Metaverse Virtual Real Estate: From Frenzy to Calm Market Transition

At the end of 2021, a wave of "land speculation" swept through the virtual world, and with the burst of the bubble in the first half of 2022, the prospects of virtual real estate and the Metaverse have once again attracted market attention.

According to data platforms, due to a decline in user interest and the impact of the crypto bear market, the price of virtual land dropped significantly in 2022. From the perspective of six major Ethereum Metaverse platforms, the average price of each digital plot fell from around $17,000 in January to about $2,500 in August, a decrease of nearly 85%.

At the same time, due to unfavorable macroeconomic conditions, the entire cryptocurrency industry has overall declined, further leading to a market valuation drop of over 80% for Metaverse platform tokens. On average, the weekly land transaction volume of the six major Metaverse projects has decreased from a peak of $1 billion in November 2021 to approximately $157 million in August 2022.

1. Virtual Real Estate from "Rising Star" to "Collapse"

In the second half of 2021, the concept of the Metaverse became popular worldwide, leading to a wave of "land speculation."

Unlike the virtual spaces in regular games, the land in Metaverse projects has the following characteristics:

1. Scarcity and Liquidity. The virtual platforms under the concept of the Metaverse are not infinite, but consist of a fixed number of plots, and the prices of these plots vary based on geographical location and foot traffic. The plots exist in the form of NFTs to ensure the uniqueness and traceability of the underlying property rights.

2. The platform has its own economic and governance system. Most virtual plots are decentralized, and the platform facilitates transactions by launching tokens, thereby creating its own economic system within the virtual world. Token holders can also participate in platform management and development planning through voting, achieving platform autonomy.

3. Real estate attributes. This reflects that virtual landholders can buy, sell, transfer, and develop land. For example, resale and leasing, as well as creating buildings and landscapes on purchased plots. By embedding the corresponding functionalities and services, various commercial or non-commercial activities can also be carried out on the plots.

4. Equipped with parallel space-time dimensions. Based on blockchain, all activities in the Metaverse will be timestamped and permanently recorded. This gives the Metaverse a space-time dimension parallel to the real world, where virtual entities and events within the platform possess a historical dimension.

5. Support the establishment of offline scenarios. Many activities that take place in the physical world can also be conducted in the Metaverse, including shopping, working, studying, socializing, and holding carnivals, among others. In the future, more and more offline scenarios will be moved to the Metaverse and carried out in ways that are not limited by physical conditions.

The characteristics of the Metaverse platform redefine virtual space, and under people's attention, this market continues to ferment.

In the second half of 2021, as the concept of the Metaverse swept the globe, Metaverse platforms also rose significantly and secured a place in the investment field, with various digital land transactions hitting new highs. In November 2021, a piece of digital land in a certain virtual world platform was sold for a high price of $2.43 million. In December, another piece of virtual land on a different virtual platform was sold for $4.3 million, a price that was refreshed that month by a transaction of $5 million.

At the same time, the ecosystem within the Metaverse platform is expanding comprehensively. Artists are establishing art towns on virtual platforms to host NFT art exhibitions and concerts. Well-known sports brands are leveraging virtual platforms to create brand experience zones, offering fans meet-and-greet events, social interactions, promotional activities, and a series of brand experiences. A certain university plans to launch a Metaverse campus, becoming a virtual campus for its Guangzhou campus, to provide an immersive campus experience. A certain country has set up a virtual embassy in the virtual world, becoming an activity center to promote strengthening bilateral relations with various governments.

However, since 2022, the market heat has plummeted, and the speculation in the virtual world has gradually receded.

From prices that can rival luxury homes in first-tier cities to the entire market being ignored. The whole Metaverse project market is in a bear market. According to a certain data platform, as of the date of publication, the trading volume and trading amount of the top ten Metaverse projects in the past seven days have significantly decreased compared to the beginning of the year.

2. The Burst of the Virtual Real Estate Bubble

Why did the Metaverse project encounter a "Waterloo"? The year 2022 was filled with uncertainty, with increasing instability in the international economy and political situation, and the continuous decline of the cryptocurrency industry set the main tone for the entire market. Additionally, the explorability and intrinsic value of Metaverse platforms could not support the prices that were previously inflated by speculators.

1) Global crypto market bear market

The year 2022 has been one full of changes. Still not completely out of the pandemic's shadow, the international economic and political situation is turbulent amid the backdrop of the Federal Reserve's interest rate hikes and the Russia-Ukraine conflict. The uncertain international situation has led to a continued decline in cryptocurrencies, and the implosion of the stablecoin UST in May caused a significant drop in the cryptocurrency market, casting a shadow over the entire crypto market.

