EU stays on top of Web3 with metaverse, AI and crypto strategies
The European Union has been vocal about its place in the rapidly expanding ecosystem of emerging technologies.
It has been a leader in establishing clear crypto regulations with its long-awaited Markets in Crypto-Assets (MiCA) framework signed into law in late May. The EU has also been pushing forward on creating regulations for the development and deployment of artificial intelligence (AI) systems.
Most recently, on July 11, the European Commission released its latest plan to take the lead in metaverse development and prevent Big Tech from becoming too dominant in an economically viable sector.
A European vision of the metaverse
The latest EU proposal estimated that the global market size for metaverse developments will exceed 800 billion euro by 2030, compared with its end-of-year value of 27 billion in 2022. McKinsey’s latest report on the state of the metaverse even has an estimated value of $5 trillion in the same timeframe.
According to the commission’s initiative, it wants to get ahead on metaverse development to reflect EU values and fundamental rights, along with a push for openness and interoperability.
Margrethe Vestager, the vice president of the European Commission, said the EU needs to have “people at the center” in order to shape it according to its principles.
“We want to make sure Web 4.0 becomes an open, secure, trustworthy, fair and inclusive digital environment for all.”
The commission held European Citizens’ Panels in February and April of 2023, which focused on the metaverse. It aimed to formulate suggestions for a “vision, principles, and actions” that ensure EU-based virtual worlds are fair.
According to the commission, 140 EU citizens were randomly selected for participation, which resulted in 23 recommendations that guided the strategy.
Integrating digital and real worlds is no longer science fiction.
Early this year, 140 European citizens put forward 23 recommendations to guide the development of human-centric, secure and trusted virtual worlds.
See how they helped shape our new strategy on virtual worlds ↓
— European Commission (@EU_Commission) July 11, 2023
The current pillars that the EU has decided on for its metaverse strategy include empowerment and reinforcing skills to create a pool of specialists in the field of virtual worlds, supporting an EU Web4 on a business level, supporting societal progress and virtual public services, and shaping standards for open and interoperable virtual worlds.
But wait, what is Web4?
The European Commission’s tweet about its pillars for virtual worlds and Web4 strategy garnered a mixed response from users, with many asking what Web4 means, and other’s joking about developing Web5 and Web6 already.
According to the strategy, Web4 is distinguished from Web3 by integration with the real world. The commission’s statement recognizes that Web3 is still “currently developing,” with its main features being openness, decentralization and user empowerment.
“The next generation, Web 4.0, will allow an integration between digital and real objects and environments, and enhanced interactions between humans and machines.”
For the EU, Web4 could look like the introduction of smart cities with the right underlying infrastructure in place.
It is already investing in initiatives such as Destination Earth (DestinE) and Local Digital Twins for smart communities, as well as the European Digital Twin of the Ocean, which is said to allow researchers to advance science for the development of precision applications and help public authorities to make informed public-policy decisions on related issues.
Related: Animoca still bullish on blockchain games, awaits license for metaverse fund
The commission also included “advanced artificial and ambient intelligence, the internet of things, trusted blockchain transactions, virtual worlds and XR capabilities, digital and real objects and environments” as full integrations in Web4 that will set it apart from Web3.
It claims this will enable a “truly intuitive, immersive experience, seamlessly blending the physical and digital worlds.”
On July 5, the European Blockchain Sandbox, which is part of its smart cities initiative, unveiled its first 20 use cases.
EU regulations in place
At the moment, Vestager said there are no current metaverse regulations drafted. However, she expects various other rules already in place to affect it, such as privacy, market power and forthcoming AI regulations.
As previously mentioned, the EU has recently signed its groundbreaking MiCA regulations into law, which became one of the world’s first comprehensive sets of rules to regulate the crypto industry.
On July 12, the European Securities and Markets Authority announced that it plans to release three consultative papers on its MiCA standards for crypto asset service providers while it fulfills its mandate under MiCA regulations.
