If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Decentraland.
- There is only one metaverse. While the buzzword's meaning is often stretched into different configurations, there is a clear definition. The metaverse is simply the internet, updated to accommodate spatial experiences.
- Decentraland's world is scaling rapidly. Over the past year, Decentraland has grown its users by 3,300% and increased its token price even more. They have Mark Zuckerberg to thank, at least in part.
- Virtual property can make real money. Projects like Decentral Games prove that money can be made in the "metaverse." The startup runs popular casinos within Decentraland. That's attracted serious developers, putting millions to work.
- Digital cities can act differently from physical ones. While we're used to our cities changing slowly, brick by brick, building by building, virtual metropolises can play by different rules. "Dynamic land" that changes based on one's activity is just one example.
- We are just beginning. Though projects like Decentraland have achieved lofty valuations, it feels as if we are in the very opening stages of a long-term shift toward more expressive digital experiences. Creating a world with deep, enduring appeal will take time.
In 1905, a railroad linking Salt Lake City and Los Angeles was completed. It passed through a small, sparsely inhabited town. Boosted by its position as a way-station, it secured a stretch of 110 acres and formally established itself as a city. It was called Las Vegas.
Over the succeeding decades, Las Vegas established itself as a thriving metropolis. It attracted investment – first from the mafia, later from more salubrious sources – and established itself as an iconic, global tourist destination. By 2000, it had a little under half a million population, making it the largest American city founded in the 20th century. In 2019, Las Vegas valley's GDP peaked at $131 billion.
A few people still living may remember Las Vegas's early decades as a city – what it felt like to be pre-preeminent. Could you sense the opportunity; could you smell the money?
If I had to guess, I imagine it felt similar to walking into Decentraland today. Despite its gaudy colors and nineties-era graphics, the blockchain-based "metaverse" bears more than a passing resemblance to America's "Sin City." It is home to green-felted casinos, extravagant art galleries, dingy drinking holes, ticketed nightclubs, and cloistered brothels. There are locals, plying their trade and "out of towners," passing through for a concert or convention or just the hell of it.
Decentraland's "population" of roughly 800,000 registered profiles has already surpassed Vegas's own. According to its current CTO, its "city" expanded by 3,300% between December 2020 and December 2021. This figure doesn't include the ~70% of visitors that are "guests," and as such, not recorded in the system.
Decentraland's token, MANA, has reflected this upsurge. Over last year, its price appreciated more than 4,100%. At the time of writing, the project's fully diluted market cap is $6.5 billion.
What should we make of such startling growth and price appreciation?
It depends on who you ask. Some sources I spoke to pointed to Decentraland's halting performance, and low daily user accounts as evidence that the project's valuation was less a reflection of its particular strengths than the attention Mark Zuckerberg has shone on the "metaverse." Others suggested Decentraland's market cap undersold a project with the potential to become the next big social network, a thriving commercial city, and the portal to a new kind of "spatial" internet – wrapped in a single package.
In today's piece, we'll explore these differing perspectives and unpack some of the trends animating the space. We'll touch on:
- The metaverse. We'll land on a concrete definition for a much abused and misused buzzword.
- Decentraland's origins. The virtual world was born in a hacker house in Buenos Aires. It served as a breeding ground for crypto innovation.
- The Meta effect. Decentraland has been on a massive bull-run. In many respects, it has Zuckerberg to thank.
- Strange journeys. What can you do in Decentraland? A guided tour through a wild and occasionally wonderful land.
- Beneath the city. Decentraland is not just a virtual game. It's a token, a community, and a system of governance. Those might prove more important in time.
- Tricky valuations. Some believe Decentraland's property will become the most valuable in the world. How do you assess digital real estate and the project that powers it?
- Spectral futures. New virtual worlds are entering the market, innovating on the concept and encroaching on Decentraland's turf. We should expect many more iterations.
By the end of the investigation, we'll have a firm understanding of the sector's potential and Decentraland's chances of becoming the largest city founded this century.
What is the metaverse?
Defining the word "metaverse" can get muddy quickly. It's tempting to look at experiences like Second Life, Fortnite, and Roblox and think of each as versions of the concept. This road can suddenly leave you questioning whether any massive online game or collaboration tool fits the bill. Is World of Warcraft a metaverse? Is Slack? That way madness lies.
Perhaps as an attempt to counterbalance such fuzziness, some have suggested intriguing alternatives. Shaan Puri, an entrepreneur and creator, suggested the metaverse was a time – the moment when "our digital life is worth more to us than our physical life." While delightfully provocative, no technological change is necessary for Puri's criterion to be met. By this measure, many digital natives might reasonably believe they inhabit the metaverse already, with their best friends dotted across Discord servers and primary assets in virtual currencies. For some, digital life already exceeds physical existence. When does the "metaverse era" kick in – when 51% of the world's digital lives are more valuable? One hundred percent? Is it really nothing more than the moment everyone becomes Extremely Online?
