Virtual real estate: should you buy land in the metaverse?

Crypto education

People spend hundreds of thousands of dollars on virtual properties in metaverse projects like Decentraland and The Sandbox. Some say that blockchain real estate will be one of the biggest crypto trends of 2022. This guide by Pontem Network will explain all you need to know about buying real estate in the virtual world.

Land in the metaverse in 7 questions

1) What is virtual real estate?

Virtual real estate is a form of property consisting of sections of a digital environment, such as a game or a VR space, designed to look like parcels on a map, possibly with improvements on them, such as virtual buildings or resources that have value in a specific digital space. You can compare it to owning a location in a computer game.

2) What is a metaverse?

The word ‘metaverse comes from the Greek ‘meta’, beyond, and ‘universe’. It’s a digital space beyond our universe – a parallel world brimming with characters, locations, and objects that you can interact with using technologies like blockchain and virtual or augmented reality.

The term ‘metaverse’ first appears in the 1992 novel ‘Snow Crash’ by Neal Stephenson. In it, people spend almost all their time in the fund and exciting metaverse, ignoring the dystopian real world (a bit like The Matrix).

In theory, the metaverse is a single entity, not a specific platform. Yet, as the term started trending in 2021, lots of projects (especially games) started calling themselves metaverses. Take these statements with a grain of salt: a 2D game where you can collect NFTs and earn free crypto is hardly what Neal Stephenson had in mind.

A scene from Decentraland. Credit: REIS

In the future, all these projects could become interconnected, forming the real metaverse. Indeed, this is the vision of Mark Zuckerberg, who spoke of the metaverse as ‘a set of interconnected digital spaces’ at Connect 2021. Zuckerberg’s Facebook company recently rebranded to Meta and, according to some reports, invested around $10 billion in its own metaverse projects like Horizon Home.

Credit: Meta

So far it’s not clear if the ‘Facebook metaverse’ will offer NFT-based land for sale – or use the upcoming Meta-backed blockchain, Diem. We at Pontem Network are closely watching this space, since we are building a financial infrastructure for the metaverse.

Pontem is an incentivized testnet for Diem-compatible dApps. So, if it becomes possible to build metaverse dApps on Diem, Pontem network will allow developers to gain traction and tap into liquidity on Polkadot and Kusama before they can launch on Diem.

3) What can you do with land in the metaverse?

Every platform or game offers its own range of land uses, commercial and non-commercial. For example, you can open a virtual store or an event space, host a game, rent the land to someone else, or just construct a fancy mansion and let your own character (avatar) live there. You can also do nothing and just leave it empty.

4) How is ownership recorded and protected?

Every parcel is represented by an NFT (non-fungible token). Whoever holds the NFT also owns the property, so acquiring a virtual property is as easy as buying an NFT on OpenSea. The purchase is recorded on the blockchain, so anyone will be able to verify that the parcel’s NFT is stored in a specific crypto wallet (yours).

Note that if your wallet becomes compromised and someone steals the NFT token, the thief will also be able to dispose of your virtual land. As virtual land purchases are generally anonymous, nobody will protect your ownership rights. In general, you have to be extra vigilant if you own valuable NFTs.

5) How to monetize virtual properties?

  • The main ways to earn a revenue on your investment are:
  • Sell the land later for a profit (like most people do with NFTs)
  • Rent the land out to other users (game developers, businesses, etc.)
  • Open a virtual commercial venue and sell goods or services
  • Host events and charge participation fees
  • Provide advertising space.

Just like in real life, developed virtual property (i.e. with something built on it) should be more valuable than a bare plot. However, to make improvements or build structures you may need design or programming skills.

6) Do virtual properties have addresses?

A parcel of land in the metaverse is normally identified through x and y coordinates on the world map. The central point has the coordinates (0,0), with points to the top (north) and right (east) having coordinate values above zero and points to the left (west) and bottom (south) of the center having sub-zero coordinates. So, a parcel slightly to the north-west of the center can have an ‘address’ like (15, -10).

7) How expensive is virtual land?

Land in the metaverse is a hot investment trend right now – you could even say that a real estate bubble is forming! You can snatch a small parcel in Somnium VR for $8,000, but the cheapest plot in Decentraland will cost you around $14,000 in cryptocurrency.

8) Why do people buy land in the metaverse?

According to Grayscale, the metaverse could generate an annual revenue

Companies like Adidas and Nike already have their own spaces on metaverse platforms. For them, it’s an opportunity to sell products in virtual stores, engage customers through games and activities, as well as develop large commercial estates and rent retail spaces.

