Into the Metaverse

8 min readJul 15, 2021

In this analysis, we try to peel off layers of notions around the Metaverse. Instead of trying to pack more into this big bucket meta-concept of things, we ask the simple question: what gave birth to decentralized metaverse? This article traces down the natural progression of things, from the centralized metaverse to decentralization concluding with the value proposition. To put things into perspective, we dig into the stories of three iconic entities, namely the Epic Games, the Outlier Ventures, and the Decentraland, and use them as examples to study and validate the value proposition of this multi-billion and soon to be trillion-dollar industry ($45B by 2019, $1.5T by 2030) [1].

Centralized Metaverse

To start, we want to take a closer look at the investment logic behind Epic Game’s $1B funding raised to build the Metaverse. On April 13th, 2021, Epic announced a new round of funding from Sony Group Corporation ($200M strategic investment), Appaloosa, Baillie Gifford, Fidelity Management & Research Company LLC, GIC, funds, and accounts advised by T. Rowe Price Associates, Ontario Teachers’ Pension Plan Board, funds and accounts managed by BlackRock, Park West, KKR, AllianceBernstein, Altimeter, Franklin Templeton and Luxor Capital

What can $1B buy?

Game IPs including Fortnite, Rocket League, and Fall guys, and the huge audience and social interactions
Unreal Engine, a 3D engine environment, design studio, and asset marketplace used by film productions, game, and metaverse development, i.e., its Metahuman Creator is capable of creating high-fidelity digital humans in minutes. Epic takes 5% revenue of games built on the engine
The Epic Games launcher, a game store, and also a social ecosystem for players. Epic has invested over $300M in exclusive third-party games and takes a revenue share on anything purchased through the launcher
The vision of interconnectivity that makes the Metaverse possible, as illustrated below -

According to CEO Tim Sweeney, this investment will help accelerate work around building connected social experience in Fortnite, Rocket League, and Fall Guys. In Sweeney’s vision, whatever the metaverse becomes, it will eventually break down barriers between closed systems so that rather than having separate systems and accounts for things like Facebook, Twitter, Google, Fortnite, Call of Duty, and so forth, everything will just be interconnected and work together as one digital economy.[2] In Sweeny’s words, “we need to give up our attempts to each create our private walled gardens and private monopoly and agree to work together and recognize we’re all far better off if we connect our systems and grow our social graphs together.”[3]

Hence, Epic is trying to get all major tech companies on board with this vision of interconnectivity. Fortnite pioneered this vision by being one of the first truly cross-platform games. On April 23rd, 2020, Travis Scott presented the Astronomical concert inside of the Battle Royale game Fortnite, with more than 10 million people attended, according to Epic.

However, Epic Game still has a long way to go towards achieving the vision of Metaverse. Payment system and revenue share play critical parts in the vision of interconnectivity and were the deal-breaker between Epic and Apple’s interoperability. Gaming is a critical piece and yet still a closed space within the entire universe of financial, social, and commercial layers. Epic Games took the inevitable first step into the future of Metaverse from gaming, with big-name capital investors betting on its potential to tear down the walls between tech giants such as Apple, Google, or Facebook, legal system, and other barriers that segregate closed systems.

Why is Decentralized Metaverse Such a Big Deal?

Taking one step further from Epic’s vision of open interconnected systems is the decentralized network where an ecosystem of open permissionless development, creation, and interactions comes into play and benefit from externalized network effects. Web 3 gives birth to open Metaverse built on shared open-source protocols and cryptoeconomics. Open Metaverse has the potential to surpass or even replace centralized metaverse due to the more powerful externalized network effects.

Outlier Ventures (OV) launched its Open Metaverse accelerator in May 2021[4]. After supporting over 50 startups built on the principle of web 3 up until that announcement date, it aimed to bring that number to 100 by the end of 2021. In its paper, the Open Metaverse OS Thesis, OV outlined the pitfalls with a single corporation owning and making rules of the world in a centralized, closed, proprietary, and extractive gaming world. In contrast, OV proposes an antidote for achieving an alternative Open Metaverse.

According to OV, the “defining characteristics of a metaverse is that it needs its economy and currencies native to it, where value can be earned, spent, lent, borrowed or invested interchangeably in both a physical or virtual sense and most importantly without the need for a government”[5]

The main building blocks of the open Metaverse, as OV identified are — user persona, end-user hardware, and software (such as gaming consoles, VR/AR headsets, PCs, etc.), virtual assets, physical (virtual) space (sections, parcels, objects incl. avatars), economics, content, world primitives and rules, software backend, hardware infrastructure, bridges to the digital worlds and the physical world. Pieces of those building blocks have been built and are in the process of further advancements, such as NFTs, DeFi, DAO, and so forth. They all constitute essential sub-parts that empower a more full-fledged Metaverse experience.