Puri's recalibration (intentionally) cuts out something too fundamental: place. In the science fiction novel Snow Crash, author Neal Stephenson depicted a virtual world composed of a single 66,553-kilometer street skirted by different attractions, accessed by a VR-like headset. While words needn't religiously retain their original meaning, the point of the "metaverse" is, in large part, that it allows users to ingest virtual experiences as if they were physical. Space and embodiment are not incidental. Puri's enticing and original suggestion deserves its own nomenclature. His is a description of something like a "physical flippening." (Catchy, huh?)
The best, cleanest definition I have found comes from Tony Parisi, a pioneer in virtual reality and the creator of "Virtual Reality Modeling Language," or VRML. Parisi outlines seven "axiomatic" rules, summarized as follows:
- There is only one metaverse. There are not multiple "metaverses." Fortnite and Roblox are not competing metaverses, but rather "virtual worlds" or "games" that might, one day, exist within a larger metaverse." Parisi advocates for using "Metaverse" as we use "Internet."
- The metaverse is for everyone. By Parisi's definition, the metaverse is ubiquitous and global. Because of that, he notes that it must be broadly usable and decipherable. It should not be too expensive to use nor too esoteric.
- Nobody controls the metaverse. Though corporations will try to control the metaverse, Parisi believes they are doomed to fail since they cannot fulfill every possible use case. Decentralization will allow creators to rebuff attempts at monopoly better.
- The metaverse is open. Parisi advocates it will be built on public standards, as with internet products. New standards may need to be built to accommodate more 3D-first environments.
- The metaverse is hardware-independent. Though much of the metaverse's content will be consumed in 3D form, immersion is not always necessary. Parisi expects 3D "virtual products" to be accessible from 2D displays.
- The metaverse is a network. Rather than a single program, the metaverse is a vast network of information that can be easily traversed and engaged. Users can communicate, transact, and consume in this plane.
- The Metaverse is the Internet. This notion rhymes with Puri's. In time, Parisi believes the internet will evolve into the metaverse. However, the animating trait is less about digital value overtaking physical value (though surely digital life will become richer) but about new experiences and technologies enabled by the internet's open, collaborative approach.
Though Parisi's enumeration is more nuanced, this abbreviation highlights the core elements. Delivered towards the end of his piece, a single sentence serves as a good standalone definition:
The metaverse is the internet, enhanced and upgraded to consistently deliver 3D content, spatially organized information and experiences, and real-time synchronous communication.
This feels crisp enough to grasp and roomy enough to allow for creativity. The metaverse is the internet, adapted to support fuller, dimensional experiences.
Interestingly, Decentraland's current leader, Agustin Ferreira, began our conversation by noting he didn't think the term fit the project.
"I don't really like the word metaverse. That's not the point of what we're building." Instead, Ferreira advocates for either "spatial web" or "immersive web."
Decentraland is not the metaverse, then, at least not by this framework. But the technology it has developed, the community it has galvanized, and the capital it has accumulated may all prove pivotal in shifting our current web toward that future. Such heady responsibility arose from humble beginnings.
As the name suggests, the Palermo Hollywood neighborhood of Buenos Aires is best known for its TV studios and production businesses. It also played a starring role in some of crypto's largest products.
In 2011, Manuel Araoz was a computer science student at ITBA, a university called "Argentina's MIT." As part of a cryptography class, he discovered Satoshi Nakamoto's bitcoin whitepaper. Argentina's past two decades had been marked by economic volatility and rapid currency devaluation, giving tangible power to Nakamoto's words. Araoz was transfixed. As reported in a Decentraland blog post that has since been taken down but lives on elsewhere, he noted:
The paper seemed really interesting. But when I shared it with my professors, they dismissed it as nonsense. I thought this tech could change the world.
Araoz set about trying to make his dent in the new realm, launching "Proof of Existence" (POE), billed as the "first-ever non-financial blockchain application." POE acts as a notary, allowing anyone to "prove" a document exists by adding an encrypted "digest" of it to the blockchain, where it is timestamped. As its site notes, this is the "first online service allowing you to publicly prove that you have certain information without revealing the data or yourself."
Araoz also joined BitPay, then a bitcoin payments business. As a technical lead, his remit included opening an office in Buenos Aires. He picked a two-story house in Palermo Hollywood.
Populated by BitPay engineers, friends from ITBA, and other early crypto obsessives, "Voltaire House" quickly became a place for deep thinkers to gather. In researching this piece, I got to speak to several former residents and visitors, including Esteban Ordano, one of Decentraland's founders. He recalled part of what made the place special:
We were all working-from-home, and at lunch, we often had deep conversations about technology, science, politics. It was a beautiful experience, a place to openly express yourself and for learning together.
Though philosophically minded, the Voltaire "collective" sought to put their ideas into action. Its denizens built some of crypto's most interesting early experiments and enduring infrastructure. That includes:
- OpenZeppelin. After the DAO hack, Araoz co-founded OpenZeppelin, a smart contract auditing firm. It has become a standard in the space, trusted by the Ethereum Foundation, Brave, Coinbase, Compound, and many more.
