There’s a land rush going on in the metaverse. But how do you value virtual land?

In the late 18th century, financial professionals formalized an agreement to speculate and trade shares near Wall Street and Pearl Street — a deal that cemented New York’s future as a financial epicenter and set the foundation for modern day capital markets. 

More than 200 years later, techies and nerds are building a new Wall Street in the so-called metaverse — specifically, in a digital city called Frankfurt. 

Frankfurt exists in a blockchain-based virtual reality called Cryptovoxels, which is home to several other cities as well — including Milan, where one can visit a temple dedicated to memecoin Doge. Land in this world is divided into parcels, which can be exchanged on online non-fungible token (NFT) marketplaces including OpenSea. 

It’s far from given that the metaverse will have its own Wall Street. But if it does, this spot in Frankfurt will be a contender for the honor, says Jonathan Hineline, as he walks me through the virtual city.

That sort of possibility has drawn in a new, hungry generation of speculators, builders and wannabe landowners who are looking to build and cash in on the digital terra nova. 

Now, the question is: how should virtual land be valued?

Real estate in the metaverse

Much of the activity in the metaverse thus far boils down to purchasing land, building out plots, and moving around with an avatar. But the experience is becoming increasingly more dynamic. 

Hineline’s tour of Cryptovoxels brought me to a wide range of spots, including a North Pole-like village with a large evergreen centerpiece, a tavern with a secret underground passage, and a massive tree fort.

In virtual Frankfurt, the team behind the business district plan to rent out spaces to crypto firms where they can engage with clients, take customer service tickets, and advertise their brand to passersby, Hineline says. It’s similar to the brand exposure banks get by maintaining storefronts. 

The so-called Frankfurt Token Exchange, which sits in the district, could one day be a place where users can swap tokens, and live pricing tickers will be displayed on walls similar to the New York Stock Exchange’s Big Board. For now, it looks similar to a building in a game like Minecraft. 

Besides helping with marketing, owning virtual property could give investors access to a passive stream of income through renting.

That’s something being developed by EnterDao. The project is developing LandWorks, which is a “rental marketplace based on Ethereum” for metaverse land. The firm plans to start off with a marketplace for land in the Ethereum-based virtual world Decentraland land and will “gradually expand to support other prominent games,” according to the project’s founder Zhivko Todorov.

Another project, WeMeta, is offering a marketplace for users to snap up land in Decentraland, Cryptovoxels and even game worlds like Sandbox and Axie Infinity. 

"People want to know what land is right for me ... and what they can do with it," WeMeta co-founder Winston Robson told The Block. Land has been listed on the platform for tens or even hundreds of thousands of dollars. 

Former Binance research analyst Calvin Chu is building a product that resembles a real estate investment trust (REIT), but for land in Axie Infinity. Axie is a virtual world where users can own land and battle each other for different resources. Chu’s bet is that the land underpinning the game will ultimately be just as valuable as the game itself. 

“If you look at the analogue world, the entire market cap of the S&P 500 is about equal to the value of the entire US’s land,” he says. “Land combined in Axie’s ecosystem is only worth $100 million …... undervalued relative to its $20 billion market cap.”

Valuing the virtual

Not everyone is so sure. Some early participants in the nascent market for metaverse land say one of the biggest hurdles for newcomers is understanding the value of land in a world that is effectively limitless. 

In Cryptovoxels, for instance, new cities and districts can be added with no limit. The reason why a home in real-life San Francisco costs so much is that there is a limited supply of land on which to buy homes there.

Still, proponents say the limitless nature of the metaverse is more of a feature than a bug. The argument is that certain pieces of land will be more valuable than others, similar to the way that some web domains are more valuable than others. 

Land in the metaverse may be more valuable if it gets a lot of foot traffic or attention from users. "Ultimately, the way you are going to value this thing is going to boil down to foot traffic and what are they willing to pay and what are they willing to do," said WeMeta's Robson. 

Location also matters. For instance, in the world of Axie Infinity, so-called Genesis land is more valuable than other parcels because more battles occur on this land. “There are more resources given out there where the battles happen and more CPUs spawn there,” according to Chu.

In Frankfurt, Hineline plans to rent out space to a crypto project, hoping to pick up anywhere from a few hundred dollars a month to a few thousand — depending on what demand in the market looks like at this point. 

Part of what makes a location so valuable is less quantifiable. People may just want to own land because they want to be near brands or influencers with which they want to associate. 

For instance, Doge holders might want a parcel near the Doge Temple, while a decentralized exchange might want to snap up space to be in the heart of Frankfurt’s Wall Street 2.0. 

“Proximity matters if [land owners] are a celebrity or influencer,” says Jamie Burke, founder of Outlier Ventures. 

As for brands, the metaverse opens up a new channel to market and hawk their products. 

“For some categories, it is a no-brainer,” Burke says, adding that luxury brands see the metaverse as providing a more immersive retail experience that ultimately can result in consumers spending more time with a brand.

Ultimately, he says, “it is not just a game but a digital economy.”