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Virtual economy

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A virtual economy is the system of production, exchange and consumption that forms around artificially scarce goods, currencies and services inside a virtual world, online game or other digital platform. In a 2011 report for the World Bank's infoDev program, Vili Lehdonvirta and Mirko Ernkvist described it as the demand for commodities that are "digital yet scarce", the supply that has arisen to meet that demand, and "the markets where this demand and supply meet".[1] Virtual economies range from closed in-game currencies that cannot legally leave the game to platforms whose currency can be bought and sold for government-issued money.[2]

In 2001 the economist Edward Castronova measured wages, output and currency exchange rates in Norrath, the world of the online game EverQuest.[3] In VR and AR the topic matters because several platforms used with headsets, including the social VR services VRChat and Horizon Worlds and Roblox on Meta Quest, run creator economies in which users pay for virtual items and approved creators can turn their earnings into real money.[4][5]

Reviewed 6 October 2026. Checked definitions, quotes, dates, figures, fees and exchange rates against the infoDev and ECB reports, FinCEN guidance, the cited papers (Castronova 2001, Lehdonvirta 2009, Hamari and Lehdonvirta 2010, Papagiannidis et al. 2008, Heeks 2010, Dowling 2022, Goldberg et al. 2024; DOIs via Crossref), and the Linden Lab, CCP/Fenris, EVE, Meta, VRChat and Roblox pages and press reports cited. About review dates.

Definition

Lehdonvirta and Ernkvist credit Castronova with first using the phrase "virtual economy" for the artificial economies inside online games, especially where the scarce goods and currencies of those economies were traded for real money. They note that the term spread to social networking sites and crowdsourcing platforms once those services adopted virtual currencies. Their own definition is wider still: besides virtual goods and currencies, it covers other scarce intangible commodities such as human effort, including paid microwork.[1]

The goods in a virtual economy differ from ordinary digital content. Music or film files cost almost nothing to copy, and their value comes from experiencing them. Virtual goods, by contrast, are made scarce on purpose: in online games, items "that in principle could be duplicated at no cost are made unique and meaningful by requiring that significant effort be expended in order to obtain them". Their value comes mainly from their uses inside the world and from their role in signalling social distinctions, much as material possessions do.[1]

In a 2009 study of 14 virtual asset platforms, Lehdonvirta argued that demand for virtual items rests on more than gameplay advantage or decoration, and proposed a set of purchase drivers grouped into functional, hedonic and social attributes. The same paper cited an estimate that the global market for virtual items, characters and currencies exceeded US$2.1 billion in 2007.[6] Juho Hamari and Lehdonvirta later proposed that the design patterns and game mechanics of online games and hangouts can be read as marketing techniques that create demand for virtual goods.[7] In their 2014 textbook Virtual Economies: Design and Analysis (MIT Press), Lehdonvirta and Castronova explained how basic economic concepts, including markets, institutions and money, can be used "to create or analyze economies based on artificially scarce virtual goods". The book is written mainly for game developers and designers, and also covers digital currencies such as Bitcoin.[8]

Currency flows

A 2012 European Central Bank report defined a virtual currency as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community". It sorted virtual currency schemes into three types by how money flows between them and the real economy:[2]

ECB type Money flow Example given by the ECB
Type 1: closed scheme Earned inside the community and spent only on virtual goods and services there; "at least in theory" not tradable outside World of Warcraft gold, whose sale for real money Blizzard's terms forbid, although the report notes a black market exists
Type 2: unidirectional flow Bought with real money at a set rate but cannot be exchanged back Facebook Credits, Nintendo Points
Type 3: bidirectional flow Bought and sold against real currencies at market exchange rates Second Life's Linden dollars

In its 2013 guidance on virtual currencies, the US Financial Crimes Enforcement Network (FinCEN) used a similar split. It defined virtual currency as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency", and called it "convertible" when it has an equivalent value in real currency or acts as a substitute for it. A person who only uses virtual currency to buy goods or services is not a money services business, but businesses that exchange it for real currency, or issue and redeem it, are treated as money transmitters.[9]

