Virtual Land Series: Valuation
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February 7th, 2022

In this series, we will outline PangeaDAO’s strategies and current thinking for:

  • Evaluating Virtual Land to assemble a robust portfolio of DAO holdings
  • Establishing ‘DAO Squad’ structures to plan, design, & execute digital builds
  • Generating active & passive revenue from PangeaDAO land holdings

We’re all new to the Metaverse. New digital worlds, analytical capabilities, and immersive hardware will emerge relentlessly throughout the next decade – PangeaDAO is resolved to remain current with all of it and, we invite you to join us. We hope these articles inform the future PangeaDAO community of paths we may take and spur conversations on which options we collectively pursue.

On Evaluating Virtual Land

Fundamentally, virtual land is space – a dimension, capable of hosting our imaginations' technological limits. Sights, sounds, haptics, and someday, smells and tastes. We are so early that buying virtual land is widely jeered. Only roughly 25k people own digital land. PangeaDAO is positioning itself for what we see as a dynamic commercial opportunity. While land value may be volatile, businesses can be built on the land itself and income generated.

Virtual land sales have skyrocketed since Facebook rebranded themselves as Meta - broadcasting a pivot towards a new paradigm of multi-dimensional, immersive experiences. In the process, prices on virtual land in the open Metaverse left many out of the market. Virtual land in the free & open Metaverse (as opposed to Meta’s siloed Horizon Worlds) are NFTs within the crypto space, and thus, were perfect targets for speculation.

While much of the increase in value can be attributed to the speculative nature of the crypto space, there are methods for evaluating virtual land and quantifying latent opportunities within a particular parcel. PangeaDAO acknowledges this challenge early in the Metaverse and will invest in analytical capabilities, human capital, and sufficient time to support optimal investment & development decisions.

Currently, we are evaluating land by the following factors: location/purpose, size, scarcity, popularity, team & roadmap, leadership structure & investors, and (perhaps, most importantly) potential within Decentralized Finance (DeFi). The remainder of this article details each of these factors.

Location & Purpose

While we can appreciate that a land parcel’s market price includes the neighborhood value and proximity to popular attractions, the benefits of PangeaDAO’s internal structure and talent reduce the need to leverage existing traffic. In world’s where teleportation is not possible, we will value location more than in places where it is allowed. Random traffic is diminished by teleporting via hyperlink or by applications like EnterDAO’s MetaPortal. As an individual investor or builder, drafting off existing traffic is a necessary strategy, but PangeaDAO will have several in-house, cooperating DAO Squads – PangeaCreators (a builder’s guild), PangeaPlayers (a player’s guild), PangeaPartners (an outside-in business consulting guild), and several more. Before 1950, Las Vegas was not valuable – it was a desert. It became increasingly valuable after World War II when hotels, casinos and entertainment were built. “If you build it, they will come.”

Although not a driving factor, there may be opportunities when location is a key consideration. Augmented Reality parcels that are layered across the surface of Earth certainly are location-dependent. Some worlds are game-oriented while others are general purpose. Many digital worlds are broken into areas of like purpose. For example, Decentraland has Districts like Fashion Street, Vegas City, and Festival Land that consolidate business cases into clusters.

Winning bids for all N = 34,358 parcels that were claimed during Decentraland’s first land auction. Light grey parcels correspond to the eight major plazas, dark grey parcels belong to the road system, dark yellow parcels belong to one of 56 districts and white areas correspond to unclaimed private parcels. (Goldberg, Kugler, Schär, 2021 “The Economics of Blockchain-based Virtual Worlds: A Hedonic Regression Model for Virtual Land”)
Winning bids for all N = 34,358 parcels that were claimed during Decentraland’s first land auction. Light grey parcels correspond to the eight major plazas, dark grey parcels belong to the road system, dark yellow parcels belong to one of 56 districts and white areas correspond to unclaimed private parcels. (Goldberg, Kugler, Schär, 2021 “The Economics of Blockchain-based Virtual Worlds: A Hedonic Regression Model for Virtual Land”)

Size

Square footage, just like in physical real estate, is a key consideration. Each of the digital worlds within the Metaverse offers land parcels of varying length, width and height. In some worlds, the larger the cluster of parcels, the higher the build can go. For example, the height of a Decentraland build can be calculated with a logarithmic formula log2 (n+1) x 20, where n is the number of parcels. Height of a 2x2 is 46.4 meters; height on a 2x3 is 56 meters. That’s a significant difference, especially when you consider visibility from a distance. As Cryptovoxels showed us in Q4 2021, digging down underground is fair game, as well.

Larger parcels of land allows builders/developers to create more intricate and complex experiences. More space, more polygons, more creativity.

