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The key to sustainability of the metaverse may lie in the virtual real estate market, suggests Chainalysis.
The blockchain analyst’s latest State of Web3 report found the growth of blockchain-based virtual real estate (VRE) prices has outpaced physical real estate. VRE prices exploded 879% from September 2019 to March 2022, while real-world real estate prices grew by 39% during the same time period.
Of course, virtual and physical real estate are not the same thing. Humans need land, homes and buildings to live, work, study and sleep. Metaverse real estate, on the other hand, is all about retail, recreation and social activities.
According to Chainalysis economist Ethan McMahon, any correlation between physical and virtual real estate markets could be attributed to their relative maturities: Virtual real estate is only a couple of years old, so it has much more volatility than its more mature counterpart.
One of the main drivers of NFT land demand the report cites is access to private events and token-gated communities. Demand directly translates to sales of virtual real estate.
Bored Ape Yacht Club, for example, which has been a leader in bundling its NFTs with socialization entertainment for its community members, raised $320 million worth of ether from its Otherdeed land sales for its upcoming Otherside metaverse during the first weekend. It was “the largest NFT mint in history by several multiples,” according to Yuga Labs, with sales traffic triggering skyhigh gas fees on the Ethereum mainnet.
Otherdeed for Otherside has the largest total cumulative value of land sales in metaverse real estate, coming in at roughly $853.6 million at the time of publication, according to Dune Analytics. Decentraland ranks second with about $378.6 million, and The Sandbox ranks third with $227 million in cumulative sales value.
A growing number of major companies are buying up metaverse land and setting up shop, including Adidas, Burberry, Gucci, Nike, Samsung and Louis Vuitton. JPMorgan was the first bank to jump into Decentraland by signing a year-long property lease in February, and HSBC followed with a plot purchased one month later.
At the time, JPMorgan released a report that envisioned opportunities within the metaverse market worth over $1 trillion in yearly revenues by 2030.
Real-world trends map to metaverse markets
McMahon told Blockworks there is “massive” potential in this space, not only for game developers, but for individuals who own characters and items they play with as well.
Marketers and corporations that want to appeal to gamers could also benefit, with an ever-changing set of advertisement possibilities.
Brands seem unwilling to risk getting left behind. The largest VRE sale to date was made by financial publishing company Curzio Research, spending $5 million for a tract of virtual land in May in the TCG World metaverse running on the Binance Smart Chain (BSC). In the second-largest deal, Republic Realm paid $4.3 million for a slice of The Sandbox.
Large sales in a particular area consequently affects prices of surrounding land, both in the physical and digital world. As a result, speculators may take advantage of short-term profit making. But speculation can only drive the value of digital property while scarcity and liquidity reign.
The main driver of value in the metaverse will be utility, which is currently the “missing layer for most metaverse platforms,” Sam Huber, CEO of metaverse development studio LandVault, told Blockworks.
Utility is directly related to business models that landowners can create on top of their land, he explained. From selling NFTs as tickets to events to e-commerce and advertising — any potential revenue generated gives metaverse land value.
While blockchain-based virtual real estate is relatively new, the concept of digital property is not. Be it video games Second Life, Fortnite, Roblox or Minecraft, virtual worlds have already successfully popularized metaverse assets and resources.
“Speculation will always exist, but eventually utility will take over as more and more people enter the metaverse, and it makes more sense to own land and build a business on it,” Huber said.