- Streamium. Though no longer active, Streamium was Araoz and Ordano's ambitious attempt to create a web3 Periscope-competitor. Streamers were compensated for their work through bitcoin micropayments.
- Nomic Labs. Nomic is the maker of Hardhat, an Ethereum development environment used by teams at Aave, Sushi, Uniswap, Celo, Aragon, and others. Franco Zeoli and Patricio Palladino founded it.
- Muun. This self-custodial bitcoin wallet uses the Lightning Network and seems appreciated for its ease of use and smooth design. Muun was founded by Dario Sneidermanis.
- Big Time Games. Though yet to fully launch, Big Time is a multiplayer RPG game on the blockchain. Users can buy virtual "space," not dissimilar to blocks of land. It was founded by Ari Meilich, one of Decentraland's founders.
Even before considering its most successful creation, the Voltaire mafia's impact has been meaningful.
A new land
In 2015, Voltaire's residents chipped in to buy an HTC Vive for the house. The VR device opened their eyes to the potential of spatial experiences. Ordano described it as a moment of awakening:
When I first encountered immersive VR experiences, it felt like the first time I learned about blockchains. I think we are just touching the tip of the iceberg in what's possible.
Along with Manuel Araoz, Ari Meilich, and Yemel Jardi, Ordano began discussing the possibility of creating a new kind of blockchain environment. Those early conversations had the tenor of Voltaire's free-ranging, philosophical lunchtime talks. In our exchange, Ordano described it:
[O]ur initial idea was: "how can we build a simulation with blockchain-powered transparency?" It was just a thought experiment and mostly impractical, but then the idea of "owners of 3D-space that can decide what exists in that part of the universe" started to make sense.
Like many others of his generation, Ordano had grown up on massively multiplayer online role-playing games (MMORPGs). In particular, he'd been inspired to take up coding after dabbling with Argentum Online, an open-source facsimile of Ultima Online, made for the Argentine market. These experiences would prove formative as he and his colleagues thought through the potential of building a virtual world. Ordano noted that they were also "heavily inspired" by Second Life, a virtual world developed by Linden Lab.
Over the next two years, the quartet developed their thinking, returning again and again to the idea of building "a completely transparent 'game’/experience, something that is open source and regulated by its community," according to Ordano. A new type of virtual world; a decentralized land.
He conceded it was a challenge only a "crazy person" would take on. Building a 3D MMORPG is fiendishly difficult at the best of times. But trying to do it in the browser, open-source, with a peer-to-peer server architecture, leveraging an immature blockchain ecosystem? That's insane. When I asked Ordano what people misunderstand about his creation most, he sent me this meme:
The team was undeterred. Starting in 2016, the team began work on a "Bronze Age" version of "Decentraland," essentially a 3D world split into tracts of land.
In March of 2017, the Bronze Age was deployed on a testnet, an alternative blockchain meant for testing. It was time to bring it to the rest of the world.
Millions and MANA
A few months after the team's test, they released a whitepaper outlining their vision. Though fuzzy on the details, the document stated an intention to build a traversable world governed by the community and featuring an on-chain economy. The realm's terrain was subdivided into parcels of land with details stored on a "blockchain-based ledger." These NFTs – a term yet to achieve popularity and not mentioned in the whitepaper – could be acquired with Decentraland's endemic token, "MANA." Users could also earn and spend money on in-world goods and experiences. Expected use cases included advertising (think virtual billboards), social interactions, and digital collectibles. It's worth noting that Decentraland's whitepaper preceded the launch of OpenSea and even the CryptoKitties craze.
On August 17, 2017, Decentraland opened its ICO, hoping to raise 86,206 ether or $26 million. Within 35 seconds, the entire allocation had been snapped up. While that gave Decentraland plenty of firepower to build and brought onboard 2,000 unique purchases, many were left in the cold and felt frustrated that large buying pools had snapped up such large shares. One group named "ico.info," which pooled funds from more than one thousand participants, ended up snagging almost 21% of the allocation.
I spoke to someone that managed to secure a sizable estate as part of the crowd sale – the source estimated they currently owned about 0.3% of land in Decentraland. As they remembered it, they'd been intrigued by the involvement of Araoz, an "OG" given his OpenZeppelin bonafides. While the impressiveness of the team resonated, so did the project's farsightedness. "The vision was very expansive and ambitious," the source mentioned, "Manuel's involvement gave me confidence they could pull it off."
That was a sentiment echoed by Max Mersch of Fabric Ventures, Decentraland's first "external" investor, outside of friends and family. After an introduction in 2017, he left impressed by the project's core group:
At the time, the team included Ari, Esteban, and Manuel…They were a team of hustlers and crypto OGs from Argentina, who largely worked, coded, and lived together at Voltaire House. They lived for this, day in, day out – in a time when crypto and metaverse was nowhere near the hype that it's gotten to today.
