The Metaverse is a projected new technology that will be used to connect users all across the globe and will involve both virtual reality, social media, and traditional technologies. The Metaverse has largely been promoted by Facebook’s parent company Meta, but that, according to Meta President of Global Affairs Nick Clegg, does not mean that Meta is the founder of the metaverse. In an interview at the 2022 CEO Summit of the Americas, Clegg suggested two important elements for the future of the metaverse.

First, Clegg admitted that Meta may be taking a lead in developing the metaverse, but if it is to truly become a global phenomenon with the ability to connect people from every country, it will need to avoid becoming a silo-ed entity. Everyone, Clegg suggested, needs to be involved in building the metaverse, not just Meta. He suggested that the metaverse should be developed along similar models as the internet, which he said was developed collaboratively by numerous companies.

Second, Clegg proposes that the development of the metaverse may have begun, but just like the internet it will require ten to fifteen years before it is fully developed and truly able to connect users globally. Because of this lead time, he thinks it is possible for sovereign nations to build legal safety rails, or buffers, that will contain behavior on the metaverse. Governments can look at the metaverse as it is envisioned now, and develop the full legal regimes to govern, protect, and tax actions on the metaverse.

As a lawyer in Southeast Asia, I have seen the beginnings of Web 3.0 in a few startups. Increasingly ASEAN companies are seeking to move into the newly available spaces of the metaverse. So far, these enterprises rely on traditional contracts and dispute resolution, but there may be other ways to move forward. The rest of this article examines the growth of the metaverse in ASEAN and the road towards creating regulation and dispute resolution procedures compatible with the new technologies extant in the projected digital world.

ASEAN and the Metaverse

To start, I want to look at the leading companies in metaverse technology in SE Asia. Tech Collective (see link here) has compiled a brief overview of companies that have already reached unicorn status in SE Asian and have elements that take part in the metaverse:

  • First, the article suggests that Axie Infinity acts as a web 3.0 company as it uses virtual avatars, Axies, for playing the game using purchased or “bred” NFTs that can be used in contests or in various other aspects (I have discussed Axie Infinity most recently in Blockchain Hacks and Axie Infinity, Axie Infinity and Dispute Resolution, and Axie Infinity Redux).
  • Second, SHR Ring from Thailand has developed a secure record keeping blockchain that is secure and able to share records using smart contracts between parties.
  • Third, BuzzAR is a Singapore based augmented reality company that is seeking to connect users to interact with the real world using avatars and photo editors and includes daily activities through which users can not only interact, but earn as well.
  • Fourth and finally, MetaDhana is a company seeking to create an entirely AI run metaverse which will operate using a native token, fighting games, NFT art and numerous other features.\

While the metaverse may be expanding, and the number of startups growing exponentially across the globe, one is wont to link developments by region. The EU, for example, has promulgated its own data privacy regulation, technology laws, IP rules. And perhaps next after the EU, ASEAN is the closest thing to a cohesive alliance of nations in the world. While the EU has yet to decide how it is going to treat the metaverse in its regulatory schema, ASEAN is in a position to lead the way towards a regional network of regulations that will govern the metaverse within its boundaries.

Regulating the Metaverse

The metaverse will need regulation, there is no question. We cannot rely on Mark Zuckerberg and Elon Musk to create a coherent and meaningful environment that will protect vulnerable users and prevent egregious financial crimes. In an article by Martin Boyd, President, Banking Solutions-FSI (India Times link here) he discusses a few of the real world dangers of the potentialities of the metaverse. He also discusses three steps that can be implemented now to prepare for the very real challenges that the VR metaverse will present.

First, he suggests that the metaverse set standards for financial transactions, including Know Your Customer (KYC) standards that will officially link real world users to their avatars or properties in the metaverse. This will help avoid money laundering and also act to certify the authenticity of NFT issuances. (I wrote about KYC in Vietnam most recently in Banker’s KYC in Vietnam).

