Distribution and New Ways of Owning
Securing Equitable Access to Virtual Real Estate — Part 3/5
Guest blog by Jeran Miller — if you are interested in submitting your stories to WeMeta, please reach out!
Note: This is the third in a series of articles on creating more equitable access to virtual real estate (“VRE”). If you’d like to start from the beginning, you can access the first article here.
Changing the distribution mechanisms
One of the most obvious options for distributing parcels to more people is the platforms simply giving some away. This could be some sort of charitable initiative on their part, but it doesn’t need to be. Early on in a platform’s lifespan, airdrops and the promise of free parcels might be used to drive initial traffic. Later on, promotional giveaways of a parcel or two could also be used to generate interest via social media. Pavia (the first metaverse in development for the Cardano blockchain) and Next Earth are two platforms that have done this for marketing purposes. Nevertheless, these are small numbers relative to the whole, and charitable action is not something that should be counted on — especially in the context of for-profit companies.
The most interesting alternative to the current system of distribution is something I first found in an article by Matthew Scott Jones. He suggested that one could establish a “conditional right to purchase” based on a sort of proof-of-work system. A user essentially would be required to contribute some sort of productive activity in-world in order to qualify to buy some of its land. It’s clearly inspired by the mechanisms of the Bitcoin network, and it seems to me to be a strikingly clever solution to at least part of the problem.
one could establish a “conditional right to purchase” based on a sort of proof-of-work system. A user essentially would be required to contribute some sort of productive activity in-world in order to qualify to buy some of its land.
For example, imagine you couldn’t buy a parcel in “The Sandbox” until you’ve participated in the creation of a certain number of working features in the metaverse. The count then resets with each parcel purchased. This could have positive effects for all users. Or, imagine Somnium Space required a certain number of hours of interaction with other participants for one’s account to be flagged as a potential landowner. These are only some such ideas, but a system of this sort could represent a non-coercive way to incentivize users to build out the platform. It would also serve to make it much harder for speculators to buy land to hold without actually contributing value. Such a mechanism is worthwhile to consider, and I’d really like to see someone at least attempt it to gauge the results.
New forms of ownership
1.) Virtual REITs
Beyond alterations to the way in which parcels are distributed, we would also benefit from exploring more accessible forms of ownership. I’ve argued in a previous article that the long-term growth of VRE as an asset class will require it to prove itself by generating cash flow. But, it has grown to its present state (at least $8,000–$14,000 per parcel, depending on platform) without furnishing such proof. In fact, it exited the financial reach of the majority of the world’s population on speculation alone. If it produces income as intended, it’s going to be expensive, and we will have even more need of a means for regular people to participate in ownership. This is a problem that has existed in physical real estate for a long time, and one solution that evolved in that environment is the Real Estate Investment Trust (REIT).
A REIT is a company that purchases and holds real estate. The money for these purchases is provided by people who buy its shares. The real estate gets leased out, and the proceeds that generates get distributed to the shareholders as dividend payments. REIT shares are far more affordable than any one of the buildings they own, costing about as much as a typical stock. This allows people across class lines to engage in real estate investment. And, REITs have proven themselves quite solid as investments, typically outperforming the S&P 500 Index. For that reason they’ve grown into big players in real estate, holding over $3.5 trillion dollars in assets in the US.
So, could you extend REITs to the virtual world? Yes. In fact, a few people already have! The first virtual REIT launched in December of 2021. It’s known as the MetaSpace Real Estate Investment Trust (“MREIT”), and its token is available to trade on Uniswap V3. The MREIT intends to lease the virtual parcels it holds, collect proceeds from the rent, and then pass along the profits to its tokenholders — just like standard REITs do. And, it appears to be performing well so far, even if it’s only a few weeks. $MREIT is currently $1.16 per token (as of January 11th, 2021), up from just $.14 at Christmas. I imagine there will be several more such virtual REITs in years to come, but I’m aware of at least one (called “ImperioDAO”) that is also presently in the works.
2.) Fractional ownership
The next step going forward is likely to be fractional ownership of the parcel’s NFT itself. I assume that if you’re reading this, you’re well aware of what an NFT is. At some point, the ownership of digital land through an NFT will be fractionalized, allowing any number of owners to have a stake in a given asset. This would allow ownership of the asset on a fractional basis, rather than ownership of the trust/company that owns the real estate as REITs. Rumor has it that several platforms are currently building out solutions to help make this possible, but I have so far not seen anyone offering this to consumers.
Fractional ownership through tokenization is being done in physical real estate, though. Unfortunately, the efforts don’t appear to have met with a great deal of success. Many startups offering such an investment have come and gone in recent years. I wrote a full-length article expressing why I believe this has been the case, but basically, it doesn’t seem like it has an ideal group of users. It will be interesting to see if fractional ownership has more success in the virtual realm. I think it’s inevitable that it will at least become an option available to us, though.
The trajectory of virtual REITs and fractional ownership bring hope that there will soon be several ways for people of lesser means to get involved in the VRE asset class. I do wonder if this solves the problem, though. Or, does it just change the “grain” at which the problem exists? Could it be that fractional ownership doesn’t change so much the percentage of real estate owned by regular people, but instead shifts the problem from “owning X% of the whole parcels” to “owning X% of all the fractions”? Time will tell.
Nevertheless, I like that virtual REITS and fractional ownership represent attempts to change the ways in which the VRE investment game can be played, to the benefit of regular people. That sort of systemic innovation at a large scale is going to be necessary to have a good and lasting solution. In the next section, we will explore further systemic solutions — specifically, taxation. While taxation runs somewhat counter to the libertarian ethos that birthed blockchain technology, it may be an excellent way to establish fairness in virtual space. Click here to read on.
