fbpx
Skip to content

Analysing the potential of metaverse land and real estate

Analysing the value of metaverse land

It’s safe to say that the popularity of metaverse land has surged. $1.93bn of virtual land has been bought throughout 2022. Brands from Gucci to Heineken have bought plots across a variety of platforms, from Decentraland to The Sandbox. Some companies use the virtual land to host seismic marketing activations to reel in potential customers. Others are simply holding the land for a long time, hoping its value will rise before selling it for a profit. All have found that the rush for real estate is heating up.

In response, the value of land shot up swiftly. ‘When we first sold land, it was all sold at $20 a pop, and we sold it all,’ said Sam Hamilton, Creative Director of Decentraland Foundation in an interview with Euronews. ‘Now, I think the cheapest you can buy is $3,500. So, you can see the speculators have already made a lot of money.’ The desire for builders reached a peak, too. Sam Huber from Landvault told Fast Company that monthly rents can rise to $60,000, with a 70% profit margin for select projects.

But what comes up may go down, and the declining market cap tells a new story. If the floor price of land across major platforms is multiplied by its total supply, we see a steady decline in value:

Data from WeMeta

We’ll touch on the potential reasons why soon. But for now, I will say that the value of metaverse land is nebulous, lacking the concrete or tangible value of real-life properties. Owners do not lounge in armchairs, cook breakfasts, or play with children in pixelated lawns. The locations are constrained, bound by the laws and restrictions of platforms. People are buying land across disconnected virtual worlds, instead of a persistent one where we all operate in a single space.

This article will analyse metaverse land and real estate as a whole, exploring its long-term viability across metaverse platforms and virtual worlds. While virtual land has promise in the years to come, the short-term activity lacks the concrete foundations that can hold it firmly in place. 

By the end, I will make a core argument: that metaverse land will only become a viable investment when multiple metaverse platforms become interoperable with one another.

Executive summary: 

  • Declining value: The value of metaverse land has shrunk over the last year, as the market cap across major metaverse platforms declined from $5.45bn in January to $1.16bn in November (more in the article);
  • Fewer participants: The number of active buyers declined, from a height of 16,257 buyers in May 2022 to 9,346 in October 2022;
  • Macroeconomic conditions: The clearest reasons for the decline are directly linked to the wider economic climate;
  • Lack of utility and high speculation: While both reasons may contribute to the declining value of metaverse land, there is not enough evidence to firmly prove it as a broader trend. The area warrants further studies and investigation;
  • Interoperability: My core argument is that metaverse land needs multiple platforms to connect together, in order to be viable (more in the article).

Contents

The article is meant to be read through, but if there is a particular area that draws you in, feel free to hop around the contents:

Analysing the value of metaverse land and real estate

The cryptocurrency space is going through a chilly winter period, as traders stride through the blizzard. The dip pairs with the global economic climate, as we face a bear market and larger tech firms face difficult employment decisions. The International Monetary Fund cut its forecast for global growth, slowing to 2.7% in 2023. While sales of virtual locations slow, China’s seen an equivalent drop in its own homes and buildings.

It is clear that it contributed to the downturn, to some extent. As well as the dip in floor price, there has been a reduction in people buying virtual land from metaverse platforms. From a sizable peak earlier in the year, the number of unique buyers has declined between June and October:

Data from WeMeta

Additionally, the floor price has fallen over the year, drifting downwards from its heights earlier in the year (sans Otherside, which will be explained later in the article):

Data from WeMeta

Such a drop is significant, and macroeconomic trends are a factor. But the drop may also reflect metaverse land cruising up the Gartner Hype Cycle, as it is (currently) stepping down the Trough of Disillusionment. Beyond the clear economic contributions, there must be qualitative factors linked to the platforms themselves.

Our gut reaction is that metaverse land is ‘pointless,’ which ties to the decline in its value. The trouble is, there is not enough evidence for this.

Potential reasons for the drop in sales

One potential problem with metaverse land is that it is much more prone to speculation. Real-life land is more stable by comparison, as the factors that contribute to its value remain consistent. Proximity to roads, city centres, or popular locations rarely changes quickly in the property market. Compare that to land in metaverse platforms, which is more nebulous in nature. The rigid and firm barriers of real life give value to properties.

Another is lack of utility. Professionals buy the land as an investment, and then hold it over time. The land itself can then be used for running new activations or marketing campaigns, such as Heineken with its own work in early 2022. But beyond flashy minigames and events, there is less of a draw to using the land for many purposes. Beyond hosting major events, the land becomes unused over time.

