Why I (partly) disagree with Mark Cuban on the metaverse
A couple of weeks back, on the Altcoin Daily podcast, billionaire Mark Cuban shared his thoughts on the metaverse and virtual land. His criticisms are important for a number of reasons. Not only is he a billionaire, but he’s a billionaire on the record as a crypto enthusiast and even an investor in Yuga Labs (the entity behind Bored Ape Yacht Club and their recent foray into virtual land through ‘Otherside’). It might seem a little bold of an early-30s proptech researcher such as myself to pen a response, but my work on Pi Labs’ recent white paper on the topic prompted me to offer a rebuttal, as well as some shared viewpoints. Besides, who doesn’t love a David and Goliath story!
👍 “The metaverse is anything you want it to be…”
“…people that are focused on VR want that to be the metaverse, right? People want Web3 to be the metaverse. Anytime you have more than one person together… it… there’s no rhyme or reason to it yet…”
The first metaverse issue addressed during Altcoin Daily’s episode with Cuban, this is a viewpoint our research very much identifies with. We address the sometimes-heated conflict around the definition of the metaverse on the first page of the first section of our report (as well as recent articles of ours on digital twins, decentralisation and virtual land).
Simply put, the phrase ‘metaverse’ originated in a 1992 cyberpunk novel by Neal Stephenson called Snow Crash. You’ve probably heard of it, but like most others outside cyberpunk and XR circles, this is likely to have happened after Facebook rebranded to Meta in late 2021 (see below chart for Google search activity immediately after the rebrand).
A 2003 book by Paul Geroski, which I came across as required reading for a recent programme of mine (thanks, Prof Marc), is a helpful resource when trying to understand the scramble to define the metaverse. I’d offer it as essential reading for anybody who feels they have the definition of the metaverse pegged at such an early stage. Geroski gestures to product variety in the early stage of new markets, as well as the ‘irrational exuberance’ which often accompanies new trends. As these scrambles play out, a ‘dominant design’ often emerges, to which ‘path dependency’ latches for decades or even centuries. Geroski’s insights offer a subtle reminder that we are indeed not as special as we think we are. Instead, I’d argue we’re simply reliving history the Nth time over. Check out this classic video of Bill Gates trying to explain the internet to David Letterman back in 1995:
👎 “…people buy real estate in these places. That’s just the dumbest shit ever…”
“…immaculately dumb. Y’know, it’s just like, if, y’know, it’s not even as good as a URL or, y’know, a ENS because there’s unlimited volumes that you can create. Now, after you create a community, not before, but after you create a community, then you can find places dependent on how that community works than can have perceived value because of access or whatever…”
This one’s interesting. I’ve put a thumbs-down because I disagree with how third parties have characterised Cuban’s statement. Many have left out an important caveat he made, which is that virtual land can have value if a community has been built around it and ownership offers access. Nevertheless, I also disagree with his actual statement.
I do agree with the premise that an infinite number of virtual land plots could be created. I’d go further than that and say many will prove to be follies (and even a number of outright scams). However, when it comes to the theory of virtual land’s potential as a viable asset, I’d gesture to two important factors limiting supply: between-metaverse (interplatform) scarcity and within-metaverse (intraplatform) scarcity…
Between-metaverse (interplatform) scarcity
The gaming world has taught us that quality virtual worlds are expensive and take a long time to develop. It took Epic Games six years to develop Fortnite — a massive multiplayer online role playing game (MMORPG) which allows up to 100 players to interact in each ‘shard’. Given that key tenets of the metaverse are synchroneity and persistence (a little like the real world, where a footprint you leave in the sand is in that same place for everyone …until something happens to it), the processing power for what some would consider a true metaverse is not easy (or cheap) to replicate. This is a big reason why metaverse platforms (think Decentraland, Sandbox, Voxels, Somnium Space, etc.) are perceived by users to be cartoon-ish, childlike or lower-fidelity. Metaverse developers are going to have to compromise on fidelity to be able to maximise the number of concurrent users until they’re able to achieve both (which seems like it’ll take a long time). Not all of these platforms are the same, which is well quantified by the variation in virtual land investment each has experienced. Of the 21 virtual land platforms tracked by NonFungible.com, two of them (Otherside and Sandbox) represent 60 percent of total cumulative virtual land sales since each respective launch.
Within-metaverse (intraplatform) scarcity
…but what’s stopping each virtual land platform from expanding their maps ad infinitum? After all, the best-selling virtual land platform even has ‘infinite expanse’ on its map. The answer to this question rests in the governance of each platform. Decentraland, for example, is governed by an Ethereum-based decentralised autonomous organisation (DAO). Tokenholders within this DAO are able to vote on a long list of issues such as whether to include vehicles, as well as whether plots should change from 100sqm to 256sqm (which they did in 2019). The problem with this governance structure is that it usually apportions voting power in proportion to a user’s landholdings, currency, or both. This means a so-called DAO quite closely resembles voting shareholders in a public company or the landed gentry of 19th century England. If these decision makers act in their own Friedmanesque self-interest, it’s very likely that the supply of virtual land on each platform will be constrained.
Where will the chips fall..?
There’s a lot of confusion around the metaverse at the moment, and many are seeing the chaos as a ladder (some with good motives, and others less so). What’s playing out today has happened many times over with previous innovations and technologies. It would be a mistake to write off investors in virtual land simply because you don’t understand how its use cases could evolve over time, and an even greater mistake if you perceive a lack of scarcity as its key issue. For a deeper dive into this topic and others pertaining to the metaverse and XR’s disruption of the physical world, check out our recent paper.
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