Another reason why investment in virtual land is popular is accessibility. In most countries, you don’t have to be a qualified investor to purchase blockchain assets: all you need is a wallet like MetaMask with enough cryptocurrency in it.

There is even an emerging cottage industry of virtual property developers, marketplaces (Parcel) and brokers (Metaverse Property). For example, developer Republic Realm recently spent a record $4.3 million on a large estate in The Sandbox. The company’s portfolio includes a set of luxury villas on private islands and a pedestrianized fashion district designed by the professional architect Martin Guerra.

Credit: Republic Realm

Remember, however, that investing in metaverse properties carries a high risk. There is still a lot of hype around this nascent market, so land prices can be inflated, just like the prices of metaverse tokens. During the crypto crash of December 2021 MANA, SAND, etc. lost almost half of their value. If you buy virtual land during a market rally, you may find your investment’s USD price drop sharply when the next market correction arrives. (No financial advice here: always do your own research.)

Now that we’ve explored the concept of virtual land, let’s look at the two largest metaverse platforms that offer plots for sale: Decentraland and The Sandbox.

Decentraland

Decenraland, founded in 2017, is probably the best-known virtual world project on the blockchain. Its MANA token did a 30x in 2021, rallying from $0.11 to $3.33 to reach a market cap of over $5 billion.

If you expect top-notch 3D graphics on the level of the latest computer games, you’ll be disappointed. Some of the Decentraland locations look simplistic, but that’s because they are designed by the users. In fact, a large portion of the content is user-generated, and the project is run by a DAO (decentralized autonomous organization).

VR (virtual reality), a core metaverse technology, is also missing from the mix, though it is included in the roadmap.

Link

A ‘VR world explorer’ is scheduled for ‘later’

However, 300k monthly active users turn to Decentraland not for sophisticated design but for fun and socializing. It’s a vibrant, action-filled place, as can be seen from the project’s Twitter feed.

You can go searching for a mysterious character, participate in a quest and win a gift from the elves, or enjoy the new day-and-night effects in the sky – there’s always something entertaining going on.

In fact, perhaps the most impressive thing about Decentraland is the variety of events and activities happening at any one time. Art exhibits, parties, poker tournaments, live performances, games – there can be up to 10 events scheduled on the same day (see the agenda for details). The recent Virtual Music Festival even brought in stars like Paris Hilton and Deadmau5.

Each event is identified by the coordinates of the land parcel where it is hosted. There are 90,601 of these parcels (LANDs), each sized 16x16 meters. Many of them belong to one of Decentraland’s 39 districts, divided by theme or type of business – just like in a real city. Popular districts include:

  • Aetheria (cyberpunk district with 8,008 LAND)
  • Vegas City (gambling)
  • Battleground (gaming)
  • Crypto Valley (business)
  • Dragon City (all things Chinese)
  • Festival Land (music) etc.

In Decentraland, just like in real life, property prices are all about ‘location, location, location’. If you buy a parcel near a popular district or major partner and enjoy a constant flow of potential users or customers. Which brings us to the next question: how can you monetize LAND in Decentraland?

Why buy LAND?

1) Create  an experience or a retail venue and monetize it – for example, open a store that sells NFT clothes for avatars.

2) Rent out LAND to others (if you prefer passive investing);

3) Develop the LAND (i.e. build something on it) and then sell it for a profit. Decentraland includes a convenient drag-and-drop builder, so you don’t need to be a programmer to create a simple project.

4) Make money from advertising by placing billboards on your LAND;

5) Participate in the platform governance.

As for LAND profitability, it’s really hard to predict, since the virtual real estate industry is still so new. OpenSea displays the sales history for each parcel, so you can evaluate a possible profit on a simple resell (around 20% in MANA or ETH), but you need to count in the USD price change and the effect of developing the LAND. It’s not impossible to make a 100% profit on a parcel, but you’ll need a combination of hard work and good market conditions

Decentraland LAND prices and how to buy

Option 1: Decentraland Marketplace

Most people buy LAND on OpenSea for MANA or WETH (wrapped ether). A regular parcel will cost you between $12k and $15k. However, the price can reach $20k or more, depending on the location. The highest amount ever paid for a Decentraland property is $2.4 million.

You can explore the available LAND here – make sure to check back regularly, because new listings appear all the time.

Link

In case you’re asking yourself if it’s possible to buy LAND in a district like Vegas City, the answer is ‘not really’. Districts function like closed trusts that raised the funds to buy lots of LAND through private crowdsales and pay dividends to their members. There are very few organizations (such as Metaverse Properties) that own district LAND and might be open to offers coming from serious investors, and in some really rare cases you might see district LAND on sale on OpenSea, but don’t count on it.