History

EverQuest and Norrath

Castronova's 2001 working paper treated Norrath, the world of EverQuest, as a national economy. He reported that about 12,000 people "call this place their permanent home" while some 60,000 were present at any given time. He put the nominal wage at about US$3.42 an hour and the world's GNP per capita "somewhere between that of Russia and Bulgaria". A unit of Norrath's currency traded on exchange markets at US$0.0107, "higher than the Yen and the Lira". He also noted that the world ran "entirely on 40 computers in San Diego".[3]

Second Life and the Linden dollar

Second Life, which Linden Lab opened in 2003, has an economy built largely on content made by its users. Residents keep the copyright in objects they build and may sell them, and they trade in the Linden dollar (L$), which can be bought with and converted back into real money.[10][11] Papagiannidis, Bourlakis and Li cited the in-world land developer Anshe Chung, who had reported a net worth of more than one million US dollars from profits earned entirely inside Second Life, and asked whether and how such income should be taxed.[10]

In-world gambling and banking services built on the currency later drew scrutiny. On 25 July 2007 Linden Lab banned gambling in Second Life; TechCrunch linked the decision to an FBI inquiry into in-world gambling that had begun that April.[12] In August 2007 the in-world bank Ginko Financial declared itself insolvent owing L$200 million (about US$750,000) to depositors. Linden Lab then banned in-world banks from 22 January 2008, citing complaints from defrauded residents and the questionable legal status of the banks.[13]

Linden Lab's current terms describe each Linden dollar as "a virtual token" that constitutes "a limited license" to access and use content and features of Second Life, and state that Linden dollars "are not currency or any type of currency substitute or financial instrument". Users buy them, or exchange them with Linden Lab, through the LindeX, with US dollar stored value accounts issued by a payments company, Tilia Inc.[14] For Second Life's 20th anniversary in June 2023, Linden Lab described a US$650 million economy with more than 1.6 million transactions a day, more than 73 million accounts created and about 750,000 monthly active users.[11] GamesBeat reported in December 2024 that Linden Lab had paid out US$1.1 billion to creators since 2003; according to its executive chair Brad Oberwager, the company shares 90% of transactions with creators and takes a 10% cut.[15]

Gold farming and real-money trading

Where game companies did not sanction trading, players bought currency and items from third parties. "Gold farming", the production of game currencies, items and services for financial gain, grew into an industry that moved to low-wage locations, above all China.[16] Estimates of its size varied widely. Richard Heeks cited his own best estimate of about 400,000 workers, perhaps 85% of them in China, and a secondary trade "in excess of US$1 billion", while noting a published figure of one million workers and more than US$10 billion.[16] The infoDev report estimated that about 100,000 young, low-skilled workers in countries such as China and Vietnam earned their main income from such services, and put the gross revenues of the third-party gaming services industry at about US$3.0 billion in 2009.[1]

EVE Online

On 28 June 2007 CCP Games appointed Eyjólfur Guðmundsson, from the University of Akureyri, as an in-game economist for its space game EVE Online and tasked him with publishing quarterly reports on the in-game economy.[17] In March 2025 the studio appointed Stefán Þórarinsson, previously an economist at the Central Bank of Iceland, as Head of Economy for EVE Frontier and EVE Online.[18] EVE's sanctioned bridge between real money and its in-game currency, ISK, is PLEX: an in-game item sold in the EVE Online store that pays for subscription time and other services and can be traded for ISK on the player market.[19][20] In May 2026 the studio became independent of its owner Pearl Abyss and renamed itself Fenris Creations, with EVE Online continuing under the new name.[21]

Blockchain-based virtual land

Some blockchain-based virtual worlds sell parcels of land as non-fungible tokens (NFTs), which Michael Dowling describes as "blockchain-traded rights to any digital asset". In what he described as the first study of NFT pricing, Dowling examined LAND, the parcels of the blockchain virtual world Decentraland, and found a LAND price series "characterised by both inefficiency and a steady rise in value".[22] A 2024 paper by Mitchell Goldberg, Peter Kugler and Fabian Schär in the Journal of Economic Geography noted that transport costs, a key driver of land value in cities, are limited in virtual worlds because users can teleport. Their model and data indicated that location still matters, because a parcel's value depends on its potential to attract visitors.[23]

