Metaverse hotels: A new type of chain arises

The metaverse promises to be a space in virtual reality that transcends physical borders and avoids the ravages of human disease as recently experienced. Powered by blockchain technology, it offers users a myriad of experiences from the comfort and safety of where they are. As hotels start planting their flags in the metaverse, what legal issues should concern them?

Background

The business case for hotels in the metaverse is clear. Research firm Gartner estimates a quarter of people will spend an hour daily in the metaverse by 2026, and the entire metaverse market is projected to reach $1.2 trillion by 2030. One hospitality player accumulated a return on investment of 100 times from a single augmented reality campaign . The metaverse gives hotels an opportunity to build virtual experiences that can reach people anytime, anywhere. However, hotels should be aware of legal issues with smart contracts, portability and regulation.

Smart contracts

A customer’s interaction with a hotel is often a series of many contracts – checking in, purchasing from the mini-bar, viewing cable television, dining and other services. This is the same with a multi-sensory and multi-experiential metaverse. Just like real-world contracts, hotels must navigate smart contracts carefully as they have a unique risk profile. Although the name suggests otherwise, smart contracts can fall prey to bugs and human error. Hackers could exploit smart contracts and steal funds earmarked within these contracts. Security risks are further complicated by the fragmentation of blockchain platforms and standards underpinning these contracts: Each type of smart contract has its own pitfalls to be mitigated.

Hotels must also manage commercial risks appropriately in smart contracts. Unlike transaction fees in the conventional banking system, the equivalent gas fees on blockchains are more volatile. A recent minting of virtual land non-fungible tokens (NFTs) incurred gas fees amounting to nearly 37 percent of the NFTs’ own value. Hotels have to consider the risks that arise from transactions in the metaverse, and how they should be allocated between parties. Franchising and travel agency sales may introduce additional complexity, such as reflecting commission structures in smart contracts.

Portability

There are multiple virtual landscapes in the metaverse, such as Decentraland, Second Life and The Sandbox. Just like properties in multiple countries, customers may move between properties in multiple virtual landscapes, or from one hotel chain to another, competing hotel chain. Hotels should ensure their data policies comply with data portability requirements in data protection legislation such as the General Data Protection Regulation.

Hotels should also consider how rights transfer from the real world into the metaverse. For example, clearance should be sought for digital reproductions in virtual properties. These range from virtual room furniture, to artwork in hallways, to music playing on location. Hotels should also consider how rights transfer from the metaverse into the real world, such as when they issue NFTs that offer exclusive benefits in real-world hotel outlets.

Regulation

Just like the crypto space, new rules are likely as the metaverse achieves ubiquity. From securities regulations potentially applying to NFTs and coin offerings, to laws combating online harms potentially applying to virtual hotels, we should expect some aspects of the metaverse to be regulated.

Next steps

The metaverse offers hotels the immense potential of broadening offerings and deepening customer engagement. New opportunities come with unique issues, but hotels that stay abreast of the challenges are poised to benefit from the metaverse.

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