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Reality intrudes: How TradFi banks can help build the metaverse economy

The crypto winter may have chilled many in Web3, but metaverses are an increasingly hot prospect in traditional finance, says DBS Bank’s legal chief

DBS Bank, Southeast Asia’s largest lender, is making an entrance into the realm of metaverses. According to Nikkei Asia, by April, the Singapore-headquartered bank had been investing around US$730 million annually in technological infrastructure, including metaverse, and planned to hire about 1,000 tech engineers a year.

Even though metaverse development is still in its early days, metaverses have turned out to be attractive to institutional finance players, and DBS is not the first to explore them. In February, U.S.-based investment bank JPMorgan opened a virtual lounge in Decentraland, a metaverse based on the Ethereum blockchain. But in DBS’s vision, metaverses are much more than a virtual counterpart of the physical world.

“On the one hand, you probably have some stakeholders that think that the metaverse is about social networking or workplace virtualization … It’s one perspective built on a social media business construct which is logically progressing into using virtual reality, augmented reality to enhance the social media experience … I think it’s a valid view, but it’s one perspective,” Lam Chee Kin, DBS’s head of legal and compliance, told Forkast in a video interview.

He said that amid ongoing instability in the crypto market, the experience of established financial institutions such as DBS may be an important element of building the foundations of the metaverse economy.

“We are currently arguably in the crypto winter. Who is the lender of last resort that can be trusted to come in and basically say, ‘You know what, I’ll take care of the system’? … Now, given the need for trust, the lender of last resort and these ideas, I think it’s consistent with the fact that the future with crypto and with blockchain, and with the metaverse, may not be completely trustless and fully decentralized,” Lam said. “How can a customer trust that his assets will be protected? How can a customer trust that the offering on a platform is appropriately curated? And I think financial services have learned these lessons already, but I think we’re encountering the equivalent of those questions in our discussions on the blockchain, and also equally valid in our discussions in the metaverse.”

As was the case with DBS’s venture into retail crypto trading, bringing banking into the metaverse space won’t necessarily be an easy task,  particularly in a highly regulated jurisdiction such as Singapore. Watch Lam’s full interview with Forkast Editor-in-Chief Angie Lau to find out how metaverses might be regulated in the future, and learn more about DBS’s vision for Web3.

Highlights

  • Technology-centric vs. human-centric: “Why (the metaverse) is so compelling to the human being … I think … introduces an idea which DBS feels very passionate about — and that’s the idea of taking a human-centric view to the subject, not just a technology-centric view … On the one hand, you probably have some stakeholders that think that the metaverse is about social networking or workplace virtualization … Equally so there is another view. I call this the Web3 DeFi view, where basically everything is NFTs (non-fungible tokens) and blockchain and decentralized finance, and so on and so forth. That’s also, I would say, an equally valid view, because they’re all aspects of the elephant in the room, which is the metaverse … Actually Bob Chapek of Disney said the metaverse is a perfect place for next-generation storytelling … And I like that because that suggests, again, the human-centric view, the place where people want to experience new stories and all that.”
  • Make GameFi fun again: “The first thing that I want from a game is that the game’s got to be cool. It’s got to be something I’m willing to put hours and hours and hours into, and I need to want to do that. If I’m doing that for income, then, Angie, I’ve got to be honest, that’s work. That’s not game. And you’re blending the two or conflating the two. And perhaps, this whole thing about the design of the user experience has to be revisited. For me, content, the experience, the game — whether it’s cool or not — that’s my decision point. And I think that’s the thing that unlocks.”
  • Outside-in vs. inside-out: “I think there’s a lot of validity to the outside-in business model — just, you know, could you unlock a different way of workplace interaction by using metaverse technology in the workplace? Of course you could. It could be way cooler than video calls and that kind of stuff. You could be interacting with each other, white bots, being able to manipulate designs and all that in a virtual environment … The other part that’s really, really cool, though, is the inside-out business model — the idea of embedding yourself into the large, content-driven and engaging metaverses that are out there … and powering that with financial interoperability.”
  • Embedded finance in metaverses: “‘I like this digital avatar in this other metaverse. Can I use my digital castle in this Metaverse A as collateral for my avatar in Metaverse B? Metaverse A is no longer cool and I actually want to pass this inheritance to my kids.’ So, this builds a story where I think we have an opportunity to think about inside-out business models, about embedding financial services into these metaverses.… Creating the interoperability between metaverses. That’s something that banking is really, really good at doing. We call it foreign exchange. We call it market access products … So I think there’s a role for the pricing, the trading, the risk management, the hedging — all of that is going to be relevant in that future.”
  • A dystopian future?: “We already know that there are certain downsides to a completely, wholly digital experience. In Japan, you have a term called ‘hikikomori’ — the total social withdrawal of an individual from the people around him, from society, and the person choosing only to live in the digital world. What happens to productivity? What happens to population if that happens? … So, I think it’s actually our responsibility as we develop the metaverse further, and as we come across potential social issues, for us to also think through this … You don’t just think about the business models, but you also think about the potential social downsides of those models and then build around it or design around it all to reinforce the trust in your offering.”

