Welcome back for the third and final edition of Pangea’s Virtual Land Series! We hope you enjoyed Edition One and Edition Two. In this edition, we will outline Pangea’s plan and current thinking for: Generating Revenue with our Virtual Land. Virtual land will one day be a yield-bearing, high-appreciation asset, with sophisticated brokerage and financing markets in place to help people obtain it. As the ecosystem is built out, we expect the number of applications and opportunities to leverage virtual land to multiply, and the options below will pale in comparison to what will one day be available.
Decentralized finance has established itself as one of pillars of the Web3 ecosystem and Pangea will explore emergent opportunities at the intersection of DeFi and NFTs to create revenue streams from our developed land. Such revenue will not be tied to the volatile prices of virtual land, and its continued flow of revenue ensure a steady stream of funds to the treasury, from which we can fund further land purchases and builds. This intersectional space as a whole is quite nascent, and many of the existing opportunities are relatively untested and unproven. This allows Pangea to be on the cutting edge of innovation, working alongside our community and partners to develop and utilize models that will benefit the Metaverse as a whole. Options including, but not limited to, the following opportunities will be considered by the community:
A straightforward method of generating passive revenue from our land is by offering it for rent. There are already active rental agreements across various digital worlds with builds such as event spaces, NFT galleries, or simply ad space. While individuals and companies may be customers for virtual lands, guilds are reliable customers for land in P2E games. The infrastructure to rent digital land is already somewhat developed. Projects such as EnterDAO’s LandWorks are blazing a path to trustless land rentals in the Metaverse. One challenge we are seeing is a slow rise in rental demand for undeveloped plots of land. We think this may be due to the difficulty associated with building scenes on the land as well as the friction of transitioning from traditional marketing and selling to this new medium. Our squads PangeaCreators and PangeaPartners will take an active role in identifying, educating, and connecting businesses with the appropriate digital land and resources. Each client and business case has it’s unique needs and each implementation will drive value through the builds constructed on the land itself.
These rental marketplaces also offer staking rewards that Pangea could utilize. Rental marketplaces offer staking rewards through land NFT yield farming in order to capture market share versus their competitors. These rewards offer the additional benefit from renting out land, generating revenue for the treasury while still allowing our Creators Guild to build out our land holdings. NFT Worlds’s rental marketplace presents a particularly interesting example separate from world agnostic marketplaces. Staking of NFT Worlds provides Pangea with the flexibility to earn yield while also putting work into the hands of our Creator’s Guild, earning $WRLD tokens while further benefiting the overall ecosystem of NFT Worlds.
Fractionalization refers to minting tokenized fractional ownership of an NFT. These tokens then function as standard ERC20 tokens, which have governance over the NFT that they own. Projects such as Fractional are leading the way in this nascent space. Fractionalizing Metaverse land will allow individuals, in this case outside the DAO, to buy and own a percentage of our land. This strategy would allow Pangea to de-risk exposure, increase price discovery, and augment the liquidity of and accessibility to a single asset.
To illustrate this possibility, imagine that PangeaDAO owns a parcel in Decentraland with an initial investment of $15,000. It has a downside risk of $15,000 due to the overall riskiness of the space (we don’t believe that in DCL’s case). To mitigate this risk, we could then fractionalize the parcel into 5,000 tokens, then put 50% of these tokens on the market. The sale of these tokens would not only reduce downside risk for Pangea, but also provide capital for ongoing operations. Beyond protecting against full exposure to risk on a given parcel, those fractionalized tokens are not simply representative of ownership of the parcel - they are also yield-bearing assets that give token holders the rights to the revenue and activity on the land, which means the sum of its parts are greater than the whole, and thus provide near-term returns from land appreciation and potential. An added benefit is price discovery. The market activity on fractional assets adds insight into real-time value. This enables Pangea to increase its ownership in a particular land asset when the price is attractive and reduce it when the price is high, without having to transact the whole parcel.
A similar proposition is combining land fraction tokens across different virtual worlds into token sets (sharding), which would allow others to gain broad ownership of and exposure to land in the Metaverse. For example, this could provide an opportunity to gain exposure to fractions of casinos across various digital worlds in a single token set. There are a number of exciting categories and land uses for this opportunity.
