Metaverse Land Prices Are Driven by These Five Factors, Says Hedge Fund Investor
Prices on real estate in the metaverse are mainly determined by the number of people that will get exposed to it, and how well it can be turned into a yield-generating machine for its owners through various monetization strategies, a hedge fund principal who specializes in digital assets has argued in a new essay.
“What does it mean to be a 'neighbour' in the metaverse? Why does it even matter? What if Snoop Dogg had multiple houses in the metaverse? Do land prices near all those houses get a premium? Frankly, nobody knows,” Joel John, a principal at the digital asset-focused investment firm LedgerPrime, opened his essay by saying.
He went on to explain that unlike tokens, which can be divided into smaller parts, digital plots of land in the metaverse generally require significant amounts of capital to buy. For instance, he said the average price of a plot of land in The Sandbox (SAND) is around USD 10,399, while it is approximately USD 11,954 for a piece of land in Decentraland (MANA).
To understand these prices, John wrote, it’s important to first understand what land in the metaverse really is. And according to him, it is nothing more than “a plot where you can express anything digitally.”
More specifically, the professional investor argued that there are five main factors that can impact the value of a piece of digital real estate:
- Overall footfall
- Memetic proximity
- Geospatial context
The first among these, the “overall football” refers to the number of people that will get exposed to a piece of digital real estate, much like how traditional commercial real estate is more expensive in areas where many people pass by.
Then comes what the author calls “memetic proximity,” which he described as the ability to be close to something or someone in the metaverse that is expected to generate attention.
Further, the geospatial context has to do with how someone can earn a reputation by owning the same asset as a well-known person owns, or by owning a piece of land close to a famous person or company.
Next, financialization refers to the growing interconnection between finance and the metaverse, with various investment strategies employed to make profits or generate yields from digital real estate. For example, yield from metaverse land could come from renting land out, or from splitting land up into fractions that people can buy at lower prices, John suggested. Digital land that is more suited for these strategies will be valued higher, he said.
Lastly, the value of metaverse land will always be influenced by the design of the game it is in. If the graphics and internal art of a game are “stunning,” it is likely that developers will auction off plots of land in the game. The landowners could then advertise or otherwise charge fees to other users for using the land or for letting them pass through it, John wrote.
Meanwhile, countering a commonly heard argument that metaverse land can’t be worth much because it can be generated indefinitely, John stated that he believes this argument rests on flawed logic.
“This is the same as saying blogs are not worth much because there are countless blogs. The value of a plot of land in the metaverse is directly proportional to how much attention it gets at different points in time,” he said.
Commenting on the difference between investing in metaverse land and traditional cryptoassets, the investor noted that these two types of digital assets will not trade in the same way. The reason for this, he argued, is that the high costs of digital land pieces mean that most owners will choose to “develop” their land.
“These plots have a high entry barrier, and even when a collective owns them, they are incentivized to develop them instead of reselling them immediately for a quick buck,” he wrote.
John concluded that, in his opinion, the present-day metaverse lands governed through decentralized autonomous organizations (DAOs) are "symbolic of where the internet may trend in parts and pieces—decentralised, user-owned and slightly crazy," adding:
"The future - in my eyes, is a remix of the past."
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