Transcript

Angie Lau: A dystopian future where players battle each other and evil corporations to win the ultimate prize, an imagined virtual universe? Well, this was the premise of the Steven Spielberg movie Ready Player One. It’s also what many of us imagine a future metaverse might be like. But for one of Asia’s largest banks, the metaverse goes much beyond just an augmented reality game or a social networking platform. It’s so much more.

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast. I’m Editor-in-Chief Angie Lau.

Well, today we’re in conversation with Lam Chee Kin. He’s the head of legal and compliance for DBS Group. But even more importantly, in context of our conversation today, he’s been a keen gamer all his life and he’s actually shaping how DBS is looking at the opportunities that the metaverse holds. So, thank you so much for joining us. It’s a pleasure to have you on the show.

Lam Chee Kin: Thanks for having me here, Angie. It’s a pleasure.

Lau: Okay. So clue us in. How does a compliance guy get into metaverse and all of these wonderful things? How does one even make that jump at DBS?

Lam: Yeah, kind of maybe two ways to answer that question. The first part — I think you gave it away already, Angie — I’m a gamer. So, I play games. I play, like, almost anything you can find. And I’ve grown up for maybe 30 or 40 years just playing computer games. So, that’s one of my passions.

The other way of answering the question, Angie, is that in DBS, we do believe in horizontal organizations. So you don’t have to stay so particularly within your silo or your swim lane in DBS, we do let people run adjacent organizations or take responsibility for adjacent organizations or influence adjacent organizations. And the metaverse is actually one of these topics that requires a horizontal approach. I don’t think it’s actually possible to just dump a metaverse project into one particular business line, one research line, or one risk and control function, and expect an outcome that embraces what the metaverse is in future. So I think that’s how we look at it.

Lau: Well, let’s look at it even more deeply than that. Why is a bank of your magnitude thinking so closely, and certainly at somebody at your level, in really the C-suite level, thinking about how metaverse is going to define your future at the bank.

Lam: Yeah. So DBS believes a lot in experimentation. And in order to decide in which areas we want to experiment, we identify big themes. So we actually have a group that looks at what’s a possibility in the future. So that could be, for example, trust in financial services. The example could be quantum computing. Well, it just happens that blockchain is one of our selected big themes. And as we went through the blockchain discussion, we noticed that there was also a discussion around the metaverse. And as we unpacked that a little bit, it became more and more logical that maybe we should put some thinking around the metaverse. But in the spirit of experimentation, I think it’s early days and I think it’s really important to say that. But equally, even though it’s early days, I think it’s quite important that we perhaps apply some decent thoughts into the whole issue.

I also think in my little area there’s going to be legal issues. I think there’s going to be regulatory issues. And all this speaks to that idea. We’ve got to look at this horizontally. I don’t think we can just look at this as, ‘Hey, here’s a business, and let’s dump a lot of capital into the business.’

Lau: Well, you finally get to tell your parents that all those years that you spent gaming paid off. When you started hearing about blockchain and metaverse, and obviously all the implications, what immediately leapt to your imagination? What did you see that got you excited here?

Lam: Yeah, so for me, it was the idea of a digital reality. An alternate reality which humanity can experience. And there are certain pretty fundamental psychological things that the human being wants to chase after. So the idea of escapism — the idea that you can fly in a digital reality or you can breathe underwater in a digital reality. That’s really compelling to a human being. Maybe another aspect — catharsis. Catharsis in the real world, we’re kind of experiencing that. You can cry, but you can also express yourself really violently. And in the real world, that’s not a good thing. But catharsis in a digital world is actually pretty cool. It’s something where you can experience that psychological release, but without actually taking some of the physical consequences of that. I think that’s one very, very important aspect to perhaps understanding why, in a sense, computer gaming is so appealing. But in the same way, why the idea of the metaverse is so compelling.

Lau: It’s a world of imagination that’s reinforced by the game, by other people’s imagination, and suddenly you can play make-believe in a semi-real way, which makes me go back to the question of banking. In your view, how would you describe this future, and what does it mean in terms of features and functionality for the average person, and how should they think about engaging in this new platform?

