The metaverse era, in which we shall coexist with actual lives in networked, permanent virtual realities, is rapidly approaching. Every activity we can perform in the real world will have a “digital twin” in the Metaverse that we can interact with without leaving our homes. We will utilize these places more and more for work, leisure, socializing, and education. This involves making investments and earning money, and just like in the real world, purchasing real estate will be one of the most well-liked methods of doing so.
Real estate in the Metaverse is already a lucrative industry. Superstars like Snoop Dogg and significant corporations like PwC, JP Morgan, HSBC, and Samsung have already purchased virtual parcels of property that they plan to use for various projects. Early investors have already reaped significant rewards—at least on paper. On Decentraland or the Sandbox, two of the largest metaverse platforms, the average cost of the smallest parcel of land for sale was less than $1,000 less than a year ago. It currently stands at about $13,000.
Ways to value land in the Metaverse
The Metaverse’s real estate market is exploding. The top four metaverses for real estate investing are Sandbox, Decentraland, Cryptovoxels, and Somnium. But how do you genuinely evaluate a piece of metaverse real estate before you acquire a portion of the action yourself?
There probably isn’t a single approach that works for everyone. Here are three concepts that could help you appreciate the Metaverse: though. Traditional valuation is the first technique, machine learning is the second, and financial modeling is the third. I’ll use Decentraland as an example in this piece.
1. Traditional valuation
The majority of individuals probably use this approach the most. This value essentially revolves around a location. (In real-world real estate investing, factors like home type, amount number of rooms, etc., don’t count as much as they do here. Possibly in the future.) Value in Decentraland is typically determined by a property’s accessibility to busy roadways and public gathering places. For instance, a parcel facing the road may cost 6250 ETH, whereas a parcel between other parcels might cost 5700 ETH (as of February 2022). There are benefits and drawbacks to this approach. If you are familiar with meta-verse real estate, you will be able to spot price discrepancies more readily. However, suppose you are unfamiliar with investing in the Metaverse. In that case, you risk being taken advantage of, mainly if you apply too much “real life real estate rationalization” to the Metaverse.
2. Machine learning
You could create a K-means model to tell you how much a piece of real estate should be valued given that the data is openly accessible (you can contact the Decentraland API, for example). For instance, you may color-code on the Decentraland map which parcels belong to the 1000 ETH, 1001-2000 ETH, and 2000 ETH clusters if your K-means model has three collections. In essence, you may use land price data to estimate which groups should be valued at about how much. Since machine learning findings are seldom transparent in their rationale and typically account for “noise” as part of the calculations, this method’s drawback may be that you are prone to falling for “noise.”
3. Financial forecasting
This last approach depends on the projected real estate’s cash flow. This approach relies heavily on inference and is highly prone to error, especially given the volatility of cryptocurrencies. A competent model, however, can predict correct cashflows that are at least of the same size. (This refers to the nearest dollar amount of 10, 100, 1000, etc.). For instance, a plot in front of Genesis Plaza in Decentraland can cost you between 300,000 and 1,000,000 ETH. How could you tell with such a pricing range whether the 300,000 ETH is indeed under-priced or reasonably priced, or whether it is tethered to the 1,000,000 ETH to make itself appear cheap?
You’ll need to perform some “Fermi-sizing” to do this successfully. For instance, a fast Google search reveals that Decentraland typically has 18,000 daily users -a method of thinking to calculate complex figures with little information. We must estimate the proportions since we don’t know what their interests are. We may assume that half of the everyday users of the Metaverse are women if we were selling women’s apparel and wanted to purchase a piece of the Metaverse as a kind of advertising. Furthermore, based on our present understanding of the industry, we know that operational costs, including advertising, consume 90 cents of every dollar in sales, leaving us with a 10-cent operating profit. Therefore, we may assume that out of 9,000 female customers every day,; we could make $900 in profit (9,000 * $0.1). This doesn’t sound like much, yet it generates a $328,500 profit annually.
