Decentraland Land Sales: Is This a Financial Bubble in the Making?

Image: Are We Seeing Another Dutch Tulip Bubble? (Photo by Alisa Anton on Unsplash)

Much of the activity in the various channels on the Decentraland chat server revolves around the buying and selling of LAND, which is the name they actually use for the 10m-by-10m parcels of virtual real estate that were first auctioned off in December 2017 and January 2018. It’s not yet known when the next auction of LAND will take place, so currently the only way to obtain LAND is to buy it from an existing owner.

Here’s one example of some LAND parcels currently for sale, along with their asking prices (this is a screen capture of part of an image shared by a seller on the chat server) :

Decentraland Land Sales Examples 27 Feb 2018

The red circle to the left, near Vegas City (the proposed gambling district), is three parcels of LAND together in a reversed L shape. Asking price is 80,000 MANA, which, according to today’s value using this MANA-to-USD converter tool,  works out to about US$8,749. According to Decentraland believers, this land is considered more valuable because it is located next to what is anticipated to be the lucrative and busy gambling district.

Now, mind you, you can’t even VISIT this land yet, and there is as yet NOTHING in Vegas City. The Vegas City investors are still wrestling with what they want to do with this large expanse of pooled property, how best to organize themselves, and how to split their anticipated future profits. There’s been quite a bit of discussion and even open conflict amongst the members of this group. The three main organizers were initially going to do an Initial Coin Offering of their own blockchain-based Vegas City token, until Decentraland (the company) poured cold water on that idea. (Decentraland is turning out not to be as “decentralized” in authority as some early idealists might have hoped. I think this sort of disillusionment happens in all virtual worlds. Eventually, the parent company has to step in and set corporate policies which the users might not like, want, or appreciate. Ask Second Life users who tried to set up banks and casinos.)

The red circle in the upper right corner of this map is a slightly smaller area (2 adjacent parcels of LAND), in a possibly less desirable location, for which the seller hopes to get his asking price of 25,000 MANA, equivalent to US$2,734. Again, all LAND prices are based on speculation, on anticipated future value. And obviously, some people jumped into Decentraland hoping to make some sort of profit by flipping LAND parcels.

In my opinion, these are astronomical prices, far outstripping what people have spent for virtual land in established virtual worlds like Second Life (where a full sim, 256m-by-256m, is US$600, with an additional US$295 per month maintenance fee). And Second Life land is widely considered to be expensive! Quite aside from the significantly higher up-front costs for much smaller pieces of land, it’s not immediately clear whether there will be any other fees (either monthly or one-time) associated with Decentraland real estate.

What’s worrying me is the fact (as I have said before) that the technical aspects of the Decentraland project are lagging far behind the financial ones. People have spent thousands of dollars on this virtual real estate (with prices actually reaching US$120,000 for one 10m-by-10m parcel of LAND) without a really good sense of what they are actually going to be able to build there, how they are going to build it, who’s going to visit it, or how to monetize it.

My fear is that this virtual land market is becoming a financial bubble, with people already making outrageous claims as to what you can do in Decentraland. It’s like the Wild, Wild West all over again. It is beginning to remind me of some famous financial bubbles of the past, like the Dutch tulip bubble. Everybody is piling on, expecting to become rich.

I’ve already gotten some flak from certain quarters in Decentraland for being a negative Nancy, for not being a true believer in the value of the blockchain, for being one of the relatively few people to say, “hey, wait a minute…” in the midst of all this fevered speculation. I’ve argued with people who assert that the scarcity of land in Decentraland is real scarcity, not artificially-induced scarcity, and that land scarcity is a good thing.

But (and I do apologize for mangling a line from the movie Field of Dreams) there’s absolutely no guarantee that if they build it, they will come.*  The social VR/virtual world marketplace is getting increasingly crowded, and many competing products are more fully featured, and based on models of virtual land abundance, as opposed to scarcity. Sansar experiences can be 4 km by 4 km, and I know that Sinespace regions can be much larger than that (I’m not sure that they have a maximum size limit, although I seem to remember Adam Frisby telling me they could be as big as 32 km by 32 km. I know you could drive a dune buggy for half an hour in one direction in Sinespace’s single Grand Canyon region, before reaching the edge. It was seriously impressive!)

I’ve already written about virtual worlds that foundered due to misplaced priorities and bungled promotion. Having watched various platforms come and go over the past decade (Cloud Party, Blue Mars, Twinity, etc.), I have learned that building a successful virtual world is a much bigger and tricker endeavour than most people realize. In many cases, it’s like trying to fix all the parts of an airplane, one by one, while it’s flying in mid-air. Only in the case of Decentraland, people are frantically bidding up seat prices on a plane that hasn’t even been shown to be able to take off yet.

*Yes, I know that there is no guarantee that Sansar, High Fidelity, Sinespace, etc. are going to succeed either. But unlike Decentraland, they are already actual working platforms which you can visit, test, and evaluate directly. Each has already attracted a small but committed group of avid tinkerers and experimenters. So far, the only truly successful virtual world is Second Life, still going strong after fourteen years and still profitable for Linden Lab, and many new social VR platforms are now fighting to inherit that mantle. Not all of them will succeed. I still do believe that at least one of the Big Five tech firms (Amazon, Apple, Facebook/Oculus, Google, and Microsoft) will release a social VR/virtual world product that we haven’t seen yet, funded from their deep pockets, and roil the marketplace even further. It’s an exciting but perilous time for any new virtual world. We may well end up with a Facebook-like situation, where one company dominates the market. We’ll see.

UPDATE March 5th: I was able to confirm that the maximum size of Sinespace regions is 32 km by 32 km, which is amazing!