Lam: I said a little bit about why this is so compelling to the human being, and I think that introduces an idea which DBS feels very passionate about — and that’s the idea of taking a human-centric view to the subject, not just a technology-centric view. I think if you came at this from a human-centric view, some of the answers are perhaps illuminated a little bit better than if we took a technology-centric view. Let me just illustrate this by perhaps unpacking the definition a little bit better — going to ‘geek out’ a little bit here if it’s alright with you.

On the one hand, you probably have some stakeholders that think that the metaverse is about social networking or workplace virtualization, that kind of stuff. We know who these people are, and I think it’s a valid view, but it’s one perspective. It’s one perspective built on a social media business construct which is logically progressing into using virtual reality, augmented reality to enhance the social media experience. Ok, so I get that.

Equally so, there’s another view. I call this the Web3 DeFi view, where basically everything is NFTs and blockchain and decentralized finance, and so on and so forth. That’s also, I would say, an equally valid view, because they’re all aspects of the elephant in the room, which is the metaverse. And that’s why I come back to the idea of computer gaming. Actually Bob Chapek of Disney said the metaverse is a perfect place for next-generation storytelling, the core franchise of what Disney is all about. And I like that because that suggests, again, the human-centric view, the place where people want to experience new stories and all that. That is perhaps what we need to be focusing on.

Lau: Yeah, so the human-centric view. And how is it informing you as a business, as you obviously look for ways to bring banking services to a population? You’re going to do it through the metaverse. How are you going to do that as a part of digital transformation? First and foremost, why the metaverse?

Lam: Here is where, again, I would say a human-centric view is really important. And I take a step back. Who likes clunky graphics? Who likes images that are shaky? Who likes the uncanny valley, where you try to simulate a photorealistic environment, but you know what, it doesn’t look quite real enough. And I’m creeped out because I don’t like it. And I think these are all questions that are valid questions as we look at the maturity curve. And I break that maturity curve down into three big buckets.

The first is immersion technology. We know this pretty well — augmented reality, virtual reality, and the delivery of that immersion technology at an appropriate price point to the consumer. Today, a computer game geek spends tens of thousands of dollars on his rig. If the metaverse is going to be embraced by billions of customers, you can’t see that the cost of entry is US$20,000 or US$10,000. It’s got to be democratized. So the maturity of the way immersion technology comes about and delivery technology comes about is one of the important factors that we need to watch.

The last thing that I’d say, Angie, in all of this — and all this builds up to the question, when is the metaverse going to be ready for us? — this last part of the question is the maturity of digital asset technology as well. So, as the blockchain matures, as we look at a future possibly represented by Web3 with a bit of room for thinking about non-Web3, I think this is how we watch the timing and the maturity curve, and this is when we make a decision to get into this.

That, I think, is informed by a human-centric view, and that starts to unlock the way we look at it. And maybe here’s, again, the punchline. The metaverse is going to engage human senses in a very different way. Sight, sound, touch and, dare we say it, taste and smell. So, as you try to say digital reality, you’ve got to look at the technology that conquers sight and sound. Not bad. Touch? That’s coming. Taste and smell? Who knows? So, I think as we look at how the human is engaged in the technology or with the technology, that’s one of the big answers to when the metaverse becomes truly, truly democratized and engaging for all the potential customers out there. That’s a really long way of giving the answer, but I hope that’s interesting to your audience.

Lau: Well, I’ll note that in a recent LinkedIn post you did not say ‘if’, you did say ‘when’. Chee Kin, we were talking about the human-centric part of this technology, and when we think about the Web3 generation entering the metaverse and talking about technology and adoption, a lot of young people today are communicating on social media. They’re playing together in virtual worlds like Decentraland and Fortnite. And even little kids are able to figure out their parents’ phones or iPads quicker than the adults. I’m unfortunately a victim of this — my five-and-a-half-year-old is much too smart for his own good. But how is this generation gearing up for this future that’s about to unfold?

Lam: Yeah. This creates the conversation around inevitability, doesn’t it? Angie, my fancy word for this is ‘demographic gravity.’ It’s just a function of the fact that a successive generation is going to be so much more familiar with the technology, so much more willing to get into alternative digital realities. And they’re going to see all their peers doing it. So the fancy term is demographic gravity — the not-so-fancy way? ‘The kids think it’s cool.’

And if the kids think it’s cool, then actually I think we have a few decisions to make. We have to say, ‘You know what, I’m going to support my kids. I’m going to try to take this as far forward as I think I can to give them something that is responsibly developed and hopefully thoughtfully curated for them.’ Or I can say, ‘No, no, no, cannot. And that’s a bad idea for you.’ I think it’s our responsibility to hopefully bring about an appropriate future for the kids, given that they’re very, very likely to want this. And that suggests a layer of inevitability that I think we should be responsible for.

