In the 1980s cult film “Tron”, a programmer steps into the world of his own computer game and has to fight for his life. In the Starship Enterprise franchise, Captain Picard’s crew goes to a holodeck for training purposes. There it is possible to plow through the world’s seas on a traditional skipper. Of course, the virtual reality that can be experienced today is still ions away from these fantasies. Nevertheless, many parts of our environment have become highly virtualized.
The billion-dollar company Facebook has taken a big step in virtual reality. First of all, the company’s founder, Mark Zuckerberg, decided a year ago to change the name to Meta: Sounds like an abbreviation of Metaverse – the generic term for digital parallel worlds. On the other hand, the entrepreneur, who still seems young, invested billions in the further development of virtual platforms. Since then, companies from numerous industries have felt the need to develop business models for the Metaverse. The real estate sector seems to have found a virtual solution to the scarcity of land or rising land prices. Platform users are already buying lots in a parallel universe via platforms such as Sandbox or Decentraland.
Registration in the sandbox is very simple: first the new user has to choose and equip his avatar. This can be hopping, striding or gangman-like moving. However, contact with monetary reality is just a few clicks away. On a green background with squares of the same color, an orange square is for sale for 7,000 USD, or the equivalent of 5.5 Ethereum. That corresponds almost exactly to the price per square meter for a real plot between Zurich main station and Paradeplatz. So the highest card in Monopoly. Offers welcome. The fact that the other party only appears with an abbreviation and can be portrayed as a heavily pixelated robot doesn’t necessarily inspire confidence. The avatar is on his small lot – now what?
No buoys by tenant protection
The proud new owner of a plot acquires the right to use it as he pleases. Commercial use is often in the foreground, but not only. For example, users can also develop games in the sandbox, with the platform supporting them with an intuitive toolbox. Those who do not attach any importance to this will – as they do in real life – strive for a decent return, for example with an interim lease to other users. There are no buoys or rules for determining the rent. In the instructions for Sandbox there is an encouraging sentence: landowners can decide for themselves how high the rent should be. However, according to the instructions, the owner must be guided by certain guidelines, for example, the proximity of so-called social hubs. The lessee may develop games on his own premises, whereby the lessor does not share in the profit.
As with all freely tradable goods, the value of a metaverse pack is determined by supply and demand. The more attractive a piece of digital land is, the more people will pay for it. The more players on average are close to their own property, the more income can theoretically be generated from the plot, which in turn justifies a higher price. Location quality is also an issue. Properties that are particularly well located are those that are as close as possible to the starting point of the game or in areas where other attractive game content and offerings are already available. However, real and virtual real estate differ significantly on one point: while in the real world land is essentially a scarce, limited resource, in the metaverse new ones can be created with the simple click of the mouse. Whether it’s the game world you’re invested in or the emergence of new, competing metaverse projects (see Figure 1).
market in its infancy
The market for virtual land is currently still manageable and trades in very small volumes. Driven by the hype, price bubbles inevitably arise, as can also be seen with cryptocurrencies. For example, at the beginning of January 2021, the average plot of land in the sandbox was still being sold for less than $150. After a longer, steady rise in price, the virtual bottom traded at around $2,500 at the end of October, which already equates to a price increase of around 1,550%. The announcement of a first publicly available alpha version of the game catapulted traded prices to over $16,000. Landowners also received a lot of waste from their competitor Decentraland. According to the company’s creative director, the first land sale cost $20. Today, the cheapest lot is already worth $3,500. Last year, the crypto company Token.com bought a piece of land near the virtual Bahnhofstrasse with many fashion stores. At a record price of USD 2.49 million (see Chart 2).
The price bubble formation should keep investors’ nerves busy for some time to come, as the potential of Sandbox, Decentraland and what’s to come has only been partially exhausted so far. The game world, which is intended to attract the majority of users willing to pay, is still in the early stages of development. Moreover, the future of virtual landscapes is linked to the further development of the metaverse. The decisive question here is when the Metaverse will be fit for the masses. This depends not least on cultural factors. Gaming in Europe still smacks of unaired teenage huts, while in Asia it has become a real national sport. In many projects there is a presumption that trading in digital soil is central and less the creation of an actual metaverse. As a buyer, who not only speculates on short-term rising prices, you ultimately bet that a product will actually be created in the future that also attracts players and other investors. The fact that major companies such as Meta (Facebook) have shown interest in developing their own Metaverse projects could be an indication that digital parallel worlds in active use will actually take hold in the future. However, today it is simply impossible to estimate what these are. If you are lucky enough to support the right horse, you will benefit greatly. However, the chance that you put your money into a futureless project is many times greater.