The virtual real estate market faces a cold winter, where will the Metaverse platform go from here?

At the end of 2021, a wave of "land speculation" swept through the virtual world, but with the burst of the bubble in the first half of 2022, the future of virtual real estate and the Metaverse once again became the focus of market attention.

According to statistics from data platforms, due to declining user interest and a sluggish cryptocurrency market, the prices of virtual land significantly decreased in 2022. From the perspective of six major Ethereum Metaverse platforms, the average price of a digital land parcel dropped from about $17,000 in January to about $2,500 in August, a decrease of nearly 85%.

At the same time, unfavorable macroeconomic conditions have led to a decline in the entire cryptocurrency industry, further causing the market valuation of Metaverse platform tokens to drop by over 80%. On average each week, the land trading volume of the six major Metaverse projects has decreased from a peak of $1 billion in November 2021 to about $157 million in August 2022.

1. Virtual Real Estate from "Rising Popularity" to "Collapse"

In the second half of 2021, the Metaverse concept became popular worldwide, triggering a wave of "land speculation."

By creating a virtual world parallel to the physical world in virtual space, the new type of Metaverse platform has become an important carrier of the Metaverse concept. Unlike the virtual spaces in regular games, the land in Metaverse projects has the following characteristics:

First is scarcity and liquidity. The virtual platforms under the concept of the Metaverse are not infinite, but consist of a fixed number of parcels, and the prices of the parcels vary based on geographical location and foot traffic. The parcels exist in the form of NFTs to ensure the uniqueness and traceability of the underlying property rights.

Secondly, the platform has its own economic and governance system. Virtual plots are mostly decentralized, and the platform issues tokens to facilitate transactions, creating an internal economic system within the virtual world. Additionally, token holders can participate in the management and development planning of the platform through voting, achieving platform autonomy.

Third is the real estate attribute. This reflects the ability of virtual landholders to buy, sell, transfer, and develop land. For example, resale and leasing, as well as creating buildings and landscapes on purchased plots. By embedding corresponding functions and services, various commercial or non-commercial activities can also be conducted on the plots.

Fourth, it has parallel dimensions of space and time. Based on blockchain, all activities in the Metaverse will be stamped with a timestamp and permanently recorded. This gives the Metaverse parallel dimensions of space and time to the real world, where virtual entities and events occurring on the platform possess a historical dimension.

Fifth is to support the establishment of offline scenarios. Many things done in the physical world can also take place in the Metaverse, including shopping, working, studying, socializing, and holding carnivals. In the future, more and more offline scenarios will be moved to the Metaverse and conducted in a way that is not restricted by physical conditions.

The characteristics of the Metaverse platform redefine virtual space, and under people's attention, this market continues to ferment.

In the second half of 2021, as the concept of the Metaverse became popular worldwide, Metaverse platforms also rose significantly and secured a place in the investment field, with various digital land transactions reaching new highs. In November 2021, a piece of digital land in a certain virtual world platform was sold for a high price of 2.43 million dollars. In December, another piece of virtual land on a different virtual gaming platform was sold for 4.3 million dollars, a price that was surpassed within the same month by a transaction price of 5 million dollars.

At the same time, the ecosystem within the Metaverse platform is expanding comprehensively. Artists are creating art towns on virtual platforms to host NFT art exhibitions and concerts. Well-known sports brands are building brand-exclusive spaces on virtual platforms, offering a series of brand experiences such as fan meet-and-greets, social events, and promotional activities. A certain university plans to launch a Metaverse campus, becoming the virtual campus for its Guangzhou campus to provide an immersive campus experience. A certain country has established a virtual embassy on the virtual platform, becoming a center for promoting bilateral relations with various national governments.

However, since 2022, the market enthusiasm has sharply declined, and the hype around virtual land in the Metaverse has gradually faded.

From prices that can be compared to luxury apartments in first-tier cities in China, to the entire market being ignored. The whole Metaverse project market is in a bear market. According to the data, as of the date of publication, the trading volume and trading value of the top ten Metaverse projects in the past seven days have significantly declined compared to the beginning of the year.

2. The Burst of the Virtual Real Estate Bubble

Why did the Metaverse project encounter a "Waterloo"? 2022 was a year full of uncertainty, with instability in the international economy and political situation exacerbating the decline of the cryptocurrency industry, setting a prevailing tone for the entire market. In addition, the explorability and intrinsic value of the Metaverse platform could not support the previously inflated prices raised by speculators.

1) Global crypto market bear market

The year 2022 was filled with changes. Still not fully out of the atmosphere shrouded by the pandemic, against the backdrop of the Federal Reserve's interest rate hikes and the Russia-Ukraine conflict, the international economic and political situation was turbulent. The uncertainty in the international situation caused cryptocurrencies to continue to decline, and the implosion of stablecoins in May further led to a plummet in cryptocurrencies, casting a shadow over the entire crypto market.

