If you’ve been following the news around digital assets and the metaverse in general, then you may have seen some headlines about booming virtual land prices. But what exactly is virtual land? How do people buy it? What can you do with virtual land and is there any reason to expect that such lands could be the next big thing?

What is Virtual Land?

Essentially it’s a piece of land that exists in some electronic form outside of our everyday world. It could be a replica of the actual Earth, it could take the form of a skyscraper, or it could simply be a plot of farm land or an island floating out in the ether.

While virtual land takes on many different forms, it is actually not new. In 2006, a player of the online game Second Life became a real-world millionaire by turning an investment of less than $10 into a small fortune by renting, purchasing, selling and trading virtual lands.

In 2009, a virtual space station was sold for $330k in the Entropia Universe. Shortly thereafter (in 2010), “Club Neverdie” was sold in the same game for $635k.

One thing these early examples of virtual real estate deals had in common was the emergence of a virtual economy using an in-game token of some sort. Once assets could be bought and sold using virtual currency the economy started to grow rapidly.

More recently, Cointelegraph reported that digital land in the metaverse outpaced all other NFT sales. This is an important distinction here. Lands that are being bought and sold in the metaverse are usually NFTs now which means they can be sold or traded on secondary markets outside of the game they originated from. This was not possible in the past.

How do people buy virtual real estate and does it have functionality?

Before buying virtual land, it’s probably worth considering that pretty much anyone can create or issue virtual land. Virtual land is not scarce unless it’s programmed into some platform, game, world etc. Therefore, the publisher is a prime consideration when discussing a virtual land sale.

In fact, in some virtual worlds land is not scarce at all. There are some projects, such as the upcoming Nifty Island in which everyone will get a plot of land for free just for joining. The interesting twist in that particular corner of the metaverse is that the thing that’s considered to have value is the time and attention real players spend on the land, not the land itself.

But in general, lands are considered and programmed to be scarce. In Axie Infinity’s world (Lunacia) there are precisely 90,601 plots of land for example. In DeFi Kingdoms, there are expected to be approximately 1,000 plots of land (called Kingdoms) in Serendale with another 250 to be released in the Crystalvale expansion.

Perhaps more interesting than the planned scarcity of lands is the current or expected functionality of that land. After all, land in the real world has value because you can live on it, use it to produce things, or harvest natural resources from it, or use it for any other purpose you see fit and then sell it if you want. In the metaverse, land has some of these properties depending on the use case. For example, there are games where the purpose is literally to farm. Some such games include My Neighbor Alice and Town Star.

In other games, land might be an asteroid or even a planet. In those cases, the economic value will be derived from the resources that can be extracted into the in-game economy. In this category we have projects like Star Atlas and Echoes of Empire.

Other games are using land as commercial real estate. When you purchase land in these games, the idea is to extract rent from the tenants or capitalize on making ad revenue. The popular (yet to be released) game Illuvium introduced the idea of super-rare lands of which there will only be seven (7). These top-tier lands can be used to host game tournaments with parallels to World Cup or Superbowl type of stadiums. Each large panel can host an advertisement for another metaverse project playing a video, displaying a graphic, or just having your business name in bold letters. If this seems absurd, keep in mind that esports were predicted to surpass professional sports (football, basketball, etc) in 2021 before there was a pandemic forcing the entire world to work from home.

As far as the “how” to purchase these assets it also varies from project to project. But there is a secondary marketplace called OpenSea where lands from many different metaverses are being traded right now. The most common currency to purchase these lands in is Ethereum.

The Future of Digital Real Estate

While nobody can predict the future, we can observe some trends taking place right now. For example, upcoming game The Sandbox featuring celebrity power from none other than Snoop Doggy Dog sold $70.5 million dollars worth of virtual in a single week just last month. Keep in mind, it was record-breaking news when Club Neverdie was sold for $635k just twelve years ago. Now we’re seeing over $100mm in virtual land sales in a week.

Driving this trend is the popularity of NFTs and cryptocurrencies which enable real ownership of game assets and bring much-needed liquidity to these ecosystems. Therefore, increased liquidity in the crypto space can be seen as a positive reinforcement catalyst and the total market capitalization of cryptocurrencies today is over $2.2 trillion USD.

If you combine these factors with the massive scale of investments pouring into the digital asset space, a pretty strong case can be made for the sector as a whole. Of course, some land will end up being a bust and other lands will remain devoid of any real use despite their clever machinations.

An emerging angle on this comes again from DeFi Kingdoms. Their concept is that a virtual land plot is essentially a Kingdom in and of itself. There must be an owner, which would be a person, DAO or guild. But in DFK the theme is medieval and thus the logical use for the land is to gather resources and enter into warfare with other Kingdoms. The ambitious part of this idea unfolds with Kingdom versus Kingdom battles that will take place even across other blockchains and for real money (crypto) which will be a first if they can pull it off. I’m betting that they will, but even if this effort does not succeed it speaks to the increasingly tight relationship between different corners of the metaverse which are slowly being woven together.

In fact, the metaverse won’t actually be “The Metaverse” until nearly all games, blockchains, and underlying technology has a common way of communicating value and allows for flows between and among them. For a mental model, consider globalization and what it did to world trade.

That’s all the time I have for now. Until next time, cheers!

Thank you,

Hans Hauge

Head of Quantitative Strategy

Ikigai Asset Management

Sources:

Second Life: https://en.wikipedia.org/wiki/Anshe_Chung
Cointelegraph: https://cointelegraph.com/news/virtual-land-in-the-metaverse-dominated-nft-sales-over-past-week
Entropia: https://en.wikipedia.org/wiki/Entropia_Universe
Axie Infinity Land: https://whitepaper.axieinfinity.com/gameplay/land
DeFi Kingdoms: https://docs.defikingdoms.com/roadmap/phase-3-world-map-and-land
Nifty Island: https://www.niftyisland.com/
Alice: https://www.myneighboralice.com/
Town Star: https://app.gala.games/games/town-star/
Star Atlas: https://staratlas.com/
Echoes of Empire: https://app.gala.games/games/echoes-of-empire
Illuvium: https://www.illuvium.io/
Esports: https://onlinegrad.syracuse.edu/blog/esports-to-with-traditional-sports/
Wilder World: https://www.wilderworld.com/
Club Neverdie: https://www.engadget.com/2010-11-08-entropias-club-neverdie-sets-new-record-for-virtual-item-sale.html
Sandbox: https://www.sandbox.game/en/snoopdogg/