The Metaverse land rush is an illusion

After Facebook’s rebrand to Meta, a string of stories about a digital land rush began. Investors were buying up plots of land in cyberspace, sometimes for millions of dollars, seemingly convinced there must be gold in them thar metaverse hills. And if so many people with so much money were rushing it, it must be because there’s a profit to be made. Right?

However, the language that we’ve been using to discuss this new phase of technology—describing it in terms of a singular metaverse with finite space to develop—has helped conceal a reality that more closely resembles early-access video games and common pump-and-dump schemes.

The narrative
It’s only been a couple months since Facebook’s rebrand, but it’s hard to overstate how much it’s already driven the conversation about “the metaverse.” For starters, nearly everyone describes it as the metaverse—when the reality is that there is no singular metaverse in the sense that we talk about “the internet.” Services like Meta’s Horizon Worlds and Microsoft’s Mesh don’t interact with each other, they’re just separate VR apps.

The problem with this language quirk is that it can give the impression that, for example, if a company says their VR app, video game, or social platform is part of “the metaverse,” then that specific app must be where this nebulous future is going to happen. Which is a bit like saying that augmented reality is the future, and Google Glass is an AR product, therefore Google Glass is the future.

Under this implicit framing, stories published everywhere from crypto-enthusiast sites to Business Insider and The New York Times, have touted a “virtual land boom,” highlighting the $2.4 million sale of a 116-parcel estate in Decentraland, as investors pour millions of dollars into virtual locations. In these articles, executives from Metaverse Group, a self-described “virtual real estate” company, described buying plots of land in “the metaverse” as akin to buying property in Manhattan long before the city developed.

More precisely, platforms like Decentraland or the Sandbox sell NFT-based tokens that point to sections of a map in their specific virtual worlds, but those spaces don’t cross over. As Dan Olson, a video essayist who has extensively covered online social experiences and movements, from Fortnite’s digital concerts to flat earth and QAnon, and is currently researching the crypto sphere, explained to WIRED, “They’re selling their tokens that give you permission to build within their space. So you’re effectively buying into their service.”

In other words, buying “real estate” on these platforms is like buying property in Manhattan, but in a world where anyone could feasibly create an infinite amount of alternative Manhattans that are just as easy to get to. Which means the only reason for users to buy into this Manhattan is if it offers a better service than the others.

In most respects, these platforms resemble your average video game. You control a customizable 3D avatar with your mouse and keyboard (no VR or AR here) and navigate a virtual environment. The debate over whether a virtual social world counts as a video game is as old as Second Life, but whatever you call them, the primary novel innovation in them is the use of NFTs and cryptocurrencies.

Decentraland’s pitch is that using NFTs makes land in its gameworld scarce and, thus, valuable. You can own part of the land, which will increase in value as demand for the space increases, at which point you can sell it. Alternatively, you can rent out space on your property to brands that want to advertise, host events and get a cut of the sales, or open up a shop and sell digital items to users.

The language that investors, and even news outlets that cover them, use to describe this kind of development echoes real-life property terminology. A press release from Tokens.com (which owns a 50 percent stake in Metaverse Group) said the company broke “digital ground” on a tower in Decentraland—phrasing that The New York Times echoed in its report on the story—and that the tower is “under construction” on the land parcels Metaverse Group owns.

However, this is an unusual way to describe the process of designing 3D models or virtual environments. As software engineer and crypto skeptic Stephen Diehl explained to WIRED, this sort of language can be more about building a story than describing a technical process. “People need to kind of have a narrative behind it. Because at the end of the day, you’re just buying numbers in a computer,” he said.

“The story that you’re buying something in a new high-rise or a building is largely kind of bullshit.”

The reality
Decentraland is a browser-based service, and while it has been selling plots of virtual land since 2017, the virtual world itself has only been open to the public since February 2020. Inside, it still feels reminiscent of an early-access game. While the initial lobby where users first drop in often has a dozen or so players wandering around—and many more standing completely motionless—the map shows only small clusters of players gathered around a few key areas. The rest is largely empty.

I visited the “Fashion District” in Decentraland, which takes up a large section of land on the far west side of the map, split down the middle by one road. The bulk of this space is covered by the default procedural terrain, with the primary exception being a row of buildings styled after the Graben in Vienna. Digital advertisements from brands like Chanel, Dolce & Gabbana, and Tommy Hilfiger adorn the sides of the buildings, but you can’t go in. There are no shops here, nothing to click on or buy, and it’s unclear if these brands approve of or even know their logos and designs are in use.

The space feels less like an up-and-coming bustling shopping center, and more like a movie set—a facade of what could go in this spot some day, but isn’t there now. The 116-parcel estate that sold for nearly $2.5 million is just south of the empty storefronts, and it is entirely barren. For all intents and purposes, it’s a ghost town.

There are stores elsewhere in Decentraland, but only by a loose definition of the word. Several galleries show off NFT artwork—including one display from Sotheby’s—where you can walk up to a piece and click on it. However, you can’t buy it within Decentraland itself. Instead, you’ll be redirected to an external website in another tab that can actually handle the transaction, usually a preexisting storefront for NFTs like OpenSea or Rarible. At which point, it’s easy to get distracted exploring the site itself.

“This is part of the old, old, old, back-to-the-’90s criticism of this concept of the 3D web,” Olson said. “There’s one part of our brain that’s like, man, it would be so much more interesting if the experience of going to Dominos.com were more tangible. And that’s not wrong. It would be more interesting. But you know what else it is? It’s also more inconvenient.”