According to statistics, since the beginning of the year, mainstream cryptocurrencies have experienced a large-scale decline. Except for stablecoins, the decline of currencies with higher market capitalization is mostly in the range of 40%-60%. The overall market capitalization of cryptocurrencies is currently close to $1.04 trillion, nearly a 50% drop compared to the beginning of the year.

NFT has also been severely affected. Data shows that the performance of NFTs weakened in 2022, with significant declines in trading volume, transaction value, and the number of buyers and sellers. Specifically, the transaction value in the second quarter decreased by 85.68% compared to the first quarter, while the trading volume decreased by 80.05%, and the number of buyers and sellers dropped by 68.57% and 57.33%, respectively, compared to the first quarter.

Virtual real estate uses cryptocurrency as the main medium of transaction and NFTs as the primary carrier. However, with the decline in the prices of tokens from various platforms, the value of virtual real estate has also plummeted. A large influx of speculators into the market was followed by a mass exit, directly triggering the collapse of the virtual real estate bubble. In terms of sales volume and prices of virtual real estate, the market has shown a downward trend since 2022, except for May, and has a significant correlation with the cryptocurrency market and the NFT market.

2) Lack of desolation and immersion

Virtual real estate, like physical real estate, relies on planning, design, and foot traffic as key factors for prosperity and appreciation. In the virtual world, a desolate city resembles an apocalypse. Currently, the virtual real estate ecosystem has not yet developed into a prosperous one, and foot traffic is also less than satisfactory.

On one hand, Metaverse platforms are creating mirrored worlds, moving brand stores, experience shops, office buildings, and more from the physical world into virtual spaces, allowing players to enjoy various services. However, after the novelty of this experience wears off, the issues of service singularity and limitations begin to surface. Moreover, most Metaverse projects are still in the "pioneering stage", with limited playability and explorability within the platforms.

On the other hand, the lack of immersion is another important factor. VR/AR technology has entered a stage of rapid development, but it has not yet been widely applied to mainstream Metaverse projects. The visual and auditory experiences of two-dimensional planes struggle to present the realism comparable to the real world, and real-time interaction with virtual scenes is also at a primary stage. The singularity of sensory dimensions remains a common issue for mainstream Metaverse platforms.

3) The loss of monopoly and scarcity

At the beginning of the rise of the Metaverse project, people had high hopes for it.

The real world is always unsatisfactory, with the pandemic sweeping across the globe and the traditional economy facing difficulties, leading to severe social competition. People's desire to "live towards the virtual" is becoming increasingly strong. Unlike the virtual world that is disconnected from reality, the Metaverse platform has opened up a new domain parallel to the physical world, where humanity can replan the appearance of cities, establish business rules, and create social order.

But the reality is that the construction of the Metaverse also relies on the power of capital. From buying land and constructing to determining the functions and rules of the plots, capitalists are gradually monopolizing. People who cannot afford to buy houses in real life also find it difficult in the virtual world. Players' perceptions and experiences in the virtual world are all under established frameworks, and the vision of freedom and equality is hard to achieve in the Metaverse platform.

At the same time, with the emergence of more and more Metaverse projects, the scarcity of land has come into question. A plot of land in a Metaverse is limited, but the Metaverse itself can be infinite. Clearly, current Metaverse platforms do not yet have uniqueness, and there is serious homogenization among the platforms. As the supply of land in Metaverse projects gradually increases, the value of the land is also difficult to maintain.

4) The choice between reality and ideals

The virtual real estate market continues to decline, partly due to the influx and exodus of speculators, and partly due to the current "lack of confidence" in Metaverse projects. However, in the long run, this market still has great development potential.

As the digital economy becomes a development trend, Metaverse projects have become an important gateway. Mobile banking, cloud shopping platforms, and online courses are increasingly becoming the forms of life that people rely on. Creating game-like perceptible interactive scenarios can adapt to the growing online lifestyle. In addition, new business forms such as virtual clothing and virtual concerts are also riding the wave, creating new economic growth points for the virtual world.

In the bear market of the cryptocurrency industry, the concept of the Metaverse has not cooled down. On the contrary, various technologies related to the Metaverse are accelerating their development. Virtual land, as a testing ground for the Metaverse, is currently the product closest to the concept of the Metaverse. The Metaverse has yet to be defined, and humanity's limited imagination is not enough to encapsulate it. At this stage, humanity's construction of the Metaverse platform has pioneering significance, shaping and influencing the final form of the Metaverse.

The construction of the Metaverse is not about creating a utopia, relying on the protection of the virtual world to escape reality, which will lead to a retreat of human civilization. At the same time, when blending the virtual and reality, the monopolies and restlessness in the real world are also difficult to avoid being brought in. But the scalability of the Metaverse gives us the choice, allowing humanity to switch between different Metaverses and seek to build an ideal habitat.

In reality, in ideals, the exploration on the Metaverse platform will become our important outlet.

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