How Metaverse Firms Look to Manage Asset Loss, Disruption Risks in Untested Worlds

The last few months have seen a handful of law firms, both small and large, showing interest in opening offices in the metaverse. While some are jumping in headfirst and buying virtual land, others are dipping their toes more cautiously by leasing the property from other attorneys short-term.

Still, taking into account how nascent the metaverse—and the technology it’s underpinned by, nonfungible tokens (NFTs) and the blockchain—are, all entrants at this stage are delving into a world without a clear regulatory framework, under a foundation that does not parallel real estate in the physical world, but rather operates under contract law. 

Attorneys in the metaverse, however, are not too worried about the risks of a virtual universe shutting down and making their digital assets worthless, or the potential for lost investment from changes to the terms of service. Many noted that there are efforts to be taken to mitigate those losses, and metaverse attorneys have faith that the law will catch up to protect them. 

For Michael Liner, a disabilities attorney and the founder of Liner Legal, who began leasing property from metaverse legal district LawCity.com a month ago, the risk is not too different from renting offices in real life.

“I have six offices in Ohio, we rent all of them,” Liner said. “There is potential at any point that one of my landlords will tell me the building is going to get sold or the land is going to be repurposed. There are a lot of parallels here [in the metaverse] to the physical world.”

Of course, the parallels might end there. If a landlord sells a building with an office you own, they would have to buy it off of you. If a metaverse world were to suddenly shut down, while a user may still own the NFT in question, everything that gives it value—how it looks and what it does—is actually controlled by a private company subject to its terms and services, and therefore could vanish.  

Still, some believe that such risks will decrease as the courts and lawmakers catch up.

“We are not planning for the today or tomorrow, but for the future. By the time the future becomes the present, the laws that pertain to NFTs and the companies that are administering the virtual world are going to have evolved to largely parallel the laws of the physical world,” Liner said.

Still, whether the metaverse is guaranteed to succeed and be secure, not even Liner could say. In fact, he cautioned that opening a virtual office might not be the way to go for a new legal business.

“I wouldn’t advise someone starting a new law firm today to make their first presence in the metaverse; it is a [space] for established firms,” Liner said. “One, because it’s an investment, and two, because I can hedge the risk of something happening. But I believe there is value in being first, it gives me time to evolve and learn because I don’t want to be the guy that had an opportunity to buy a $2 Amazon share and said this company just sells books.”

A Decentralized Decision

One of the first personal injury attorneys on the metaverse and the founder of Lawcity.com and Grungo Colarulo, Richard Grungo, agreed that caution is advised for any firm entering the metaverse, and that the loss of digital assets is a real concern most people should keep in mind.

“The specific terms of the various worlds should be reviewed and understood before investing—in any of the metaverse ‘worlds,’ a review of the terms is mandatory. Again, anyone deciding to explore this new ecosystem needs to move slowly and methodically. They must understand the emerging vocabulary and technology,” Grungo said in an email. “They must understand that all of the unknowns and risks surrounding the metaverse are very similar to the unknowns and risks surrounding the internet (web 1.0), and social media (web 2.0). The Metaverse is being called Web 3.0, and the unique risks and boundless opportunities are still being discovered.”

For Grungo, a safer option was reading up on the terms and settling on a decentralized autonomous organization (DAO), such as the metaverse platform Decentraland. 

“Of course, there are no guarantees, but our research tells us that Decentraland is the best place to make an investment. Decentraland is a DAO, which is an organization represented by rules encoded as a transparent computer program, controlled by the organization members, and not influenced by a central government,” he said. “So in theory a DAO should help reduce the risk of the proverbial rug being pulled out from investors.”

To be sure, achieving a completely decentralized model is difficult, and is not quite where the metaverse is in its current form. Though the leading metaverse platforms—Decentraland (a DAO) and The Sandbox (not a DAO)—are both powered by the decentralized Ethereum blockchain. Still, due to a lack of interoperability between the worlds, currency in the form of tokens cannot be easily transferred from one world to another. 

Some attorneys, however, believe that no world is decentralized, and that the metaverse should be used largely as a marketing tool as far as law firms are concerned.

“If you are participating in this Web 3.0 universe, you are kind of doing it on an as-is basis, because there are no warranties whatsoever and the governance structure is questionable,” said Max Dilendorf, founder of Dilendorf Law Firm. “How is it decentralized if there is a foundation [private company] that owns the intellectual property rights? Right now, it’s an experiment. I think of it as people who were buying domains to build websites back in the ’90s. Like, what rights are you getting? It was just online presence.”

Dilendorf himself has a presence on the metaverse, though not for his entire law practice but for his real estate branch, and routinely assists clients who want to enter their brands on the virtual platform.

“For us, the biggest risk is that the server shuts down and the whole thing collapses,” he said. “But it’s just a marketing move, right? We want to know how it works from the inside, we want to see what kind of function we are getting, and we paid for it so if something goes wrong, we won’t be going after the metaverse or the seller.”