Regulation

The ECB report noted that the issuer of a virtual currency is usually a non-financial private company, so typical financial sector regulation and supervision do not apply, and that the issuer has complete control of the currency, governing the scheme and managing the money supply "at will".[2] Operators also set the rules of trade, as Linden Lab did when it banned gambling and banking in Second Life in 2007 and 2008.[13] Convertibility into real money also drew government interest. Papagiannidis, Bourlakis and Li noted in 2008 that virtual economies had drawn the US government's attention to questions of taxation, barter, property and wealth.[10]

In June 2009 China's Ministry of Commerce and Ministry of Culture issued rules under which virtual currency may only be used for virtual goods and services provided by its issuer. The Register reported that the rules targeted Tencent's QQ coins in particular, which users had been trading among themselves and exchanging for yuan.[24] The ECB's 2012 report examined Linden dollars alongside Bitcoin as two prominent bidirectional schemes, and FinCEN's 2013 guidance placed businesses that issue or exchange convertible virtual currency under US money-transmitter rules.[2][9]

Applications in VR and AR

The table below summarizes how creators are paid on virtual world platforms that have been used with VR headsets. Goods sold on these platforms include access to avatars, cosmetic items and paid access to special areas of worlds.[4]

Platform Currency or payment Creator payout Notes
Second Life Linden dollar (L$), traded on the LindeX Through stored value accounts issued by Tilia Inc. Linden Lab reports a 10% cut and US$1.1 billion paid to creators since 2003[14][15]
Horizon Worlds In-world purchases Creator receives about 53% of a sale after fees (2022 figures) 30% Meta Quest Store fee plus a 25% Horizon platform fee on the remainder[5]
VRChat VRChat Credits Payout to PayPal; minimum 30,000 Credits Creators receive about 50% of a sale; about 20% goes to VRChat and its payment partner Tilia[4]
Roblox Robux Developer Exchange (DevEx) Standard rate US$0.0038 per Earned Robux since 5 September 2025[25]

Second Life and Sansar

Road to VR reported in October 2014 that the official Second Life viewer supported the Oculus Rift DK2 through a "Toggle HMD Mode" option.[26] In July 2016 Linden Lab suspended official support for the consumer Oculus Rift, saying that "due to some inherent limitations with SL, it may well not be possible to achieve the performance needed for a good VR experience", and pointed to Project Sansar, a separate platform built for VR.[27]

Horizon Worlds

In April 2022 Meta began testing in-world purchases in Horizon Worlds for people aged 18 and over in the United States and Canada, with examples such as "attachable accessories for a fashion world" or paid access to a new part of a world. It also tested a Creator Bonus program, whose payments were not subject to fees.[28] Meta confirmed that sales carried the 30% Meta Quest Store fee plus a 25% Horizon platform fee on the remainder, so that a US$1.00 item left US$0.53 for the creator before taxes, a total fee of 47.5%.[5] In February 2025 Meta announced a US$50 million Meta Horizon Creator Fund paid through bonuses tied to time spent, retention and in-world purchases, and extended in-world purchases from the US, UK and Canada to 18 more countries.[29]

VRChat

VRChat's Creator Economy lets creators whose applications are approved sell products such as world features, avatar access or group roles for VRChat Credits, through listings, subscriptions and stores.[4] UploadVR reported in December 2023 that paid creator subscriptions had entered full release, with roughly 50% of revenue going to creators, 30% to platform holders such as Meta and Steam, and 20% to VRChat and its partners.[30] VRChat's creator documentation lists a purchase price of about 120 Credits per US dollar and a payout rate of about 200 Credits per US dollar, with a minimum cash-out of 30,000 Credits (about US$150) paid to the creator's PayPal account. About 30% of revenue covers platform fees and about 20% goes to VRChat and its payment partner, Tilia.[4]