Even if Decentraland could attract luxury fashion brands to build storefronts in its virtual world, those storefronts are only useful if there are users to sell to. But it’s hard to get a true sense of how many people are active in Decentraland. A tracker that shows how many people are online at any given time rarely showed a concurrent population much higher than around 1,600 people during the several days I spent inside. However, the game doesn’t boot players who idle for too long. I left my session open during an entire work day and overnight and was never disconnected. This makes it difficult to say for sure how many “active” users are actually people who walked away with a tab open.

The (for lack of a better word) game itself is buggy, and moderation tools are either broken or nonexistent. In Decentraland, players can use voice chat to speak to anyone nearby, but the filter to restrict this to “friends only” has a beta label and often didn’t work for me. Blocking a user will prevent their messages from appearing in chat, but their 3D model is still physically present in the space, and there’s no way to stop them from following you around.

A basic profanity filter censors certain swear words in chat and display names (and some obvious slurs will be censored even if a user disables the filter), but users can also pay to mint NFTs to get a unique avatar name without the need for the extra “#1234” tags at the end.

According to Decentraland’s Marketplace (which also lists NFTs owned by users that aren’t currently on sale), various players currently own NFTs containing slurs. Four contain the N word and two contain the F word, one of which has both. And since these are NFTs, they can be traded or sold just like any other. At the time of writing, the name “Jew” was on sale for the equivalent of $362,000.

In a normal game, one might expect the developers to ban users or block offensive usernames directly. However, Decentraland advertises itself as being run by a decentralized autonomous organization (or DAO). This partially automated system uses “smart contracts” to automatically execute certain tasks based on votes from community members that hold a financial stake in Decentraland. The more money members have invested in either currency or land, the more Voting Power they get.

One such smart contract governs the banned names list, which can only be modified by community vote. In one instance, the community voted in favor of banning the name “Hitler”—51 votes to 15—but since the vote didn’t reach a high enough threshold of Voting Power, the vote failed and the suggestion was rejected.

A blog post from Decentraland on December 6 reported, among other things, that a poll to add the N word to the Denied Names list had successfully passed. Since the word can still be found in Decentraland’s Marketplace, it’s unclear if this was implemented, or whether it applies to already-minted NFTs.

In the future, luxury brands may have storefronts in virtual worlds where users can browse their shops as though they’re walking through a real store. But between buggy software, a minimal user base, and a system that allows users to buy and sell slurs with only a complicated governance system to potentially stop them, the odds seem stacked against this platform being the one to build them.

And yet investors seem to believe there’s money to be made here.

The money
Decentraland’s big pitch is that users can come “buy land” in the game, but the process for doing so is complicated. Users can’t buy land tokens directly with regular dollars. Most can’t even be bought with ether, the popular bitcoin alternative. Instead, like many crypto projects, Decentraland has its own cryptocurrency called mana that lives on a sidechain of Ethereum.

Sidechains are complex, but in oversimplified terms, they let projects offload tokens or data to a separate blockchain that can have different features (and often lower transaction fees) than the main chain. Crucially, it means that while Decentraland is based on ether, the price of mana can be much more volatile than ether.

Currently, the cheapest plots of land in Decentraland typically sell for around 4,000 mana, which at the time of writing would cost nearly $15,000. However, once a user buys land, they own that asset until someone wants to buy that specific plot—the tokens are non-fungible, after all. On the other hand, mana is fungible, which means if a user is holding huge amounts of mana, they can sell those tokens to anyone who needs to buy mana, including all the new users who may have shown up to buy land.

Since land is so expensive, and the market for mana is so small, it doesn’t take much activity to move the needle on the price of either. “If you issue a press release, will that alter the price of ether? Yeah, it might alter the price of ether,” Olson explains. “But you know what it definitely will alter the price of, is the price of mana and the price of land.”

This has already happened with mana on a couple of occasions. In the two days following Facebook’s rebrand to Meta, the price of mana which, at the time, had rarely scraped above $1, skyrocketed to $3.71. At the time, news outlets— starting with niche crypto-enthusiast sites like CoinDesk, then later CNBC—reported the rising price of mana and interpreted it as positive interest in “the metaverse.”

A few weeks later, on November 22, the 116-parcel “estate” in Decentraland’s Fashion District mentioned earlier was sold for 618,000 mana. The next day, Tokens.com issued a press release announcing “the largest metaverse land acquisition in history,” which was picked up by a number of crypto sites, as well as Reuters and the National Post. When the press release was issued, the price of mana was around $4.10.

Two days later, the price of mana had risen just over 41 percent to an all-time high of $5.79.

Whether or not space in Decentraland will ever be valuable as virtual storefronts or event venues, the currency used to buy that land more than quintupled in value in around a month.

While numbers going up isn’t inherently evidence of a nefarious scheme, the rise of crypto pump-and-dump schemes should at least be a call for skepticism. On the day mana hit its all-time high, the volume of trades on the token reached over $11.4 billion, utterly dwarfing the $2.4 million spent on one land sale.

It may be the case that Decentraland, or other virtual worlds like it, are the future of the internet. But if they’re not, then huge amounts of money have already been invested into their systems, and someone will be left holding the bag. And due to the narrative around many of these “metaverse” projects—that the future of the internet is in this one, specific space, and if you buy in now, you can be the landlord of the next digital Manhattan—the ones holding that bag could end up being average people who were simply taken in by a good story.

Those narratives are usually told via press releases, company announcements, or news coverage where the only voices present are the ones who stand to gain the most. But, as Olson explained, the audience for those stories are people with a lot more to lose.

“Their target are the tenuously middle class. People who feel the system squeezing them and feel their grip on solvency slipping away. Who feel the gig economy strangling them. And they’re pitching them with, ‘This is your chance,’” Olson said. “‘You just need to bet on the right coin. You just need to bet on the right meme at the right time. You just need to bet on the right ape, and you can cash out. You can escape.’” Wired