Investing in Decentraland in 2021

Decentraland made the news when people started banking profits of more than 500% from buying and selling digital land. This was back in 2018, and the decentralized virtual world has only gained traction since. 

Decentraland is the first and most established multiplayer role-playing metaverse built on the Ethereum blockchain. While you can never move in or visit physically, you can buy and sell land in Decentraland—and oftentimes make a lot of money doing so. 

What is Decentraland? 

Decentraland is the fastest-growing crypto-based virtual world. It was created in 2016 by a group of developers in Argentina, and its UX is largely based on Second Life and Minecraft, one of the most popular multiplayer games in the world. 

What distinguishes Decentraland from predecessor virtual worlds is that all of the spaces (called LAND in the game) except for roads and plazas can be bought, sold and developed by the users of the game. Ownership of those virtual properties is documented on the Ethereum blockchain to make them easily transferable and to prevent fraud. Landowners control what content is published on their parcels of land, which is identified by a set of cartesian coordinates (x,y). Contents can range from static 3D scenes to interactive systems such as games, casinos, art galleries, and whatever else developers can imagine and dream up. There is a vibrant community of 3D animators, artists, and developers to execute on these virtual spaces, creating new ways for people (as avatars) to socialize and interact with one another.  

Land in Decentraland

Each LAND parcel is 16 meters by 16 meters in size and is represented by an NFT (or non-fungible token). A non-fungible token is a unit of data on the blockchain that represents a unique digital item (in this case, virtual real estate). NFTs are not interchangeable. 

LAND can be purchased with MANA, the official cryptocurrency of Decentraland. MANA can be bought and traded on Coinbase and other cryptocurrency trading apps. As of March 25, 2021, one MANA was worth $0.85. As of March 2021, on average, one parcel of LAND in Decentraland sold for approximately 6,900 MANA, which equates to approximately $5,800 USD. LAND parcels can be acquired through the in-game marketplace and on third-party marketplaces like OpenSea. Keep in mind that cryptocurrencies are volatile, and speculation is a large reason why most people buy crypto. 

The total number of parcels in Decentraland is capped at 90,000. The developers of Decentraland own the common spaces, plazas and roads and they cannot be bought or sold by users. This scarcity is one of the fundamental drivers of the value of LAND in Decentraland. Just like in the real world, space is finite, which makes owning real estate in this metaverse potentially valuable. 

What do you do with digital land?

In Decentraland (and in other virtual worlds), community is paramount. Just like with real-world real estate, what makes virtual land valuable is not only where it is located within each metaverse, but how owners choose to develop the land. Excitement about the possibilities of what can be created in the metaverse fuels MANA (Decentraland’s digital currency) and land purchases. In order to attract users to virtual land, they must have an incentive to go—an exciting game, interesting content, digital art to look at, new people to interact with, or even money to win at in-world games. The more popular developments within Decentraland are:

• Art galleries where owners showcase and sell their digital NFT art, including Cryptokitties and other types of NFT collectibles

• Casinos, where players can win MANA

• Game sites, such as whac-a-mole

• Brand-sponsored content, such as the recently announced Atari arcade which will feature games that can be played within Decentraland

• Music venues where DJs and musicians play music and hold concerts

As more real-world brands enter the metaverse as a way to engage with, advertise to, and connect with users and customers, it’s likely that digital real estate within the metaverse will continue to appreciate in value. As an example, land that sold in Decentraland for $500 in early 2019 is now trading for over $7,860 today.

Investing in Decentraland

As in real life, real estate is all about location, location, location. The parcels closer to Genesis Plaza (the location at which users enter the game) and various districts such as Vegas City, Crypto Valley, or Dragon City, are typically more valuable than others. Similarly, parcels near crossroads are worth more than those that are not.

In Decentraland, purchasing adjacent parcels can create an “estate.” Owning an estate permits owners to build larger developments. In Decentraland, people all over the world (using their avatars, of course) can attend virtual gaming conventions; gather in a virtual space to watch a real-world sporting event, or pitch ideas to potential investors in a virtual Silicon Valley called Crypto Valley. That’s why it’s important to own many adjacent parcels. This land can be rented out, allowing owners to generate cash flow and potential income from tenants.

Just like when you’re doing due diligence on real estate in the real world, always look at comparable assets (comps). When you’re buying a house, one of the first things you should do is look at comparable properties in the area to get a baseline understanding of price and value. 

The same logic applies in Decentraland—you shouldn’t base your assumptions on the sales price itself, but rather, look at the sales history of similar parcels in nearby locations. Check out nonfungible.com to find out what the parcels are worth, and Opensea.io to see where parcels are trading. 

Why now?

Household names are making their mark on the metaverse, and well-regarded investors are following suit, viewing metaverses like Decentraland as new investment opportunities. 

Recently, Atari announced its collaboration with Decentraland and they plan to take a large estate in Decentraland, where players will be able to play some of Atari’s most iconic games such as Pong, Break-out, Asteroids, Missile Command, Centipede and many others. At a time when socialization has been forced to the internet, individuals are turning to the metaverse for entertainment and interaction in an unprecedented fashion. The more content there is for users to engage with, the more compelling (and valuable) the metaverse becomes, which in turn attracts more users, thus attracting more corporate sponsorships.

Last year, the NFT market tripled in size, and this momentum has continued into 2021. Headlines have boasted record-breaking trades, such as Beeple’s digital NFT piece that recently sold for over $69 million through Christie’s. Art, music, collectibles, wearables, and more are being repackaged as NFTs, and as people continue to invest in NFTs, they will need a place to store, display, and wear their digital assets—and that will be in metaverses like Decentraland.  

Virtual land is emerging as a viable asset class, but digital real estate investing can be complicated. To learn more about digital real estate and investing in Decentraland visit www.republicrealm.com. 

This piece is provided by Republic Compound LLC d/b/a Republic Real Estate and is for informational purposes only.

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