A review of the development trends in the virtual real estate market from Bloktopia, Decentraland, The Sandbox, and Otherside

Author: Kit, CatcherVC

Introduction

"A piece of land in Decentraland was purchased by Token.com for 2.4 million USD."**

(txid: 0x5c44e87123c808194b477b507aab8fdb9f128bbbfc113d0b9bc06016ba31ac2b)

What is the Value?

In the second half of 2021, the concept of the metaverse and virtual real estate exploded, attracting considerable attention from "real estate speculators" due to the transaction prices and volumes of some NFTs. From the emergence of leaders like The Sandbox, Decentraland, and Otherside, to the birth of new real estate concepts like Voxels, Somnium Space, NFT World, Bloktopia, Wilder World, and Highstreet.

Investors can't help but wonder how these seemingly infinitely minted virtual assets can generate any value. Currently, the market believes there are four reasons worth purchasing:

• Ownership: Service income from building design, land leasing, event planning, etc.
• Scarcity: The land issued by metaverse projects has a supply limit, aligning with the supply-demand model.
• Network Effect: Additional value brought by status symbolism, platform influence, and surrounding merchants.
• Speculation: Characteristics of asset liquidity and the profit margin generated from trading.

Metaverse Concept

The concept of the metaverse can be traced back to the cyberpunk novel "Snow Crash," and gradually appeared in various films and TV shows, such as "Blade Runner," "The Matrix," "Ready Player One," and the "Black Mirror" series, enhancing the public's visual recognition and depiction of its concept.

Throughout history, the realization of sci-fi themes such as smartwatches, autonomous driving, artificial intelligence, and portable smart machines has driven the development of human technology. The metaverse and interstellar colonization in cyberpunk culture represent the greatest technological fantasies of 21st-century sci-fi.

The Catalyst

The outbreak of COVID-19 in 2020 led to countless city lockdowns, forcing humans, as social animals, to sever interpersonal relationship networks and redirect their attention to social networks, mobile phones, and the electronic entertainment world to seek relief from their depression. This also propelled the growth of previously overlooked industries such as short video entertainment, gaming, esports equipment, remote work, and virtual social scenarios. Consequently, the metaverse attracted the favor of numerous well-funded giants and venture capitalists, including Microsoft's acquisition of Activision Blizzard for $70 billion in January 2022 to expand its gaming industry.

However, the industry's shift towards immediate profits also comes with significant risks. According to CNBC, after Facebook rebranded to Meta, it reported a total loss of $2 billion in virtual reality (VR) in the second quarter of 2022. Nevertheless, it is undeniable that the pandemic and the influx of funds have quietly accelerated the concept of the metaverse, bringing people a little closer to this sci-fi goal.

(Meta 2022 Q2 Earning Presentation)

Virtual Asset Prices

Metaverse Group is a subsidiary of Token.com (Coin: NEO) that focuses on investing in and providing a full range of virtual real estate services. The company purchased 116 parcels of land for $2.4 million in December 2021, totaling 6,090 square meters, roughly the size of three tennis courts or one basketball court, with an average price of $3,940 per square meter. This is more than double the price of $1,773 per square meter in Manhattan in 2018.

Core Value

Many media outlets criticize that only real assets hold value, while infinitely minted virtual real estate should be worthless, as the core value of real estate lies in agricultural use, building, event venues, and rarity, while virtual real estate is infinitely minted and lacks rarity. This is not entirely correct; we can see that an acre in the U.S. costs only $20 to $50, and buying a 10-acre plot the size of a football field in some areas of the U.S. can even cost just $199.

(landsofamerica.com)

Therefore, the value of an asset or land is absolutely not determined by scarcity, but rather by the network effect it represents or is associated with. In other words, investing in these virtual assets is akin to investing in land around New York's Central Park centuries ago; speculators are attracted to the additional value brought by millions of users gathering in the same network in the future, including venue leasing, event planning, concerts, and other virtual network effects brought by the metaverse.

Macro Data

From the macro performance in the first half of the year, Bitcoin and Ethereum maintained a strong positive correlation above 0.8, except for June, with prices rising and falling together. The performance of blue-chip metaverse tokens, including Decentraland and The Sandbox, was similar to that of Ethereum, while Otherside's monkey land, due to Yuga Labs' circle effect, showed a negative correlation with the market in May and outperformed the market.

(Binance.com & Dune)

Looking at the prices of land NFTs intuitively, their price performance is also highly correlated. However, it can be seen that land still aligns with the concept of hard assets preserving value, with the degree of correction being more stable than the price performance of highly liquid assets.

