How to Buy Metaverse Real Estate… and what to pay for it.
Since Republic Realm completed the largest metaverse land acquisition ever recorded last month, my inbox has been exploding with people asking me how to buy metaverse real estate.
Buying metaverse real estate is actually fairly simple. Metaverse real estate is an NFT; you can buy most NFTs (including metaverse real estate) through NFT marketplaces like OpenSea.
While it has become a convention to call this esoteric concept of the space inside interactive websites or video games “real estate,” it isn’t real estate at all. When you buy metaverse “real estate,” you are actually buying a dedicated block of code inside a video game. It’s software, not real estate. It’s something like a banner ad on a website in that it has a fixed location, a dedicated space.
In my opinion, The Sandbox metaverse map helps to visualize the concept of metaverse in an intuitive way. On the map, each square is a parcel of “real estate” in the Sandbox metaverse. Each parcel of land is designed to be a 100m x 100m square inside the game. As different buyers buy the land, they can post their logos or chosen images to designate their holdings. For example, the big purple R on the top of the map represents a parcel owned by Republic Realm.
Land developers in The Sandbox can truly erect whatever they desire, such as this luxury villa that Republic Realm sold for 5 ETH originally and currently sells for nearly 60 ETH in secondary sales on OpenSea.
So, what should an informed buyer pay for a parcel of such real estate?
At Republic Realm, we value each parcel using two distinct valuation strategies: asset-based and venture capital-based. We then compare the results of those two strategies to form an opinion of the asking price and make our own offers.
Models for Valuing Metaverse Real Estate
The Asset-Based Valuation Model
Using this model, we treat metaverse real estate like any asset purchase, and look at comparable sales in OpenSea and on nonfungible.com for recent trades, pricing trends, and sales volume. In this way, it is very similar to any real-world asset purchase such as real estate, but also gold or stocks. We ask questions such what were the economics of the last similar trade, and is the price trending up or down based upon most recent sales?
Different metaverses have different drivers of value. In Decentraland for example it’s advantageous to be near a casino. In The Sandbox, land that is adjacent to Snoop Dogg’s parcel trades at a premium. Like any neighborhood in the real world, proximity to different points of attraction may increase the value of a parcel of land. Many metaverses like Decentraland, allow players to teleport between locations, making travel instantaneous and somewhat irrelevant to valuation; however, even in that example, proximity to certain attractions in Decentraland generally makes nearby parcels of land trade at higher prices than others.
Additionally, larger assemblages or contiguous parcels of land are more valuable than the same amount of land broken up into smaller parcels. This dynamic is equivalent to that in the real world, in which a square foot in a small, skinny lot in New York City is worth far less than one in that which encompasses an entire city block. This is because square footage that is part of a huge, contiguous lot is more rare, and because you can build more grandiose developments on larger parcels of property. In many metaverses, the zoning requirements allow for taller buildings if the development spans multiple parcels, and so larger parcels trade at a premium to smaller parcels.
Scarcity is an underlying driver of value in all virtual worlds. At the outset of any metaverse project the developers state the total number of land parcels which will ever be created. This is something akin to “fully diluted shares outstanding”, the number of which is multiplied by share price to calculate market cap in a public equity valuation.
Below is a table showing the total maximum number of land parcels that certain metaverses have committed to producing:
Metaverse Number of Parcels
Decentraland 90,601
Sandbox 166,464
Axie Infinity 90,601
CryptoVoxels 6,554
Somnium Space 5,026
EmberSword 160,000
Because the team that develops a metaverse typically holds a significant amount of that metaverse’s land in treasury, they motivated to support the value of those holdings by encouraging development and selling new blocks of land slowly so as not to flood the market and erode the price.
The total value of all the land in a metaverse is roughly equal to the average price of a parcel multiplied by the total number of parcels. Understanding this metric is useful because it becomes a bit easier to sanity check the valuation of an entire metaverse.
For example, in The Sandbox, there are 166,464 total LANDs, of which 10% is held by The Sandbox to hold special events and 16% is held in a reserve to reward partners and gamers. That leaves 123,840 LANDs (or 74% of the total) as freely circulating and available for purchase.
As of this writing, using the current OpenSea floor price of Sandbox parcels of $11,800 and The Sandbox’s total of 166,464 lands, the total value of parcels in The Sandbox is somewhere in the range of $2 billion. Meanwhile, the current fully diluted market cap (if all tokens were sold) of the SAND token is $15 billion, while its market cap currently sits at $4.6 billion with a token price of $5.05.
Venture Capital-Based Valuation
In addition to the asset-based valuation model, we evaluate the underlying metaverse platform in which the metaverse real estate exists like a venture capital style investment.
Specifically, we look at traction, team, and roadmap.
Traction: We look at user engagement in the metaverse, and if it has not yet launched we look at its online community (Discord, Telegram, Twitter, etc.) to see if it is abuzz with excitement or indifferent. We look for trends in those metrics, and follow the conversation closely for any signs of bots or other user-growth hacks that might be manipulating the outward appearance of the community’s health.
Team: We meet the team and look for founder-market fit. We ask whether this team has ever built something similar in the past, and whether they have the right talent to execute on the vision. Ultimately, building a metaverse is similar to building a video game in terms of complexity, and so founders with video game development backgrounds have a distinct advantage over those who do not.
Roadmap: We also look for a very solid go-to-market strategy. Like video games, there are hundreds of metaverses under development, and while the brilliance of the platform will determine some of its allure, the team’s ability to market the project will determine whether people find out about it. A solid marketing strategy with some unique angles is critical.
Some of the platforms we feel have done a particularly outstanding job of marketing include:
Star Atlas, which has created the best metaverse hype video of all time,
Wilder World, which has partnered with influencers and built hype along the way through a series of well publicized NFT and token drops,
The Sandbox, due largely to their map which is a bit like watching a party of logos show up for a convention, and
HighStreet, which launched the FOMO duck NFT drop to build their community in advance of the metaverse’s launch.
In the end, Republic Realm takes each of these data points and applies a “conviction score” to the metaverse, which can be as much about our intuition as it is about our diligence process. We do a gut check to assess our conviction, then use that conviction to size our allocation. The more we like it, the more we allocate. In this way, our asset allocation across different metaverses is a proxy for our conviction about any one particular metaverse.