Opening the doors
Those lucky enough to buy land at ICO didn't have much to do with it for a while. The world remained in alpha as a usable virtual version was constructed. In the meantime, Decentraland launched a software development kit (SDK) in 2018, empowering developers to create virtual "scenes" that could be deployed on their land. Around the same time, the "LAND Marketplace" launched, the home for platform transactions. By the end of 2019, it had processed $16.6 million in MANA deals. Today, the marketplace offers a much wider variety of NFTs, including "Wearables" and "Names" for your avatar.
In January of 2020, Decentraland finally opened the doors of its world to the general public, kicking off the occasion with a massive treasure hunt that offered the opportunity to win CryptoKitties, Axies, and tokens.
Users began to gather on the platform, though the performance and vibrance of the world kept total monthly active user (MAU) counts comparatively low. By the start of 2021, Decentraland had reached roughly 20,000 MAUs, a figure that began to climb more quickly as crypto-mania set in. Within the first quarter, MAUs had more than doubled, surpassing 50,000. Figures would hover between 60,000 and 80,000 through spring and summer. Fall saw further gains with MAUs at 140,000.
Then something happened.
The Meta effect
Mark Zuckerberg began his session at Facebook's Connect conference by recapping the history of online expression. As he moved into this thrust of his keynote, he said:
The next platform and medium will be an even more immersive – an embodied Internet, where you're in the experience, not just looking at it. And we call this the metaverse.
The rumors had been confirmed. The company formerly known as Facebook was going all-in on the metaverse, name change included.
Once the domain of science-fiction, Zuckerberg's announcement made the promise, and potential profits, of the metaverse suddenly real. The world took notice. Not only did a reported 12,000 articles mentioning the word get inked in the two months after the announcement – 30x the volume of any prior year – users and money flooded to related products.
From one month to the next, Decentraland's MAUs nearly tripled. The price of MANA went very nearly vertical, jolting from $0.75 to $3.56 and eventually closing in on $5.50.
Decentraland's fully diluted market cap jumped from $1.6 billion to more than $7 billion in four days, effectively increasing its size from 1-800-FLOWERS to The New York Times over the equivalent of a long weekend. Since that leap, MANA has retreated, along with many other tokens, but it is still multiples higher than before Meta's announcement.
This sharp uptick contextualizes some of Decentraland's struggles. As we'll discuss more in a moment, the product is not as stable or mature as one might expect for a project of its size. Such criticisms are both reasonable from one vantage and unfair from another. Yes, this project is now one of the hottest in crypto, but the market has pulled it forward by several years. It may take some time to absorb the new demand. Current head Agustin Ferreira noted, Decentraland is still a "proof of concept in so many ways," while CTO Agustin Mendez explained how tricky the influx was:
I often think that the "word of the year" may be metaverse. All the validation coming from Meta's new direction and name has definitely raised the awareness of people in this kind of project…The version of Decentraland that is hosted in play.decentraland.org got a 33x YoY monthly user growth in December. And keeping the servers and the performance of the decentralized nodes up to that scale was a challenge.
Though not without flaws, Decentraland is already an intriguing, persuasive place to visit.
Product: Strange journeys
What is Decentraland? Is it a world? A protocol? A token? A DAO?
The answer is "yes." Decentraland is all of these things and quite a bit more. Let's walk through its different elements.
I'd like to introduce you to Sutherland. He has a beard, a mohawk, a rad visor, and little yellow shorts. He is my Decentraland avatar.
Over the past week, I've used Sutherland to tour as much of Decentraland's world as possible. We've fallen down the fountain in "Genesis Plaza," hit up the casinos in Vegas City, stumbled across a Pride Parade, mined fallen asteroids in exchange for gems, gone to the stables, gawked at swirling spiral homes, browsed art at a Sotheby's gallery, and tried to fly a dragon. We made it about ten feet before crashing into a wall.
I have also walked around empty lots and whole neighborhoods without a soul in sight. At around noon on a Tuesday, I stood in Frankie's Tavern, a virtual dive bar, watching a music video alone. After hearing about District X, Decentraland's red-light district, I fruitlessly searched for brothels that apparently exist. I hoped to interview the most modern members of the world's oldest profession. (How does this work? What do people buy? Is VR involved? Is the money good?). Though a failure, I did stumble across "Waifu HQ," a confusing monument to female anime characters featuring a scantily clad breakdancer.
Were these outings enjoyable? Sort of, though spending time in Decentraland feels more interesting than fun, per se. Despite spending several hours in the world, I didn't find a game or activity that captured my attention for more than a few minutes. There is no addictive dopamine vortex pulling me back in against my better judgment.
I suspect I would feel differently if I were an enthusiastic or competent gambler. Across my various visits, Decentraland's casinos were almost always the best-trafficked locations. Decentral Games run many, a startup that has raised a reported $5 million from investors like Digital Currency Group and operates as a DAO. Its locations include Chateau Satoshi, The Aquarium, and the Bored Ape Yacht Club, a riverboat casino.