There are already questions regarding the regulations’ policies on stablecoins and the exclusion of decentralized finance in the published regulations.
In addition to its recently published crypto legislation, the EU has been working on regulations that will affect the AI industry. On June 14, the European Parliament passed the EU AI Act, which would force tools like ChatGPT to disclose all AI-generated content and other measures against illegal content.
The race against big tech
All of these initiatives with virtual worlds and regulations for emerging technologies come as Big Tech companies like Meta Platforms, Microsoft, Apple and Google work on their own versions of the metaverse and AI tools.
The EU clearly stated in its metaverse strategy that virtual worlds will not be “dominated by a few big players” and should be “driven by open technologies.”
Meta, the parent company of Facebook, was openly committed to developing its own metaverse world accessible through its virtual reality headsets. However, by the end of 2022, the company lost billions due to its metaverse division.
In 2022, Microsoft announced a $69 billion acquisition of Activision Blizzard, one of the gaming industry’s key players.
Most recently, Apple dropped its latest version of its virtual reality goggles, the Vision Pro. However, instead of positioning them for use in the metaverse, it chose to use the wording “spatial computing.”
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United States Senator Cynthia Lummis suggests the crypto industry may be celebrating too soon over the US Federal Reserve softening its crypto guidance for banks.
“The Fed withdrawing crypto guidance is just noise, not real progress,” Lummis said in an April 25 X post. Lummis called the Fed’s April 24 announcement — withdrawing its 2022 supervisory letter that had discouraged banks from engaging with crypto and stablecoin activities — “just lip service.”
Lummis’ tone was different from the rest of the crypto industry
Lummis, a pro-crypto advocate known for introducing the Bitcoin (BTC) Strategic Reserve Bill in July 2024, pointed out several flaws in the Fed’s announcement, even as Strategy founder Michael Saylor and crypto entrepreneur Anthony Pompliano suggested it was a step forward for banks and crypto.
She argued that the Fed continues to “illegally flout the law on master accounts” and still relies on reputational risk in its bank supervision practices. It comes as the Federal Insurance Deposit Corporation (FDIC) is working on a rule to stop examiners from considering reputational risk when reviewing a bank’s operations, according to a recent Bloomberg report.
Lummis also highlighted the Fed’s policy statement in Section 9(13), which hasn’t been withdrawn, stating that Bitcoin and digital assets are considered “unsafe and unsound.”
She also reiterated many of the same staff behind Operation Chokepoint 2.0 are still involved in crypto policy today.
“We are NOT fooled. The Fed assassinated companies within the industry and hurt American interests by stifling innovation and shuttering businesses. This fight is far from over.”
“I will continue to hold the Fed accountable until the digital asset industry gets more than a life jacket, Chair Powell — they need a fair shake,” Lummis said.
Related: If Trump fired Powell, what would happen to crypto?
Custodia Bank founder and CEO Caitlin Long seemed to share a similar view to Lummis.
“THANK YOU for seeing this for what it is,” Long said.
However, many crypto executives praised the Fed’s announcement as a positive development for the industry. Saylor said in an April 25 X post that the Fed’s move means that “banks are now free to begin supporting Bitcoin.”
Anastasija Plotnikova, co-founder and CEO of blockchain regulatory firm Fideum, said the Fed’s decision “is a significant development, as it will simplify the path to institutional adoption.”
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In one of his first appearances as the recently sworn-in chair of the US Securities and Exchange Commission, Paul Atkins delivered remarks to the agency’s third roundtable discussion of crypto regulation.
In the “Know Your Custodian” roundtable event on April 25, Atkins said he expected “huge benefits” from blockchain technology through efficiency, risk mitigation, transparency, and cutting costs. He reiterated that among his goals at the SEC would be to facilitate “clear regulatory rules of the road” for digital assets, hinting that the agency under former chair Gary Gensler had contributed to market and regulatory uncertainty.
