Virtual real estate significantly shrinks, what is the outlook for the Metaverse testing ground?

At the end of 2021, a wave of "land speculation" surged in the virtual world. With the bubble bursting in the first half of this year, the future of virtual real estate and the Metaverse has once again attracted market attention.

According to data platform statistics, due to a decline in user interest and a sluggish cryptocurrency market, the price of virtual land saw a significant drop in 2022. From the perspective of six major Ethereum Metaverse platforms, the average price of a digital plot fell from around $17,000 in January to about $2,500 in August, a decrease of nearly 85%.

At the same time, the unfavorable macroeconomic environment has led to a general decline in the entire cryptocurrency industry, further dragging down the market capitalization of Metaverse platform tokens by over 80%. On average, the land transaction volume of the six major Metaverse projects has fallen from a peak of $1 billion in November 2021 to approximately $157 million in August 2022.

1. Virtual Real Estate from Hotly Pursued to Cooling Off

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

By creating a virtual world parallel to the physical world in virtual space, new Metaverse platforms become important carriers of the Metaverse concept. Unlike the virtual spaces in general games, the land in Metaverse projects has the following characteristics:

First, scarcity and liquidity. The virtual platforms under the concept of the Metaverse are not infinite, but consist of a fixed number of parcels, and the prices between parcels vary based on geographic location and foot traffic. These parcels exist in the form of NFTs, ensuring the uniqueness and traceability of the underlying property rights.

Second, the platform has its own economic and governance system. Most virtual land is decentralized, and the platform facilitates transactions through the issuance of tokens, creating an internal economic system within the virtual world. Additionally, token holders can participate in platform management and development planning through voting, achieving platform self-governance.

Third is the property nature of real estate. This is reflected in the ability of virtual landholders to buy, sell, transfer, and develop land. For example, resale and leasing, as well as creating buildings and landscapes on purchased plots. By embedding corresponding functions and services, various commercial or non-commercial activities can also be carried out on the plots.

Fourth, it has parallel spatiotemporal dimensions. Relying on blockchain, all activities in the Metaverse will be timestamped and permanently recorded. This gives the Metaverse spatiotemporal dimensions parallel to the real world, with virtual existences and events within the platform possessing a historical dimension.

Fifth, support the construction of offline scenarios. Many activities that take place in the physical world can also occur in the Metaverse, including shopping, working, studying, socializing, and holding carnivals. In the future, more and more offline scenarios will be moved to the Metaverse and carried out in a way that is 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 became popular worldwide, Metaverse platforms also flourished and secured a place in the investment field, with various digital land transactions reaching 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 gaming platform was sold for $4.3 million, and this price was refreshed within the month by a transaction price of $5 million.

At the same time, the ecosystem within the Metaverse platform is expanding comprehensively. Artists have established art towns in the virtual world for hosting NFT art exhibitions and concerts, among other events. A well-known sports brand is creating a brand-themed world on a virtual platform, offering fans meet-and-greets, social interactions, promotional activities, and a series of brand experiences. There are also universities planning to launch Metaverse campuses, becoming virtual mirrors of their physical campuses to provide immersive campus experiences. Some countries have even set up virtual embassies in the virtual world, becoming activity centers to promote strengthening bilateral relations with other governments.

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

From the prices that can be compared to luxury apartments in first-tier cities in China, to the entire market being overlooked. The entire Metaverse project market is in a bear market. According to data platforms, as of the date of this article, the trading volume and trading value of the top ten Metaverse projects in the past seven days have seen a significant decline compared to the beginning of the year.

2. Analysis of the Reasons for the Collapse of the Virtual Real Estate Bubble

Why did the Metaverse project encounter a " Waterloo"? 2022 was a year full of uncertainty, with increasing instability in the international economy and political situation, leading to a downward trend in the cryptocurrency industry that set the main tone for the entire market. In addition, the explorability of Metaverse platforms and their intrinsic value could not support the prices that had been inflated by speculators.

1) Global cryptocurrency market bear market

The year 2022 was a year full of changes. Just as we had not fully emerged from the shadow of the pandemic, the backdrop of the Federal Reserve's interest rate hikes and geopolitical conflicts led to turbulence in the international economic and political situation. The uncertainty in the international arena caused cryptocurrencies to continue to decline, and in May, the implosion of a certain stablecoin caused a significant drop in the cryptocurrency market, casting a shadow over the overall crypto market.

According to statistics from cryptocurrency price tracking websites, mainstream cryptocurrencies have experienced a large-scale decline from the beginning of the year to now. With the exception of stablecoins, the drop in the value of cryptocurrencies ranked higher in market capitalization is mostly in the range of 40%-60%. The overall market capitalization of cryptocurrencies is currently close to $1.04 trillion, down nearly 50% compared to the beginning of the year.

NFTs have also been severely impacted. Data shows that the performance of NFTs weakened in 2022, with significant declines in transaction volume, transaction value, and the number of buyers and sellers. Specifically, the transaction value in the second quarter decreased by 85.68% compared to the first quarter, and the transaction volume decreased by 80.05% compared to the first quarter, while 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 trading medium and NFTs as the primary carrier. However, with the decline in token prices across various platforms, the value of virtual real estate has plummeted. Previously, a large number of speculators flooded in and then exited the market simultaneously, directly triggering the collapse of the virtual real estate bubble. Looking at the sales volume and prices of virtual real estate, the market has shown a downward trend since 2022, except for May, and it exhibits 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 prosper and appreciate in value. In the virtual world, a desolate city is akin to the end of the world. Currently, the virtual real estate market has yet to establish a thriving ecosystem, and foot traffic remains unsatisfactory.

On one hand, Metaverse platforms are creating mirrored worlds, moving physical brand stores, experience shops, office buildings, etc., into virtual spaces, 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 phase," with limited playability and explorability within the platforms.

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

3) The Loss of Monopoly and Scarcity

At the beginning of the rise of Metaverse projects, people had high hopes for them.

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 the appearance of cities, 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 to buy a house in real life also cannot do so in the virtual world. Players' perceptions and experiences in the virtual world are all within 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 come into question. Land in a Metaverse is limited, but the Metaverse itself can be infinite. Clearly, current Metaverse platforms do not yet possess irreproducibility, and there is serious homogeneity among the 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, partly due to the influx and exit of speculators, and partly because the current Metaverse projects lack "strong fundamentals". However, in the long run, this market still has very large development potential.

As the digital economy becomes a trend in development, Metaverse projects have become an important port. Mobile banking, cloud shopping platforms, and online courses are increasingly becoming the forms of life that people rely on. Creating game-like perceptible interactive scenes can adapt to the growing online life scenarios. In addition, new business forms such as virtual clothing and virtual concerts are also rising, opening up 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 that is closest to the concept of the Metaverse. The Metaverse has not yet been defined, and humanity's limited imagination is still insufficient to summarize it. At this stage, humanity's construction of Metaverse platforms is of pioneering significance, 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 monopolies and restlessness in the real world are also difficult to avoid being brought along while blending the virtual and the real. However, the scalability of the Metaverse gives us the choice, allowing humanity to switch between different Metaverses to find and build an ideal habitat.

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