Ruler of the Metaverse: Blockchain or Big Tech?

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Web3, the next-generation internet that includes the metaverse, is far more hype than reality. But a battle is brewing over whether an internet based on blockchain technology will be decentralized—as crypto advocates would like—or controlled by Big Tech.

Jack Dorsey, co-founder of Twitter and Square, has weighed in with tweets, taking a shot at companies aiming to control—or try to dominate—Web3.

“You don’t own web3. The VCs and their LPs do,” Dorsey tweeted Tuesday, referring to venture capital funds and their limited partners. “It will never escape their incentives. It’s ultimately a centralized entity with a different label.”

Tesla CEO Elon Musk piped up, tweeting “has anyone seen web3? I can’t find it.”

MicroStrategy

(ticker: MSTR) CEO Michael Saylor, a Bitcoin billionaire, chimed in, too. #Web3 is marketing,” he tweeted.

As tech visionaries see it, decentralized blockchain technology will be at the core of the next-generation internet. The idea is that everything from payments to social networks to e-commerce will be distributed over a global computing network that is run and governed by its users—not large companies.

Cryptocurrencies like Bitcoin or stablecoins, designed to maintain a fixed value, would play a central role, displacing fiat currencies like the dollar. Ideally, according to the crypto libertarians, no corporate entities would maintain control, and transaction fees would be distributed to the network’s operators, similar to how Ethereum and other blockchains now work.

Dorsey, of course, is a big crypto advocate. He changed the name of Square to Block (SQ), reflecting the payment company’s burgeoning shift to a crypto services and blockchain business. It’s in Dorsey’s financial interests to promote Bitcoin and blockchain technology, as it is in the interests of Musk and Saylor.

And Dorsey has benefited from venture capital: Square raised $601 million, including one funding round in May, according to Crunchbase. And venture capital has funded Tesla and many companies now aiming to profit off blockchain technology and cryptos.

Web3 and the metaverse won’t be coming tomorrow or in the near-future, though, since the technology is still far behind the hype. Even if the crypto-libertarian ethos prevails, legions of companies are likely to capitalize, just as they are by bringing blockchain technology and cryptocurrencies under corporate ownership now.

Indeed, Web3 and the metaverse have become proxies for Big Tech, including social-media networks, gaming, e-commerce, and semiconductor companies. Investors can buy a basket of them in the Roundhill Ball Metaverse exchange-traded fund (ticker: META), an ETF that launched in June. Top holdings include

Nvidia

(NVDA),

Meta Platforms

(FB), Roblox (RBLX),

Microsoft

(MSFT),

Amazon.com

(AMZN), and

Apple

(AAPL).

Investors would have fared better with a broad tech-index fund, though. The ETF is up 1% since June 30, compared with a 6.7% gain for the Nasdaq Composite Index. Steep valuations may be a headwind as investors wait to see whether Web3 and the metaverse live up to their hype—decentralized or not.

Write to Daren Fonda at daren.fonda@barrons.com