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Regulating the Metaverse, With Guest Bradley Tusk — ICYMI

This week, the "In Case You Missed It" crew is joined by Bradley Tusk, CEO of Tusk Ventures and former deputy governor of Illinois. Tusk and his team published an extensive outline for regulating the metaverse.

As with any major technological development, the metaverse has its fans and its dissenters.

No matter which side those in the know fall on, the importance of virtual worlds, and the possibilities they present, is undeniable.

Companies such as Microsoft, Meta and Roblox are working toward building the metaverse. And companies such as Walmart, Nike and J.P. Morgan are exploring business opportunities within the metaverse.

The New York Times called investment in the metaverse "a virtual land boom."

But without some guardrails in place, consumers and investors could be at risk.

On this week's show, the "In Case You Missed It" crew dives into how governments should approach regulating the metaverse with Bradley Tusk, CEO of Tusk Ventures, writer, political strategist and former deputy governor of Illinois.

Tusk and his team recently published a lengthy memo outlining how and why governments should create regulatory guardrails for the metaverse.

"This thing is coming, everything that's wrong with the Internet is going to be 10 times worse on the metaverse. We can prevent a lot of problems," Tusk said.

We talked with Tusk at length about ways governments could encourage good behavior from companies building the metaverse, how regulators could protect consumers and why governments should act sooner rather than later in enacting legislation.



The following interview was lightly edited for clarity and brevity:

Q: What is the metaverse, and why did you come up with the position that you did?

A: Imagine the Internet if you combine the Internet today, the Internet of Things, virtual reality, augmented reality, blockchain and crypto. Some amalgamation of all of that is what the metaverse will be. So basically, in some ways, it's not unlike this process we're having right now. But we would be within the metaverse face to face really interacting, you know. It would just be a far more immersive, interactive, engaging experience than what you can do today.

Facebook, Microsoft, Apple, they're spending tens of billions of dollars to build this thing. So it's gonna happen. It's a question of when, not if. Once I realized that, I was just thinking one day,"OK, this thing's come in, how would you regulate?" Which is the kind of like super nerdy stuff that I tend to think about, and I start making a list.

And then I got to run into smart people working here. And I said, "Hey, how would you guys regulate it?" And they gave me stuff. And the next thing I knew there is a 6,000-word, 20-page memo outlining all the issues with the underlying point being this: This thing is coming. Everything that's wrong with the Internet is going to be 10 times worse on the metaverse. We can prevent a lot of problems, we can predict a lot of problems, but we've got to actually deal with it. And if we just pretend that it's not happening, it's not going to work.

Q: Do you think this is the sort of thing where someone could lose their grip on reality while they're engaging with it?

A: Quite a few people lose their grip on reality all the time. So, absolutely. But you know, maybe a different way to ask the question would be, "Could people's lives fully disappear into the metaverse?" Right? Could it be so immersive, and become their community to the point where they're not really going outside or anything else? Yeah, I think that risk absolutely exists, especially for gamers like my son, who is 13. One of the reasons I think he actually handled a pandemic and the quarantine fairly well is all his socializing is with his friends on the PS4. He has the headset, and he's talking to them. And sometimes I was like, are you aware that there's a giant quarantine and pandemic going on? And for my daughter, the pandemic was like a big, big deal. I think absolutely, there are people who will live and disappear completely, gamers especially.

Q: We've seen state and local, as well as federal leaders, really take on social media regulation over the last couple of years. The memo mentions this as a kind of a cautionary tale. What could happen if we don't have the guardrails in place for the metaverse? What do you think some of the pitfalls are if the metaverse isn't limited?

A: So, to me, there are three big things that politically, governmentally need to happen both to regulate social media today, and then maybe even more importantly, put the right guardrails in place for the metaverse — which will be even kind of more scarier, more dangerous.