The result was that I experienced Decentraland similarly to Las Vegas, interesting as an anthropological study even if not a true pleasure trip.
Spending time in Decentraland can also be frustrating. Anyone without a new M1 Macbook or a gaming rig is likely to struggle booting up the world. Even those with significant processing power can wait several minutes to get started and face jittery graphics and bugs along the way.
Decentraland is addressing the issue. Ferreira told me that the team expects to roll out a desktop client to improve performance and allow new experiences to be built. In time, he expects Decentraland to operate across devices and through different clients.
External parties are also taking a crack at improving Decentraland's performance. I was given access to the beta version of a program that hopes to improve streaming across virtual worlds radically.
Beyond the amount of processing required to use Decentraland, the biggest issue seems to be its relative emptiness. While there is much to see, there is also a lot yet to be developed. Many landholders seem content to let their holdings appreciate without building on top of them. When I asked Andrew Steinwold, managing partner at metaverse-focused fund, Sfermion, what he saw as Decentraland's biggest weakness, he responded:
Lack of content. There are high barriers to entry to learn how to actually create structures in Decentraland because you need to understand 3D modeling. They have a drag and drop builder, but it is quite limited.
Some companies are emerging to try and fill this gap. After finding much of Decentraland’s map empty, Ed Radion decided to found Squiggly School. The “metaverse academy” is producing courses that help creators learn how to build in this new realm. Notably, Squiggly School is focused on different virtual platforms, with a preference for The Sandbox. That newer world has simpler, more intuitive tooling, according to Radion:
We’re all-in on The Sandbox. Their no-code game engine and design tool are easy to pick up, meaning the ecosystem will have more fun experiences than Decentraland…Decentraland struggles to engage non-landowners because their experiences have to be built in production-grade tools (Blender, Unity). Most people don’t have a clue how to do that or have the time to learn how.
Decentraland will need to find ways to engage landowners and make creation simpler to reach its full potential.
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While the main way users interact with Decentraland is through its virtual world, it does have a more traditional 2D platform. This includes a directory of events, the marketplace mentioned earlier, and the building tools noted by Steinwold.
Looking at the events gives a sense of how Decentraland is being used outside of my anecdotal perusal. Alongside concerts, giveaways, and games are comedy shows, charity events, and corporate showcases. As part of the Consumer Electronics Show (CES), Samsung opened "837X," their "official launch in the metaverse." As part of the experience, the phone maker hosted a DJ and gave out NFTs.
Since its 2018 launch, the Decentraland marketplace has expanded to include avatar wearables and names. For a few MANA, you buy a new jacket, a dragon head, wings, or any number of other accessories. These are made by other creators, making Decentraland a plausible location to build a business.
You can also purchase an official name for your avatar; some rather large brand names seem to be up for sale.
To create new scenes, users must go to the builder. Once there, users can upload collectibles, register unique names, or construct scenes. I found the builder fun and easy to play around with, though I created something without any sense of composition or taste. (Sand, pool, doorway. Taxi? Cactus!) If I owned a piece of land, I could see myself having a good time putting something less terrible together.
In time, developing virtual real estate may be seen similarly to building on real land – you can do it, but unless you're an expert, you're better off hiring a professional. Platforms like Renovi have come to market with that very thesis. The NFT marketplace aims to become the destination for purchasing architecturally crafted scenes. When asked about the opportunity in the space, co-founder Adonis Zachariades said:
Soon your digital space will take center stage and will be the next big hit in the metaverse. What if your virtual space is designed by Zaha Hadid architects? Or a Fosters? And more importantly, everyone can come to see? What if you can also monetize your virtual buildings?...[W]e believe this will be the next Metaverse/NFT frontier.
In time, Decentraland's vacant lots may be filled with stunning, professional creations. Those who want to build themselves can access the SDK that directly powers the drag-and-drop builder. This allows for greater control.
The "world" of Decentraland is powered by its protocol. The best description of the project's construction here still comes from the original whitepaper.
As illustrated in the image above, the protocol is divided into three layers.
- Consensus layer. Land parcels, or "LAND" as the project prefers, are non-fungible assets with "unique (x, y) coordinates, an owner, and a reference to the content description file." The content file includes a reference to the scenes the user wants to "serve."
- Land content layer. A decentralized storage system distributes the content that populates the world. This includes textual, audio, visual information, and more complex occurrences like animations.
- Real-time layer. Through peer-to-peer connections, the protocol can create social interactions within the world. This includes voice chat, messaging, and avatars.
These work together to create the full experience of the virtual world. Decentraland also manages payment flows across its realm.
As an aside, because of Decentraland's peer-to-peer architecture, funny things sometimes happen. CTO Mendez pointed out when Decentraland's NFT API went down. Rather than the entire system failing, a 404 error propagated amongst a subset of users. Because their "wearables" couldn't be found, they appeared without their clothes on.