Lau: Do you think about that right now, in terms of how we’re seeing crypto and blockchain emerge in cross-border transactions and peer-to-peer? There is a future that’s being defined right now, as well where there’s an opportunity for this next generation, and even us right now, to engage in the kind of financial transactions that have only usually been reserved for accredited investors to banks.

Lam: When you look at what’s happened in crypto, we’re currently arguably in the crypto winter. Who is the lender of last resort that can be trusted to come in and basically say, ‘You know what, I’ll take care of the system’? And is there a need for something like that in the system? Even if you look at it, there are actually very credible players that are coming in and bailing out many of the companies that got into an issue.

Now, given the need for trust, the lender of last resort and these ideas, I think it’s consistent with the fact that the future with crypto and with blockchain, and with the metaverse, may not be completely trustless and fully decentralized. I think there’s still going to be a need for these ideas here. That trust also manifests at a different level. How can a customer trust that his assets will be protected? How can a customer trust that the offering on a platform is appropriately curated? And I think financial services have learned these lessons already, but I think we’re encountering the equivalent of those questions in our discussions on the blockchain, and also equally valid in our discussions in the metaverse. I think these are really, really important things in order to give the next generation that foundation on which to thrive.

Lau: Then I’ve got to ask you about GameFi. As a gamer, you understand the economy that exists within the world, but now that is transcending into the real world with play-to-earn. We’ve seen games like Axie Infinity onboarding new users, driving metaverse growth and all the rest. Is GameFi something that internally you think about at DBS?

Lam: The first thing that I want from a game is that the game’s got to be cool. It’s got to be something I’m willing to put hours and hours and hours into, and I need to want to do that. If I’m doing that for income, then, Angie, I’ve got to be honest, that’s work. That’s not game. And you’re blending the two or conflating the two. And perhaps, this whole thing about the design of the user experience has to be revisited. For me, content, the experience, the game — whether it’s cool or not — that’s my decision point. And I think that’s the thing that unlocks. Why is content cool? Why do we love Star Wars? Because the underlying content is engaging and cool.

Lau: So how do you think about making banking cool in the metaverse?

Lam: So, Angie, I think this answer branches perhaps into two different places. I think we’ve seen the conversations as they have come on right now, and those conversations have been about, ‘Look, can we bring metaverse technology into banking?’ So, for example, we virtualize a bank branch, or can we take a manufacturing process and make a virtual reality digital twin of that manufacturing process? So I call all these ‘outside-in’ business models. So, all the things where you take a non-capability metaverse technology and you try to retrofit that into your existing business models — outside-in business model.

I’m quite engaged in something that I like to call the inside-out business model, and this is slightly different. We already know about the idea of embedded finance. Nobody wakes up and says, ‘I’m going to buy the best mortgage in the world. I’m going to embed my mortgage product actually into the house purchase journey so that it’s actually embedded into the customer journey.’ I think that same idea is valid in the metaverse. You go out there and you look for the multiverse or metaverses that will exist, the social media metaverses, the Web3 metaverses, the computer gaming metaverses, the Star Wars metaverse, for example. There’s a multiverse of metaverses that are reasonably foreseeable. What are they all going to mean? They’re going to mean the idea of, ‘Well, could I borrow money to buy my fighter jet? Well, you know this castle. I like this digital avatar in this other metaverse. Can I use my digital castle in this Metaverse A as collateral for my avatar in Metaverse B? Metaverse A is no longer cool and I actually want to pass this inheritance to my kids.’ So, this builds a story where I think we have an opportunity to think about inside-out business models, about embedding financial services into these metaverses.

It’s not like it hasn’t been done before in computer gaming. We actually know this already, but that idea of embedded finance in metaverses I think is very compelling. And, Angie, if I may, just one more thing that’s really compelling, creating the interoperability between metaverses. That’s something that banking is really, really good at doing. We call it foreign exchange. We call it market access products. And banking’s really good at doing that. So I think there’s a role for the pricing, the trading, the risk management, the hedging — all of that is going to be relevant in that future.

Lau: Ok, you’ve blown my mind. You really have. The interoperability, as FX, this is what we’re doing right now between foreign exchanges and currencies right now. It’s fascinating. Nothing but just illuminating right now with our conversation with Lam Chee Kin, legal and compliance head at DBS. 