Second, he suggests implementing financial best practices. This will include setting rules for exchange rates between stable coins and unattached crypto, providing real world collateral for transactions involving major debt in the metaverse, and other technologies that already exist in the physical financial systems can be applied to the metaverse.

Third, he suggests that there should be either a voluntary or compulsory rating service that will act similarly to a credit rating service in combination with a content age rating service. This will help consumers to know what venues are safe, what venues should be off limits to children.

This is only a brief overview of some of the potential dangers of a metaverse. When Neal Stevenson proposed the concept in his 1982 novel Snow Crash, the technology to live in a digital world was a long way off. But in that time the internet 1.0 and 2.0 have passed. The internet of things and smartphones and optical networks have proliferated. AI, virtual reality, and augmented reality are becoming consistently more robust and capable of reaching the heights imagined by science fiction authors for years. It is nearly impossible to imagine all of the crimes that may arise in this new space, but in addition to proactively drafting regulation to, as Boyd said, “guard rail”, the metaverse, we must consider how disputes will be resolved in a regional or global web 3.0.

Dispute Resolution in the Metaverse

Ekaterina Oger Grivnova in a post on Delos Dispute Resolution last month (see link here) discusses some of the possible implications of dispute resolution in the metaverse. While she offers several issues, I want to paraphrase her suggestions of three possible ways to move forward with dispute resolution in a metaverse where jurisdictions may not matter and where it may even be difficult to identify the parties to a given dispute.

  • Traditional Dispute Resolution. She suggests that the traditional means of dispute resolution that are currently in existence will face difficulty in adapting to the rules of the metaverse. From questions of venue and identity, there also remain questions of enforcement and trust in the process. In order for these processes to remain, they must be quickly resolved with a minimum of human interference and a minimization of bias in awards.
  • Hybrid Dispute Resolution. She suggests that disputants may choose to identify universal practices and international rules to potential disputes rather than specific sovereign nations’ laws which may be inappropriate for use in the metaverse. She also thinks that there may be room for real world injunctions of metaversal crimes, such as freezing bank accounts or seizing property. As for enforcement, they may continue to impose limitations on losing parties’ actions in the metaverse to encourage compliance with a judgement or award.
  • Decentralized Dispute Resolution. In this instance, dispute resolution is performed by decentralized decision makers, perhaps from a pool of qualified and randomly selected arbitrators. The resolution involves on-chain enforcement in which both parties contribute funds to a block on the chain which hosts a smart contract which will disburse funds automatically upon the arbitration panel’s entry of an award.

These approaches may well result in actual dispute resolution routes on the metaverse, but it is a long way from transitioning from nation-state sovereignty to a multi-regional or global venue which may be accessed from any point around the world. And not all disputes lend themselves to arbitration. Criminal acts and some torts will require some semblance of a judiciary who is capable of understanding the technologies that comprise the metaverse and are able to synthesize the multi-jurisdictional elements present in a digital space.

Decentralized Dispute Resolution in ASEAN

In ASEAN, a host of developers and founders are seeking to take advantage of web 3.0 and the metaverse. With companies already providing some metaversal activities, it is only a matter of time before irremediable disputes arise for which the stated rules of given terms and conditions will be insufficient to provide dispute resolution. What, then, is left?

While Glegg suggests that the silo-ization of the metaverse should be avoided, it is highly unlikely that sovereign nations will be willing to give up their abilities to regulate and tax transactions on the metaverse. Given that fact, and the performance of existing metaversal entities, it would seem that a regional structure for dispute resolution would be the ideal. ASEAN already has several treaties in effect to govern relations between member states and many of the member countries have their own national alternative dispute resolution panels.

What is needed, whether nationally or regionally, is a codification of decentralized dispute resolution rules and a platform that will include the qualities that Grivnova suggests. This will involve not only lawyers, but programmers and app developers. It will be a multi-variate process, but it is likely the best way to move forward in protecting users on the metaverse. At least, looking to some form of dispute resolution, will be a beginning. How criminals will be caught, prosecuted, and punished remains.