Option 2: directly on Decentraland Marketplace

You’ll need MANA (and not ETH) to buy a parcel on the platform’s own marketplace, and the average price is higher. But if you are after a more exclusive property or even a whole estate, you’ll find many interesting offers here.

The buying process is the same as for interacting with any other decentralized dApp: connect a wallet, click on Buy, and confirm the transaction. Remember that you’ll still need some ETH to pay the gas fee. Decentraland supports MetaMask, WalletConnect, and Formatic.

The Sandbox

The Sandbox is yet another virtual world (or ‘metaverse’) powered by the Ethereum blockchain. But unlike Decentraland, it’s mostly focused on gaming. Users themselves can create games and experience and play them with friends.

The company was founded in 2011, long before NFTs or crypto games. It actually launched several popular mobile games, such as The Addams Family Mystery Mansion. Nowadays The Sandbox is a subsidiary of the famous venture fund and blockchain gaming company Animoca Brands.

In order to build a game, you need a parcel of virtual real estate, which in The Sandbox is called (a bit confusingly) a LAND. Every LAND is represented by an ERC-721 token, and there are 166,464 of them in total. A single LAND measures 96 by 96 meters (9,2126 square meters), or 315 by 315 feet (99,200 square feet).

Why buy LAND?

The ways to make money with LAND in The Sandbox are more or less the same as in Decentraland: building new experiences, leasing, and advertising. You can also stake SAND tokens in the LAND to earn rewards.

The more expensive properties in The Sandbox are located next to the main gaming hotspots or key partners. Thanks to its partnerships with popular entertainment brands, The Sandbox will feature locations like the Virtual Smurfs Village, a zombie-infested experience inspired by The Walking Dead, and even Snoop Dogg’s virtual mansion called Snoopverse.

The platform’s partner portfolio also includes PwC, Cointelegraph, Harmony, Kyber Network, MakerDAO, Atari, and even Adidas. Most of them will own LAND in the metaverse and launch NFT-based experiences to market their products.

Being a virtual neighbour of a brand like Adidas or The Walking Dead will mean more traffic and revenue – thus the higher price on such premium LAND. For example, recently an investor paid almost $500k for a plot next to Snoop Dogg’s mansion.

You can explore LANDs on the metaverse map (unoccupied parcels are marked in green):

By purchasing several LANDs located next to each other, you can form an ESTATE. The smallest option is 3x3 LANDs, going all the way up to 24x24. Several owners can also team up and create a DISTRICT, which they will run together.

The Sandbox LAND prices and how to buy

1) Option 1: OpenSea

You can buy LAND in The Sandbox through OpenSea for SAND or WETH (wrapped ether). The prices start from 3.2 WETH ($12,700 as of the time of writing). By browsing a lot of offers, you can snatch up a LAND near a major partner for a reasonable price – for example, the minimum bid for this plot near CryptoKitties was ‘just’ $14k (2.750 SAND).

SAND is an ERC-20 token that you can buy on Binance, Uniswap, and other exchanges. In 2021, it rallied 200x from $0.04 to $8 and is now trading at $5.

2) Option 2: directly on The Sandbox

To buy LAND directly on The Sandbox map, you’ll need to wait for an official public LAND sale, which take place every few months (the last one was on December 3, 2021). However, the map shows the parcels on offer on OpenSea.

  • First of all, you’ll need to have SAND in your wallet (MetaMask, Bitski, or Venly), plus some ETH for gas fees.
  • Create an account on The Sandbox using MetaMask, Gmail, Facebook, Twitter, or Bitski (see the official blog for details).
  • Connect the wallet and transfer SAND to your account on the platform.
  • Pick an available parcel (in grey) and read the description.
  • Click on Buy Land and confirm the transaction in the wallet.
Credit: The Sandbox Medium

More virtual real estate platforms

Here are a few more blockchain projects that sell virtual land, often cheaper than Decentraland or The Sandbox:

Somnium Space: one of the few metaverse projects that features VR;

CryptoVoxels: an Ethereum-based platform where users can build galleries and stores on their land;

Upland: a virtual version of Earth, with land parcels matched to real-world addresses;

Earth2: another scaled-down version of our planet Earth, with a nice satellite view in its land marketplace;

SuperWorld: its virtual world copies many of the iconic locations in the real world, so that you can buy the Eiffel Tower or Taj Mahal, for example.

2022 will show if virtual real estate as an investment asset has a future or if it’s just hype. As usual, Pontem Network will bring you the latest updates from this exciting burgeoning market - follow us on Twitter and Telegram for more news.