On 14 May 2025 VRChat announced an in-app Avatar Marketplace where users can try an avatar on privately before buying it with Credits; sellers must complete the Creator Economy onboarding and pass a marketplace review.[31] Road to VR noted that the marketplace does not replace uploading avatars through Unity or selling them on third-party stores such as Booth and Gumroad.[32]

Roblox

Roblox came to Meta Quest headsets through App Lab in July 2023 and launched on the main Quest Store on 27 September 2023.[33] Creators on the platform cash out Robux through the Developer Exchange (DevEx) program; Roblox reported that they earned more than US$1 billion through DevEx between March 2024 and March 2025.[34] The standard DevEx rate rose from US$0.0035 to US$0.0038 per Earned Robux on 5 September 2025.[25] In April 2026 Roblox announced a higher rate of US$0.54 per 100 Earned Robux, against the standard US$0.38, for eligible in-game spending by age-checked US players aged 18 and over in eligible games, effective 8 June 2026.[35]

Research

Research on virtual economies follows two broad directions, according to Heeks: using economics to understand virtual worlds, and using virtual worlds to study economics. Work in the first group has applied rational choice theory, transaction cost economics, game theory, GDP accounting, welfare economics and the quantity theory of money to online games.[16] Heeks himself argued that standard economic models fit gold farming and trading with little modification, that online games may be better understood through development economics, and that gold farming has "eroded the real/virtual dichotomy".[16]

Other strands cover consumer demand for virtual goods (Lehdonvirta's functional, hedonic and social attributes), game design as a way of creating that demand, and the development impact of paid work in virtual economies, which the infoDev report compared with the global coffee trade.[6][7][1] Studies of blockchain worlds have extended urban land economics to virtual parcels, where the ability to teleport limits travel costs.[23][22]

