Investing here requires some careful planning, reading all the fine print, and most of all, understanding what you're getting into.
If you've ever considered buying real estate in the metaverse, there isn't really a better time than right now. With both stock and crypto markets falling, the cost of acquisition is much lower than it's been in months. There's also even more inventory to choose from, as well as opportunities for long-term gains.
Even if the markets hadn't dipped, I'd still offer you the same advice when it comes to metaverse real estate: Buying with a plan in mind and a long-term hold strategy are key. And as things are now, you're also going to get a bit better of a price (and who doesn't love a discount?).
So what do I look for in the best investments in the metaverse world? I'm going to share a little of my secret sauce.
1. A metaverse property should be secured by an NFT
On many digital platforms, you can buy virtual items, but in most, you never truly own those items. The platform owners can decide the rules (check your End User License Agreement), which can include whether you can resell those items, and they can decide how that item can be changed as the platform evolves.
When you're talking about virtual real estate, it's an even more serious problem than something like a virtual tiara for your avatar. When the platform owners can dictate what you can and cannot do with your virtual real estate, is it even yours at all?
Look for platforms set up to sell digital items backed by NFTs, including, and especially, real estate. These NFTs act as proof of ownership, and the rights that go with them are spelled out by the NFT's permissions, not the whims of the platform owners. After all, you do want to be able to resell, rent, or build whatever you please on your virtual land, don't you?
If your platform offers real estate through a third-party market that sells NFTs, like OpenSea or NonFungible.com, or you're otherwise required to store the purchase in a crypto wallet, you've found virtual real estate secured by an NFT. If you can only buy in-platform, and the information about your buy is only stored within your account on that server, you haven't.
2. Only shop in worlds where you have some say
When you're shopping for virtual land, you have some choices. You can choose a world where the company that built the world is also in charge of the rules and regulations, or you can opt for a world with a decentralized autonomous organization (DAO). Metaverse platforms with DAOs, like Decentraland, The Sandbox, and Otherside, owned by Bored Ape Yacht Club, give you voting rights as a property owner or crypto holder, and thus a say in how your world runs.
For example, if there's a particularly offensive username out there, you can vote to ban it and even create a rule that will prevent that from happening in the future. Want to change how something about the world works, like giving users the in-platform ability to rent their land without having to create a contract elsewhere? You could propose a change to the platform and then the community would vote on it.
Not every DAO is created equally, however. So before you commit, make sure you understand what you can do with your voting rights and how much actual control you can leverage as a denizen of a particular platform. Some people may not want to get involved in platform politics, but it's important to have the option, should an issue arise that you need to address.
3. Watch out for worlds with too many -- or too few -- lots
While there's no definitive data on this yet, consider the law of supply and demand. If you're buying a virtual lot in a platform with only 100,000 lots that will ever be created and that platform is popular with both users and investors, those lots should ultimately be more valuable down the line. You can check in the world's documentation, or basic description, to find out more about how many lands have been minted.
We can look at Superworld, which has 64 billion lots on offer. In the three-month period ending May 9, 2022, the highest daily average sales price was $382.32 on April 3. The lowest daily average sales price in Decentraland, with 90,601 land parcels total, was $1,697.29 on April 20 during that same time period, a low-volume sales day when someone got a heck of a deal.
An argument could also be made for being wary of a platform with too few lots. I generally put my faith in worlds with somewhere between 75,000 and 200,000 lots because they seem to be the most likely to increase in value, hold that value, and provide a lot of reasons for folks to return again and again.
Community is what ultimately creates value in the metaverse
When it comes to investing in the metaverse, it's important to understand what really creates value there: community. People can spend their time online in many ways, so they have to want to choose your metaverse platform -- and they have to have a compelling reason to stay.
Even if you're not interested in running your own metaverse business or creating an experience, you can find good renters who want to do those things but aren't yet ready to invest in their own lands. Not only will you earn passive rental income, but you help to create a further sense of community for a world that's growing.
That stickiness is what makes a platform last. Just look at what Second Life has managed to do in a world before the metaverse was even a serious concept: Linden Labs, the parent company of Second Life, reported $500 million in GDP at the end of 2021. This is a world that's much smaller than modern metaverse platforms, lacks the blockchain technology backbone (so no NFTs), and has been around since 2003, so it's at a technological disadvantage in many other ways. Even so, Second Life is the best model we have for what a metaverse platform could look like two decades down the road, and it tells us what matters the most when making long-term investing decisions.
Citi anticipates the total addressable market for the modern metaverse will be between $8 trillion and $13 trillion by 2030. But unless your world retains its users like Second Life has, you may miss out on that opportunity.
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