The fundamental value proposition of Metaverse beyond the concept of being a virtual extension is an open market for interchangeability, and hence liquidity based on consensus. In simple words, value can be exchanged without limitation, as OV calls it “value squared”. Metaverse is not a solution to the expanding human needs, but it unlocks the possibility for a universal and permissionless economy that everyone can contribute and benefit from.

We further break down the logic behind the value that resides in the Metaverse. Following a bottom-up approach, we focus on the last interface with the end-users. Just like the value of everything in the real world, price is the representation of the value as perceived by the purchaser. The evolution of the Metaverse is a natural progression of basic economic rules as a simplified scientific model to explain human nature. Therefore, instead of talking about price as an equilibrium point of supply and demand, we examine value through the eyes of a human, as something useful, meaningful, beautiful, addictive or simply makes you feel good, those intrinsic feedback loop provides the foundation and with the necessary validation from the external environment, i.e., social consensus or demand. The intuition and external consensus combined has a multiplier effect that drives up the value, in continuity or almost everlasting fashion. The three dimensions we’ve captured to evaluate anything metaverse are by no means the only angles to examine things but rather a rough attempt to dissect for better clarity.

A Deep Dive into Virtual Real Estate Business

As discussed above, this analysis takes a narrow focus on direct consumer-facing, a.k.a. end-user software or front-end platforms/applications. We picked Decentraland to study further as it is one of the most prominent projects that fulfill the above criteria, in the quest of finding ways that Metaverse can truly maintain or exceed the level of social engagement and emotional involvement, meanwhile extending the physical, material, space, and time boundaries.

Decentraland

Deccentraland is a VR platform powered by Ethereum, founded in 2015. It enables users to purchase land known as a parcel in its virtual world, and the transaction is recorded on the blockchain. The idea of Decentraland arose as a declaration of democracy against centralized platforms like Facebook that solely controls and benefit from user-generated content.

On Dencentraland, each unit of space, call LAND parcel is 33 by 33 feet (16 by 16 meters) represented by an NFT, and there is a total supply of 90,000 parcels of LAND. All LAND parcels, except common spaces such as roads or plazas, can be bought and sold using MANA, its native token. LAND can be acquired through the in-game marketplace and on 3rd party marketplaces like OpenSea. LAND can also be rented out to generate cash flow.

Intrinsic Feedback

One thing that draws users to Decentraland’s real estate hype is its real-world incentive mechanism for land owners to slash developers to flip the land to something exciting for the community. Popular development of LANDs includes art galleries where owners showcase their NFT art such as Cryptokitties etc., casinos where players win MANA, game sites, brand-sponsored content, and music venues. You can lose yourself in the immersive virtual environment where the 3D scenes look incredible, and there are a variety of options for you to own, develop, create and engage in the wild imagination of builders and users of Decentraland.

Social Demand

Decentraland sold a 41,216 virtual-square-meter piece for $572,000 on April 11, 2021. The valuation of the land is a combination of location (such as proximity to roads, distance from the center of Decentraland, and proximity to Districts), the development on it, and the size of course (important to own adjacent LANDs). In a nutshell, the price follows the same pattern as in the real world — money follows the crowd of people with money. Leading crypto asset management firm, Greyscale also set up the Greyscale Decentraland Trust in March 2021 to invest in MANA token. The current market cap of MANA is $900M with a fully diluted valuation at $1.5B (Jun 18th, 2021, the all-time high was $2B and $3.4B respectively).

Continuity x Longevity

Decentraland is not a separate but rather extended congruent experience of the everyday world. The advantage of an open system is the infinite potential achieved by interoperability. Interesting development such as art gallery, like the Christie’s or the MakersPlace, not only makes the experience more engaging, but also open doors to commercial and business opportunities. The thing is virtual worlds such as Dencentraland provide a natural display space to unleash the utility aspect of NFT art beyond price speculation. People attend virtual gaming conventions in avatars; gather in a virtual space to watch a real-world sporting event, or pitch ideas to potential investors in a virtual Silicon Valley called Crypto Valley.

Decnetraland is intended to be a persistent virtual space, governed by its DAO, built by its users. In 2018 Dencentraland unveiled its first city, Genesis City. While Genesis Plaza is the center of Genesis City and the entry point for new users, the designers were careful not to implement burdensome urban planning that might stifle organic creativity. The economy that emerged in digital life is only a start. Similar competitor products include Axie Infinity, Cryptovoxels, Somnium Space, and The Sandbox. In the virtual real estate space, we will witness more and more fantastic ideas get implemented and become our shared experience.