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16 thoughts on “Decentraland Land Sales: Is This a Financial Bubble in the Making?”

  1. Well, there already is Facebook Spaces, but I know what you mean….Decentraland seems like vapourware to me…Or maybe, vapourworld is a better name for it…Decentraland’s virtual plots of land are meaningless until someone actually builds something there…Seems like a scam-bubble until proven otherwise…

  2. You must tell about ICO #RedLight district aka the7vr, which will starting on 30th March. It will be unique and a “boom” story for all Decentraland metaverse! See: “You might change the name of red light district to Cape Canaveral or Mission command we are moon bound my friend..” link
    Regards, Russian speaking community of Decentraland

  3. It is I, SAAMiAM.. Next level thinker, perpetually aware, discoverer of PROOF OF VALUATION. Eclectic visionary, provider of opportunity. Dynamic Doer.. Ryan Schultz, if I may attempt to provide you a percpective of Decentralazation as this veteran US Marine, nomadic regulation interpreting engineering horny advocator of appreciating the beauty of the gift of sacrifice sees it.. And my perspective comes to you in the form of a question first.. This i must do before I provide you the proof of valuation for why the land is in fact worth no less that $10,000 USD as is now without a single nft stacked upon it.. Decentralands red headed stepchild, TheSeven7vr.. How the fuck can a group of people, having never met before, and with nothing more than a kindred passion, assemble, colaborate and launch a startup with very clear direction and purpose in just 15 days? Furthermore, how can they do this without a structured centralized suppressive governance model of “no, because i say soism” in place? And how is it these random decentralized men and women from 7 nations and 7 timezones get it done faster than any other AND WITHOUT COMPENSATION??? Ill tell you how.. By being a truly decentralized organization. Born from an within a decentraland, and being true to the decentralideals of its founder.. Dont tell me 50 ways it wont work, give 50 people an oportunity to try their idea to make it work.. Buying and selling land in decentraland is an opertunearial way to profit from others fomo and is far from entrepeneural (fuk spel thcek). You cant see the land?? Well close your eyes then and let the vision command thy way.. Still dont get it? You will on March 30.. Now my centralized friend here is your proof of valuation, and the supporting documentation and verifiable dataset you so desperatley require to sleep well at night.. All district lands and surrounding private lands currently have an established benchmark value assessment of $10,000USD per LAND, the NFT that represents 10x10m piece of decentralized real estate. (As per the Decentraland publically posted “end of auction statistics” wherein the average cost of lands near center sold for an average 46,000+ and at the USD to MANA at end of auction of $.20usd per MANA, the average price paid was $9,800+ per LAND NFT.) Utilizing the very common Asset valuation certificate used by govts and customs agents globally to establish a benchmark value with factual verifiable data together with the potential economic possibilities the Districts present the proof of valuation assessment certificate is set to $10,000usd.) Pay anything less and you are getting a steal.. It is this compliance tool i used when discovering the Proof of Valuation protocol The Seven7vr utilized in the erc827 District Contributors Tokens. And why each token is worth no less than $5,000usd per token. We dont need an established centralized governance decentalralized autonomous organazation to govern us in the redlights.. We govern ourselves with common sense freedom, selfless intent and a focus on providing the very best user experience possible through fostering growth and success in others.. If you dont get it by now you never will.. But ill keep trying, and when you see me flying, you just might start crying…

  4. As someone with extensive experience in the Second Life land baron business, I can tell you what these tiny parcels at high prices are about: ad farming and scarcity of resources.
    The true determinant of the value of virtual land is NOT how much land area you have (though it is useful to have a lot for some limited applications). What imposes true scarcity on virtual land models is server resources in the form of rendered 3d content. SL regions are limited to 15,000 “prims” or primitive objects (which in addition to the default inworld building shapes, can include “sculpties” and normal 3d game meshes uploaded from Collada files). So with 65,000 odd square meters of land in a region, 4 square meters of virtual land represents the ability of the server to host 1 “prim”. When all the land in a region is sold, the local market for more goes exponential quickly. The user can of course pack up their stuff and find a bigger parcel in a less crowded region, but many users lack the ability to do so for various reasons to do with user permissions, creator perms, and the users familiarity with the building tools in the viewer. However many have virtual businesses that, like any business rely on customer knowledge of their location in the form of landmarks in their customers inventories that allow them to teleport directly to their store. Obviously moving one’s store can cause a significant hit in traffic and therefore revenues. So when your land is filled to its maximum prim capacity, you are on the hunt for neighbors with land for sale.
    Enter the ad farmer. Ad farmers will buy small parcels in a sim, subdivide it into 4 sqm parcels, put an annoying spinning advertisement on the land, and putting the land up for sale at a high price that is often hundreds of times higher per square meter than the average market price for land. It is normal according to any non-marxist economist, that the last few of anything available on the market is going to have an astronomical price. So it is natural to expect the last few square meters of land available in any simulator is going to have a crazy high price, because it is literally the last land available and increased scarcity of supply drives prices higher in the face of increased demand.
    This economic phenomenon caused many customers ignorant of economics to go crazy ranting against the ad farmers, and as Linden Lab drifted more left wing over time, they prohibited users from hosting ads on their land at the same time that their land is for sale at any price significantly above market average. Yes, you can get banned and your land taken for seeking to make a profit for normal economic reasons in Second Life, which is one reason why its user base has been shrinking for the last 8 years.
    So, back to Decentraland. The parcels in question are adjacent to large parcels that clearly may have a need for more server resources in the future, and also exist in common areas between such parcels that may be popular hangout spots for landless avatars, so would be prime locations to place advertising and other signage.

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