In 1626, Dutch colonist Peter Minuit is said to have purchased the whole of Manhattan Island from the presiding Lenape Native Americans for ‘60 guilders worth of trade’, which amounts to a mere USD$1,100 in contemporary terms. As recently as 2018, the value of this land was pegged at roughly USD$1.74T. An uncharted world not unlike 17th century Manhattan exists in the Metaverse, with virtual land representing a new breed of speculative NFT investments that has the potential to exponentially appreciate in value and generate outstanding returns for early buyers.
This article will explore the market for virtual land and consider the emerging asset class in the context of a Metaverse-oriented future society. In particular, the following subjects will be covered:
First popularized by Neal Stephenson’s 1992 epic Snow Crash, the concept of a Metaverse refers to an adaptation of the physical world in virtual space. Participants in these natively digital worlds interact with their environments via avatars, essentially user-controlled characters which serve as conduits for a real world individual’s intended actions. Such Metaverses are also thought to include fully self-sustaining economies that allow users to earn for their virtual efforts and expend on virtual assets. Among the best-articulated definitions for this abstract concept was proposed by the Acceleration Studies Foundation, which defines the Metaverse as:
“The convergence of 1) virtually-enhanced physical reality, and 2) physically persistent virtual reality. It is a fusion of both, while allowing users to experience it as either”. To further clarify this definition, it may prove fruitful to outline the fundamental properties of the Metaverse and simply define it as an amalgamation of those attributes. At its core, the Metaverse has the following traits:
A central facet to developing the Metaverse, specifically with respect to the properties of decentralization and community-ownership, is the existence of virtual land. In order to fulfill its fundamental role as a shared digital space for a limitless number of users, the Metaverse naturally must feature expanses of land which content creators can develop to host their experiences and live events. Additionally, in order for users to enjoy the full economic upside of their efforts, these expanses of land must be inviolably owned and controlled by the community. To fulfill this design specification, several proto-Metaverses on the Ethereum blockchain – the most popular of which will be explored later in this article – have leveraged NFTs to tokenize parcels of virtual real estate and assign their ownership rights to members of their respective virtual worlds.
While the above discussion is no doubt exciting and by many measures quite fanciful, there remain significant technical hindrances to manifesting the absolute conception of the Metaverse. For instance, existing concurrency infrastructure remains too underpowered to support an unbounded number of users both synchronously and at-scale. Additionally, there exist no universal standards for virtual world development that would allow for the interoperability that the Metaverse begs for. Despite these challenges, sales of virtual world NFTs have skyrocketed in 2021, signaling unprecedented levels of interest in the Metaverse.
Now having established a rudimentary understanding of the Metaverse, it is appropriate to begin exploring some of the prevailing Metaverses in which virtual land is sold. While 2021 has seen the Metaverse grow to become a hot-button topic in the world of crypto and technology at large, there are only a select number of Ethereum-based Metaverses which are responsible for the lion’s share of sales volumes in the virtual land market. These most dominant virtual worlds include:
Arguably the most recognizable of the Metaverses on
Ethereum, Decentraland is marketed as a virtual reality platform that allows its community to explore user-generated environments as well as to create, share, and monetize their own content. The platform was founded in 2015 by Esteban Ordano and Ariel Meilich as a proof-of-concept for allocating pixels on a grid among users. This primitive implementation would quickly evolve into the 3D virtual world that it is today. Following the late-2017 Terraform Event, where the first parcels of land were auctioned and distributed to early adopters, the Decentraland platform officially launched for public use in early 2020.
The native cryptocurrency of the Decentraland Metaverse is known as MANA, and it is used to purchase in-world assets and services which include 16x16m parcels of territory aptly referred to as LAND. The total supply of LAND tokens is capped at 90,000. With the exception of publicly-available infrastructure such as roads and plazas, the entire world of LAND is fully community-owned. To inject the world with a sense of thematic order, certain swathes of LAND are divided into Districts, each of which are formed around specific interests and cater to particular audiences. Further, users can combine adjacent parcels of LAND to form Estates, simplifying the management of real estate holdings and making possible the construction of grand experiences which by necessity must span multiple parcels of LAND.
