SLENTRE.COM

By Billy Laffer

In the real world, I work in the corporate office of one of the largest banks in the United States—which explains why, until writing this story, I had completely avoided the financial industry in Second Life. I set out to write on monetary matters without firsthand knowledge of the state of finances in the metaverse.

My first objective was to get a feel for the business. I spoke to in-world players in the financial industry. I surveyed Linden blogs and I surfed the always-useful Google search engine. I theorized that banking and investing in SL was likely modeled after real world counterparts with some of the same controls and risk-mitigation techniques employed by real world entities.

I began my search via the in-world search function, looking for investment entities. I found a few stock exchanges listed and a number of private venture capital organizations. Things looked promising!

I trolled for people I could talk to. I spoke with Tomac Sewell, an investor in Second Life stocks, and Erik Goff (pictured left), who owns 12 companies and has 80 people working for him in world. Goff is a past member of the board of the World Stock Exchange. I spoke with Cybertek Warrior, who sells and rents land and used a Second Life stock exchange to fund expansion of his already successful business. And last, but not least, I spoke with Julia Hathor, a business owner who hasn’t utilized banks or stock exchanges while building a successful business covering four sims.

Investment Industry

From these interactions and my research, this is what I think I’ve learned.

First, I was partially correct. From the perspective of an honest business owner requiring funding with an honest desire to provide value to investors, I think the stock exchanges work. From an investor perspective, they leave a bit to be desired. Depending on the exchange, varying degrees of shareholder involvement and oversight are expected. At best however, the business owner retains full control–meaning you must search diligently for stock owned by an “honest” business owner. This means you have to rely on the business owner’s forthrightness and commitment to Second Life to ensure that your investment doesn’t disappear. So definitely do your homework before investing in a business. And learn about the rules imposed by the stock exchange with which you are doing business. This should probably go without saying, but it’s doubly true in Second Life. And remember that if an investment sounds too good to be true, it probably is.

Stock exchanges in Second Life are definitely in their infancy, and I think they’ll continue to mature. There are groups working towards implementing and improving investment industry standards. I wasn’t able to secure an interview with any of the interested parties before deadline, but this is something I plan to do next. It may be the subject of a future article.

On the horizon is a movement to change investments into World Internet Currency rather than Lindens. It’s expected that when the World Stock Exchange reopens (which should be soon) it will be trading in WIC instead of Lindens. WIC is tied to the price of Lindens on a 1:1 basis, but can also be used to trade in businesses in other virtual worlds and economies, potentially enabling a company to extend its brand outside the confines of Second Life while leveraging the good will and purchasing power of its Second Life successes. Savvy businessmen and women are already working to do just that.

Banking Industry

The first thing I heard when I started looking into SL banks was that they had been banned. End of story, right? This isn’t actually true but more on that later.

Real world banks have had an interesting ride in Second Life. A few have had virtual presences here. The first was Wells Fargo, but they left for a proprietary platform based on the Second Life engine, over which they could have more control and flexibility. Apparently they were fond of large events and crashing sims weren’t conducive to impressing clients. ABN Amro, a European bank, has an island here, but I read in various places that they are in the process of leaving or have left. There are a few other financial firms present, but by and large, real world banks have come to Second Life with no intention to provide in-world financial services. They have basically been 3D billboards with varying degrees of interactivity.

Second Life banks have an even more interesting story. There was a time when there were many banks competing for customers while promising unsupportable levels of interest (some as high as 60% annually!). Unsurprisingly this led to widespread collapses, most notably Ginko Financial–who, according to some accounts, took as much as $700,000 in US dollars with them when they folded. It was this failure that pushed Linden Labs to take dramatic action, adding banking to the list of banned activities in Second Life, alongside gambling and sexual age play.

However, there’s still hope for banking in SL. Reading the text of the statement from Linden Labs, the only thing that has been banned is interest returned from deposits, with the exception of organizations with an actual government financial institution charter or registration statement. So what does this leave on the table? It leaves open the potential for some real world bank to enter Second Life and become the only functioning banking entity that can promise interest on normal deposits. It also leaves open the broad array of financial services that only an in-world bank can provide.

In my quick look around, I was able to find two functioning banks offering in-world services. One had only an ATM and this seemed to be broken. The other had a large, friendly-looking building with a representative on site when I went inside. They offer savings accounts, but they aren’t interest-bearing. The friendly representative, when asked why I should put my money in the bank instead of leaving it in the upper right hand corner of my screen, suggested that it can be useful if you are saving for a large purchase, or if you are perhaps a shopaholic where segregating your money might prove valuable. They also offer financial services including a credit card which they claim more and more shops are accepting, as well as mortgages, loans, and venture capital services. They also branched out in a consultative capacity, offering classes and seminars in managing a successful business in Second life.

For what it’s worth, I think building relationships with your customers in this way hearkens back to banking in the early days—and given the state of things in Second Life, it could be a brilliant strategy.

Conclusions

Financial interactions in Second Life are in their infancy, and as such, are very much dependent on the old standard “buyer beware.” I think both the investment and banking industries are slowly progressing and certainly worthy of watching and even participating in, but only with caution. When asked why she hadn’t gone public or borrowed from an in-world bank to fund expansions, Julia Hathor stated that she just doesn’t know enough about them and their risks, and that it wasn’t something she felt comfortable walking into without having all facts at her disposal.

One thing to keep in mind is that Linden Labs is almost certain to avoid any involvement in resolving individual disputes, so we are in a state of complete deregulation until the financial institutions develop a way to regulate themselves in a way that is beneficial to the industry and provides some measure of safety to their customers.

About The Author

A quick note about me, since this is my first story for the magazine. In world, I am Billy Laffer, Executive Director of Laffer Designs, a successful (by my definition) prefab home design business.