Decentraland (MANA) and Sandbox (SAND) share the essential but straightforward trait of being Metaverse projects. As a result, investing in either of these ventures will expose investors to the fast-expanding Metaverse market.
The Metaverse’s longest-running cryptocurrency project and biggest project overall by market cap are Decentraland. Imagine Decentraland as a digital recreation of the actual world with peer-to-peer communication, 3D avatars for people, virtual structures and services, and “real” ownership of assets. Users may purchase, trade, and engage with digital real estate, virtual commodities, and virtual services in the virtual environment provided by Decentraland.
The project’s decentralized character is one of its distinguishing qualities and the source of its name. Decentraland’s operations and administration are overseen by a decentralized autonomous organization rather than a board or CEO (DAO). As a result, users of Decentraland may cooperatively manage and control the project.
Decentraland features two native coins and is based on the Ethereum (ETH) network. These tokens are necessary for anyone wishing to use the DAO to make choices and serve in-universe purposes. There are two tokens:
· Mana: An ERC-20 token used to pay for services like hiring a virtual architect or virtual goods from the Decentraland Marketplace.
· Land: An NFT that symbolizes the digital territory found within the Decentraland cosmos. Once users own LAND, they control the programs and structures they develop.
Sandbox is a virtual gaming and Metaverse initiative that lets players develop, purchase, sell, and monetize goods within the game’s virtual environment. Sandbox is the largest gaming-focused Metaverse project, but it is also the second-largest crypto Metaverse project by market valuation, trailing only Decentraland. Sandbox is a collection of user-generated games and material rather than simply one specific game. Users may construct their video games and in-game items using the Sandbox.
Similar to Decentraland, Sandbox is based on the Ethereum blockchain and has both native currency and virtual land. SAND, the native Sandbox token, is an ERC-20 token used for both DAO governance and transactions inside the Sandbox marketplace. Sandbox land, which is mostly used to host games, may be purchased with SAND. Users are free to design games, but they must buy land before publishing them for use by the general public.
Similarities between MANA and SAND
1. Both initiatives have produced a finite amount of virtual land. And in both initiatives, the economy of the ecosystem and the Metaverse’s functionality depend heavily on this land.
2. Users may develop their in-world objects, games, goods, structures, and more in both Decentraland and Sandbox.
3. Through their native tokens, both projects enable the commercialization of in-world goods, real estate, and assets. Users may purchase and sell land and virtual goods in Decentraland using MANA, and they can do the same in Sandbox using SAND. Then, MANA and SAND may be exchanged for other cryptocurrencies, such as US Dollar Tether, on various exchanges (USDT).
Differences between MANA and SAND
1. Purpose: Decentraland is a virtual world that aims to be a realistic representation of the actual world and offers users the chance to interact socially, do business, and have fun. In contrast, Sandbox is concentrated on creating a user-generated and user-owned game ecosystem. However, as the two programs develop and mature, their goals will probably converge more and more.
2. Decentraland now has a ruling DAO and is fully decentralized, whereas Sandbox still has a central authority. However, Sandbox plans to switch to a DAO for governance in 2022.
3. Land Purchase and Supply: Compared to Sandbox, which has a supply of 166,464, Decentraland has a supply of 90,601 land plots. Additionally, Sandbox’s virtual land may be purchased on both the Sandbox marketplace and OpenSea, but Decentraland’s virtual land can only be purchased from its marketplace (the largest NFT marketplace).
Which one is better?
Well, it depends on the preferences of each investor specifically. Do you favor an ongoing project with greater experience and history that strives to build a full virtual reality world? Or would you like a more recent endeavor centered on the fascinating and expanding gaming industry?
The two most influential initiatives in the Metaverse are Decentraland and Sandbox. Although there are some significant differences between the two projects, they also have a lot in common, making them both viable investments for anybody wishing to enter the Metaverse market.
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