Before I begin, I wanted to preface that my thoughts around virtual land in the metaverse have evolved over the past year as I’m learning more about the space. I was a big advocate for virtual land when I started my web3 journey back in early 2021, when I discovered Decentraland. There was a lot of buzz around the metaverse because of virtual land sales but it really took off when Facebook rebranded itself to Meta in November 2021.
From that point forward, the metaverse became one of the hottest buzzwords in the web3 space and the influx of “metaverse” projects/companies followed. Most of these self-proclaimed metaverse companies only had a website, twitter and a generic roadmap but had the audacity to have land sales because they wanted to profit off the metaverse gold rush.
That was the moment in time when I started to get conflicted around what was happening in the space - why was there such a big emphasis for artificial scarcity? Why are there limited plots of virtual land? The metaverse should have limitless space. Why would we gatekeep creators by only allowing them to build if they purchase a plot of land or buy a pass that grants them access to build.
There is a time and place for everything.
I’m not saying that all virtual land sales are bad and I don’t completely disagree with all metaverse companies who are creating artificial scarcity. Like everything else in life, there are pros, cons and the timing matters too.
Without the introduction of artificial scarcity would the metaverse space be in the same state as it is today?
Even though we had MMO games like Runescape and World of Warcraft or companies like Roblox and Epic Games* - I don’t think the space would be what it is today if it wasn’t for Decentraland, Sandbox and Voxels (fka Cryptovoxels).
*The former group of companies have some attributes that we can use to make the case that they could be considered as a “metaverse”. We can debate the definition of the metaverse next time.
The latter set of web3 companies brought the conversation of the metaverse into the spotlight with all the lucrative land sales that were happening on their platforms. They were even getting big companies across different industries to buy land - from Samsung and Adidas to PWC. Facebook rebranding to Meta amplified the spotlight.
Artificial scarcity has helped put the metaverse on everyone’s radar.
In the short term, virtual land sales have contributed to generating awareness and growth to the space. That’s great, however there’s no other long term benefit of artificial scarcity.
First, let’s take a look at the what artificial scarcity is good for:
1. It’s an easy way to get money vs raising funds (for the company).
2. It generates a lot of awareness & engagement because of speculators (for the company).
3. Potential monetizing opportunities through ownership of land - selling, renting, hosting events, ads, etc. (for the landowners).
Beyond making money in the short/medium term, artificial scarcity will only hurt the future of the metaverse.
While it’s hard to define the metaverse right now, I believe Matthew Ball and Coinbase has the best definition for what the future metaverse should be:
A massively-scaled, persistent, interactive, and interoperable real-time platform comprised of interconnected virtual worlds where people can socialize, work, transact, play, and create.
In its most complete form, it will be a series of decentralized, interconnected virtual worlds with a fully functioning economy where people can do just about anything they can do in the physical world.
The only thing I would like to add which I believe is assumed but not clearly stated is that people can do anything they can in the physical world and more. The metaverse should be limitless and should allow us to break free from any constraints in the physical world - the open metaverse. The best example often used would be the Oasis, the metaverse referenced in Ready Player One.
In the future state of the metaverse, artificial scarcity shouldn’t exist - especially if we’re talking about virtual land. We’re still in the infancy stage of the Metaverse and the whole space is still figuring out what works and what doesn’t. What works now with land sales might work with web3 natives and early adopters but will it work when we want mass adoption? For most metaverse companies that are solely relying on scarce land sales to generate revenue, they will have a hard time sustaining growth in the future and that will lead to implications that would impact the space.
In the long term, artificial scarcity will only hurt growth (of mass adoption) and will slow us down or prevent the metaverse from scaling to its full potential.
1. Artificial scarcity will limit accessibility and scalability.
Owning virtual land (in most cases) allows you to do whatever you with that plot - build on it, rent it, etc. Majority of the virtual land that were for sale are either scooped up by land spectators or big corporations who have the capital to invest in the space. It’s likely that most of the virtual land sold aren’t being worked on or put into “productive use” and will be flipped for profit.
For builders, creators & contributors who want to help build and develop the metaverse, they will only be able to do so if they have the capital to buy a plot of land. Right now, the floor price of a plot of land in Decentraland is roughly around $3.3K USD (1.96 ETH / ~3,150 MANA). Unless you have the capital, you’re likely priced out from being able to build. If you do have the capital, you might be turned off by the required initial investment to start contributing. This initial investment will likely get even more expensive in the future because of how scarce land is. Why would you want to scare off the creators who are building and making the metaverse appealing for people to escape to?