According to statistics from cryptocurrency price tracking websites, mainstream cryptocurrencies have experienced a significant decline from the beginning of the year to now. Except for stablecoins, the drop in the market capitalization of top-ranked currencies is mostly in the range of 40%-60%. The overall market capitalization of cryptocurrencies is currently close to $1.04 trillion, which is a nearly 50% drop compared to the beginning of the year.

NFTs have also been severely impacted. A certain data platform shows that the performance of NFTs weakened in 2022, with significant declines in transaction volume, transaction value, and the number of buyers and sellers. Among them, the transaction value in the second quarter decreased by 85.68% compared to the first quarter, while the transaction volume decreased by 80.05% compared to the first quarter. The number of buyers and sellers decreased by 68.57% and 57.33%, respectively, compared to the first quarter.

Virtual real estate uses cryptocurrency as the main medium of transaction and NFTs as the main carrier. However, as the prices of tokens on various platforms have fallen, the value of virtual real estate has also plummeted. Previously, a large number of speculators flooded in and then exited the market en masse, directly leading to the collapse of the virtual real estate bubble. From the perspective of sales volume and prices of virtual real estate, the market has shown a downward trend since 2022, except for May, and has a significant correlation with the cryptocurrency market and the NFT market.

2) Lack of desolation and immersion

Virtual real estate, like physical real estate, relies on planning, design, and foot traffic to thrive and appreciate in value. For the virtual world, a desolate city resembles the end of the world. Currently, virtual real estate has yet to establish a prosperous ecosystem, and foot traffic is also unsatisfactory.

On one hand, Metaverse platforms are creating mirror worlds, moving brand stores, experience shops, office buildings, and more from the physical world into the virtual space, allowing players to enjoy various services. However, after the novelty of this experience wears off, the issues of service singularity and limitation begin to surface. Moreover, most Metaverse projects are still in the "pioneering stage," and the playability and explorability within the platforms are limited.

On the other hand, the lack of immersion is another important factor. VR/AR technology has entered a stage of rapid development, but it has not yet been widely applied to mainstream Metaverse projects. The visual and auditory experience on a two-dimensional plane is difficult to present the realism comparable to the real world, and the real-time interaction with virtual scenes is still in its early stages. The single sensory dimension remains a common issue among mainstream Metaverse platforms.

3) Loss of Monopoly and Scarcity

At the beginning of the rise of the Metaverse project, people had high hopes for it.

The real world is often unsatisfactory, with the pandemic sweeping across the globe, traditional economies facing difficulties, and serious social competition. People's desire to "live towards the virtual" is becoming increasingly strong. Unlike the virtual world that is disconnected from reality, the Metaverse platform has opened up a new realm parallel to the physical world, where humanity can redesign urban appearances, establish business rules, and create social order.

But the reality is that the construction of the Metaverse also relies on the power of capital. From buying land and construction to determining the functions and rules of the plots, capitalists are gradually monopolizing. Those who cannot afford a house in real life are also unable to do so in the virtual world. Players' perceptions and experiences in the virtual world are all under a pre-established framework, making the vision of freedom and equality difficult to achieve on Metaverse platforms.

At the same time, with the emergence of more and more Metaverse projects, the scarcity of land has been questioned. The land in a Metaverse is limited, but the Metaverse itself can be infinite. Clearly, current Metaverse platforms do not yet possess uniqueness, and there is serious homogeneity among various platforms. As the supply of land in Metaverse projects gradually increases, the value of the land is also difficult to maintain.

4) The choice between reality and ideals

The virtual real estate market continues to decline, on one hand due to the influx and exit of speculators, and on the other hand due to the current "lack of confidence" in Metaverse projects. However, in the long term, this market still has significant development potential.

In the current trend of digital economy development, Metaverse projects have become an important port. Online platforms such as mobile banking, cloud shopping platforms, and online courses are increasingly becoming the relied-upon forms of life for people. Moreover, creating game-like perceivable interactive scenes can adapt to the growing online life scenarios. In addition, new business forms such as virtual clothing and virtual concerts are also riding the wave, creating new economic growth points for the virtual world.

In the bear market of the cryptocurrency industry, the concept of the Metaverse has not cooled down. On the contrary, various technologies related to the Metaverse are accelerating their development. Virtual land, as a testing ground for the Metaverse, is currently the product closest to the concept of the Metaverse. The Metaverse has not yet been defined, and humanity's limited imagination is still insufficient to encapsulate it. However, the current stage of human construction of Metaverse platforms is pioneering in nature and is shaping and influencing the final form of the Metaverse.

The construction of the Metaverse is not about creating a utopia, relying on the protection of the virtual world to escape reality, which will lead to a retreat of human civilization. At the same time, the blend of the virtual and the real will inevitably bring along the monopolies and restlessness of the real world. However, the scalability of the Metaverse gives us the choice; humanity can switch between different Metaverses to find and build an ideal habitat.

In reality, in ideals, the exploration of the Metaverse platform will become an important outlet for us.