MANA is the coin of the Decentraland realm. The token's supply stood at a little above 2.8 billion at ICO. Over the succeeding five years, it has decreased to just under 2.2 billion. That reduction has occurred thanks to Decentraland's economic mechanisms. Whenever a user purchases LAND, registers a new name, or purchases collectibles, a percentage of MANA is burned.
As MANA's supply decreases, theoretically, it should become more valuable. This is particularly true if Decentraland can make MANA more useful, increasing how it can be spent and earned.
Beyond its use as a means of exchange, MANA also serves as a governance token. Holders of LAND or MANA can weigh in on the project's direction via Decentraland's DAO.
In early 2020, Decentraland completed one of its initial goals – to hand control of the project over to its community. It did so by formalizing a DAO and handing it power over the essential smart contracts controlling LAND, wearables, the marketplace, and more. If these were ever to change, it would be because the community voted for it, not because a single developer decided it was a good idea.
As part of this transition, Decentraland's founders took a step back. While Araoz and Jardi had co-authored the whitepaper, neither had continued full-time with the project. Instead, it had been mostly led by Ari Meilich and Esteban Ordano. Starting in April 2020, both moved into advisory roles. Around the same time, Meilich seems to have begun working on crypto MMPORG, Big Time. The pair's withdrawal, whether perceived or real, made metaverse investor Andrew Steinwold wary:
[W]henever the founders leave a project, I get bearish because you need visionaries to bring something to life until it hits mainstream…We are still in the extremely early days of the metaverse, so the founders need to be deeply ingrained.
To fill the void, Decentraland turned to Agustin Ferreira. Not only had he been friends with much of the early Voltaire House crew, but he had contributed to the project in its early days. He now leads the foundation alongside COO Justin Edwards and CTO Agustin Mendez. Like Ferreira, Mendez shared a long history with Decentraland, working on the project full-time between 2018 and 2019.
Ordano's role also seems far from finished. When I asked him about why he stepped back, he responded:
Startups tend to take a toll on entrepreneurs. I wanted to make sure Decentraland was being a "good gift to humanity": just because we can build something doesn't mean we should. After a few months of being mostly offline, I think the world needs more examples of open information networks like Decentraland, so I'm starting to get more and more involved in the community to see how/where I can be more helpful.
Decentraland may have landed the transition perfectly, bringing in new blood while giving one of its initial architects a chance to re-energize.
Though it is still early days, Decentraland's community seems to have bought into the shift. The project's Snapshot page suggests it has 8,840 members, above popular initiatives like Yearn, Polygon, The Graph, and Compound. At the time of writing, more than 50 proposals were currently active, ranging from the trivial to the serious.
Critically, MANA's price runup has also given Decentraland's DAO the power to invest in its community at new levels. As part of its formation, the DAO was granted 222 million MANA, vested over ten years. That sum would have been worth $166.5 million at the start of 2021; it's now around $650 million. Real money will be invested into community initiatives. Time will tell how well it is allocated.
Value: Pricing virtual realms
Last year's scorching NFT market forced investors and commentators to rethink valuations from the ground up. How do you assess the potential appreciation of a drawing of a rock? What will the market be for digital monkeys in 2025?
Anyone who wishes to take this movement seriously—and not all will—may have to sideline their DCF models and focus on social signaling, mimetic value, and strength of community. This is all to say that trying to value NFTs, whether they're profile pictures or digital land parcels, can feel absurd or unrigorous. In many cases, the same is true of the platforms supporting them.
Despite that, we'll do our best to contextualize Decentraland's value and the world it has created.
Decentraland versus Roblox
To recap, at the time of writing, Decentraland has a market capitalization of $6.5 billion, more than 800,000 registered accounts, and logged 465,000 MAUs in December. Over the past 30 days, Decentraland's marketplace has processed $15 million GMV, collecting about $380,000 in fees. That gives it a revenue multiple of 1425x. It's worth noting that the number of individual marketplace counterparties over the last month is also small, with just 458 unique buyers and 178 sellers.
Let's compare that to Roblox, Decentraland's best public comparison. The web2 virtual world game has a market cap of $49 billion, with annualized revenue of $2.4 billion, based on the last reported quarter. Quarterly revenue doubled from the same period the previous year, giving the company a roughly 20x revenue multiple. Roblox's daily active users crested 47 million in Q3 of 2021.
Is this comparison useful? It's too simple to mean too much. It doesn't account for Decentraland's much higher growth, nor does it consider the $650 million vesting to the DAO treasury. It also isn't nothing, though. From the perspective of revenue-based valuation, it's clear that investors are placing a premium on the web3 world.
More than one source I spoke to either intimated or outright stated they felt Decentraland was overvalued. One large landowner expressed their desire to move some of their holdings, while a metaverse investor and expert suggested that much of the Decentraland upsurge had been powered by "Boomers" glomming on to the legible concept of "land." Despite being bullish about the space, the source conceded that virtual worlds "have such a long way to go before they're actually interesting."