The first is privacy. I'm sure as the people who are listening to this know really well, the U.S. does not have a national privacy framework. Europe has something called GDPR (General Data Protection Regulation). I think it works reasonably well. The state of California passed something called the CCPA (California Consumer Privacy Act), and it is having maybe a mild impact so far. But right now, for your average American, we have no right to our personal data. It's not protected in any way. We have no right to privacy. And as a result, we have this sort of totally out of control Internet, where Facebook and Twitter and every other platform is trying to maximize their profits, because that's what companies do. And the way to do that is to put as much toxic stuff on there as possible, because that drives clicks and "likes" and everything else. And so they're monetizing your data constantly. They're showing you bad content constantly. And so the first thing is, if you had a U.S. version of GDPR, that just starts putting some constraints on what they can do with your data. That's the first step.

The second step is simple: Section 230, the Communications Decency Act. It basically gave the platforms immunity from liability for whatever is posted on the platforms itself. So if you guys posted really defamatory content about me on Twitter or Facebook, whatever it is, I could try to sue you. I probably wouldn't win, but I could try. But I can't sue Twitter or Facebook. And as a result, if you're the platforms, your only incentive, because all you want to do is draw clicks, which draws eyeballs, which generates more advertising revenue, is have the craziest stuff on there possible. And if you're completely immune from any of the consequences or repercussions, you have no incentive to behave well. We've got to revoke Section 230.

And the third piece is antitrust, just like whether it was Standard Oil or whatever else throughout American history. There are times where companies just get too big, too powerful, too monopolistic. And the problem is, not only does it give them an unfair advantage, I think it really stifles innovation.

So I'd have my venture capital fund, we invest in early stage companies seed and Series A. And the reality is, I can't invest in a competitor to Facebook or Apple or Google or Microsoft or any of those companies, because how are they possibly going to compete, right? And for as long as these companies have free rein, they just smash whatever they want to stop competition. That's exactly what they're gonna do, because that's their economic incentive. We need tougher antitrust law. So to me, if those three things could be done, it's a big if. But if they could, it would be really helpful to the Internet today. And I think it'd be even more helpful to the metaverse in five years.

Q: To most people, the metaverse seems like it's far removed from our daily lives. Unlike social media, it feels futuristic and distant. It's something that we can just wait and worry about in years, not now. How do you go about convincing lawmakers and governments to take it seriously?

A: Totally, totally fair question. And the answer is, it's really hard. So I sent 50 elected officials, you know, that I'm friendly with, the memo. Some were your senators and governors, some were city council members, different parties, different jurisdictions. My thought was, let me just try to get it in people's hands. And a few of them said, "OK, what can I do about this?" My team is working right now on specific legislation they could introduce, and mainly the legislation just says, "OK, we're going to appoint a group of people to start figuring this out and dealing with it. Get the right experts in the room." My hope, and this may be a totally misguided hope, would be given that the vast majority of people who run for office do so because they desperately need attention and validation and affirmation, when they see something getting press, they tend to follow suit. So if I can get one U.S. senator, one state senator, one governor, one mayor, to all do something related to metaverse and the press covers it, that will create sort of a copycat effect, which will hopefully lead to some legislating where people will start to think about these issues. And then hopefully that leads to a more thoughtful approach to this. Again, what I did was a little bit of a shot in the dark. I recognize that it may not work, but it seemed to work, real quick.

Q: Have you seen any officials start to take more notice since you've released this thing?

A: Well, only in the discussions that we've had directly with some elected officials and their staff. I don't want to name them because I don't want to preempt the press that they're going to try to get by announcing stuff. So we've had some of those direct conversations. But beyond that, no, not really. Look, I've worked in government for a long time. You're consumed by the issues of that moment, and there's a whole lot happening right now, and inflation and all kinds of stuff. And if you're here in New York City, it feels like crime is out of control. The subways are unsafe. And so everyone's got immediate stuff to deal with.