See also

References

  1. ↑ 1.0 1.1 1.2 1.3 1.4 Vili Lehdonvirta, Mirko Ernkvist (2011-04). "Knowledge Map of the Virtual Economy: Converting the Virtual Economy into Development Potential". infoDev. The World Bank. https://web.archive.org/web/2016/https://www.infodev.org/en/Document.1056.pdf. Retrieved 2026-10-06.
  2. ↑ 2.0 2.1 2.2 2.3 "Virtual Currency Schemes". European Central Bank. 2012-10. https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf. Retrieved 2026-10-06.
  3. ↑ 3.0 3.1 Edward Castronova (2001). "Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier". CESifo Working Paper No. 618. CESifo. doi:10.2139/ssrn.294828. https://econpapers.repec.org/paper/cesceswps/_5f618.htm. Retrieved 2026-10-06.
  4. ↑ 4.0 4.1 4.2 4.3 4.4 "Welcome to the Creator Economy". VRChat Creator Documentation. VRChat. 2025-05-09. https://creators.vrchat.com/economy/welcome-to-the-ce/. Retrieved 2026-10-06.
  5. ↑ 5.0 5.1 5.2 "Meta confirms Horizon Worlds creators must pay fees of up to 47.5 percent to sell virtual goods". Game Developer. 2022-04-13. https://www.gamedeveloper.com/business/meta-confirms-horizon-worlds-creators-must-pay-fees-of-up-to-47-5-percent-to-sell-virtual-goods. Retrieved 2026-10-06.
  6. ↑ 6.0 6.1 Vili Lehdonvirta (2009). "Virtual item sales as a revenue model: identifying attributes that drive purchase decisions". Electronic Commerce Research, vol. 9, no. 1-2, pp. 97-113. doi:10.1007/s10660-009-9028-2. https://doi.org/10.1007/s10660-009-9028-2. Retrieved 2026-10-06.
  7. ↑ 7.0 7.1 Juho Hamari, Vili Lehdonvirta (2010). "Game design as marketing: How game mechanics create demand for virtual goods". International Journal of Business Science and Applied Management, vol. 5, no. 1, pp. 14-29. doi:10.69864/ijbsam.5-1.48. https://doi.org/10.69864/ijbsam.5-1.48. Retrieved 2026-10-06.
  8. ↑ Vili Lehdonvirta, Edward Castronova (2014). "Virtual Economies: Design and Analysis". The MIT Press. doi:10.7551/mitpress/9525.001.0001. https://doi.org/10.7551/mitpress/9525.001.0001. Retrieved 2026-10-06.
  9. ↑ 9.0 9.1 "Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (FIN-2013-G001)". Financial Crimes Enforcement Network. US Department of the Treasury. 2013-03-18. https://www.fincen.gov/resources/statutes-regulations/guidance/application-fincens-regulations-persons-administering. Retrieved 2026-10-06.
  10. ↑ 10.0 10.1 10.2 Savvas Papagiannidis, Michael Bourlakis, Feng Li (2008). "Making real money in virtual worlds: MMORPGs and emerging business opportunities, challenges and ethical implications in metaverses". Technological Forecasting and Social Change, vol. 75, no. 5, pp. 610-622. doi:10.1016/j.techfore.2007.04.007. https://doi.org/10.1016/j.techfore.2007.04.007. Retrieved 2026-10-06.
  11. ↑ 11.0 11.1 "Original Metaverse Second Life Celebrates 20th Birthday". Linden Lab. 2023-06-22. https://lindenlab.com/press-release/original-metaverse-second-life-celebrates-20th-birthday. Retrieved 2026-10-06.
  12. ↑ "Second Life Bans Gambling Following FBI Investigation". TechCrunch. 2007-07-25. https://techcrunch.com/?p=7759. Retrieved 2026-10-06.
  13. ↑ 13.0 13.1 "Virtual Banking Banned in Second Life". TechCrunch. 2008-01-08. https://techcrunch.com/2008/01/08/virtual-banking-banned-in-second-life. Retrieved 2026-10-06.
  14. ↑ 14.0 14.1 "Second Life Terms and Conditions". Linden Lab. 2024-05-02. https://lindenlab.com/legal/second-life-terms-and-conditions. Retrieved 2026-10-06.
  15. ↑ 15.0 15.1 Dean Takahashi (2024-12-19). "Linden Lab has spent $1.3B building Second Life and paid $1.1B to creators (updated)". GamesBeat. https://gamesbeat.com/linden-lab-has-spent-1-3b-building-second-life-and-paid-1-1b-to-creators/. Retrieved 2026-10-06.
  16. ↑ 16.0 16.1 16.2 16.3 Richard Heeks (2010-02). "Understanding "Gold Farming" and Real-Money Trading as the Intersection of Real and Virtual Economies". Journal of Virtual Worlds Research, vol. 2, no. 4. doi:10.4101/jvwr.v2i4.868. https://doi.org/10.4101/jvwr.v2i4.868. Retrieved 2026-10-06.