Regulating a decentralized technology can be a difficult thing to do, especially since regulations would require KYC (know-your-customer) verification for every user. So the question really is, can the metaverse be regulated? I mean, you’re in Singapore, one of the most highly regulated jurisdictions, the gold standard by many in Asia, and certainly of that ilk. Is this an environment in which you can pursue metaverse within the confines of regulation?

Lam: Yeah. I don’t see why not, Angie. And perhaps the answer is a little bit more subtle than that. I think even with highly regulated banking, some things are very, very heavily regulated. You said KYC, that’s very heavily regulated. But some things — the ideas of responsibility and trust and culture and conduct — those are regulated by concept, but depend a lot on the responsibility of the individual financial institutions. So even within highly, highly regulated industries, some things are very prescriptively handled and some things are not. And I think the metaverse is going to be a bit like that. Let’s all not forget that the metaverse is going to be running on physical hardware. The data center is going to be somewhere. The experience has to be delivered into a piece of hardware somewhere, so on and so forth. So, there’s still a physical aspect that existing real-world laws can latch onto.

But you’ve actually raised a very, very good question, which is actually the way that the laws or the regulations that apply to the digital world will intersect with the regulations of the physical world. That’s also blowing my mind, that I think is something that we have to get much, much better at. And let me just give you a very simple example of this. You’ve got an NFT, and let’s say in the real world, you get divorced. Is the NFT part of your matrimonial assets or not? Or, if you don’t pay your taxes, can the taxman take the NFT and sell it and then use the proceeds for taxes? Or, let’s say you end up in a litigation dispute and that person tries to garnish your assets. I think all these questions do bear thinking around, because you don’t want to have to answer these questions when the incident actually happens to you. And that’s what I mean — it’s our responsibility to think through some of these consequences and to design for a future that anticipates some of these consequences.

Lau: Well, I mean, the more time that we spend talking about the virtual world…

Lam:  It goes deeper and deeper, doesn’t it?

Lau: It super goes deep. I mean, what does the DBS in the metaverse world look like to you… that potentially we’re going to interact with and coexisting?

Lam: Yeah, so I’m going to hedge a little bit. I’m going to say, ‘Look, it’s still early days.’ But I think it’s a combination of what I just called the outside-in business model and the inside-out business model. I think there’s a lot of validity to the outside-in business model — just, you know, could you unlock a different way of workplace interaction by using metaverse technology in the workplace? Of course you could. It could be way cooler than video calls and that kind of stuff. You could be interacting with each other, white bots, being able to manipulate designs and all that in a virtual environment. So I think that’s pretty cool.

The other part that’s really, really cool, though, is the inside-out business model — the idea of embedding yourself into the large, content-driven and engaging metaverses that are out there. That’s really, really cool as well, and powering that with financial interoperability.

Lau: What foundation of a future society are we actually building? Do you think about that as part of corporate governance and corporate responsibility — to actually take a responsible and active role in determining how you’re going to function responsibly and be a corporate leader in the metaverse?

Lam: Yeah, without a doubt, Angie. In fact, in legal speak, that’s what we call a leading question. But I absolutely agree with that.

Lau: Which is why I probably am not a good lawyer, but a good journalist.

Lam: Okay. So let me perhaps tee this up. We already know that there are certain downsides to a completely, wholly digital experience. In Japan, you have a term called ‘hikikomori’ — the total social withdrawal of an individual from the people around him, from society, and the person choosing only to live in the digital world. What happens to productivity? What happens to population if that happens? There’s another phenomenon in computer games that we call ‘griefing’. Griefing is (when) basically people don’t play the game to have fun — they play the game to make other people’s experiences as horrible as possible — and that phenomenon is well understood.

So, I think it’s actually our responsibility as we develop the metaverse further, and as we come across potential social issues, for us to also think through this. This is the idea of sustainability, and it also comes from taking a human-centric view rather than a technology-centric view on things. That idea that, yes, you’ve got to think about the future. You don’t just think about the business models, but you also think about the potential social downsides of those models and then build around it or design around it all to reinforce the trust in your offering.

Lau: It’s all about trust. But more importantly, it’s also about the responsibility that we have with each other in this big, wide universe of ours, where anything is possible and none more than what blockchain is really unfolding for us in Web3. Lam Chee Kin, it was such a pleasure to geek out with you and learn a little bit more about what DBS is doing in metaverse, and kind of going philosophical. Really, truly appreciate it. And you’re welcome back on the show anytime.

Lam: No problem, Angie. It was my privilege. Thank you so much. I had fun, too.

Lau: All right. We’re going to have fun next time on metaverse. We’ll figure it out. It could be in the DBS lounge or the Forkast lounge. We’ll figure it out sometime in the near future. And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Angie Lau, Forkast Editor-in-Chief. Until the next time.

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