The virtual real estate market is cooling down. What does the future hold for the Metaverse?

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

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

At the same time, the unfavorable macroeconomic environment has led to a overall decline in the cryptocurrency industry, further causing the market value of Metaverse platform tokens to drop by over 80%. On average, the weekly land transaction volume of major Metaverse projects has decreased from a peak of $1 billion in November 2021 to about $157 million in August 2022.

1. From Hot Commodity to Neglected

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

Unlike the virtual spaces in traditional games, the land in Metaverse projects has the following characteristics:

1. Scarcity and Liquidity. The Metaverse platform consists of a fixed number of plots, and the prices of the plots vary based on location and foot traffic. The plots exist in the form of NFTs, ensuring the uniqueness and traceability of property rights.

2. Establishing a self-contained economic and governance system. The platform achieves transactions through the issuance of tokens, forming an internal economic system. Token holders can also participate in platform management and development planning.

3. Real estate attributes. Landholders can buy, sell, transfer, and develop, such as resale, leasing, and constructing buildings and landscapes on the land.

4. Parallel space-time dimensions. Based on blockchain technology, activities in the Metaverse will be permanently recorded, possessing a historical dimension.

5. Support for building offline scenarios. Many real-world activities can take place in the Metaverse, including shopping, working, learning, and socializing.

These features redefine virtual spaces, attracting a lot of attention. In the second half of 2021, as the Metaverse concept gained popularity, the value of related platforms surged, and digital land transactions reached new heights. In November 2021, a piece of digital land on a certain virtual world platform was sold for a high price of $2.43 million. In December, another piece of virtual land on a different virtual gaming platform was sold for $5 million.

At the same time, the ecosystem of the Metaverse platform is expanding comprehensively. Artists create art towns on the platform to hold NFT exhibitions, renowned brands build virtual experience spaces, universities launch Metaverse campuses, and even some countries establish embassies in the virtual world.

However, since 2022, market enthusiasm has plummeted, and the hype around virtual real estate has gradually faded. From prices that were comparable to luxury homes in first-tier cities, to now being ignored, the entire Metaverse project market has fallen into a slump. Data shows that as of now, the transaction volume and value of mainstream Metaverse projects have significantly decreased compared to the beginning of the year.

2. Reasons for the Burst of the Virtual Real Estate Bubble

The reasons for the "Waterloo" of the Metaverse project are mainly as follows:

1. Global Crypto Market Bear Market

The international economic and political situation became increasingly turbulent in 2022, and the cryptocurrency market continued to decline. The stablecoin collapse event in May led to a dramatic drop in cryptocurrency prices. According to statistics, from the beginning of the year to now, mainstream cryptocurrencies have fallen by more than 40% to 60%. The overall market value of cryptocurrencies has decreased by nearly 50% compared to the beginning of the year.

The NFT market has also been severely affected. Data shows that in 2022, the trading volume, trading amount, and number of participants in NFTs all declined significantly. The trading amount in the second quarter decreased by 85.68% compared to the first quarter, while the trading volume decreased by 80.05%.

Virtual real estate uses cryptocurrency as the main medium of exchange, with NFTs as the carrier. As the price of platform tokens declines, the value of virtual real estate also plummets. A large number of speculators exit the market, directly leading to the burst of the bubble.

2. Lack of content and absence of immersion

Virtual real estate, like physical real estate, relies on planning, design, and foot traffic to add value. Currently, most Metaverse platforms are still in the "pioneering stage," with limited playability and exploratory features. Although many brands have moved their physical stores into virtual spaces, the services are singular and limited, making it difficult to maintain user engagement after the novelty wears off.

Additionally, insufficient immersion is also a major issue. Mainstream Metaverse projects have yet to widely apply VR/AR technology, remaining at the audiovisual experience of two-dimensional planes. Real-time interaction with virtual scenes is also in its early stages, and the singular sensory dimension is a common shortcoming.

3. The Loss of Monopoly and Scarcity

The construction of the Metaverse cannot be separated from the power of capital. From land acquisition, construction to functional planning, capital is gradually monopolizing this new world. The ideal vision of equality for all is difficult to achieve.

At the same time, as more and more Metaverse projects emerge, the scarcity of land is being questioned. Although land within a single Metaverse is limited, the Metaverse itself can be infinite. Currently, there is serious homogenization across platforms, lacking uniqueness. With the increase in supply, it is difficult to maintain the value of land.

4. The Choice Between Reality and Ideal

The virtual real estate market continues to decline, partly due to the influx and exit of speculators, and partly reflecting the current shortcomings of Metaverse projects. However, in the long term, this market still has significant growth potential.

In today's world where the digital economy is becoming a development trend, Metaverse projects are becoming an important entry point. People are increasingly relying on online life, and the Metaverse can provide more immersive interactive scenarios. New business formats such as virtual clothing and virtual concerts are also creating new economic growth points for the virtual world.

Despite the downturn in the crypto market, the concept of the Metaverse has not cooled down. Related technologies are accelerating in development. Virtual land, as the testing ground for the Metaverse, is currently the product closest to the concept of the Metaverse. Human exploration and construction of Metaverse platforms are groundbreaking and are shaping the final form of the Metaverse.

The construction of the Metaverse is not about creating a utopia. Issues from the real world will inevitably be brought into the virtual world. However, the scalability of the Metaverse gives humanity the power of choice, allowing us to switch between different Metaverses in search of and to build our ideal habitat.

Whether in reality or in ideals, the exploration of Metaverse platforms will become an important development direction for humanity.