MetaFi: DeFi for the Metaverse, the Audiobook with Jamie Burke


MetaFi: DeFi for the Metaverse, the Audiobook with Jamie Burke

What is MetaFi? In this audiobook, Jamie Burke of Outlier Ventures weaves together blockchains, DeFi, and metaverses together into an all-encompassing concept called MetaFi. This is our thesis at Outlier Ventures and he breaks it down for listeners here.

Posted by MetaFi: DeFi for the Metaverse, the Audiobook with Jamie Burke - March 2022


  • Recently published a paper called MetaFi: DeFi for the Metaverse
  • The paper is freely available on their website
  • It introduces the concept of MetaFi

It looks at how we believe the metaverse is crypto and crypto is the metaverse.

– Jamie Burke


  • DeFi has been steadily growing momentum since 2018
  • Despite its growth, adoption is still relatively low, with estimates of less than 5% of all crypto assets being put to work in DeFi
  • While notable work has been done to create bridges from centralized finance (CeFi) to DeFi, an increasingly hostile regulatory environment, low capital efficiency, and the management of counterparty risks for institutions makes bridging a long way off
  • In our paper, we propose that the majority of growth in DeFi in the short/mid term will be driven by what we call MetaFi — the decentralized financial tools of the metaverse
  • The metaverse is an interface layer between the physical and virtual worlds, comprising of a combination of innovations in both hardware and software
  • The metaverse is also an economic system parallel to the fiat financial system

Chapter 1: The Metaverse Is Crypto

  • To Outlier, the Metaverse is an economic system
  • In a long enough time horizon, the combined GDP of the metaverse economy will outgrow those of nation states
  • Believes that the Open Metaverse is an open and permissionless economy made possible through Crypto
  • Our definition of the Metaverse includes 2 concepts:
    • The interface layer — where the end user experiences the metaverse through various hardware and software technologies
    • The financial compute layer — where the metaverse computation is executed, on which end users exchange goods, services, and money and upon which developers can build
  • A good example of the financial compute layer is Ethereum
  • The interface layer could take many shapes and forms in the early days (e.g. 2D, browser-based, VR or AR, etc.)
  • Believes that the core of the financial compute layer will be based on Web3/blockchain technologies
  • The Metaverse has to be rooted in Web3 to provide fundamental property rights, interoperability, and permissionless value transfer across each respective domain or vertical of the metaverse
  • The decentralized and permissionless nature of the Metaverse makes it hard for the traditional systems to keep up with it
  • The DeFi components of the Metaverse will enable financial inclusion globally
  • The Metaverse will promote generational wealth transfer

The Metaverse will promote generational wealth transfer, favoring upcoming generations who are disenfranchised by the current financial system, rather than the legacy world.

– Jamie Burke

Chapter 2: The Status Quo Of The Digital Economy

  • Today, there are billions of dollars of value trapped in proprietary social media platforms (e.g. Facebook, Instagram, etc.) and games (e.g. Fortnite, Roblox, etc.)
  • Web2 firms generally operate on the principle of shareholder supremacy over all else, especially at the expense of the user
  • The digital economy is currently worth over $11.5 trillion dollars globally
  • It is growing 2.5 times faster than global GDP over the past 15 years
  • The digital creator economy is a subset of the digital economy. It consists of fields like publishing, gaming, digital art, streaming, music, film, and more
  • On the supply side, there are currently up to 50 million content creators in the space:
    • ~46.7 million are amateurs
    • ~2 million are professionals
  • Professional participants in the digital creator economy can easily earn up to $100,000 a month
  • For the majority of them, their income is irregular and receipt of funds could take several months after delivery
  • Web2 digital platforms have several limitations:
    • Have limited inclusion
    • Dynamic terms and conditions
    • They are siloed by design

Chapter 3: Web3, NFTs, And The Metaverse

  • In Web3, the whole paradigm is oriented around the user and their sovereignty:
    • Identity
    • Data
    • Wealth
  • Platforms help primarily with the discovery or creation process. Users have full control over their outputs and can freely transfer value between platforms
  • When moats are removed and transferability is made possible, people spend more time on platforms that they like (such as Axie Infinity)
  • Over the long term, Web2 will adopt Web3 technology, business models and principles, not necessarily because it’s philosophically the right thing to do, but because it’s just good business

Chapter 4: Defining MetaFi

  • An all-encompassing term for the protocols, products, and/or services enabling the complex financial interplay between non-fungible and fungible tokens and their derivatives
  • MetaFi is enabled by two core principles of DeFi:
    • DeFi is unstoppable
    • DeFi is composable
  • All over the world, developers can openly participate to provide the highest yield while ruthlessly removing inefficiencies in the system
  • Regulators can only limit how their fiat-based interact with DeFi, and not DeFi itself
  • The growth of a parallel economy will be accelerated by the following trends in MetaFi:
    • The development of financial tooling
    • Financialization of everything
    • Improvement of the DAO services stack
    • Mutualization of risk
    • Gamification of finance

Many talk about cryptos speculative nature rather dismissively, without fully understanding that this is a feature, not a bug. By leveraging MetaFi technologies, value in its flow can be captured in digital assets, for everything and anything.

