November 1, 2022

Do Companies Need a Metaverse Voting Policy?

Holland & Knight Masters of the Metaverse Blog
Andrew N. Choi
Masters of the Metaverse Blog

The past year has seen many companies entering into the metaverse, including by buying land. For some metaverses, particularly ones that have a decentralized autonomous organization (DAO), the ownership of land, assets and cryptocurrency comes with more than just virtual real estate. Owners also receive the power to vote on issues affecting that metaverse. So joining the metaverse makes these companies a voting member of the online community — and that can raise legal, ethical and reputational problems. Every company considering a land purchase in the metaverse should ask itself first whether it needs a metaverse voting policy.

Land, DAOs and Voting Rights

The most obvious way in which a company might enter the metaverse is through the purchase of virtual land. In metaverses such as Decentraland and The Sandbox, NFTs (non-fungible tokens) determine ownership of land. These metaverses designate a finite number of land NFTs, each of which is associated with a plot of virtual land in the metaverse. After buying a plot of land, a company can begin to develop an experience on the land as part of a strategy to bring attention to a brand. This experience could range from a game to an interactive product experience.

Some metaverses are governed by a DAO. DAOs manage certain aspects of the metaverse via users' direct vote. In Decentraland, metaverse participants are given Voting Power, or VP, based on the amount of Land, Mana (Decentraland's native cryptocurrency) and Names that they own. Various issues are put to a vote, and it is decided by a simple majority of Voting Power, subject to a minimum participation threshold (akin to shares and a quorum). Decentraland's DAO is key to its claim that its metaverse is "decentralized," because the power to govern much of the metaverse is not held by a single entity or owner, but is instead held communally by its users.

With the power to vote, however, comes the obligation to take positions on issues. And taking positions on issues could run counter to the companies' metaverse or broader business goals. Consider the following situations.

Public Voting and Reputational Risks

In metaverses such as Decentraland, votes are not private. In particular, voting is at least partly mediated by a tool called Snapshot, which publishes a log of blockchain addresses as well as how each address voted on a particular issue. See, for instance, this vote in Snapshot to add a plot of land to Decentraland's Points of Interest; the Snapshot logs the vote, Voting Power and wallet address of each voter. Because all the votes are public, and landowners' wallet addresses are also public, there will be a public, permanent record of a company's voting history. All of the issues that a company voted on, as well as all of the issues that a company did not vote on, could be scrutinized and result in reputational harm. The issues voted upon in Decentraland can oftentimes be political — a past proposal, for instance, proposed to ban the name "Putin" — with fraught reputational consequences regardless of how or whether a company votes.

Competitive Conflicts

Metaverse voting power can also be used to vote on issues involving intellectual property enforcement matters, among other issues that directly affect a company's business partners and competitors. Such votes could put a company at risk of, for instance, business-tort liability or antitrust violations. In other words, the power to vote on issues in the metaverse, where votes and non-votes are public, can put a company in a wide variety of potentially conflicting positions that it wouldn't otherwise have outside of the metaverse.

Developing a Metaverse Voting Policy

Given these risks, companies should consider developing a metaverse voting policy before entering the metaverse or voting in it. Different companies will need different things, but every company should consider at the very least the following things:

  1. Its values and how that will set a framework for how it votes on issues and what issues it votes on (if any, see below).
  2. A plan for how it will publicly justify its votes and non-votes.
  3. How upcoming DAO votes will be identified, how voting decisions will be worked up and approved, and the person who will do the actual voting.

Much of this policy will depend on details of the DAO itself. If, for instance, a DAO has a very short voting period, it may make sense to develop less formal procedures for determining how a company votes. If a DAO has a very high voting threshold for the passage of an issue, and the company wants its votes to count, it may consider adjusting its ownership of property in the metaverse accordingly.

Should Companies Adopt a Non-Voting Policy?

With all of these considerations in play, a company might decide that metaverse voting power carries with it too many headaches. Is it possible to simply not vote? There are a few different ways that a company could do this. First, a company could own land in the metaverse and simply develop an official policy of non-voting — that is, taking no position on any issue in the metaverse. Second, a company could decide to not participate as an owner in the metaverse — either through renting land in the metaverse or hiring a third-party contractor to create experiences in the metaverse for a fee.

In the first case, a company might be able to avoid some reputational harms associated with voting by simply opting out, though non-voting does not always avoid controversy. After all, a land-owning non-voter still has the power to use its votes to affect outcomes in the metaverse. So a company will still need a public relations strategy to justify not voting.

In the second case, avoiding controversy seems easier because a company that merely rents land in the metaverse lacks the power to vote in the metaverse, so it cannot be deemed responsible for its non-voting behavior in the way that a non-voting owner can be. Then again, there are also drawbacks to renting. As a renter, it is not possible to maintain a permanent location in the metaverse — something that could be problematic in metaverses such as Decentraland, where parcels have discrete locations, and location can be strategically important. Moreover, if the world outside the metaverse is any indication, a renter still runs risks based on association with a landowner and its voting activities.

Finally, in both cases, a company that opts for non-voting forgoes all of the benefits that come with utilizing metaverse voting power. These benefits shouldn't be underestimated. After all, the intent of a DAO is to have a governance mechanism that has a real effect on the participants in the metaverse. A company that utilizes its metaverse voting power can reap the benefits of metaverse participation while avoiding potential harms by developing a well-thought-out policy for voting in the metaverse.

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