Decentraland

Investment into the Web 3.0 metaverse sector has continued to rise since Facebook announced their rebrand to Meta in October 2021. While the metaverse is still in the early stages of growth, many aspects have the potential to revolutionize our digital lives (Grayscale Metaverse Report). As a result, the native tokens and virtual world real estate assets of leading crypto Metaverse economies have been booming, including Decentraland. 

Decentraland, one of the leading blockchain-based virtual worlds, is creating an open-world metaverse where users can earn MANA (the native token), to purchase LAND, a Non-Fungible Token (NFT) that divides Decentraland into virtual plots (Grayscale Decentraland Introduction). Similar to physical real estate, the real estate value of Decentraland’s ecosystem is created by interactions and exchanges between users across a number of business activities, including art galleries, offices, games & casinos, advertising, sponsored content, and music venues.

While the concept of virtual real estate may be difficult to reconcile at the moment, this could soon change. From the dawn of mankind until the internet became ubiquitous, humans have spent their entire lives in the physical world. In only a couple decades, the web has changed the way we experience shopping, socialization, entertainment, and more, allowing the technology sector to become the largest in the stock market today. While we have been using the web since the early 2000’s, ownership of value on the internet has only been possible since Bitcoin launched in 2009. Since then, the shift to Web 3.0 has brought many innovations, including the emerging trend of owning our online worlds through metaverse real estate. 

Real estate buyers – ranging from gaming companies to metaverse REITs and virtual land development companies – are increasingly turning to Decentraland as a frontier opportunity. These metaverse pioneers are building emerging market digital economies and seeking to profit from increased consumer adoption and business activity in the virtual world.

This increased interest in the Metaverse is driving a virtual real estate boom in Decentraland; in November 2021 a plot of virtual land sold for a new record of ~$2.4 million. The Decentraland real estate market and the MANA token are closely linked, and the increased interest in LAND is one component that fundamentally underpins the intrinsic value of MANA (Figure 8 & 9).

Decentraland Real Estate 

The Decentraland virtual world is made up of ~90,000 plots of 16m x 16m real estate NFTs (Figure 1). The value of LAND is based on its location in relation to other LAND plots, similar to the physical real estate market. In Decentraland, proximity to public areas such as Genesis Plaza or public roads have become a driver of value. As user traffic increases for a plot of LAND, the potential opportunities to monetize that plot through the sale of NFTs, advertisements, or other services also rises. 

FIGURE 1: DECENTRALAND GENESIS CITY MAP AS OF NOVEMBER 2021[1]

  ^{[1] Genesis City}

Growth of MANA & LAND 

Over the past year, both the Decentraland token (MANA) and real estate (LAND) have seen a dramatic rise in value, as users increasingly turn to virtual worlds as economic hubs. Although the value for individual land can vary, the weekly average sale price of Decentraland NFTs (mostly land but includes other NFTs such as wearables) presents a good estimate for how real estate values have changed over time relative to the MANA token (Figure 2).

FIGURE 2: WEEKLY AVERAGE MANA TOKEN PRICE VS. DECENTRALAND LAND PRICE[2]

  ^{[2] TradingView, Non Fungible (11/26/20 to 11/25/21, LAND may include non-land NTFs)}  

While both Decentraland assets have performed well and have tracked each other closely over the past year, MANA has modestly outpaced LAND—with the weekly average price of the two rising by 4,947% and 4,173%, respectively (Figure 3). 

FIGURE 3: 1-YEAR RETURN: DECENTRALAND LAND PRICE VS. MANA TOKEN PRICE[3]

^{[3] Non Fungible, TradingView (Date: 11/26/20 to 11/25/21)}

LAND Market Size 

Both MANA and LAND are scarce digital assets. The supply of LAND currently stands at 90,601 parcels, with ~50% of the plots being zoned as “private land,” which is owned by thousands of individuals and corporations (Figure 11), while the remaining are set aside as either “districts,” “roads,” or “plazas” – which are all for community use, such as concert venues, public town squares, and exploration areas (Figure 4). 

FIGURE 4: DECENTRALAND LAND PLOTS BY TYPE[4]

  ^{[4] NFT Plazas}  

Comparing the market cap of the MANA token to the market cap of Decentraland real estate, the MANA token has not only outperformed the land, but it has also captured most of the digital economy’s market value – even though both have seen strong growth.

The market cap of MANA stands at ~$11.4 billion, which could be compared to either the Total LAND (Private, District, Road, & Plaza Land) at ~$1.8 billion or the Private LAND at ~$0.9 billion, estimated using the number of plots and the weekly average sale price (Figure 5).