– Jamie Burke

NFTs As Collateral In MetaFi

  • NFTs will be increasingly put to work in DeFi protocols
  • Interplay of fungible and non-fungible social tokens generated by creators to reduce the need for intermediaries that allow people to take a stake in a creator or community franchise and their future value creation
  • Social tokens are now collectively valued at $1.1 billion and growing

Chapter 5: A Framework For MetaFi

MetaFi: DeFi for the Metaverse, the Audiobook with Jamie Burke Outlier Ventures

  • Their Open Metaverse OS Framework consists of 3 building blocks:
    • Foundations
    • DeFi
    • Verses
  • Foundations consists of core frameworks or protocols that could be labelled as layer zero, one, and two (such as Polkadot, Ethereum, and Polygon)
  • If an application does not integrate with with the Foundations layer, it will be isolated and economic and creative value will stagnate and fade away
  • The DeFi layer consists of financial applications that are available on core protocols
  • Verses consists of a set of domains or parallel verses that make up the totality of the metaverse
  • DeFi in a Metaverse (aka MetaFi) occurs in between the intersection of the vertical and horizontal components
  • The Foundations layer, using Ethereum as an example, provides a uniform layer. This means that any smart contract on Ethereum could interact/is interoperable with one another

Chapter 6: MetaFi Clusters Of Activity

  • There are a few emerging core clusters of activity in MetaFi:
    • Virtual worlds — scarce land that can be represented as NFTs that can be purchased, traded and built on freely. Examples include Sandbox Game or Decentraland
    • Games — digital games that are played for amusement. Often comprise a play-to-earn element. Examples include Axie Infinity, Zed Run, Battle Racers, etc.
    • Avatars — specifically designed to create unique digital identities and representations for users. This includes profile picture projects (PFPs) such as CyberKongz and SupDucks
    • Wearables — digital objects that can be manifested and shown off in the Metaverse
    • Marketplaces — digital places that match supply and demand, facilitating better price discovery for NFTs. Examples include OpenSea, SuperRare, and Rarible
    • Yield-bearing NFTs — NFTs can produce yield both directly (adding yield-bearing DeFi LP tokens into NFTs) and indirectly (using NFTs as collateral for taking out loans and re-investing them at higher rates). An example of the former includes Charged Particles
    • Access tokens — gives access to holders to various forms of value and utility. An example is Bored Ape Yacht Club
  • Many of the above categories overlap with one another

Chapter 7: Limitations Today

  • There’s a couple of limitations that need to be overcome:
    • NFT appraisals — owners need to know what their NFT is worth before it can be used as a collateral
    • Legal and governance issues around fractionalization — when an NFT is fractionalized and distributed, it’s not clear how those rights are managed
    • Standards across blockchains — the Metaverse is being built on multiple blockchains and these blockchains are still not 100% interoperable with one another
  • Expecting new ways to bridge NFTs with DeFi:
    • Fractionalization of NFTs — dividing non-fungible tokens into many fungible tokens that become interchangeable. Examples of NFT fractionalization projects include Fractional and DAOfi
    • NFT-isation of DeFi — the upgrading of DeFi protocols so that they can accept NFTs as collateral
    • NFTs as derivatives — creating a range of liquid digital assets whose value depends on the value of off-chain assets, in-game items, social capital, etc. that is represented as NFTs

The Final Chapter: MetaFi 2022

  • MetaFi, or Metaverse Finance, is an all-encompassing term for protocols, products and/or services enabling the complex financial interplay between non-fungible and fungible tokens (and their derivatives)
  • Based on what we observed in the market and going through our accelerator, we expect the following developments in the short to midterm:
    • The combination of different MetaFi categories and the creation of entirely new ones
    • Improvement in UI/UX of the financial MetaFi projects, probably incorporating elements of VR and AR
    • Further innovation in DeFi 2.0 transferring to MetaFi
    • Improvement in the foundational technologies like layer ones (e.g. lower transaction fees, increase throughput, etc.)

MetaFi: DeFi for the Metaverse, the Audiobook with Jamie Burke Outlier Ventures

This podcast summary was prepared by The Reading Ape in collaboration with Outlier Ventures. The Reading Ape is a humble servant of the written word.

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