The term "metaverse" was first coined in 1992 in Neal Stephenson's science fiction novel Snow Crash and is more or less defined as a virtual world (or worlds) reminiscent of games and movies like Ready Player One, Roblox, and Fortnite. In this space, people can live virtual lives through their avatars, trading and managing digital assets that revolve around a fully functioning real-world economy.
While some details of the Metaverse market are still quite abstract, other components such as non-fungible tokens (NFTs) have emerged as a kind of foundation for the internal infrastructure and economy. People use NFTs within the Metaverse to purchase virtual properties, event passes, avatars, and other digital items.
NFTs and real estate investment in the metaverse.
Virtual property owners
As mentioned earlier, people use NFTs in the metaverse to purchase virtual land, e.g., LAND - a digital property in the sandbox. In these virtual spaces, NFTs are used to represent ownership of specific locations within a virtual world, as opposed to a physical deed.
In Sandbox, LAND covers approximately 300 square meters in the game world. In Decentraland, the size changes to 50-square-foot land parcels.
If users own enough land, they can combine them into a single estate. An example of this is "The Secrets of Satoshi's Tea Garden" - an estate on Decentraland that consists of 64 individual plots. Due to its size and location, it sold for 1.3 million MANA (about $80,000) in 2019. The "land" is completely surrounded by digital roads, making it convenient to access.
In 2021, Metaverse Group bought a property in Decentraland for 618,000 MANA, which was equivalent to about $3.2 million at the time. As in the real world, location is key in digital real estate. Properties located near entry points or places like virtual arenas that promise virtual foot traffic increase in value.
Renting and borrowing
Depending on market demand, people can rent out their NFTs to generate passive income. Landowners in the metaverse can do this through the IQ protocol of PARSIQ, a decentralized financial platform (DeFi) that provides opportunities for game developers to make money.
Similar to the dynamics of traditional land and real estate, the IQ Protocol helps virtual landowners earn returns and lease fees through predetermined terms negotiated with tenants and enforced through smart contracts.
Residual dividends
In addition to the royalties creators can earn when NFTs are sold or resold in secondary markets, NFTs can also help investors earn passive dividends. One example is a segment of a digital Monaco race track in the F1 Delta Time game, which was auctioned for $222,000 in December 2020.
The NFT representing the digital racetrack allows the owner to earn 5% dividends from all races that take place on the track, including ticket fees for races and earnings from "elite events" that require participants to use REVV to enter.
NFTs and games in the metaverse.
Playing to earn, assets, and in-game rewards.
Through games like Axie Infinity and Aavegotchi, the play-to-earn (P2E) model has created entirely new virtual economies that reward users with in-game assets like NFTs and cryptocurrencies that can be traded, sold, or borrowed. In addition, other games like Battle Racer contribute to the further benefit by releasing car parts as separate NFTs. Users can then buy these parts to build their vehicles, or sell them separately on secondary marketplaces like OpenSea.
Although it will take years, the way people use NFTs on these blockchain networks can also be applied to skins and cosmetics in mainstream games like Fortnite. Not only would this help players better reflect ownership and originality of their assets, but it would also increase global in-game spending, which is projected to exceed $74.4 billion by 2025.
Epic Games, the software developer and owner of Fortnite, welcomes any game that supports NFTs to its store, but will not directly release or deal with NFTs because it believes they are fraud on the market.
NFTs and your virtual life
Avatars and social events
As Twitter's recent support of NFT profile pictures shows, people also collect NFTs for the social prestige, status, and sense of belonging they can find in a community of like-minded followers.
One example of how avatars are evolving in the metaverse is the partnership between the Gutter Cat Gang, a collection of NFTs, and House of Kibaa, an emerging virtual reality studio. Together, House of Kibaa creates animated 3D avatars for all Gutter species, with the community able to enter exclusive raffles for free upgrades, including weapons, clothing, vehicles, pets, and real estate such as trap houses and mansions in the House of Kibaa metaverse.
Private events and parties
NFT passes can also be used to generate revenue for virtual events, parties and concerts in various metaverses. In September 2021, Snoop Dog, an avid NFT advocate, rapper, and entrepreneur, teamed up with The Sandbox to host a private party. As announced on The Sandbox, 1,000 NFT party passes were made available to attend the event, 650 of which were released on The Sandbox's marketplace. The Snoop Private Party Pass gave people access to Snoop Dogg's private lifestyle, exclusive NFTs, experiences and the chance to have Snoop Dogg perform an exclusive concert at their LAND.
Snoop Dog joins a long list of brands and influencers who have collaborated with The Sandbox for NFT-related events and releases. These brands include The Walking Dead, Atari and Warner Music Group, among others.
Level up: advanced NFT invest in the metaverse.
According to reports, total spending on NFTs will exceed $12.6 billion by the end of 2021, and there are a few ways buyers can achieve passive returns (residual income) and maximize the potential of their investments:
- Return-generating NFTs: Timing the markets on Web 3 can be nearly impossible for even the most experienced investor. Therefore, to provide more practical incentives and mitigate the volatility of the NFT sector, a number of projects are generating passive returns by issuing governance tokens to holders. Among these collections is Genesis Cyber Kongz, which will issue 10 $BANANA tokens every day for the next 10 years. Other examples include SupDucks (($VOLT) and Mutant Cats ($FISH). While the use case is still unclear, Bored Ape Yacht Club was also expected to launch its own token in the first quarter of 2022.
- Stakes: In addition to collecting NFTs that generate passive returns, investors can also reap the combined benefits of NFTs and DeFi protocols by locking their assets into a smart contract to earn rewards. Given the strict regulations on securities, most of these rewards are paid in the form of project-specific tokens used for standard functions such as governance or voting rights. However, if the tokens are listed on decentralized exchanges such as SushiSwap or Uniswap, stakers can sell them on the market.
- Nested NFTs: In the past, NFTs were fairly static. What someone minted or bought on a secondary market could not be changed for the most part. However, with platforms like Charged Particles, people can now layer NFTs on top of other NFTs, turning an NFT into a virtual basket that can hold multiple ERC-based tokens. This new breed of nested NFTs helps add intrinsic value to a collectible, turning what would be a speculative investment into a return-generating investment - with one scarce NFT linked to another scarce NFT, and so on.
Overall, nested NFTs help add value to users in the metaverse by customizing virtual objects and adding new features. Ben Lakoff, co-founder and business manager of Charged Particles, presented some use cases in a webinar. These include a weapon that gains power as the NFTs it contains accumulate interest, and a painting that can change depending on the amount of tokens deposited.