Both reasons are probable, but unproven. No surveys exist that prove the above, only quotes and suggestions from users. Yet paired with economic conditions, they likely played some role for many speculative buyers.

Are daily active users an indication of success?

No virtual world wants to be as barren as a desert. The more people that visit and enjoy a virtual space, the more people that visit and network in the location, referring more friends to visit, and so on. Spaces need a persistent reason to visit regularly, whether it is social interactions, self-improvement, or discovery. Footfall is important here, like in real life.

Astonishingly, some metaverse platforms see few users who visit regularly. After a viral report where DappRadar reported 650 daily active wallets, Decentraland stepped in to show its own analytics. Still, the company recorded only 8,000 daily active users, as of October 2022. ‘[Decentraland] doesn’t view users as a product by which to measure success,’ the organisation said in a blog post. Earlier in the year, Decentraland unveiled that 108,000 people visited Metaverse Fashion Week.

Then again, daily active users may not be the best indication of success. In an interview with Bloomberg, Yat Siu argued that figures only really account for wallet transactions, or users with wallets — which he equates to measuring a population based on how many trades in a stock market. Instead, he recommends focusing on revenue or job creation.

Also, treating them as event spaces shows other ways in which platforms can have value; 108,000 virtual attendees is nothing to sniff at. ‘For many metaverse platforms, it’s better to think of them like an event space that is used for a specific purpose,’ said Rob Stone, Head of Z3. ‘You don’t expect anyone to be in a football stadium at 3am on a Wednesday, but come game day there will be tens of thousands in the stands.’

The arguments are convincing, and show the multiple wrinkles of measuring success. Fundamentally, platforms are reliant on users joining and enjoying the places they visit regularly and connecting with one another. No party can be fun with just a few people. No town square is fun to hang in when the buzz is at a low ebb. No street of virtual homes can be appealing when no life operates within its walls. And there is little potential for exponential growth if users do not return (more on that later).

Metaverse land in decentraland
Credit: Decentraland

Otherside as an exception

One potential exception is Otherside, a project run by Yuga Labs and developed by Improbable. The data above deliberately removed the company, as it skewed the overall trends of the year. If Otherside was added, we see a different story:

Data from WeMeta

Otherside dominated the number of land sales this year, capturing almost 70% of unique buyers across all competitors. When we talk about metaverse land, we might as well only talk about Otherside (to an extent). The initial surge also ruptured the Ethereum blockchain, causing gas fees to spike upwards. During the drop, an estimated $175m in transaction fees wafted to the ether.

Does that make Otherside the most suitable platform to invest in? Perhaps, but we should be careful. Otherside has not officially launched yet, with an ambitious roadmap that will take it through 2023. By the time it launches, users will reap the rewards of the land that they have bought during the mint or the second-hand market. Once it does, we should have a clearer indication of popularity and sustainability. One to keep an eye on.

Do business professionals care about the metaverse?

What about a wider business context? Are real estate professionals rolling up their virtual sleeves, getting ready to work on bits and bytes of concrete? While there is some interest, it has not been converted into direct actions. A report from Pi Labs found that business professionals are aware of the metaverse, but not discussing the topic or implementing a strategy:

Pi Labs report on the metaverse and real estate
Credit: Pi Labs

Such apathy may indicate differing objectives. With tough economic conditions ahead, a fixation on interest rates may take priority over locations and conditions.

That’s not to say that all businesses are ignoring virtual town halls or meetings. DXC Technology surveyed its employees, after 1,000 visited DXC Virtual World for a two-day event; 61% look forward to returning. Synpulse, a management consultancy, invited all 116 members of its leadership team to a virtual town hall for workshops and speeches. ‘It was a productive day with a completely new setup and experience,’ said Ingo Muschick, Senior Partner and Head of Strategy at the company.

But while it indicates an interest in virtual spaces for meetings and collaboration, it does not link directly into metaverse land or real estate. Ownership of virtual land is not a necessary prerequisite to building online experiences, nor should it be. Private virtual worlds can be built and deployed without paying money for rent or virtual spaces.