“I look forward to engaging with market participants and working with colleagues in President Trump’s administration and Congress to establish a rational fit-for-purpose framework for crypto assets,” said Atkins.
Some critics of US President Donald Trump see Atkins’ nomination to lead the SEC as a nod to the crypto industry, acting on campaign promises to remove Gensler — the former chair resigned the day Trump took office — and cut back on regulation. Democratic lawmakers on the Senate Banking Committee questioned Atkins on his ties to the industry, potentially presenting conflicts of interest in his role regulating crypto.
Related: Atkins SEC era sparks massive industry optimism, crypto execs speak out
The direction of the SEC under new leadership
“We’ve noticed that we don’t have to be as concerned […] about being accused of things that we’re not doing, like being broker-dealers for securities,” Exodus chief legal officer Veronica McGregor, who participated in the roundtable, told Cointelegraph on April 24.”It’s just a less scary regulatory environment in general. It is, however, still unclear what the ultimate regs are going to look like for crypto.”
The SEC crypto task force is scheduled to hold two more roundtables in May and June to discuss tokenization and decentralized finance, respectively. Commissioner Hester Peirce, who leads the task force, told Cointelegraph in March that she welcomed the opportunity to work with Atkins to “reorient the agency,” hinting at an SEC with regulations more favorable to the crypto industry.
In addition to the roundtables, the crypto task force has reported several meetings with digital asset firms to discuss various policies and considerations in developing a regulatory framework.
Magazine: SEC’s U-turn on crypto leaves key questions unanswered
Nasdaq has urged the US Securities and Exchange Commission (SEC) to hold digital assets to the same regulatory standards as securities if they constitute “stocks by any other name,” according to an April 25 comment letter.
The exchange said the US financial regulator needs to establish a clearer taxonomy for cryptocurrencies, including categorizing a portion of digital assets as “financial securities.” Those tokens, Nasdaq argued, should continue to be regulated “as they are regulated today regardless of tokenized form.”
“Whether it takes the form of a paper share, a digital share, or a token, an instrument’s underlying nature remains the same and it should be traded and regulated in the same ways,” the letter said.
It also proposed categorizing a portion of cryptocurrencies as “digital asset investment contracts,” to be subject to “light touch regulation” but still overseen by the SEC.
Related: Certain stablecoins aren’t securities, SEC says in new guidance
Regulatory U-turn
The SEC has dramatically pivoted its stance on cryptocurrency oversight since US President Donald Trump took office in January.
Under the leadership of former Chair Gary Gensler, the SEC took the position that practically all cryptocurrencies, with the exception of Bitcoin (BTC), represent investment contracts and therefore qualify as securities.
This stance led the agency to bring upwards of 100 lawsuits against crypto firms for alleged securities law violations.
However, under Trump nominee Paul Atkins, who was sworn in as chair on April 21 after a lengthy Senate confirmation, the SEC has claimed jurisdiction over a narrower segment of cryptocurrencies.
In February, the agency issued guidance stating that memecoins — if clearly identified as purely speculative assets with no intrinsic value — do not qualify as investment contracts pursuant to US law.
In April, the SEC said that stablecoins — digital tokens pegged to the US dollar — similarly do not qualify as securities if they are marketed solely as a means of making payments.
Integrating crypto into TradFi
In its April 21 letter, Nasdaq said existing financial infrastructure “can readily absorb digital assets by establishing the proper taxonomy and calibrating certain rules to reflect what is truly new and novel about digital assets.”
The Depository Trust & Clearing Corporation (DTCC) — a private US securities clearinghouse closely overseen by the SEC — has been laying the foundation for integrating blockchain technology into regulated financial markets.
In March, the DTCC committed to promoting Ethereum’s ERC-3643 standard for permissioned securities tokens.
Magazine: Ethereum is destroying the competition in the $16.1T TradFi tokenization race
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