This article is part of a 10-part Digiday series that explores the value of NFTs and blockchain technology. Check out the full series here.
Some of today’s leading metaverse platforms have earned millions of dollars selling virtual land, but they’re still figuring out how to get users to spend time on their digital property.
There are many virtual land brokers out there, but a group of leading digital real estate companies have emerged – Decentralized, The sandbox, Space Somnium and Cryptovoxels – whom Web3 observers have dubbed “the Big Four”.
Until now, virtual real estate has been largely treated as a financial asset, but recent trends in the crypto market indicate that this use case might not be enough: crypto markets continue to crash, the average price of virtual ground NFTs in The Sandbox and Decentraland has dropped thousands of dollars in recent months. To stop the bleeding, metaverse leaders and virtual land investors are increasingly aware of the need to add tangible utility to their digital property, either through gamification, community building, or a combination of both.
Every leading virtual land platform works a digital world made up of a set number of plots of land – e.g. Decentraland has 90,000, The Sandbox has a total of 166,464 – each plot acting as a non-fungible token (NFT) that can be bought and sold on the free market. At the time of writing, the floor price for a Decentraland plot of land is 2.1 ETH, or around $3,400; in The Sandbox, it’s 1.88 ETH, or $3,000. Package prices vary depending on their size and location.
Although The Sandbox makes money selling land – the total land sales on the platform exceeded $211 million by December 2021 – this is not its main source of expected income. The company plans to generate most of its revenue by taking a discount – currently 5% – on every transaction made in its virtual world.
These platforms also use other blockchain technologies, such as bespoke cryptocurrencies and unique NFT avatars. The virtual real estate market is not limited to the blockchain, however. There are web2-based virtual real estate companies, such as Atlas Earthwhich sells virtual land in a gaming environment but has so far avoided any integration of blockchain technology.
These platforms are facing hurdles on all sides, including in their longevity, especially as the virtual land market appears to be cooling.
“Just like in Web2, when Myspace became obsolete, we don’t even know if the Big Four players are going to exist, or if there is going to be another metaverse that will develop even in a few years,” Lisa Wang said. , the founder of Bad Bitch Empire, a Web3 women’s investment collective, and former head of brand and communications at Republic, a virtual real estate investing company, which does not own virtual real estate in the “Big Four”. “So if you’re spending a lot of money buying land in one of the metaverses, and it’s just outdated, that’s a huge risk.”
The pitch for virtual real estate might seem a little absurd – at least when viewed through the prism of physical real estate. In the physical world, real estate is a finite resource; although the aforementioned platforms have a limited number of plots available, this is subject to change on some platforms. Decentraland, for example, allows users to vote to expand their world and create new plots. “Until there’s real innovation and inclusion in these spaces, I don’t see how that’s going to actually create any sort of positive impact or return on investment,” Wang said.
Gamify virtual spaces
Some metaverse platforms take inspiration from the gaming industry to convince users to stay, which makes buying and selling virtual land less like a traditional real estate transaction than playing Monopoly or Pokémon. Go.
For Web2 virtual real estate platforms such as Atlas Earth, building that playful momentum to engage is far more important than funding the platform through blockchain technology. “What is our incentive to be on the blockchain?” asked Atlas Earth CEO Sami Khan, who doesn’t feel threatened by recent interest in blockchain-based virtual lands. “No one could give us a direct answer. What we do know is that blockchain will drive immutable contracts, taking things away from our game and other games. But that ecosystem doesn’t exist yet.
The gamification of the virtual terrain is visible as a midpoint between the Web2 Internet and a fully realized metaverse in which virtual earth has inherent value for the same reasons as earth in the physical world.
“At the end of the day, what creates value is the economic activity you can create above ground,” said Mathieu Nouzareth, CEO of The Sandbox. “Imagine Manhattan 200 years ago; The land itself didn’t have much value, but by being able to create this critical mass of businesses, artists and ambitious people, little by little, people started to create economic value.
Create value through community
Not all web3-native metaverse platforms are so optimistic about gamifying their virtual territory: “With Decentraland, you shouldn’t see it so much as a game, but more as a platform that has a philosophy driven by the community”. said Adam De Cata, Head of Partnerships at Decentraland.
Decentraland is somewhat unique, however, as it is a non-profit and most of its funds come from the sale of all its plots of land four years ago, and De Cata described the the organization’s current role as a “glorified guidance counselor”. For the founders of Decentraland, the monetary value of their virtual land doesn’t matter — as long as people are willing to spend time there.
Instead of gamifying Decentraland’s virtual property, De Cata said, the company invested in offering limited-time events, such as a virtual event. Sotheby’s auction Where Metaverse Fashion Week. “As a collective, events draw audiences,” he said.
The world belongs to those who get up early
So far, the companies that have benefited the most from the rise of virtual real estate are those that started early. Sam Huber, CEO of the company LandVault, which includes virtual real estate investments among its metaverse business, observed parcel prices in Somnium Space has gone from $50 — the price at which he bought land in 2017 — to around $25,000 now, he said.
Huber didn’t buy his virtual land just to see it go up in value. His company is a metaverse experience builder, with real estate on all major platforms. LandVault works with brands to help them design bespoke spaces inside metaverse platforms, with the bulk of its work taking place inside Decentraland and The Sandbox. “We do really calculated investments, where we basically buy land in order to do a specific project,” Huber said.
In many ways, companies like Huber represent an ideal future for virtual real estate platforms, one in which engagement is driven by user-generated content, like LandVault’s independently built experiences, rather than game-based quests. or community events created by the platforms themselves. This is what makes them true virtual worlds, rather than particularly decentralized multiplayer games. The gamification of virtual lands and the introduction of community-building events are just meant to get the ball rolling; ultimately, metaverse builders intend to make their virtual worlds economically self-sufficient, much like cities in the physical world.
“We don’t sell land,” Nouzareth said. “We sell land to create economic activity and incentivize owners to build something of interest to users.”