Parcel vs Estate
Parcel vs Estate

Scarcity

Scarcity is a hot topic… and for good reason. The topic is a double-edged sword when considering virtual land. On one hand, land is not scarce at all. Projects that have "scarce” land such as Decentraland have issued a set amount of plots yet issuance of more land is as simple as approval through a community vote. Additionally, as new worlds are rolled out almost daily, there is a constant influx of new virtual land being brought to the market. Another example of note is Cryptovoxels, which has shared that they intend to mint and offer land via primary sales and has a number of total parcels they are targeting, but is not set in stone.

We do take scarcity into consideration. Long after we acquire the asset, we must keep our finger on the pulse of the market and the mints and/or developments in each digital world. In many cases, we will play an active role in the governance within the digital worlds where we have invested.

Project Popularity: “The Third Place”

Traffic Heat Maps for Cryptovoxels from MetaCat
Traffic Heat Maps for Cryptovoxels from MetaCat

Project popularity is a key factor for land value. User count is undoubtedly a key performance indicator. Daily/Weekly/Monthly Active Users tell the story of growth, stickiness, and attrition. Time spent tells the story of The Third Place. The Third Place is a sociological term used to refer to the place where you spend most of your time after the First Place (home) and the Second Place (work). Starbucks' entire brick and mortar model is based on creating the Third Place. The more time you spend, the more money you spend. Not just coffee. Music, art, food. The Metaverse is no different. In fact, the viscosity of value is almost nothing compared to the real world – your digital wallet is plugged right in. Before Amazon + iPhones, the shopping mall was a Third Place for some. But, the shopping mall didn’t die because we didn’t like the experience. We expect a resurgence of “shopping malls” in the Metaverse as projects enable more interactive and immersive e-commerce experiences.

We will build capabilities and/or partner with DAOs to track DAU/WAU/MAU. It is essential for PangeaDAO to track the number of users as a proxy for network effects. Popular projects such as Sandbox benefit from network effects, as user-generated content is more attractive to develop if there is a large base of users to utilize that content. This can be paradoxical as user-generated content is necessary to develop these network effects, but is important to consider nonetheless.

Team & Roadmap

In tandem with popularity, each projects' ability to innovate will have a large impact on the land value. We are at an incredibly early stage of the Metaverse and there is so much more to come. We are seeing virtual worlds that mimic the world we live in today; but, projects will move beyond what is familiar and take leaps to create uniquely immersive worlds. It is hard to foresee what exactly these projects will do or how they will function, but when it happens, the community will take notice.

In addition to the roadmap, knowing the pedigree of the dev and community building team is key. What have they done before? How likely are they to execute their roadmap?

Leadership Structure & Investors

CEO or DAO? Key questions center around how the digital world is moving, what direction and how fast. A single, visionary leader like Somnium Space’s Artur Sychov has a project that can move very differently than a DAO like Decentraland that requires consensus and a vast degree of organization to move towards a goal. Is Animoca involved? Delphi Digital? 3AC? The internal and adjacent structures matter.

Potential within Decentralized Finance (DeFi)

Last, but not least. DeFi. Long before physical real estate becomes plugged in to DeFi, virtual land will have its day. Mortgages, collateralization, reverse mortgages, renting, yield farming, REITs, structured products and fractionalization will extend and unlock levels of value that we haven’t quite seen in virtual land. On fractionalization, EnterDAO is building a product that splits any yield-generating NFT into ERC-20 tokens that can be staked in Yearn-like vaults, all while earning a proportion on the underlying utility– some heady and productive use cases ensue.

Despite the news and popular takes, the land rush has not yet begun. If you haven’t yet, read Tyler Ward's thread about DeFi's power which has not been unlocked. Apply this tweet to virtual land. It’s all fair game and it’s immensely powerful. Why does this matter to how we evaluate virtual land? Quite simply, it’s an order of operations game. Decentraland is going to be the first of pretty much everything, due to its popularity and complete open-source nature. After that, it’s going to be a lot of politics, money, and votes. Attention to the order by which each digital world gets folded into DeFi will not break a project… but, it will make a project.

Closing Thoughts

Pangea is the first DAO-first virtual land DAO. We plan to acquire virtual land and build out best-in-class DAO Squads coordinating to add the kind of value that corporations simply won’t be adding for years. Building out a system and leveraging analytics for data-driven decision making is going to be essential to our success. We hope that you will join us.

Follow @pangeaDAO on Twitter to stay informed, apply to the community Creators Guild & join the Creators Discord, and get ready for the next edition of Pangea's virtual land series!


Website: https://pangeadao.org
Twitter: https://twitter.com/pangeadao
Discord: https://discord.gg/5hFdFJ5nqY


Sources

Figure 1: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3932189
Figure 2: https://market.decentraland.org/contracts/0xf87e31492faf9a91b02ee0deaad50d51d56d5d4d/tokens/115792089237316195423570985008687907802908194361341671446878142108011434344322 & https://market.decentraland.org/contracts/0x959e104e1a4db6317fa58f8295f586e1a978c297/tokens/4677
Figure 3: https://www.metacat.world/en-US/map

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