Others disagreed, none as firmly as Michael Gord, co-founder of the Metaverse Group and GDA Capital. A subsidiary of Tokens.com, the Metaverse Group, is a virtual real estate investor and one of the largest developers in Decentraland. The firm captured public attention when it completed the most expensive "metaverse land acquisition in history." In November of last year, Gord's team closed on a 116 parcel estate in Decentraland's Fashion Street district for a total of 618,000 MANA. At the time of the announcement, that translated into $2.43 million. To Gord, the acquisition was a no-brainer:
Right now, the value of land in Decentraland is about 5% of the value of farmland in Iowa. I don't expect the number of people in farmland in Iowa to grow exponentially.
To the Metaverse Group team, Decentraland has the opportunity not just to be the hottest property market but the next social network. Again, from Gord:
Decentraland is positioning itself to become the number one social network in the world used for social gatherings…The metaverse is going to totally cannibalize the social media market, and right now, Facebook and other social media platforms have in the hundreds of billions of market capitalization. I think that's where Decentraland should be in the next few years as…the network grows from 500,000 - 600,000 monthly active users to 600 million monthly active users.
How long, exactly, might that all take? Gord laid out an informal timeline suggesting we could see Decentraland reach 20 million users this year, 800 million the year after, and global domination by perhaps 2025.
"Let's say I'm wrong and let's say 2030," he added. "But I think the future is…everyone in the world using the metaverse."
Metaverse Group is making moves to ensure that's the case, hosting events and unique experiences on their properties, including concerts. In March of this year, the firm will host a Decentraland "fashion week" in collaboration with UNXD, a digital marketplace that managed Dolce&Gabbana's first NFT collection.
Indeed, Decentraland has already played host to big names. In October of last year, DJ Deadmau5 played a 30-minute set as part of the "Metaverse Festival." We should expect many more celebrities to follow.
These plans illustrate where digital land's value comes from. In an exchange with Kevin Clark, an adjunct professor of real estate economics and market analysis at New York University, he noted that valuation could be done on "income potential either through business operations (like retail) or rent that can be generated by leasing to retailers." You can imagine a future in which it's commonplace to rent a parcel of LAND for a digital conference, an NFT pop-up shop, a consulting business, or any manner of other activities. To fuel this commerce, location matters, of course. As in the physical world, properties near other exciting locations benefit from increased footfall and "market interactions," as Clark termed it. He added that digital property was "here to stay, no question."
We may someday use LAND for more than purchasing digital items, too. Aaryaman Vir, a founder of the NFT project Ludo Labs, pointed me toward Boson Protocol. The decentralized network powers the purchase of physical items "in the metaverse." The project purchased a $704,000 estate in Decentraland, developed into a kind of virtual mall.
In time, we may do our shopping via the spatial web, using facsimiles of our bodies to "try" on a hoodie or pair of sneakers to visualize fit. Such purchases would be truly hybrid, delivering a physical product and conveying virtual perks—avatar accouterments or access to private areas.
Ultimately, valuing Decentraland feels mostly a function of where you choose to focus. Look at revenue, and it's nearly impossible to justify its market cap. But observe recent ripping growth and the dizzying possibilities ahead, and you might leave thinking there's room to run.
Future: A living frontier
Decentraland is not the only worldbuilder. Others are chasing the prize offered by a new paradigm shift, Meta chief among them.
Should Decentraland worry about the advances of Zuckerberg's army? Though my sources tended towards the more web3-friendly, no one seemed overly concerned by Meta's involvement. Despite the company's professed desire to build an "open" metaverse, some expressed skepticism it would follow through on that rhetoric. Will Meta be sufficiently benevolent to enable true interoperability? Esteban Ordano outlined the motivations that might make that difficult:
I'm not sure the incentives are aligned for it to be a very open platform. Even things like…your display name are extremely relevant. For example, I don't see Facebook allowing your avatar to be displayed with your Decentraland Name, because you want to ensure consistency across different experiences and prevent impersonation…Interoperability sounds nice, but I believe it's a harder problem than many realize. And within Facebook, some people will be faced with a no-brainer decision: should I risk my career in a 9-month plan involving hundreds of designers and engineers to make the product's UX a lot more complex, so we can support the competitor's identity system? (spoiler alert: no)
Andrew Steinwold was sharper in his disbelief:
Facebook has lied about the damage its platform has on mental health and has built its platform to encourage outrage because it increases engagement. They claim their "metaverse" will be open, people will be able to earn and own their assets, but I do not believe them. They have lied countless times in their pursuit of power, so why would they suddenly become friendly and "good"?
Meta might still be successful and has shown some friendliness toward open-source projects. CTO Agustin Mendez highlighted its "tremendous" contributions, pointing to their native support for glTF files – an open standard for displaying 3D models. He also referred to Meta's Oculus product as "key for the metaverse."
