The virtual real estate boom is turning the metaverse into the Wild West. And it has the true believers on edge.

Money is pouring into virtual real estate on emerging metaverse platforms. It could shake up one of gaming’s oldest aftermarkets.

Screenshot from Somnium Space

Though it’s made of code, virtual land is not limitless, as Decentraland, Somnium and others restrict the supply.

Image: Somnium Space

When Artur Sychov, the founder and CEO of metaverse platform Somnium Space, turned on his webcam for our interview, I was greeted by a black lizard-like creature, standing upright and emanating a pattern of white and green light across his face and chest. I was on the other end of the Zoom call, boring and human and sitting in my living room, transfixed by the animated world I was peeking into. It felt a bit like FaceTiming someone from a rotary phone.

Sychov proceeded to conduct the interview inside Somnium, a kind of hybrid video game and social space with its own built-in economy that aspires to be one of the first and most cutting-edge metaverse platforms so many tech and gaming companies are now striving to build. He took me around, showed off some of his NFT collection and even played a small video game created by one of the platform’s users. The game itself, a first-person horror experience set in a dimly lit dungeon, is nested inside Somnium as, you guessed it, a unique NFT. Sychov told me the creator could, if they wanted to, sell the entire game to another user, who could then in turn monetize it as they saw fit.

Unlike most of these in-progress products today, Somnium supports virtual reality. That allows Sychov to embody his avatar, which also happens to be an NFT, using a headset and hand-tracking controllers, so he can move about the virtual landscape as if it were the real world. In Somnium, you can buy, swap and use NFTs, which can include everything from avatars and cars to virtual land and art projects, including interactive exhibits and minigames like the one Sychov demoed for me. But it’s the virtual real estate bit that Sychov said he’s becoming particularly wary of.

“I’m not a big fan right now of all the hype around prices or how they’re being reported,” Sychov told me of the current speculative culture around virtual real estate. “It just fuels the FOMO even more and throws more people at this dumpster fire of buying NFTs without realizing why they’re doing it or that they can’t even really use them anywhere.” Sychov told me that Somnium, in contrast, isn’t just about virtual land or buying and selling NFTs. The company wants its virtual world to become the next-generation Fortnite or Roblox, of course granted Fortnite or Roblox don’t get there first.

Sychov represents one side of the metaverse coin, the techno-optimist side intent on using the decentralized nature of blockchain platforms and cryptocurrency to transform gaming and the internet for the benefit of everyday players. The other side is, well, all about the money. Speculation is rampant in the crypto community right now, and nowhere is that more true beyond cryptocurrency itself than in virtual real estate.

“I've played Ultima Online since 1999,” Sychov said, referencing the classic massively multiplayer online game that helped pioneer concepts like expressive virtual avatars and in-game item and land ownership. “I started to work on Somnium with this idea in mind that it would be a big persistent virtual reality platform where people can create content, build things and socialize together.” Somnium takes a 7.5% cut of all aftermarket NFT sales on the marketplace OpenSea, which Sychov said helps sustain the company and cut down on rampant speculation.

Nick Statt interviewing Artur Sychov, founder and CEO of metaverse platform Somnium Space. Just another day in the metaverse.Screenshot: Protocol

The metaverse gold rush

Owning property within a video game, like the concept of the metaverse itself, is not new; as Sychov pointed out, it’s been around since the days of Ultima Online and Second Life. Over the years and in tandem with aftermarkets for other virtual video game goods like Team Fortress hats and World of Warcraft gold, the idea of virtual economies began to take more concrete shape, often in underground corners of the internet, with a vast majority of game developers happy to simply look the other direction. In 2010, a player of the online game Entropia Universe sold a virtual nightclub on an asteroid, Club Neverdie, for roughly $635,000 at the time, quietly hinting at a potentially disruptive future for virtual real estate.

It wouldn’t be until the modern crypto movement began accelerating in the last few years, with the popularization of NFTs and more recently the hype around the metaverse, that the concept of investing in virtual land would go from inexplicable to the next big gaming gold rush. In that context, Somnium is just one of a growing number of metaverse platforms that have been making headlines of late because of the mind-boggling amounts of money pouring in. Others include SoftBank-funded The Sandbox, Decentraland and Cryptovoxels, forming what you could think of as a “Big Four” in the metaverse real estate market.

Behind these platforms, all of which have big aspirations to create a decentralized future for the internet, there are scores of companies that are treating this like the internet’s new American frontier, ripe for the taking so long as you buy the right land at the right time for the right price. Over $500 million in real estate was sold on metaverse platforms in 2021, CNBC reported, and prices have soared by as much as 500% in recent months.

Companies like Republic Realm, which just this week received a $60 million funding round led by Andreessen Horowitz and spun off a new real estate arm, and Tokens.com are spending millions on artificially scarce parcels of virtual land. These firms, like real-world developers, have ambitions to build luxury virtual condos for the tech savvy and ultrarich and invest in commercial spaces for brand activations, shopping centers and entertainment venues, all inside competing metaverse platforms that are potentially years, if not decades, away from mainstream adoption. Though it’s made of code, the land is not limitless, as Decentraland, Somnium and others restrict the supply.