That brings me to scalability. When a company is heavily relying on land sales, they will hit the ceiling on growth earlier than anticipated. The only way to continuing growing would be increasing the cap on its limited supply of virtual land. If they don’t, they will lose valuable builders to other platforms that aren’t gatekeeping access and users will flock to other platforms if that’s where their favorite creator is.
If the company decides to increase the land supply cap, there will be a lot of unhappy owners. The early adopters will feel like they got thrown under the bus and the owners who paid a premium on the land prior to the increase will not be happy at all. Overall it will be a lose-lose scenario when the company decides to pivot.
For this reason, I’m optimistic for metaverse companies who are aren’t capitalizing on artificial scarcity and speculation. Companies like **Mona **and **Nifty Island **are working on building the backbone of the open metaverse and won’t run into this issue once the space is past the tipping point.
2. Artificial scarcity leads to the wall gardened metaverse.
This Metaverse is going to be far more pervasive and powerful than anything else. If one central company gains control of this, they will become more powerful than any government and be a god on Earth. - Tim Sweeney (Epic Games CEO)
The quote above is why no one wants Mark Zuckerberg & Meta to succeed in the metaverse space. We seen the walled gardens that Meta (Facebook), Google and Amazon have built within the digital advertising industry. Imagine how dystopian it would be if Meta controlled the metaverse.
If we look at the top web3 metaverse companies right now, it does feel like they are setting the foundation to create wall gardens with land sales and their own tokens that can only be used within their ecosystem. They’re attracting big corporations to invest and build within their centralized platforms. We all know advertisers will flock to the platforms with the biggest reach so it’s going to battle of who can win a user’s attention and who is better at keeping their users engaged.
I’m hoping the newly formed **Open Metaverse Alliance for Web3 **will be able to prevent the worse case scenario from ever happening. Even if it’s not Meta that will win the race for control of the metaverse, I personally would prefer the metaverse to be open vs having one (or a group) of these metaverse companies to have majority control.
3. Artificial scarcity will prevent us from moving beyond a skeuomorphic metaverse.
Artificial scarcity is a product of skeuomorphism and the metaverse should strive to move beyond it. For those who are unfamiliar with skeuomorphism, this is the best definition I can find:
“Skeuomorphism is the design concept of making items represented resemble their real-world counterparts.”
It makes sense why the early stages of the metaverse would be skeuomorphic. It’s familiar, easy to understand and it just makes sense. It’s like the world we live in (IRL) but virtual. It makes it easier to attract users in the early days especially for those who lived through COVID pandemic era - for 2 years almost every aspect of our lives was virtual.
The metaverse shouldn’t be bound to physical constraints of the real world. Land is generally valuable in the real world because it’s a limited resource and proximity to locations are important (transportation, city centers, etc.). The less time you spend on getting to point A to point B, the better. In the metaverse, there shouldn’t be any commute times. You simply have the ability to teleport to your destination in an instant.
Just imagine if the metaverse was just like the real world, an exact copy but just virtual. How boring would that be? You might as well not visit the metaverse at all in that case. Nothing would appealing or exciting because if you can’t do it in the real world, you probably can’t do it in the metaverse. There’s no escapism and you’re just getting same the experience as you would normally.
To wrap it up, here are the reasons why artificial scarcity will hurt the future of the metaverse:
- It will limit accessibility and scalability.
- It leads to a wall gardened metaverse.
- It will prevent us from moving beyond a skeuomorphic metaverse.
We’re still in the infancy stage of the metaverse and you could make the argument that it’s way too early to even start thinking about what the future would look like. Personally, I think it’s never too early to open up the topic for discussion as I rather have the conversations now vs when it’s too late.
Let me know if you agree or disagree with my word vomit as I want to open this up for discussion - you can reach me here.
8/7/2022 edit: Just wanted to make note that when I’m saying artificial scarcity is bad, I’m referring to land sales and accessibility to certain features that should be universally available. Of course there’s other factors that could be scarce around NFT utility - for example membership access to a certain area that’s own by a certain group. I’m not 100% against artificial scarcity as there are some things that it make sense for.
Cover image is a screenshot taken from a Mona space (TAG-3) that I was exploring, built by @_bryanye