Late last year, a flood of money from tech enthusiasts and corporate marketers ignited real estate prices in the metaverse. Alt-coin owners and CryptoPunk NFT collectors with stars in their eyes and cash in their pockets sought to justify the price spike by buying up celebrity-like properties, many of whom used the Metaverse for promotional purposes, rather than, say, view.
To say that the boom was not built on solid foundations is both accurate and an understatement.
Snoop Dogg, to take a high-profile example, built a digital replica of his Southern California mansion in the middle of the Sandbox metaverse, calling the 144-plot square the Snoopverse. Snoop’s virtual neighbors include mega-DJ Steve Aoki and a handful of massive Atari developments, where visitors can play the company’s games and attend events.
Record purchases made headlines soon after, such as when a buyer, known only as P-Ape, spent $450,000 on a nine-lot property right next to the Long Beach rapper. Just down the virtual block, an anonymous buyer paid 25 ETH – worth around $60,000 at the time – for a single package, which measures 16 by 16 meters.
Prices peaked around the start of this year, but a crypto bear market and slower-than-expected metaverse adoption have ravaged prices, down 85% since January, and buying volume, which nearly faded away.
P-Ape’s package could now be worth a mere $25,000, though having Uncle Snoop as a neighbor probably provides a little boost. A digital map of the Sandbox shows dozens of properties for sale. Some ambitious sellers have list prices in the hundreds of thousands, but today’s market says that’s not going to happen any time soon.
The average price of a package in five of the largest Ethereum-based metaverse projects fell to around $2,500 from nearly $21,000 in January, according to WeMeta, a metaverse data and analytics company. The drop was even sharper at Sandbox, the world’s largest metaverse by volume of land sold, where the average fell to around $2,800 from $35,500. The weekly volume of goods purchased in the five major metaverse worlds fell to $650,000 for the week of August 7, from $62.5 million in mid-November, a decline of nearly 99%.
“Investments in the metaverse are risky. Chances are you’ll lose everything,” says Fabian Schär, a professor at the University of Basel and managing director of the school’s Center for Innovative Finance.
Most business owners bought their land for marketing purposes, hoping to place experiential advertisements or virtual storefronts along the busiest boulevards of metaverse metropolises. Samsung has built a virtual version of its New York flagship store, allowing customers to test products. Adidas owns a property in the Sandbox where it sells digital sports equipment as NFTs.
These companies paid hundreds of thousands of dollars when the metaverse and crypto hype was high and money was flowing into digital assets. The tougher economic outlook has made it harder to justify spending that money on earth in virtual worlds. But the usefulness – or lack thereof – is virtually unchanged.
“The vast majority of utilities are still there, but their price has gone down for other economic reasons,” says Lorne Sugarman, CEO of Metaverse Group, a virtual real estate company. Sugarman adds that he’s not worried about falling prices because his company expects to hold properties for years as utility increases with adoption.
“We are not seeing a significant decrease in traffic. But that being said, the traffic has never been particularly high,” says Schär. “What has changed are people’s expectations.”
These remain exorbitant for some. Management consulting giant McKinsey predicted in June that the metaverse could become a $5 trillion market by 2030, equivalent to the size of Japan’s economy, the world’s third-largest.
Billionaire businessman Mark Cuban has been one of the loudest critics of metaverse land sales, despite his investment in Yuga Labs, the creator of Bored Ape Yacht Club (BAYC) and its corresponding metaverse world, Otherside . Yuga made around $320 million selling Otherdeeds, NFTs that granted ownership of 55,000 plots of land in the BAYC virtual hangout.
“The worst thing is that people are buying real estate in these places. I mean, it’s just the dumbest shit ever,” Cuban said in an interview posted on the crypto-focused YouTube channel Altcoin Daily on Sunday. Cuban added that buying metaverse land was stupid “because there are unlimited volumes you can create.”
Cuban added that he thinks certain properties will have value once the community in this metaverse is stronger. According to a paper by Schär and fellow researchers, the most valuable metaverse terrain is located in areas where chance encounters have been stimulated by communities already there.
“It’s an attention economy. People are interested in having land in high-traffic places,” says Mitchell Goldberg, who holds a Ph.D. candidate at the University of Basel and one of Schär’s co-authors. “But, if the attention for the whole world goes down, then the prices for all those plots of land will go down.” Goldberg adds that while he thinks Cuban was right that new metaverse lands can always be created, corporations can’t manufacture attention.
Another key factor is a memorable address. Metaverse visitors can teleport anywhere in a particular virtual world by typing in X, Y coordinates. Schär said catchy numbers, like 100 degrees by 100 degrees, leads to more visitors than, for example, 271 and 73.
Some companies have taken advantage of using short-term rentals instead of buying metaverse property. Companies like Sugarman’s Metaverse Group lease land and have a team of developers to turn their tenants’ visions into reality.
The Australian Open has rented a virtual court from another metaverse company to host a festival alongside the annual tennis tournament. The space featured digital stadiums where fans could interact and watch historic matches together.
Sugarman says his company expects adoption to increase over the next three years, but he doesn’t see that happening without more development of traffic-generating features like better games. Metaverse Group took advantage of lower prices to build on cheaper land, and Sugarman said he thinks other companies understand that now is the time to expand.
“There have to be other tools and different experiences to make the metaverse more interesting, and that will drive traffic,” Sugarman says. “As there is more understanding and more learning, we think the critical mass will happen.”