Securing Equitable Access to Virtual Real Estate — Part 1/5
A five-part series on how to correct course
Guest blog by Jeran Miller — if you are interested in submitting your stories to WeMeta, please reach out!
Virtual real estate (“VRE”) was practically born in a dead sprint. By the time most of us realized it existed, it was already out of sight, having passed over the horizon of affordability for regular people. When Decentraland launched in 2017, parcels were about $20. Within four years, those parcels were up about 65,000%. The least expensive parcels currently sell just above the $13,000 mark. I, like many others, became aware of VRE in 2021. I was intrigued by the notion of digital land — a digital means of production in a new, virtual world. I logged onto Decentraland and The Sandbox’s websites to see how much I would need to shell out to get myself a plot, expecting a price tag of about $50–60. You can imagine my surprise.
There just wasn’t a chance I could afford to take a risk on $13,000. It would clear out a large chunk of my savings, and frankly, I’m better off than most. Only 39% of Americans could afford a $1,000 emergency expense if it was required of them. A lot of games are now requesting over a thousand dollars for a single parcel at launch, and most of us are left with nothing but a shrug.
It’s clear that speculation and the profit motive drove the prices up. As reported in the New York Times, many buyers are already planning to lease their land to business owners. A great number of others are only looking to hold, waiting for the moment to sell and claim their windfall. That’s certainly understandable. It’s what happens with real-life commercial real estate, and who doesn’t want money? It probably wouldn’t be worth complaining if it weren’t for the fact that these particular resources are digital. And, as such, their scarcity is totally artificial. There’s no particular limit to the amount of digital land one could create, but we choose to make it scarce so as to give it value.
Again, understandable. Metaverse platform and blockchain game developers need to get paid, and selling NFTs like virtual land has proven to be a very effective way to get a project funded. These private companies should be generating profits, and I am glad they are. The situation is nevertheless unfortunate in so far as it has locked many low and middle-income people out of this entire asset class, even at its inception — not to mention literally billions of people in the developing world.
The situation we’re creating is akin to real-world commercial real estate. The vast majority of businesses do not own the building they operate out. There are some upsides to those renting, but the situation tends to be one bordering on exploitation in a lot of cases: smaller businesses paying larger institutions for the privilege to use their space for productive purposes. Bear in mind that the owners of the building often do nothing with it. The only thing required of them is the property’s maintenance, which itself is often delegated to the tenant. This lack of value added does not seem to abate rental rates, though. If you would like to open a business in the real world, and you need space, you better be ready to spend a surprising amount of money on a commercial lease.
In the digital environment, landholders would not even need to contribute maintenance, as digital assets do not deteriorate. Essentially all they have to offer is their location on the map. It makes for an even more unbalanced scenario, and one that nobody but the parcel owners benefits from. Ideally, a virtual world should be dynamic and interesting so as to hold the attention of its users. People need to be actively contributing for its long-term success, infusing the world with value rather than simply holding land for speculative purposes. If things grow stale, users will move on, and investors of all sorts will suffer.
I am by no means the first person to spot this problem on the horizon. Lars Doucet and Matthew Scott Jones both deserve credit for having described it quite cogently. It’s already being referred to as a “housing crisis” in some circles. That seems like hyperbole to me, but I do see the potential for an odd and unnecessary sort of “meta-feudalism” to take shape.
To try to obtain a picture of the current state of ownership in a popular metaverse, I’ve tried to gather what data I can about “LANDs” in The Sandbox. Per data published at the end of November 2021, approximately 16,000 people currently own LAND. Imagining that only the 103,165 parcels available to peruse on OpenSea have sold so far, we arrive at roughly 6 parcels per owner. Many owners doubtlessly have less LAND than that, but some certainly own far more.
EDIT: Two days after originally posting this article, MetaMetriks tweeted the following. “In total, the top 10 Land Barons account for a HUGE 14.8% of all land in #Sandbox, owning over 15,000 units worth $220,495,847.” This is as stark of an indication as any that this asset class is being concentrated in the hands of a privileged few, even at this very early stage in its development.
Moreover, a visualization by user @takenstheorem on Twitter shows that a great number of these LAND owners also have parcels in the other three largest metaverses. So, there is a degree of concentration of control that has emerged already.
Rather than simply accepting the possibility of a virtual underclass, this series of four articles will attempt to offer some solutions. We are at an early stage in the development of VRE, and turning the battleship even a couple of degrees in the right direction could make a huge difference in the future.
In the next section, we will explore potential tweaks in the supply and the parameters of virtual real estate, so as to ensure wider ownership. Part 3 will explore the potential of fractional ownership and different methods of distributing parcels. Part 4 attempts to explain how certain forms of taxation could be used to beneficial effect. And finally, Part 5 will explore the role that lending could play in making VRE more accessible.
Thank you for reading this far, and I hope you enjoy the series!
Click here for part 2!