“Imagine if you came to New York when it was farmland, and you had the option to get a block of SoHo,” Michael Gord, a co-founder of the virtual real estate firm The Metaverse Group, told The New York Times last fall. “If someone wants to buy a block of real estate in SoHo today, it’s priceless, it’s not on the market. That same experience is going to happen in the metaverse.” Gord, whose company is a subsidiary of Tokens.com, is bullish on Decentraland, predicting it could one day become “the most populated city on Earth, and also perhaps the most desirable real estate on Earth,” he told Motherboard last month.

Other startups, like SuperWorld and Upland, are taking an augmented reality approach, selling real-world addresses and landmarks as virtual parcels that can be adorned with ads, art or whatever else you might be able to view through a phone screen or future AR glasses. It’s a kind of cyberpunk-themed twist on Pokémon Go with a dash of Monopoly, and the legal implications are decidedly up in the air, my colleague Janko Roettgers reported earlier this month.

“Virtual land in growing metaverses like Decentraland and The Sandbox can provide an attractive (and cheaper) alternative for brands re-evaluating their physical footprint. These virtual locations can act as venues for events or highly realistic virtual shopping experiences for digital or real-world goods,” wrote Newzoo analyst Mihai Vicol in the firm’s blockchain gaming trends report last month. “A single location in the metaverse has the potential to reach a larger share of customers than most physical locations.”

Fighting the speculation

All this speculation has the true believers on edge, not only because it’s hurting the public image of the market they exist in but because it could turn away the everyday players these platforms are trying to attract. Mythical Games, another Andreessen Horowitz-backed company, runs a blockchain platform and its own game, Blankos Block Party, that allows players to own, buy and sell NFTs, in addition to building tech and tools for other companies to do the same. It does not, at the moment, engage in virtual real estate, and the company is steering clear for now of cryptocurrencies, too.

“We’ve stayed away from virtualized tokens. It’s already hard enough to balance a game with a stabilizing currency. There’s going to be some backlash this year, and a lot of game studios jumping into the space are doing it wrong and they could have some regulatory issues,” Mythical CEO John Linden told me. “This is not a get-rich-quick mechanism because it won’t feel good or genuine. But when you have authenticity and when you have value creation plus authenticity, it’s a really cool experience.”

Sychov said that Somnium, unlike some popular play-to-earn blockchain games like Axie Infinity, doesn’t have any upfront cost. He’s concerned that a lot of competing platforms that are becoming speculative hot spots might crowd out the current gaming fans and social media users the metaverse is supposedly being built for.

“We’re a free world. We don’t charge people to come in. You can go to any event, go to different museums and experiences. We don’t want to be limited or to charge you for anything,” he said. “But if people want to start building, own a space or mint avatars, you pay a small fee in Somnium Cubes.” (Cubes are Somnium’s in-game currency and exist outside the game as an Ethereum-based crypto token.)

With virtual land, it might get even more exclusive. The Metaverse Group spent more than $2.4 million on a single 116-parcel plot in Decentraland last November and plans to turn it into part of its growing digital fashion business. Republic Realm paid nearly twice that sum for land in The Sandbox, and it’s already opened a shopping district in Decentraland called Metajuku, a twist on the iconic Shibuya fashion district in Tokyo, and runs an archipelago-like gated community of 100 private virtual villas located on islands in The Sandbox. Each villa goes for tens of thousands of real-world dollars.

It all brings up the question: Who is this really for, and why is it so valuable? Many of these companies pouring money into virtual real estate seem to be at odds with the actual companies providing the technology and infrastructure to support it.

How valuable is an Adidas-themed virtual shoe shop in Metajuku if the only other people in Decentraland don’t actually play the game and instead simply check the value of their NFT villa on OpenSea so they can flip it for a profit? Right now, many of these platforms exist only through web browsers, limiting their appeal and reach. Wired reported in December that Decentraland, which opened to the public in February of 2020, is “largely empty,” while the graphics and gameplay look and feel like a decade-old product.

Republic Realm, to its credit, doesn’t seem to really care. “There’s plenty of people that also think bitcoin’s a scam,” CEO Janine Yorio told Motherboard last month. “Meanwhile, the crypto investors are driving around in Lamborghinis and living their best lives.”

She added that the metaverse is an inevitable development, and that it’s just about having the right pieces in place for when it eventually takes shape. “We don't know exactly when it's going to hit. We don't know exactly who the winners are going to be,” Yorio said. “But the fact that this is the next evolution of the internet is 100% guaranteed.”

Sychov is a bit more skeptical of where this might be headed if the right products aren’t built on top of all this virtual land. “You can see right now, today, there are tons of so-called metaverses that sell land or items we don't even have a working product [for] yet. The virtual land is just a small part of what Somnium is,” he said. “Virtual land is just a small piece. It will stay in the spotlight and be relevant for a certain period of time, but I don’t think we’ll see the hype because virtual land costs something only if it's useful to people.”


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Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

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