Recent sales of Otherdeed NFTs, a collection of land plots in an upcoming metaverse, brought in about $300 million for Yuga Labs, the group behind the famous bored nonfungible token (NFT) primates. In fact, the majority of metaverse projects, including Decentraland and The Sandbox, have chosen to handle virtual land ownership using NFTs, the blockchain industry’s primary technique for generating digital asset scarcity. All of this has led to a fascinating query in the community: How can digital land ever be scarce in the metaverse, a vast, virtually limitless digital space? So let’s get started.
Let’s start by addressing the biggest issue: The metaverse isn’t real. I’m referring to a seamless virtual reality-based version of the internet in the Ready Player One metaverse. For a Decentraland rave, you might put on your VR helmet, but it won’t likely stay on for your daily Instagram fix or news feed scan.
In other words, instead of the browse-whatever of the larger web, we currently have a growing number of relatively isolated metaverse projects that offer users a variety of project-specific experiences and functions. This suggests that, even if we view the value of their lands through the same lens as real-world land, scarcity is a valid concept to take into account.
The country’s laws
Real-world factors such as access to infrastructure, the presence of urban and logistical centers, as well as the presence of fertile soil, determine the value of a piece of land. These factors include natural resources such as mineral or oil deposits, forestry, and renewable energy sources. Depending on what you have in mind for this land, all of this could come into play. Value is defined by purpose, but it can still be measured.
Land is no exception to the rule that value and scarcity frequently go hand in hand. The total surface area of the planet is 510.1 million square kilometers, but more than half of that is underwater, which is useful for submarine cable lines and oil and gas pipelines but not much else. Even though we have changed about 15% of the available land area so far, there is only so much land there is. The pool of land that actually makes financial sense to acquire gets even smaller when value and financial viability factors are taken into account (an investment must be worthwhile).
Take The Sandbox as an illustration. What good is it to get there? Value again derives from purpose. For instance, being in a similar digital space to Gucci would probably be advantageous if you were a fashion brand. Additionally, if you wanted to compete with this brand, you would want your plot to be as close as possible to its own in order to try and steal some of its customers with the gorgeous exterior of your own outlet.
Here, the concept of scarcity is once again relevant. You can only purchase a certain number of NFT plots next to the Gucci store. Distance may appear arbitrary in the digital world, but that isn’t entirely accurate. Distance is determined by how this particular metaverse manages space, objects, and movement—the fundamental, cornerstone elements of its design. You probably want your own metaverse store to be a real, explorable 3D space, which necessitates a 3D spatial grid and at the very least, a simple physics engine. Although it’s likely possible to manipulate non-Euclidian geometry and other clever design elements to make the space larger inside than outside, doing so would increase the workload on the backend and negatively impact the user experience.
As we can see, the foundations of digital realms and the activities they can support are determined by technological limitations and business logic. The processing power and memory on its backend servers may be limitless in the digital world, but they are not. There is only so much creative freedom you can have within these constraints while still managing to keep the business afloat. There is only so much digital space you can host and process without setting your server stack on fire. In the process of creating a system of coordinates that guides how its users and investors interpret value, these frameworks also create scarcity.
The vast, untapped world that exists
The intrinsic characteristics of a particular metaverse, as defined by its code, account for a large portion of the valuation and scarcity mechanisms, but real-world factors are just as important, if not more so. The abundance of the metaverse won’t significantly alter them or lessen the scarcity.
Start by talking about the user bases. For Decentraland, the figure is approximately the same as the 300,000 monthly active users reported by The Sandbox. This is the limit for your monthly foot traffic at whatever metaverse outlet you are operating in terms of pure math. Therefore, even though they are not particularly impressive, they will probably be difficult to beat for most newer metaverse projects, which again depresses the value of their land. On the same basis, investors would choose the AAA metaverse and its lands, no matter how scarce they may be, over the other ten projects with no users. Additionally, this leads to a value-driven meta-scarcity: In general, there is a lot of land, but only a small portion of it is suitable for investment.
Here, a comparison with on-page advertisements will be useful. The number of ad spots on a page is constrained by the requirements of a reasonable UX because advertisers prefer websites with higher traffic. You can always create a dozen more websites, but if they don’t attract the same amount of traffic, their ad spots won’t be nearly as valuable, and the ones on the top sites are hard to come by.
Beyond user bases, there is the intangible “wow-factor” as well. Brands purchase lands in metaverses because, among other things, they anticipate media coverage. It is true that the largest businesses will gain traction wherever they enter the metaverse through their own influence. However, they would rather support something that has gained some notoriety on its own, just as they would choose Bloomberg coverage over a small newspaper. Brands prefer partners who compete on an equal footing, outperform their peers, or at the very least appear to be doing any of those things. These are typically in short supply.
Even though we may eventually have a single coherent metaverse, the rules governing it will probably serve as a natural or artificial foundation for conceptualizing value and will probably include some form of scarcity. Now, competition and, by extension, scarcity are very much part of the equation in a world of dispersed metaverses that users cannot seamlessly bounce between.
There are no recommendations or investment advice in this article. Every trading and investment decision carries risk, so readers should do their own research before choosing.
