To the uninitiated, IMVU’s virtual universe of 3D avatars, flashy night clubs and soaring architecture requires a crash course in digital socializing. But it may also provide a lesson for those wanting to turn virtual money into something usable on the outside.
IMVU recently received word from the Securities and Exchange Commission that Vcoin, its project to create a virtual currency tied to its virtual world, does not constitute a security. As such, it can move ahead with lighter regulation.
“This is all about social interaction. IMVU never tried to replicate the world,” said John Burris, chief strategy officer for Vcoin at IMVU, while demonstrating his own avatar and high-rise digital loft in a city that looks like it belongs in one of George Lucas’ Star Wars prequels.
Vcoin formally launched this month, enabling users to gift, buy, earn and convert to traditional money in a digital wallet. The IMVU metaverse has grown large enough to create a service economy, with people hired by peers on the platform to perform services. Vcoin is designed to turn that economy into something of tangible value.
“During the pandemic, the stay-at-home orders led to a lot of growth,” Burris said, echoing the reluctance expressed by a lot of technology executives whose firms grew during the outbreak. “We were sort of the right product for the right time.”
IMVU has 7 million monthly active users who connect with each other and interact through an expanding digital asset platform that includes more than 50 million items, expanding by about 400,000 per month. “This creates a real economy,” said Burris, adding 14 billion credits change hands every month.
IMVU reports more than 27 million monthly transactions based on credits that are used to pay for goods and services inside the IMVU universe. These credits are locked inside the platform, unlike the plan for Vcoin.
“There were some shortcomings,” Burris said. “If people gifted you credit you couldn’t convert that to cash. People in the ‘night clubs’ could pay bouncers but those bouncers couldn’t use that to pay rent or buy things in the real world.”
IMVU fell on the opposite side of the SEC’s crypto regs compared to Ripple, which has battled with the SEC for years over the XRP token. The SEC views XRP as a security, causing Ripple to threaten to leave the U.S. The SEC says Vcoin’s model does not constitute a security because it’s a digital asset for consumptive use, sold at a fixed price of $0.004 per Vcoin, and IMVU will not use sale proceeds to finance itself or to make upgrades.
“We’re really not a blockchain or a crypto company, but it does seem like a natural fit for us to have a digital currency that has real value off of the platform,” Burris said.
Vcoin comes as companies try to figure out how to use digital currencies to support traditional commerce. The Facebook-affiliated Diem/Libra project is expected to launch soon, and the Office of the Comptroller of the Currency recently allowed banks to use stablecoins to settle financial transactions.
The OCC’s move is designed to make stablecoins more attractive to banks, and one of Diem’s stated goals is to support financial inclusion by extending access to digital payments through the virtual currency. Burris likened IMVU’s project to Diem in that it relies on an enclosed network of enrolled users to fuel external transactions.
Virtual currencies, particularly bitcoin, have not been widely used for retail transactions and have existed mostly as an investment asset. Vcoin still requires conversion to traditional money to be used at retailers. And other crypto initiatives still require that same conversion at most stores.
There has been some movement toward traditional payment use cases, according to Talie Baker, a senior analyst at Aite Group, noting companies such as BitPay enable crypto at the point of sale. “The primary thing that would open the crypto market up would be wider acceptance of crypto as a form of currency,” Baker said.
Payment technology would not be difficult to create to enable cryptocurrency usage at the point of sale, said Krista Tedder, head of payments for Javelin Strategy & Research, adding the barriers are still regulatory. PayPal, for example, allows crypto storage in a wallet, but there’s a conversion to traditional money before the point of sale.
“The challenge is that from a regulatory perspective cryptocurrency is not a recognized currency,” Tedder said, adding more moves from the SEC are necessary to make it easier for merchants to directly accept cryptocurrency. “For tax purposes, cryptocurrency is considered a capital asset like stocks or bonds.”