FIGURE 5: DECENTRALAND MARKET CAP: MANA TOKEN VS. TOTAL & PRIVATE LAND[5]

^{[5] Non Fungible, Coinmetrics (Date: 11/26/20 to 11/25/21)}

The virtual real estate market has seen impressive growth, but it remains only a tiny fraction of the total real estate market, which is one of the largest asset classes in the world today. As more of our lives are spent online, the virtual realm could dematerialize greater parts of the real estate market by capturing a value shift from the physical to digital world as our attention and social norms evolve. While the value of digital land in the Decentraland Metaverse has seen strong growth, the economy’s digital real estate value has the potential to grow materially relative to the physical market (Figure 6). 

FIGURE 6: REAL ESTATE MARKET VALUES[6]

  ^{[6] Source: Non Fungible, Lendingtree, Federal Reserve, Fundstrat, Note: Metaverse total land includes Decentraland, Sandbox, Crypto Voxels, & Somnum Space; calculated as total land plots multiplied by weekly average NFT price as of 11/25/2021}

Economic Activity 

The Decentraland real estate market is still small in relative terms, however, interest and sales activity have been growing rapidly. Secondary market NFT sales in Decentraland grew from $3.6 million in October 2021 to ~$20 million in November 2021. All-time secondary market sales of Decentraland NFTs have grown by ~2.5x over the past year to ~$100 million (Figure 7). 

FIGURE 7: DECENTRALAND SECONDARY MARKETPLACE NFT SALE[7]

^{[7]  Non Fungible (Date: 9/29/17 to 11/25/21)}

MANA Value Capture 

The digital economy’s strong business activity growth is a contributing factor to the intrinsic value of the MANA token. Economic activity in Decentraland could range from LAND sales to avatar registrations, to wearable clothing sales, to other digital goods and services in the future.

When these NFT asset transactions take place within the Decentraland economy, the protocol charges a fee denominated in MANA that gets “burned” (i.e., removed from circulation), creating scarcity, and resulting in deflationary pressure on the token price (Figure 8). 

FIGURE 8: DECENTRALAND ECONOMY ACTIVITY MANA FEE RATE[8]

^{[8]  NFT Plazas}

The economic effect is analogous to strong GDP growth increasing government tax revenue, leading to a budget surplus and allowing for the reduction of national debt, which in turn reduces the money supply.

At issuance, the MANA token supply was ~2.9 billion. Since launch, that supply has steadily decreased as economic activity has grown. The following chart shows the amount of MANA in supply against the MANA burned as fees. The large jumps in the amount of MANA burned correspond to the LAND sold at primary auctions – which burn the full price of the land sale as a MANA fee. The total dollar amount of MANA that has been burned to-date is ~$50 million. As a result, the supply of MANA has decreased to ~2.2 billion, as of December 2021 (Figure 9).

FIGURE 9: DECENTRALAND CURRENT MANA SUPPLY & ALL TIME FEES BURNED[9]

^{[9]  Coinmetrics (Date: 9/30/17 to 12/1/21)}

Growth Opportunity 

Decentraland has seen impressive economic activity growth, however, it has barely penetrated its total addressable market opportunity. Global revenue from virtual worlds could grow from ~$180 billion in 2020 to ~$400 billion in 2025 (Figure 10). Over that time, monetization models are also expected to shift dramatically, with consumers spending less on purchasing premium games and spending more on in-game digital items that enhance gameplay or social status within these virtual worlds.

Decentraland’s digital economy, which has reached ~$100 million in total secondary market NFT sales (Figure: 7), is the next evolution of this monetization trend. Revenue models are shifting away from closed games where consumers pay game companies, to open metaverse economies, like Decentraland, where consumers transact on peer-to-peer secondary marketplaces. 

FIGURE 10: GLOBAL VIRTUAL WORLD REVENUE GROWTH[10]

^{[10]  Ark Invest}

This large and fast-growing market opportunity leaves ample room for Decentraland to benefit from the rising tide of Metaverse adoption. As interest in the metaverse continues to grow, we believe the virtual worlds that attract people for business and leisure activities will be the ones that capture the most value – for the same reasons that New York City is more valuable than any small town. 

FIGURE 11: DECENTRALAND ALL TIME ACTIVE WALLETS & METAVERSE SHARE[11]

^{[11]  Non Fungible (Date: 9/29/17 to 12/10/21), Note: Others estimated using all time active Metaverse wallets less Decentraland wallets, which doesn’t take user overlap into account}

Decentraland was one of the first Web 3.0 metaverse economies to launch and remains one of the leading crypto virtual worlds today. That head start has helped the digital economy assemble one of the largest user bases within the Web 3.0 metaverse segment. Measured in terms of all-time active wallets, the Decentraland Metaverse has grown to ~20,000 users, which is nearly 40% of the ~50,000 total crypto metaverse users (Figure 11). As interest in the metaverse continues to build, Decentraland may see corresponding growth in its user base, which could have a positive impact on economic activity, real estate values, and, ultimately, the MANA token.