  17. ↑ "CCP appoints in-game economist for EVE Online". MCV/DEVELOP. 2007-06-28. https://mcvuk.com/development-news/ccp-appoints-in-game-economist-for-eve-online/. Retrieved 2026-10-06.
  18. ↑ "CCP Games Appoints Central Bank Economist Stefán Þórarinsson to Advance Virtual Economies". Fenris Creations. 2025-03-06. https://fenris.com/news/2025/ccp-games-appoints-central-bank-economist-stefan-thorarinsson-to-advance. Retrieved 2026-10-06.
  19. ↑ "EVE Online Store". EVE Online. https://store.eveonline.com/. Retrieved 2026-10-06.
  20. ↑ "EVE Portal - Jita PLEX Market". EVE Online. 2020-05-07. https://www.eveonline.com/news/view/eve-portal-jita-plex-market. Retrieved 2026-10-06.
  21. ↑ "Studio Behind EVE Online Goes Independent, Rebrands as Fenris Creations, Enters Research Partnership with Google DeepMind". Fenris Creations. 2026-05-06. https://fenris.com/news/2026/studio-behind-eve-online-goes-independent-rebrands-as-fenris-creations-enters-research-partnership-with-google-deepmind. Retrieved 2026-10-06.
  22. ↑ 22.0 22.1 Michael Dowling (2022). "Fertile LAND: Pricing non-fungible tokens". Finance Research Letters, vol. 44, article 102096. doi:10.1016/j.frl.2021.102096. https://doi.org/10.1016/j.frl.2021.102096. Retrieved 2026-10-06.
  23. ↑ 23.0 23.1 Mitchell Goldberg, Peter Kugler, Fabian Schär (2024). "Land valuation in the metaverse: location matters". Journal of Economic Geography, vol. 24, no. 5, pp. 729-758. doi:10.1093/jeg/lbae027. https://doi.org/10.1093/jeg/lbae027. Retrieved 2026-10-06.
  24. ↑ Austin Modine (2009-06-30). "China bans virtual cash for real-world trade". The Register. https://www.theregister.com/offbeat/2009/06/30/china-bans-virtual-cash-for-real-world-trade/1428098. Retrieved 2026-10-06.
  25. ↑ 25.0 25.1 "Increasing DevEx - Creators Will Now Earn 8.5% More". Roblox Developer Forum. Roblox. 2025-09-05. https://devforum.roblox.com/t/increasing-devex-%E2%80%94-creators-will-now-earn-85-more/3920159. Retrieved 2026-10-06.
  26. ↑ Ben Lang (2014-10-15). "Second Life Now Has Official Oculus Rift DK2 Support". Road to VR. https://roadtovr.com/second-life-now-official-oculus-rift-dk2-support/. Retrieved 2026-10-06.
  27. ↑ David Jagneaux (2016-07-26). "'Second Life' Indefinitely Suspends Official Oculus Rift CV1 Support". UploadVR. https://www.uploadvr.com/second-life-suspends-oculus-rift-support-vr/. Retrieved 2026-10-06.
  28. ↑ "Testing New Tools for Horizon Worlds Creators To Earn Money". Meta. 2022-04-11. https://www.meta.com/blog/testing-new-tools-for-horizon-worlds-creators-to-earn-money/. Retrieved 2026-10-06.
  29. ↑ David Heaney (2025-02-20). "Meta Will Give $50 Million To The Top Horizon Worlds Creators". UploadVR. https://www.uploadvr.com/meta-horizon-creator-fund/. Retrieved 2026-10-06.
  30. ↑ Henry Stockdale (2023-12-06). "VRChat Paid Creator Subscriptions Enter Full Release". UploadVR. https://www.uploadvr.com/vr-chat-creators-paid-subscriptions/. Retrieved 2026-10-06.
  31. ↑ "Announcing the Avatar Marketplace!". VRChat Ask Forum. VRChat. 2025-05-14. https://ask.vrchat.com/t/announcing-the-avatar-marketplace/43554. Retrieved 2026-10-06.
  32. ↑ Scott Hayden (2025-05-15). "'VRChat' Opens New Marketplace for Buying and Selling VR Avatars". Road to VR. https://roadtovr.com/vrchat-avatar-marketplace-release-digital-economy/. Retrieved 2026-10-06.
  33. ↑ Ben Lang (2023-09-27). "'Roblox' Launches on Quest Store, Casting a Shadow on Meta's Own Social VR Platform". Road to VR. https://www.roadtovr.com/roblox-coming-to-oculus-quest-meta-horizon-worlds/. Retrieved 2026-10-06.
  34. ↑ "Annual Roblox Economic Impact Report". Roblox Newsroom. Roblox. 2025-09-04. https://about.roblox.com/newsroom/2025/09/roblox-annual-economic-impact-report. Retrieved 2026-10-06.
  35. ↑ "Introducing the US 18+ DevEx Rate: Earn 42% More on Spend from 18+ US Players". Roblox Developer Forum. Roblox. 2026-04-30. https://devforum.roblox.com/t/introducing-the-us-18-devex-rate-earn-42-more-on-spend-from-18-us-players/4607091. Retrieved 2026-10-06.
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