But when I worked for Sen. Chuck Schumer, Chuck always said your immediate instinct is to deal with the immediate fire in front of you to put it out. And what you should really be doing is the long-term thing with the biggest implications and ramifications. Ultimately, that's what really deserves your time the most. I'm sure the majority leader is putting out fires all day, because that's kind of what the job requires. But my hope is that at least some people will say, OK, this may not be a political problem, or policy problems with me today, or in a year or two. But it's gonna be a huge thing in seven years. And, in fact, if I get out in front of this thing, I'll do some good. And I'll get credit for this thing, which is, in my experience, what politicians want.

Q: You spent your professional career wading in the regulatory waters from Uber to DraftKings and many others. You helped them crack the code on how to be successful in these highly regulated industries. Regulations are part carrot and part stick. Sometimes it seems we spend more time thinking about the stick than the carrot. What incentives do you think we need to have built to encourage good behavior from companies that are diving into the metaverse?

A: I think ultimately if companies are behaving well in the metaverse, we will work with you on consumer protection, for example. So right now, consumer protection, which is typically a state or municipal activity, says we're going to regulate the activities of any entity that's selling anything to the public, right? But then what happens in the purely metaphysical world and the digital world, where transactions are completely digital, there's nothing physical changing hands. There's sort of two ways regulators could go with it. They could say: We don't care and you're still going to have to meet all these old-school standards and requirements. Or they could say: We still need to protect consumers. But we get that you're living in a different reality. We will update our regulations, working hand-in-hand with you to do so.

I think right now that's exactly what has to be happening with crypto, in that you've got this new concept that no one quite understands. It's a sovereignless currency. So it's hard to figure out what jurisdiction exists. And you know, right out, you got the government on one side saying bad, bad, bad, and trying to find regulations. You have crypto enthusiasts like me saying good, good, good. And the reality is we need crypto regulation. Because, as an investor in Coinbase and legitimate companies in the space, I don't want fraudulent ICOs to be out there because they undermine the credibility of mine. But I also know that if a bunch of regulators are figuring this stuff out, and we're not at the table, they're not going to get it. So it's the same way that has to happen for crypto and for autonomous cars and delivery drones and everything else. That's got to be the start of the process for the metaverse.

Q: Earlier in our conversation, you said that the metaverse was going to be a combination of a lot of different things. And you mentioned crypto as part of that. How do you see crypto playing a part in it?

A: To me, when the metaverse is truly here, that's when crypto goes from being an asset class to a currency. Because if you're selling things in the metaverse, there's no real reason that you wouldn't be incentivized to say you might not take all 2,500 tokens that exist right now or whatever the number is, but at least the mainstream ones just like you would take Visa, Mastercard and AmEx and PayPal and Venmo. You could also take your Bitcoin and Ethereum. Once it becomes really easy to transact within the metaverse, crypto could be a pure equal to any other form of currency. Then I think people will start to use it to actually buy things and that transforms the entire industry.

Q: In the memo you mentioned the idea of government in the metaverse or rather, governments interfacing with the metaverse. Can you tell us how you imagine that working? And then also how could it benefit governments and its constituents?

A: Upside scenario or downside scenario?

The upsides here would be the DMV. Here are the words that have never been spoken in human history: "I wish I could spend more time at the DMV." Everybody hates going there. So I get that when you take a driver's test when you're 17 that's an in-person thing. But the rest of it doesn't need to be. You don't need to have these miserable offices where people have to like take a whole day off from work and sit there with a little piece of paper waiting for their number, and the Wi-Fi is crappy, and all that stuff. Instead, it'll all just be on the metaverse: license renewals, tests, ID cards, all that stuff can be done virtually. And it would make the provision of services much better, it would make the constituents much happier. And it would actually make it cheaper for government to offer this stuff. You don't have real estate costs. You don't have janitorial costs. You don't have insurance issues, whatever it is. So you could provide a lot of services in the metaverse.