Landowners have full liberty to use their real estate as they see fit. Generally, it is in the best interests of those who acquire LAND for non-speculative purposes to leverage their holdings as a form of passive income. To enable this, Decentraland offers users the tools needed to build 3D models in their territory and to impose special access privileges on who is permitted to engage with their proprietary experiences. Part of this access control is the ability for content creators to levy admission fees and only authorize paying users to access their content.
Novel and innovative developments have already begun to populate the Decentraland Metaverse or are on the horizon. For instance, pioneering video game company Atari unveiled plans to acquire a large Estate on which they will develop an old-school arcade for users to play time-honoured classics such as Pong and Asteroids directly in Decentraland. Additionally, digital real estate fund Republic Realm has launched developments including an expansive shopping mall inspired by Tokyo’s iconic Harajuku and an NYSE-modeled trading floor. Other exciting developments include a virtual gallery built by Sotheby’s for exhibiting CryptoArt as well as a 4- day music festival featuring a lineup which includes Deadmau5 and 3LAU and comes complete with performance venues and VIP areas.
As compared to other Metaverses which have no concretely-defined purposes beyond allowing users to experience life in a virtual world, The Sandbox focuses primarily on building a world for user-generated video gaming experiences. The platform’s aim is to subvert traditional models of open-world sandbox games such as Minecraft and Roblox by enabling users to fully own and monetize their in-game creations. In essence, by decentralizing the processes for game development and by extension the control and ownership of the resulting outputs, The Sandbox empowers game creators to capture more of the value that is born of their efforts.
Not unlike Decentraland and other Metaverses, LAND tokens in The Sandbox are 96x96m plots that can be purchased via an in-game ERC-20 utility token known as SAND. The supply of LAND is capped at 166,464, and the platform also recognizes the concepts of Estates and Districts being formed of multiple adjacent parcels. The Sandbox is unique, however, in its explicit definition and treatment of so-called ‘premium LANDs’. Such parcels are situated in the vicinity of heavily-trafficked social hubs, a trait which makes them more desirable from both the monetization and promotional lenses; that is, premium LAND owners can benefit from the fact that their positioning in the Metaverse makes them more easily discoverable by a higher volume of users visiting the surrounding attractions. Additionally, primary market sales of premium LAND are bundled with exclusive, limited-time ASSETs, valuable game-world collectibles such as non-playable characters, wearable items, and art.
The primary use-cases for LAND in The Sandbox are to host or play games created using the free Game Maker software, with cost of admission for game being left to the game designer’s discretion. Some games may also be free-to-play, and The Sandbox developers have conveyed their intentions to enable the integration of play to-earn mechanisms. LAND owners can also rent out their idle parcels if they do not have a vested interest in game development. Interestingly, LAND can also be used to earn rewards by staking SAND, meaning landlords can retain full sovereignty over their properties while still enjoying the capacity to earn passive income on it.
Notable developments occurring in The Sandbox include a rendition of the popular Roller Coaster Tycoon video game developed by Atari as well as a voxel reconstruction of hip-hop legend Snoop Dogg’s villa, which will play host to his increasingly valuable NFT collection and serve as a location for private parties. Additionally, the in-game map reveals that a number of well-regarded crypto institutions, including Gemini, Binance, and Galaxy Interactive, all own sizable plots across this Metaverse. Whether their holdings represent speculative investments or the foundation for their own branded digital experiences is not yet clear.
Another well-regarded virtual world is UK-based Somnium Space. Distinctive for its focus on virtual reality technology as a gateway to the Metaverse, the virtual world of Somnium Space was incepted in 2017 and was made available for early
access in 2018. The team behind the project sold USD$200K worth of virtual land in their late-2019 ‘Initial Land Offering’ as well as over USD$1.5M over the course of their 7-week late-2020 ‘Secondary Land Offering’. More recently, Somnium Space closed its 4-week ‘Road to Tertiary Land Offering’ having sold just shy of another USD$1.5M in virtual real estate. In aggregate, there are 5,000 parcels of land of varying sizes.