Ultimately, there is plenty of room for multiple winners. Meta's instantiation is unlikely to serve all needs. Many other intriguing projects are bringing fresh ideas to the fore.
Though Decentraland is the biggest name in web3 worlding, it is closely followed by The Sandbox. A subsidiary of blockchain gaming business, Animoca Brands, Sandbox seems to exhibit a slightly different spirit. One source described it as more "game-y" than Decentraland, which they posited was more similar to an amusement park. Since Sandbox's "Alpha Season 1" has closed, there was no way to play at the moment, perhaps an indication that the product is earlier in its lifecycle.
Those limitations don't seem to have held Sandbox back. After emerging in 2020, it also profited from Zuckerberg's announcement. Its token, SAND, skyrocketed from around $0.80 to more than $8 in less than a month. Its fully diluted market cap sits north of $14 billion (its circulating cap is $4.3 billion). Over the past month, it has exceeded Decentraland's secondary trading volume on OpenSea.
Cryptovoxels is another player with a devoted base. Piers Kicks, founding partner at Delphi Digital and Head of Crypto at Bitkraft Ventures, remarked on how impressive the project was given the slim development team. Several others referenced the product. Andrew Steinwold from Sfermion commended it for "fairer" land prices and content building features. When I asked Decentraland's CTO Mendez which other worlds he found compelling, he responded:
I admire the CryptoVoxels project, they have been putting a lot of effort on it, and they were the first to launch something that actually worked. I think they keep the essence of cypherpunk in their project, and from my point of view, they do what they consider the best, not tinted by anything else.
Somnium has also earned a core following. "It's the only VR-crypto project that even comes close," according to Kicks. Though accessible on the web, Somnium seems to come alive underneath an Oculus; Kicks noted how seamless the world felt and how passionate the community was.
A score more is on the rise, with some oriented explicitly as games and others going after multipurpose use. The first category includes Ember Sword by Bright Star Studios, Meilich's Big Time, Faraway, and Defi Kingdoms. The second includes NFT Oasis, NFT Worlds, Nifty Island, and those that adhere to our real-world maps, like SuperWorld and Upland. Each new project can bring fresh ideas to the task of constructing the metaverse.
Open design space
In our discussion, Piers Kicks emphasized how much whitespace remains; how much more design space can be explored. Does land have to act the way we expect it to in the real world, or can it take on new dimensions? What are the cromulent ways to fund its development?
As things stand, the floor price for purchasing a parcel of LAND on Decentraland is upward of $10,000. While a sign of strong demand, it prices out many who want to devote themselves to the world. To maintain scarcity, though, Decentraland is unlikely to want to expand its supply. At the same time, as newcomers are priced out, many existing landholders have failed to leverage their holdings to create value.
How do virtual worlds solve this conundrum? One way might be by lowering the bar to enter while still allowing whales and OGs to express status.
For example, Kicks suggested the potential for "dynamic land," property that moved around a fixed point. Valuable positions near the center of the map might only be available to those that develop and collateralize it. You can imagine such a decision incorporating factors like capital invested, number of visitors, and length of holding. With this kind of construction, projects could extend their borders, increasing their supply while rewarding the deep-pocketed. At the same time, they'd reduce the number of "dead plots" that leave worlds like Decentraland partially barren.
Another example Kicks referenced was allowing users to increase the size of their property on a world's map. While the size of their property wouldn't increase, their terrain would nevertheless hold greater status and capture more attention. Nifty Island is apparently experimenting with this mechanism.
There are many more ways to experiment with these dimensions. What if some properties are black and white while others are in color? What if some are low-poly while others are in high resolution? What if your neighborhood changes based on the prices of a certain asset, wallet activity, social graph, timezone, or any other number of factors? The cities of tomorrow do not have to act like the ones of today. More than ever, the map is not the territory.
Financial innovations are also needed. Though decentralized finance (DeFi) has made it possible to achieve double-digit interest rates through staking and stablecoins, that doesn't seem to have made its way to virtual worlds. In our research on Terra, we noted how new projects allow users to pay for products with interest earned through Terra's Anchor protocol. No payment beyond interest is needed.
What if you could do something similar with Decentraland? Rather than buying LAND outright, an investor could stake their Terra via Anchor and buy it slowly, over time. Similarly, existing holders could choose to add stakes to their existing properties to finance developments, expansion, or push money back in the project itself.
Over the next few years, we should see a wave of new models come to life.
Decentraland is not yet a thriving city. While it may have plenty of capital and rapidly growing user numbers, for now, it is a metropolis in motion, an urbanity still working through maturation. There is art and commerce, an economy and system of governance, but it is still shy of that ineffable, living quality that animates the real world and the cities that draw us in.
Voltaire, the writer who gave his name to the house that birthed Decentraland, suggested we should "Judge a man by his questions rather than by his answers." That feels like the right, fair way to assess what Ordano and his team have built. Decentraland is not perfect.
But over the past seven years, few have asked more interesting questions. Someday, perhaps soon, they will find the answers to them.
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The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.
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