And let me give you the downside case. I have a lot of experience in the regulation of gaming gambling. When I was deputy governor, and so that was the Illinois State Lottery, I spent a couple years on Wall Street building the first group to privatize state lottery. So I know this one sector, weirdly, well. And right now U.S. lotteries, in my view, are already a mess, because the vast majority of customers are poor people and because the lotteries are run by, you know, state employees who tend to be the most patronage appointments.
And so, as a result, they don't have to work like a consumer products business, they don't have to run a gambling business. So instead of trying to sell tickets that would appeal to the three of us, right where we shop and that are designed for us, tt's all preying upon people who really don't have discretionary income to do it. So now combine that with that generation dying off. Like my grandparents, when they were alive, they played the lottery every single day, right? But my parents who are now in their late 70s, they don't, right? So it's already generational shifting.

Now imagine, here's your choice. You could be virtually in the coolest casino in Monte Carlo, throwing dice, wearing a tuxedo with beautiful people around you and Ferris wherever else. Or we could walk to the bodega and pick six or scratch off. What are you going to choose? You're going to choose the Monte Carlo simulation, right? State lotteries, like New York, I think it's about two and a half billion in revenue, or actually think profit. That's a big chunk of the state budget, right? You're going to lose all that because your lottery can no longer compete. That's a huge problem. If you are the state, you got to think about this world coming. It might be four years, it might be eight years, but it's coming. How do I revamp my products so that they can be appealing to people in the metaverse so that I don't lose my revenue streams?

Taxation is the last example. Right now we try to assess sales tax on Internet sales. But when I order a book from Amazon, they know where it's being shipped, right? They know my zip code, everything else. With a good VPN, if 100 percent of my transactions are happening purely in a visual world with nothing physical, the ability to evade state and local sales tax is going to be a lot higher. If you don't think about the stuff on the front end, states may find themselves losing billions of dollars on the back end.

Q: What caught my attention in the memo too was the references to the DMV, and we obviously see a big focus on the government experience across our CIO community, right? So if you're sitting there, and you're the head of an IT agency at a state or local government or an information security officer, you might be kind of a little anxious or apprehensive. What would you say to those individuals?

A: Flip it around a little bit. I spent 10 to 15 years, working in government, city, government, state government, federal government. And to me, the point of being in government was to find ways to do things differently. Just to do the status quo requires people just moving on without thinking about it. So if you're the CIO, all these new technologies are coming. And they could be incredibly disruptive in a good way or a bad way. But you're in a position to say to your mayor or your governor, "Hey, look, this stuff's coming. Here is a reasonable regulatory framework we should start thinking about." The opportunity to do really interesting, meaningful work may sit with CIOs, more than anyone else in government.


“In Case You Missed It” returns March 11 with special guest Lawrence Sanders, director of project delivery for the state of Tennessee, to discuss diversity and inclusion in the government workforce.

“In Case You Missed It” is Government Technology’s weekly news roundup and interview live show featuring e.Republic* Chief Innovation Officer Dustin Haisler, Deputy Chief Innovation Officer Joe Morris and GovTech Assistant News Editor Jed Pressgrove as they bring their analysis and insight to the week’s most important stories in state and local government.

Follow along live each Friday at 12 p.m. PST on LinkedIn and YouTube.

*The Center for Digital Government, which presents Beyond the Beltway, is part of e.Republic, Government Technology’s parent company.
Dustin Haisler is the Chief Innovation Officer of Government Technology's parent company e.Republic. Previously the finance director and later CIO for Manor, Texas, a small city outside Austin, Haisler quickly built a track record and reputation as an early innovator in civic tech. As President, Haisler drives exponential growth, implements new ideas and promotes a corporate culture that rewards creativity. Read his full bio.
Jed Pressgrove has been a writer and editor for about 15 years. He received a bachelor’s degree in journalism and a master’s degree in sociology from Mississippi State University.
Joseph Morris is the Chief Innovation Officer of <i>Government Technology's</i> parent company e.Republic and a national keynote speaker on issues, trends and drivers impacting state and local government and education. He has authored publications and reports on funding streams, technology investment areas and public-sector priorities, and has led roundtables, projects and initiatives focused on issues within the public sector. Joe has conducted state and local government research with e.Republic since 2007 and knows the ins and outs of government on all levels. He received his Bachelor of Arts in government and international relations from the California State University, Sacramento.