In addition to standard land parcels, Somnium Space also launched the concept of WORLDs in 1Q21. These novel virtual property holdings represent parallel universes to which users can place teleportation portals directly on their in-game land. User-generated content can be uploaded to these worlds contingent on their relative sizes, allowing them to offer virtual experiences and land holdings that are detached from yet still integrated with the foundational Somnium Space Metaverse.
Last on the list of virtual land markets worth exploring is Cryptovoxels. This Metaverse comprises developer-owned streets as well as community-owned parcels of land. As with other Metaverses, parcel owners can terraform and build on their land holdings, allowing others to visit and engage in their offered experiences. Notably, Cryptovoxels allows landowners to designate their real estate as ‘sandbox parcels’, a special form of land which is freely accessible for non-owners to also develop.
Mainstream attention turned towards the market for virtual land in mid-June of 2021, when a single parcel in Decentraland was purchased for just over USD$900K. As the most lucrative sale of virtual land on record, traditional financial and business press – in a fit of collective awe and confusion – clamored to understand how non corporeal real estate could possibly sell at such exorbitant rates. In truth, virtual land sales in the multi-hundreds-of-thousands have not been especially rare over the course of 2021. While the mid-June sale for USD$900K has retained its position at the top of the leaderboard, several other parcels in both Decentraland and The Sandbox have also sold for upwards of half-a-million dollars. Interestingly, all of the most expensive virtual land sales have occurred on these two platforms alone, with only a handful of sales in Cryptovoxels exceeding the USD$100K mark and no Somnium Space sales doing the same.
Despite Decentraland currently commanding 3 of the 5 most expensive virtual land sales in history, there is reason to believe that The Sandbox may soon solidify its position as the premier proto-Metaverse on the Ethereum blockchain. Sales volumes across the dominant virtual worlds reveal that The Sandbox has emerged as the market leader, having surpassed Decentraland both in terms of value exchanged and transaction count. Whether The Sandbox will continue on its trajectory or cede some market share to other platforms remains to be seen.
Though still an extremely risky investment, indicators such as the growth in the virtual land market, the accelerating rate of development in popular virtual worlds, and the increased buzz surrounding the promise of Metaverses all provide strong signals of the potential upside of purchasing virtual land.
As is the case for digital assets in general, one of the primary opportunities presented by virtual land is the potential to realize attractive speculative gains. As more people acquire the best-positioned parcels of land in a given Metaverse, a market-wide fear-of-missing-out emerges among buyers who previously held great doubts about the utility of virtual real estate. Once these buyers begin to seize any remaining attractive plots of land, prices are driven up across the virtual world. In addition to this cyclical, FOMO-driven price appreciation, investors who buy virtual land are inherently placing a bet on the underlying Metaverse’s future prospects. It follows that those Metaverses which are first to achieve a critical mass of highly engaged users will also enjoy substantial appreciation in the value of their land. Accordingly, investors will need to gauge not only the level of exuberance present in the market for virtual land, but also the relative user-engagement and content development metrics of competing Metaverses.
A strategy built around virtual land speculation would historically have yielded impressive returns. Since 2017, average land prices across the four most popular Metaverses have enjoyed significant growth. Purchases of real estate in Decentraland, The Sandbox, Somnium Space, and Cryptovoxels in each virtual world’s respective year of inception would have returned roughly 18x, 41x, 50x, and 188x, respectively, given average prices at the time of writing. These blistering returns are characteristic of NFT investing more broadly and exemplify that there is money to be made speculating on virtual land in much the same way as there is money to be made speculating on hotly-anticipated CryptoArt drops.