Beyond just renting the land, there is also the possibility of having revenue sharing agreements with those developing it. Pangea can support content creators and builders by offering them access to land that they would not have been able to afford otherwise. In exchange, the creator would share an agreed-upon percentage of the revenues their game or project generates.
Pangea can similarly partner with guilds to collect/mine/harvest resources on our land in P2E games. Rather than doing this ourselves, partnering with guilds that already have scholarship programs in place would allow us to focus on Metaverse land while still ensuring active harvesting of resources on our land. While P2E games aren’t part of Pangea’s initial focus, they are an important part of the Metaverse ecosystem and will be an interesting option to explore in the future given that we will have the community, resources, connections, and capital to instantly become major players in the space.
Pangea will mainly be investing in digital land. As a new category, there are currently few opportunities (although projects such as NFTfi are building crucial infrastructure) that unlock its full value through collateralization, but we expect there to be growth in this area as revenue on digital land materializes. When that market does emerge, borrowing against our land within a community-agreed risk tolerance, even a tactic as basic as stablecoin yield-farming becomes a dependable source of revenue.
The community could also explore funding individual projects by issuing NFTs backed by ownership of the land. Contributors would purchase an NFT representing a portion of the debt then holders of the NFTs would receive repayments in proportion to how much they contributed to the project. In the event that Pangea defaults on this debt, the NFTs would be converted to proportional ownership of the land rather than proportional ownership of the debt.
Mortgages now exist for virtual real estate, with TerraZero providing the first in December 2021. However, because such financing is brand new, the loans tend to be of short duration, high interest, and require a large downpayment. While these are barriers for the more widespread adoption of Metaverse financing, they do also present opportunities for PangeaDAO and there is always the possibility of providing mortgages ourselves.
Pangea may use an alternative form of lending known as "owner financing" In this scenario, the buyer takes possession and use of the land, while the seller assumes the role of the lender. The buyer makes the typical downpayment, and then sends monthly payments with interest to the seller until the loan is paid off. Meanwhile, the buyer retains the right to occupy and develop the land as they see fit. This occurs until the loan is fully paid off, at which time the parcel’s NFT is finally transferred to the wallet of the buyer. If Pangea elects to use this mode of selling rather than a direct, all-at-once sale, we will earn more money over time, due to the interest collected.
Another method of building resources through financing is to offer "reverse mortgages" In this instance, the owner of some land approaches Pangea because they are in need of cashflow. They receive a monthly payment from Pangea in return for an increasing portion of equity in the property. At the time the seller completes the term of the reverse mortgage, Pangea would receive full ownership of the property having paid under its full value. This, too, would result in a net increase in funds.
Regardless of how it’s done, given the quickly rising costs of land and NFTs, more financing is inevitable. Indeed, it’s already in high demand. TerraZero has reported that, despite their best efforts, they cannot possibly respond to the volume of mortgage applications that they have received. Finding a way to contribute to this growing market represents a fantastic opportunity for Pangea, as it could be quite profitable for the DAO, as well as being of benefit to the community and wider ecosystem as a whole.
No doubt, it’s early days. If we use advancements in decentralized finance as an analog, the potential for land NFTs to act as "ego pieces"in a composable smart contract world is massive. Infrastructure and tools are in development, so it’s not a stretch to say there will be a growing list of possibilities to generate revenue in the near future. Similarly, the tactics described in this article will only become more accessible. Pangea will be positioned at the center of this innovation, working to reduce infrastructure constraints as they will be vital to enabling sustained growth of virtual worlds and a rich virtual real estate market. Strategic partnerships and investments in critical Metaverse infrastructure we take towards this end will serve to improve outcomes across all the parcels of land in Pangea’s portfolio.
We hope you have enjoyed our Virtual Land Series, and that these articles may both inform the future PangeaDAO community of paths we may take as well as spur conversations around which options we will collectively pursue. Follow @pangeaDAO on Twitter to stay informed, apply to the community Creators Guild & join our Discord to participate, and stay tuned for more exciting updates!