BROWSE THROUGH PARCEL—a site that bills itself as the “Zillow of the metaverse”— and you’ll get a sense of the range of virtual property estates available on the market. A Decentraland plot with the coordinates (-55,-135) is on sale for 5,800 MANA—the Ethereum token that powers the VR platform—which was worth over $14,000 as of late January. A few clicks away, a land plot with the coordinates (22,22) is going for 20,000 MANA (about $50,000).

Those prices may sound hefty, but they pale in comparison to some of the headline-grabbing land sales in virtual worlds. Metaverse Group, a digital land development firm, spent $2.4 million on a Decentraland plot in November. Another such firm, Republic Realm, dropped $4.3 million on a parcel of land in The Sandbox metaverse, which it wants to turn into a city. Yet another investor spent roughly $450,000 just to buy a piece of property next to Snoop Dog’s virtual mansion.

Raša Karapandža, a visiting professor of finance at NYU Abu Dhabi, has been watching the metaverse gold rush with a growing sense of bewilderment. In the real world, property values are governed by the laws of supply and demand. But in the metaverse, where virtual properties exist free of the laws of physics, Karapandža is struggling to justify why we still value “location, location, location.” Could we be carrying our real-world biases onto web3?

“You travel instantaneously from location to location,” in the metaverse, he points out. “What does it mean that you are next to something, if you can travel instantaneously?” He has a similar outlook on the finite supply of land available for development in blockchain-based metaverses. “By construction, supply in the metaverse should be unlimited because you can just add more,” he says. Some see things differently. “Of course, people can teleport to any other location within this world. But first, you would have to know where you want to go,” says Mitchell Goldberg, a PhD candidate studying decentralized finance at the University of Basel.

As one of the co-authors of a study examining the economics of blockchain-based virtual worlds like Decentraland, Goldberg has also observed the focus on location in the metaverse. But he argues that such an interest makes sense because virtual properties—unlike real-world real estate—are most important for businesses. “In the metaverse, you want to be the first thing that people see, the first thing that people will go to,” he says.

Goldberg compares metaverse locations to domain names, or how you rank on Google Search. As a metaverse-based store, for instance, renting a space in Decentraland’s Crypto Valley could determine how many users randomly stumble upon your brand, or bring certain bragging rights that other locations lack.

The same reasoning influences the value of land parcels with easy-to-remember coordinates, according to Fabian Schär, a professor of decentralized finance at the University of Basel (and Goldberg’s co-author). “We detected a significant positive impact for parcels with coordinates like (10,10), or (50,50), which makes perfect sense because it’s much more recognizable,” he says. “You can just memorize it more easily than something like (-233, 71).”

Metaverses like Decentraland are also constructed to mimic the economics of brick-and-mortar property. The platform, which sells NFT tokens linked to its land plots, offers a finite supply of land for sale, allowing the law of supply and demand to operate just like it does in the real world.

In the end, however, there’s one factor that really bends metaverse economics: the rapidly expanding number of virtual worlds. There’s no cap on the number of metaverse platforms that can enter the market; Republic Realm is already tracking more than 180, according to a December report from the company. If metaverses boom, a supply glut could pop the virtual property bubble.

Karapandža, who’s been watching social media giant Meta’s plans to build virtual worlds with interest, predicts that only a few platforms will ultimately attract enough users to emerge successful. “I think this is going to be a fearsome battle,” he says.

Schär isn’t so sure. Blockchain-based virtual worlds may have an “independent underlying infrastructure,” which gives users a bigger say in how they evolve. “You don’t have things like a hold-up problem. That’s something in economics we refer to when, as an investor, you face uncertainty, because you know that somebody else is in control, and somebody else may change the rules,” he says.

Rather than a battle for survival, Schär is predicting that developers will eventually build technology allowing users to travel between metaverses—with the help of a few platforms leading the way. “I would assume that there will be a dominant standard,” he says. “That doesn’t mean that there is only one virtual world. But when there is a dominant platform and you have certain standardized things—like what NFTs can be used, and how the avatars look—then I would assume that some of the other projects will switch to the same standards just to make it interoperable.”

• Share