As we watch housing prices in various big-city markets surge, investors may have gotten accustomed to seeing double-digit growth in real estate assets. Indeed, taking this growth for granted has become easy. However, looking at digital real estate, we're seeing some pretty impressive trends as well.
Virtual real estate, or digital properties representing ownership in virtual worlds, is fast becoming the hottest item in the non-fungible token (NFT) universe. It is now even possible to get a mortgage on a metaverse property. Digital land sales topped $500 million last year and are expected to compound at a rate of 31% per year through 2028.
Major corporations are making investments in digital real estate. Indeed, the malls and art galleries of the future may well be in a digital space. For those interested in just how large virtual real estate is becoming, here are some of the largest cryptocurrency-driven real estate sales to date.
1. The Sandbox sets a record, with $4.3 million sale of digital land
Republic Realm, which owns and develops virtual real estate, purchased a property last year from Atari. It was the largest metaverse sale to date, worth a whopping $4.3 million. This sale took place on The Sandbox (SAND -1.26%), a burgeoning crypto-based virtual reality game.
This transaction still stands as the largest real estate deal in the metaverse to date. For The Sandbox, the deal exemplifies just how much interest there is in this project. Currently, about three-quarters of all digital land sales take place on The Sandbox.
That's not to say there's not competition in this realm. And certainly, some may suggest that $4.3 million is a high price to pay for virtual real estate. That said, there is potential to monetize this real estate. TerraZero Technologies has introduced mortgages for digital real estate, using the NFT as collateral for the loan. Ownership of the NFT transfers to TerraZero until the loan is paid off. However, development rights stay with the purchaser, allowing for the ability to leverage this asset into a more valuable NFT.
Is this the future of digital real estate? Perhaps. What's certain is that this land rush is capturing the attention of some high-profile developers looking to drive their brand.
2. A virtual real estate plot sells for $2.4 million
Last November, a plot of land in Decentraland (MANA -0.94%) sold for a record (at the time) $2.4 million. This piece of land was purchased by a subsidiary of Tokens.com, called the Metaverse Group. This is the largest plot ever sold in Decentraland and indicates how hot these platforms are becoming. Sales have dropped since the peak last November but are still 10 times higher than this time last year.
Decentraland is becoming an economy all on its own, with virtual shops, art galleries, and even a casino. Yes, gambling happens in the metaverse. There is a play-to-earn casino in Decentraland where people who have bought an Ethereum- (ETH 0.36%) based NFT can earn (or lose) cryptocurrency at the tables. The casino is owned by Atari, one of the larger corporations to have fully embraced the metaverse and all its potential opportunities to date.
3. Axie Infinity provides for increased functionality to get in on this land rush
Axie Infinity (AXS) is arguably the most lucrative play-to-earn game in the metaverse right now. Aside from just playing the game, investors can earn Ether by buying and selling Axies on their virtual shop. Axies are cute digital NFTs reminiscent of Pokémon or Tamagotchi. The sales of these creatures form the backbone of the Axie Infinity economy.
However, this economy is evolving. One of the key highly anticipated updates from Axie Infinity is this game's upcoming Axie Infinity: Origin upgrade. This upgrade will introduce "Land Mode," which will allow users to further monetize the game. Similar to other metaverse games, owners of digital land will be able to develop and farm real estate for resources.
These parcels are expected to be a major improvement in terms of functionality and could result in renewed interest in the game. Like other play-to-earn games, interest in the Axie Infinity platform has been declining in recent months. However, those bullish on the real estate angle in the metaverse may like the direction Axie Infinity is headed with this move.
Where is digital real estate headed from here?
These are some significant transactions, to be sure. However, interest around digital real estate transactions has slowed since November. Most attribute this to the large crypto sell-off since then. That said, interest in the NFT market continues to surge, and there's certainly a tremendous amount of interest in digital land overall.
I think this is an interesting speculative area to consider. Investors who like NFTs may want to take a look at diversifying their holdings into digital real estate. With the rise of various lending options tied to these parcels, this economy is one with some drivers that could take the sector higher, albeit with significant risk.
Like all digital assets, digital real estate is a lot more difficult to value than physical property. Accordingly, those looking to invest should do their proper due diligence and ensure these assets are suitable for their respective risk profiles.