From the average transaction price of land, Decentraland and The Sandbox's land has only corrected by 50%, while Otherside's transaction prices remain stable, and smaller assets like NFT Worlds and Somnium Space have underperformed compared to blue-chip land.

Decentraland

Release Date: August 2020

Payment Token: MANA (CMC Rank 37)

Land Type: Virtual Block Land

Overview: Decentraland is a 3D metaverse project based on the Ethereum network, allowing land to be traded, built upon, decorated, and used for events on the platform. Decentraland has issued a total of 90,601 parcels of land, each measuring 16 square meters. Notable merchants currently present include Estée Lauder, Tommy Hilfiger, Samsung, Sotheby's, and Honda.

(Decentraland)

The Sandbox

Release Date: December 2019

Payment Token: SAND (CMC Rank 38)

Land Type: Virtual Block Land

Overview: The Sandbox is a voxel-based 3D virtual gaming world built on Ethereum, supporting highly customizable assets and scanning of real-world entities like "Minecraft." The Sandbox has issued 166,464 parcels of land, each measuring 96 square meters. Its products include a creation editor, game editor, and trading market. Notable brands and influencers currently present include BAYC, Binance, and Snoop Dogg.

(The Sandbox)

Otherside

Release Date: May 2022

Payment Token: APE (CMC Rank 36)

Land Type: Virtual Block Land

Overview: Otherside is a metaverse project developed by Bored Ape Yacht Club using a PC-based 3D rendering engine. 30% of its land was distributed through airdrops to holders of BAYC and MAYC, while the remaining 70% was minted by KYC users of Animoca Brands for 1 ETH. Currently, NFT communities present include BAYC, Mutant Ape Yacht Club, CryptoPunks, Meebits, CoolCats, and World of Women. Otherside has a total of 200,000 parcels of land, each containing six different attributes.

(Otherside)

Bloktopia

Release Date: October 2021

Payment Token: BLOK (CMC Rank 336)

Asset Type: Virtual Building Units

Overview: Bloktopia is a 3D metaverse building established on the Unity rendering engine and Polygon network. The building has a total of 21 floors, and its land includes two different types: REBLOK, which are virtual shops that can be owned by individuals or groups, and ADBLOK, which are virtual advertising spaces that allow players to earn revenue from advertising positions on each floor. Currently, the total issuance of REBLOK is 724 units, and the building's concept is to create an integrated metaverse lobby providing virtual shopping spaces for KOLs, projects, exchanges, etc.

(Bloktopia)

NFT Worlds

Release Date: October 2021

Payment Token: WRLD (CMC Rank 985)

Asset Type: Large Block Land

Overview: NFT Worlds has issued a total of 10,000 simulated reality-generated block lands, each measuring 500 square kilometers. The attributes of its land include geographical attributes, resource attributes, and additional features. Players can play on the land by minting NFT Worlds Genesis Avatars.

(NFT Worlds)

Somnium Space

Release Date: September 2020

Payment Token: CUBE (CMC Rank 591)

Asset Type: Virtual Block Land

Overview: Somnium Space is a 3D metaverse built on Ethereum. Its land includes three different sizes: S, M, and XL, with a total issuance of 5,026 parcels. The land is surrounded by various geographical elements, such as rivers, mountains, and forests.

(Somnium Space)

Land Risks

Currently, virtual real estate is still in a very early stage, with most products positioned as higher fidelity domain names or virtual reality (VR).

Comparing the current metaverse network effects to traditional internet industries, the problem with the Web3 industry chain is whether the future network will necessarily be built on valuable virtual land? Or on any piece of metaverse land? Or like current internet companies, based on a domain worth a few dollars? This question is also the starting point for venture capital firms and large funds exploring the immense potential of virtual real estate, as they focus on the non-consensus nature and the potentially rich returns after industry maturity.

Tracing back to 2005, a student from the UK named Alex Tew established a website called milliondollarhomepage.com during the rise of the internet, where investors could purchase one of 1,000,000 pixel points to advertise their website or company. Investors at that time were similar to today's metaverse investors, frantically buying into what was considered the smartest internet advertising investment and search engine.

Subsequently, every pixel point sold out at a price of $1, and Alex indirectly earned $100 million. In the end, investors did not receive the expected returns, while the creator Alex and current NFT and metaverse creators became the biggest beneficiaries.

(http://www.milliondollarhomepage.com/)

Conclusion

Currently, the core value of investing in virtual real estate mainly comes from speculative trading to achieve significant profits, while there has yet to be substantial returns from ownership, scarcity, or network effects.