A possible solution is the use of digital cryptographic credentials that increase public trust
while still maintaining safety, security, and privacy controls. This concept can be rolled out
broadly to metaverse applications where digital identity is used. And while eventually, these
credentials could become very sophisticated over time, the wallet address and history are
already a good start: For example, will a wallet containing assets worth several million and
a hard-earned social media audience really scam for $50 – probably not.
„I believe digital identities should be authentic. It’s not about telling you
that I am Pete Huang when we meet in the metaverse, but assuring
you that my avatar is backed up by a real-world identity. Web3 opens
up new possibilities for safety and privacy control.“
web3 Influencer and Product at Coinbase
III. Digital Identity Market
1. Digital Identity Landscape
The increasing shift of interactions to the virtual space is driving the demand for services
and products that enable the use of a digital identity. While we are still at the beginning and
many concepts are just being created by smart entrepreneurs, first market segments are
emerging that build the ground rails.
A tangible example of what the Metaverse can feel like in a 3D digital gaming-like setting is
offered by virtual worlds. Big players working on decentralized worlds like The Sandbox,
Decentraland, and Somnium Space are building NFT-native worlds to enable users to not
only truly own their identity, but also lands and objects in the worlds.
Somnium Space In-game Footage (2022)*
“Already today, many people in Somnium Space and other
metaverses have full-time jobs working in, creating, and participating
in the virtual economy, which is currently growing very fast. So, even
part of the workforce is becoming more digital, which underlines the
need for forward-thinking concepts in digital identity.”
Founder of Somnium Space
1 Credits to Somnium Space (https://www.somniumspace.com/)
These dynamics open up an entirely new space of user incentive design mechanisms and
create a large economic opportunity to monetize user interaction. Recently, Yuga Labs
launched the first demo of their virtual world The Otherside together with Improbable, the
largest Metaverse experience studio. The demo has proven how human interaction in the
Metaverse can work on scale with more than 4,500 players interacting at the same time.
“Today’s digital experiences don’t respond to what’s important to
you; they demand you fit in with them. With that model, human
interaction and self expression is, by definition, limited. The future of
virtual worlds – the metaverse and the whole Web3 environment –
turn that around by enabling users to come together to build the
worlds they envision, providing the tools to create compelling worlds,
live and large-scale shared experiences, in line with their identities
and interaction modes.”
CEO and Co-Founder of Improbable
Demo of The Otherside based on
Improbable technology (2022)
In comparison, the space of centralized virtual worlds is much more mature as it originated
from the traditional gaming space without a blockchain angle. Among the most prominent
examples is Second Life, which was already launched in 2003, and has been one of the first
major successes in replicating real-world dynamics in the virtual realm. It first made
headlines as users increasingly shifted their real lives into the virtual realm and people
understood the value these users placed on their digital identities.
Another example with significant traction and more recent success is Fortnite, the recordbreaking free-to-play Battle Royale game, that has proven to be an innovation driver for
Metaverse experiences. It has earned a reputation for being less of a video game, and more
of Gen Z’s preferred social platform. Among others, Fortnite launched the first sizable
Metaverse concert with famous artists like Travis Scott or Ariana Grande and is closing
various industry-leading partnerships, e.g., with Universal, the NFL, and Marvel. Similarly
successful, but more comparable to Sandbox’s open, fully customizable world in its game
dynamics, is Roblox. The online game platform and game creation system has established
partnerships with industry leaders like Gucci, Nike, and Sony to create novel Metaverse
Fortnite X Ariana Grande Rift Tour (2022)
Avatar companies play a key role in opening a gateway for people to make the ideas of their
digital identity a reality. Digital fashion brand RTFKT is continuously developing its NFT
collection CloneX to enable its holders to use their avatars in 3D worlds, but also in video
chat conferences as well as user-generated content. One of the leaders in the space, Ready
Player Me, a cross-metaverse avatar platform used by 1000+ developers, for example, aims
to make creating a metaverse-ready personal 3D likeness as easy as possible by simply
uploading a picture. In addition to offering individual avatar creation tools, other successful
players like Genies offer tools to create entire avatar ecosystems. This approach enables
communities, brands, or creators to develop their own avatar collections including matching
digital fashion lines.