That said, the value proposition of virtual land extends far beyond merely acting as a vehicle for speculation. For one, the Metaverse promises to be a new frontier for commercial enterprise, and virtual land will play an integral role in helping to realize that potential. Broadly speaking, companies can establish digital storefronts in the Metaverse through which they sell digitized versions of their real world products. In purchasing plots of land to host their retail outlets, the Metaverse thus acts as an additional avenue through which brands can engage with their customers and diversify their revenue streams.
Aside from leveraging Metaverse-based franchises as an additional distribution channel for their products, traditional companies can also look to virtual land as a lucrative marketing opportunity. All modern-day companies rely heavily on digital advertising for their customer acquisition and brand-building strategies, with marketing campaigns launched through social networks, ecommerce platforms, and even mobile games. Given the overall shift to natively digital advertising, it would not seem far-fetched for companies to also market their real-world offerings via ad placements in the Metaverse. To execute on this bleeding-edge strategy, companies could either purchase plots of virtual land and dedicate them to their promotional efforts, or simply rent space from other landlords.
In addition to these practical commercial functions, virtual land can have outsize implications in terms of community-building and social engagement. One of the central pillars for the archetypal Metaverse is that it can concurrently support an unbounded number of users as they synchronously participate in a virtual event. While the technological underpinnings of this lofty ambition are not yet available, it goes without saying that sufficiently large plots of virtual land would be needed to accommodate users en masse as they collectively experience live musical performances, film screenings, product reveals, and the like. Opportunities exist for the owners of idle virtual land to either rent their territory out for fees or use it to host events that will help cultivate their own communities.
Tangentially related to the matter of social capital within the Metaverse, ownership of virtual land parcels which are thought to be historically or culturally significant can act as a potent driver of returns for investors. Seeing as how NFT value in large part hinges on a token’s extrinsic qualities, it would not be unusual for certain plots of land to command greater market demand by virtue of representing commonly agreed-upon landmarks. In fact, the proximity of virtual land to well trafficked areas of the Metaverse is an observably important price- and value determinant. In the case of Decentraland, parcels situated near popular destinations such as Genesis Plaza, Crypto Valley, and other touristic hotspots invariably trade at premiums to parcels in more remote parts of the map. Thus, investments in virtual land plots that are deemed to be culturally important, or are positioned in close proximity to other such places-of-interest, would yield stronger returns for investors.
A bull case for virtual land can also be made in the context of the COVID-19 pandemic and the indelible social ramifications it has had on the physical world. While a return to more pre-pandemic levels of in-person activity is sure to unfold as the rate of vaccination increases, there will be many who continue living in blended or remote-first environments. Those who remain confined to their homes for greater periods will naturally seek novel forms of socialization to fill the gap left by the absence of physical interaction. While social media platforms have historically met these fundamental human needs, an argument can be made against the strength of their relative engagement factors. There is reason to believe that many will seek immersive virtual experiences that demand more active involvement than simply scrolling through a timeline. Suffice it to say that Metaverses and the owners of virtual land will be in prime position to address this untapped market for more high touch social interactions.
All of the aforementioned opportunities offered by virtual land and Metaverses represent value-accretive features that would drive returns for investors. That said, valid counter arguments can be made to these points, not least of which is the fact that Metaverses are still largely unpopulated. The present lack of a critical mass inherently means that many of the aforementioned upsides for virtual land investments are merely working hypotheses with little in the way of precedent. Further, there remains no consensus as to which virtual worlds will ultimately prevail as the marquee Metaverses, and the path towards a fully-interoperable set of shared digital spaces remains ill-defined. This implies that investors are at even greater risk of their virtual land investments imploding should their chosen Metaverses be made obsolete by competitors.
Ultimately, the Metaverse holds great promise for how humans of the future will engage in commerce and social interactions, and virtual lands are an integral factor in the equation. That said, as with any NFTs, investments in virtual land parcels are incredibly risky. Though prospective investors should not disregard the practical applications of the asset class and its potential to produce commensurate returns, investors would also be well-advised to proceed with great caution.
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