The idea of the metaverse goes back decades. Second Life, a virtual gathering place that started in the aughts, is one of the oldest. Fortnite, a video game with a building component, is a newer, more sophisticated example, as are Roblox and Minecraft.
But from first principle thinking, virtual land is space made up of pixels – an extension of real-world dimension, capable of hosting our imaginations' technological limits. Sights, sounds, haptics, and someday, smells and tastes - who knows? We are so early that buying virtual land is widely jeered.
Allegedly, only ~ 25k people own digital land. While land value may be volatile, businesses can be built on the land and the income generated. And 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 deed/parcel.
I believe there are 6 key value drivers for Metaverse and its future. And I have tried to summarize them below.
Roadmap and Leadership: Each project's ability to innovate will have a large impact on the land value. HL’s value add on Otherdeed will depend on who we bring into the ecosystem (Animoca? MetaMundo? 3AC? Gucci/Coca-Cola? Who else?), and how the development decisions get made. Does HL form an investment committee starting off with an alliance of core members? Knowing the pedigree of the dev and community-building team is going to be key. Has the team done this before? How likely are they to execute on their roadmap?
DeFi Hub: The thesis is that long before physical real estate becomes plugged into DeFi, virtual land will have its day. Mortgages, collateralization, reverse mortgages, renting, yield farming, REITs, structured products, and fractionalization (for example, EnterDAO) will extend and unlock levels of value that we haven’t quite seen in virtual land. And the good news is that the land rush has not yet begun. Otherside needs to be at the center of it all because of its popularity, existing network effects, and open-source nature. More on this in the section below.
‘Third Place’: The viscosity of value is almost nothing compared to the real world – your digital wallet is plugged right in. 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).
For reference, 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 but music, art, food, in-game assets, and even purchasing things you don’t want (Amazon?). The Otherside metaverse (or metaverse at large) is no different. Before Amazon/ iPhones, the shopping mall was the 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.
The goal here will be to build capabilities and/or partner with DAOs to track the number of users DAU/MAU, etc. as a proxy for network effects.
Location: 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. The world of Otherdeeds is primarily game-oriented while many digital worlds are broken into areas of like purpose depending on the type of minerals, soil, etc. For example, in other virtual worlds like Decentraland, there are Districts like Fashion Street, Vegas City, and Festival Land that consolidate business cases into clusters.
Proxy for Scarcity: The availability of rare asset(s) is super-critical as we saw in the immediate spike of Otherdeeds with Koda vs. without Koda.
Projects that have "scarce” land (Koda vs. No Koda, for example) 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.
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. The height of a 2x2 is 46.4 meters; the height of 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 allow builders/developers to create more intricate and complex experiences. More space, more polygons, more creativity!