Ready Player Me Avatars (2022)*
1 Credits to Ready Player Me (https://readyplayer.me/)
NFT PFP Collections
Similar to Avatar companies, NFT PFP (profile picture) collections give people in the digital
realm a face and contribute a part to their digital identity. Owning an NFT gives access to
the corresponding community, which comes with individual characteristics and vibes. Also,
the public display of an NFT as a profile picture offers space to endow the digital identity
with elements of belonging or the view on certain things. For example, owning a
CryptoPunk is part of an identity of participants at the core of the Web3 space – since to own
a CryptoPunk you either have to have been one of the first people in the NFT space or have
enough capital to spend hundreds of thousands of dollars on a JPEG. Other NFTs convey
certain values or missions, for example, a World of Women NFT supports the mission of
inclusivity and equal opportunities.
World of Women NFT (2022)*
1 Credits to World of Women (https://worldofwomen.art/)
Digital Identity Infrastructure
Digital identity infrastructure projects aim to solve the trust gap of digital identities and to
ensure security and privacy in the context of identities. The decentralized identity start-up
Spruce, for example, wants to help users control their sign-in data and is working on a
standardized sign-in with Ethereum functionality to ensure interoperability with Web 2.0
identity systems. Another interesting approach is being taken by Peer Mountain, which is
building a distributed ID-management network focusing on the us of mobile devices. All
network participants, whether companies or private individuals, own and control their data
and are free to utilize it for a variety of purposes. The Peer Mountain mobile application is
used to collect members’ IDs and users do not have to worry about their data being tapped
without permission if they use a self-sovereign, Peer Mountain-enabled identity.
Spruce Digital Identity Management Solution (2022)*
1 Credits to Spruce (https://www.spruceid.com/)
The field of digital fashion is evolving rapidly with the aim of allowing people to equip their
digital identity with a variety of clothing options that fit their personality and environment.
Metaverse-native fashion companies like The Fabricant, for example, are exactly addressing
this problem. It is one of the first pure digital fashion houses to focus on the production of
high-quality digital fashion and has successfully concluded partnerships with real-world
brands such as Puma or Under Armour, but also web3-native projects such as World of
Women NFT. Looking at successful real-world brands, big fashion players are also entering
the market with Nike’s acquisition of digital fashion studio RTFKT, Adidas’ collaboration
with well-known NFT collections Bored Ape Yacht Club, NFT comic series Punks Comic and
crypto investor gmoney, and strategic moves by well-known luxury brands like Dolce &
Gabbana, Louis Vuitton, and MCM.
The Fabricant Digital Dress (2022)*
1 Credits to The Fabricant (https://www.thefabricant.com/)
2. Market size: How big will the impact of
digital identity be?
A $600bn dollar opportunity by 2030
We anticipate that the economic value of the digital identity space will grow exponentially
over the next 10 years. Compared to other previous technologies in the Web 2.0 era, digital
identity no longer requires the fundamental tech infrastructures to be built from scratch.
The open source nature of web3 accelerates the turnaround time in software development,
and tech teams know how to build the ecosystem much better than before.
Another strong growth factor is the fact that consumers are increasingly enthusiastic about
their digital identity and are willing to pay for it. Companies and investors appreciate this
and are investing massively in the development of its infrastructure, and major brands are
experimenting with related products and receiving positive feedback from consumers.
While the digital identity space is still subject to high societal, legal, and technical
uncertainty – we forecast the digital identity space may generate more than $600bn by
Details of the market sizing analysis
With everything we do, we take a 10-year time horizon, so what is most relevant to us is
what the space will look like in 2030.
To triangulate our market size number, we took a three-pronged approach:
1. Top-Down based on Metaverse market size: We analyzed the Metaverse market size
estimates from leading firms in research and consulting, and took the average
assumption as a baseline for the entire Metaverse pie. Based on expert interviews with
knowledge leaders in the digital identity space, as well as alignment with market
benchmarks on the share of digital identity verticals in the Metaverse, we estimated the
share of the digital identity space in the overall Metaverse market. This approach results
in a market opportunity of $470 – 650bn by 2030.
2. Bottom-Up based on the sum of Digital Identity verticals: We looked at the components
of the digital identity space we previously defined. For each vertical, we leveraged
average market size estimates from leading companies and pressure-tested those with
experts, i.e., the digital identity space size is the sum of its parts. This results in a market
opportunity of $640bn by 2030.
3. Expert Interviews: The expert interviews were conducted with 15 internal and external
experts who run their own companies in the field of digital identity, invest in such
companies with growth capital, advise companies on strategic matters, and conduct
research in this field.
By calibrating with knowledge leaders in the digital identity space our estimates should
provide an indication of how large and relevant the digital identity space could become in
the future. It is our best estimate and can hopefully guide strategic decisions for players in
adjacent, transforming industries.