The issues with metaverse land

Taken together, metaverse land faces multiple items to consider, with varying degrees of evidence:

  • Prone to speculation: Property markets always have a veneer of speculation, as buyers make bets on the long-term potential of land over time. Metaverse platforms take the same concept, and ramp it up to 11. Without the limitations of real life, people pour speculation and hype into the new gaps—burning people in the process. This lacks firm evidence, and warrants further investigation.
  • Lack of utility: Brands buy locations to organise events or put up billboards, to either reach new customers or signal that they are innovative. But beyond the flash and fun, the land itself lacks further uses over time. This lacks firm evidence, and warrants further investigation. Additionally, Otherside is attempting to be an exception, with the land having additional attributes such as creatures.
  • Tied to attendance numbers: The value of land is partially tied to the number of people who enjoy visiting platforms over time. If fewer people visit a location, then the viability of the location is ham-strung by low attendance numbers. There is evidence for this, though the events argument is compelling.

All these factors may play a part, but also reveals the work that needs to be done to understand the area better. For all the social posts we see about it, it’s clear that an evidence-based approach is needed to understand the drop better.

That said, I wanted to put forward my own additional argument on when to buy metaverse land. I am convinced that the tip-off point for viable metaverse land is reliant on one factor (among many above).

The Sandbox on metaverse real estate
Credit: The Sandbox

Core argument: ‘Metaverse land will only become viable when there is widespread interoperability’

The value of metaverse land is reliant on the platform it is in. If Decentraland declines and dies, then the land becomes worthless. At least real-life properties can be made in failed locations so that new opportunities can be opened up. A failed shop can become a successful hairdresser, for example. But if a metaverse platform dies, the land and property persist. No dust, no dereliction. A dead city, its failure perfectly preserved.

How can metaverse land retain some level of strength? I believe it requires a network effect of multiple metaverse platforms that come together, and connect with one another. I do not believe that the networking effect can happen within a single platform, and certainly one where the value of land is valued in the thousands. I do not believe it is a viable business goal to own a platform where land ownership out prices most people.

Other potential benefits:

  • Stable groups: Communities can form, safe in the knowledge that they can move to another neighbourhood;
  • More competition: It embraces more competition, as platforms innovate to draw people into their own virtual worlds;
  • Reduced prices: It encourages lower costs, as a wider pool of supply crunches costs. A stability safeguard, now and for the future.

Multiple metaverse platforms do not need land purchases at all, which is viable as well. After all, real estate is valuable because it takes time to travel from one place to another, and proximity raises prices. But in a virtual world where people can teleport, and land can be visited anywhere instantly, how important is it? If a metaverse platform is designed correctly, ownership is superfluous and hinders creativity. A blockchain may not be necessary either; Multiverse sold 1,000 land plots since November, without using the technology.

Counter-arguments to the thesis

The insights are based on my own research and thoughts on the topic, though there are some important gaps:

  • Commerce: Depending on the goal of the metaverse platform, land ownership may be necessary. Perhaps commerce needs virtual ‘lots,’ as people browse virtual stores in one space. That would require a single location where similar places are together, and location matters in that case. The main street has higher foot traffic than a side street, for example. That would require land, and some lots may be more valuable than others;
  • Revenue: Metaverse platforms need to make money, and real estate is one way in which a company can support itself;
  • Gameplay: Some metaverse platforms may add attributes to land to make it more engaging. Otherside is one example, and it has potential when it launches soon.

The value of metaverse land in the future

The next key question is whether the decline in value will persist in 2023. For my own money, we are clearly leaving the hype cycle of inflated expectations, ebbing to a cool and considered price that closely resembles its true value. The market cap is declining, but may rise up once economic conditions improve and platforms grow in value.

But for future growth, I strongly believe that interoperability is a prerequisite for growth. Not the only factor, or perhaps the most important – but it’s a cornerstone fact that, I believe, will spur fast adoption of land in the future.

I want to avoid the preserved graveyard of metaverse properties. No platform can thrive if there is a risk of abject failure. A solution comes down to interoperability, though it will take time for arrival. In the meantime, keep a cautious eye on the market in the comfort of your real-life home.


Subscribe to the Immersive Wire newsletter

Level up your knowledge of VR, AR, and the metaverse with rigorous and high-quality analysis, to gain a competitive advantage against your peers. By subscribing, you also receive a free PDF copy of the Immersive Reality Revolution, a bestselling book on the industry. Curated by Tom Ffiske every Wednesday and Sunday, and enjoyed by over 5,000 professionals.

By subscribing, you agree to the Privacy Policy of the site. You can unsubscribe at any time. If there are any issues, please contact the administrator here.


Meditative with the VIVE Flow. Photo credit: Tom Ffiske

Tom Ffiske

Editor, Immersive Wire

Tom Ffiske is the Editor of the Immersive Wire, a weekly newsletter on the immersive industry.