IV. M&A – An evolving landscape
The Metaverse is sexy: according to a McKinsey study, corporations, venture capitalists, and
private equity funds have already invested more than $120 billion in the metaverse in the
first five months of 2022 – more than double the $57 billion invested in all of 2021. In
addition to big fundraises, we have also seen an uptick in mergers and acquisitions (M&A). A
large part of the 2022 volume, for example, is driven by Microsoft’s planned acquisition of
Activision for $69 billion. There are mainly two drivers for the increasing M&A activity: (i)
the buy-in of expertise, and (ii) general market consolidation.
Similar to every new technological innovation, larger players in established industries are
trying to get involved by acquiring smart teams and internalizing their technologies.
Roblox’s acquisition of the digital avatar company loom.ai, Nike’s acquisition of RTFKT, and
even Meta’s acquisition of VR glass manufacturer Oculus are just a few of the many
The other driver of M&A in any innovation cycle is consolidation. As an industry matures,
network effects and economies of scale become more apparent, and larger players create a
footprint by acquiring adjacent businesses to expand their offering either horizontally (e.g.
decentralized cryptocurrency exchange Uniswap acquiring NFT marketplace aggregator
Genies) or to vertically integrate parts of the value chain (e.g. NFT marketplace Opensea
acquiring NFT marketplace aggregator Gem).
1. Knowledge Buy-In
While the title already suggests the rationale behind selected takeovers, we see three major
reasons for the current increase in activity:
(i) Maturity of the market and use cases: Although the long-term vision has not yet been
realized, the early version of the Metaverse is already well established. More than three
billion gamers globally are fueling what is already being considered proof of concept for
many investors. NFTs and virtual worlds inch closer to the cultural mainstream and gain
more and more attention.
(ii) Ongoing technological advances: The infrastructure required to run the Metaverse has
rapidly improved and opened new possibilities. We have already seen blockchain sparking
the decentralized creator economy and emerging as one of the most promising
technological advancements to realize interoperability between worlds. Other key building
blocks are edge computing, 5G, AR/VR, and advances in software development.
(iii) Increasing stakeholder readiness: While gaming is already mainstream (with the largest
active online worlds in terms of players), additional use cases are emerging rapidly —
including new AR/VR-powered social-media experiences, immersive retail, entertainment,
sports, and education.
2. Consolidation vs. Decentralization
As laid out in previous chapters decentralization is key for thought leaders in establishing
the next generation of human interaction. Often times giants like Google and Meta are used
as a metaphor for centralization and power of control that need to be prevented when
building the pillars of the next digital era.
Consolidation is, well, exactly the opposite: it drives centralization on the hunt for efficiency
But is it a bad thing? We would argue the opposite – it’s what the space needs. The bundling
of financial and human capital will naturally become a necessity, especially under tighter
financial conditions such as we may face in the short term. Today, the competitive
landscape is fragmented and often teams work fairly independently. To be fair, in the land
grab phase we are still in, where there is tons of white space for everyone to tap into, this is
not surprising. That’s also why so far we have only seen a fairly limited number of M&A.
Nonetheless, we are seeing early signs of market consolidation in the broader web3/crypto
space (e.g. Uniswap, Opensea) – even in the digital identity vertical with Yuga Labs – the
creator of the Bored Ape Yacht Club NFTs – acquiring the IPs of two other blue chip NFT
collections from Larva Labs, the creators of CryptoPunks and Meebits.
Concluding Thoughts & Why to
Get Involved Now?
Who will we be in the Metaverse – this question will
majorly dictate how we interact as human beings and
eventually who will participate in value generation.
While this question will not be answered overnight, it
poses a turning point for our lives in the virtual world
where we can steer this in the right direction to eliminate
the inconsistencies of today’s realities.
Avatars are a starting point to express parts of our digital
identity, but in order to really mirror the complex details
of our unique selves and keep them secure at the same
time, we will need to find the right concepts – and that
will need some time.
We are seeing early experiments in how programmable,
public blockchains are creating new opportunities to
provide deeper unique functionalities that help immerse
and realize their unique functional benefits.
Matching these benefits with the traditional
world, and more collectively our society,
will demand a joint effort. We, as web3
companies, corporates, institutions, and
end-users will have to stay open-minded to
Image credit: Alexander Andrews
Along the way, the individual parts of the ecosystem must be connected to enable each
The time has come to develop the fundamental concepts that will guide human interaction
in the future. In addition to founders, companies, and investors proactively pushing their
concepts and ideas forward, it is up to the end-users and society as a whole to make their