Decentraland: The financial activities happening in the Ethereum-based metaverse

With JPMorgan’s entrance into the metaverse, there’s a lot of discussion around opportunities for financial services to participate.

Decentraland is a three-dimensional virtual reality platform built on the Ethereum blockchain that stands at the forefront of this growing metaverse trend. It is decentralized and run by the community, providing full ownership to the users of their virtual assets. 

In Decentraland, users can buy and sell goods and real estate, play games, get entertained, interact, and trade with other users.

What’s happening in Decentraland

The metaverse is an amalgamation of virtual reality and augmented reality where users live within a digital universe that extends beyond our physical universe. 

Decentraland is the first-ever blockchain-powered place in the metaverse, which was launched in February 2020. Users can enter with a crypto wallet if they want to transact inside.

Decentraland got a major boost when its native token MANA jumped 80% within 24 hours to a market capitalization of more than $2 billion, following the announcement that Facebook would rebrand to Meta, as the company shifted its long-term focus from social media to 3D virtual environments in 2021.

This year, JPMorgan Chase became the first bank ever to enter the metaverse with its ‘Onyx Lounge’ in the Metajuku mall, Decentraland. Visitors are greeted by a digital portrait of Jamie Dimon, the CEO of JPMorgan, and a roaming tiger. On the upper level, they have an executive presentation on the crypto economy.

In November, Barbados signed an agreement with Decentraland to establish its virtual embassy on the platform in January 2022, becoming the first country to do so.

A few crypto businesses like Binance have also established their digital headquarters in the virtual world for meetings and collaborations.

Decentraland appears to be an early hub for entertainment activities and economic boom in the metaverse. It has Sotheby’s London art gallery, museums, virtual events like the Paris Hilton concert that happened on New Year’s Eve, as well as token-based gambling.

Tokens used in Decentraland

Two different types of tokens are used in Decentraland’s operations.

• MANA – The cryptocurrency that is used for buying and selling lands, virtual goods, and services in Decentraland. When a LAND is bought, Decentraland burns the MANA that it is purchased with. There is a total supply of about 2.19 billion MANA tokens. The current price of MANA is around $2.387, compared to its all-time high value of $5.80 recorded on 25 November 2021.

• LAND – LAND is a non-fungible digital asset maintained in an Ethereum smart contract. It is divided into parcels that are referenced using unique x,y cartesian coordinates. Once a plot of LAND is bought, the owner is free to do with it whatever he/she chooses.

A leap in the dark

Virtual casinos are readily accessible in Decentraland. One of the popular ones is called ICE Poker, run by Decentral Games.

So far, ICE Poker is the most visited place in Decentraland – around 600,000 platform users have dropped in.

Although Decentraland doesn’t hold a license for gambling, it steers clear of the regulations by letting players buy NFTs of virtual clothing that can be used to unlock tokens to play. This implies that the gamers aren’t directly cashing out chips for money.

To date, Decentraland has disbursed $15.4 million to players aiming for a chance at crypto wealth denominated in MANA.

Virtual land boom

Lands and plots are needed in the digital world to launch a business, game, art gallery, fashion store, build a house, organize an event, or create anything. Buying, selling, and mortgaging these lands is a popular financial activity happening in the digital world.

Decentraland, for example, is divided into 90,000 parcels of land, each roughly 50 feet by 50 feet, and each in the form of an NFT known as LAND.

People use mortgages to buy these plots. 

To apply for a virtual land mortgage, the buyer must complete an application form and deposit a down payment of 10% of the market value of the property. The loan request is then published on the RCN dApp.

Once a lender approves a mortgage application, the platform creates a smart contract that locks the land parcel and transfers partial ownership to the buyer, who can use the parcel to build anything they want, at the provision of paying off monthly installments as per agreement.

The mortgage requester will instantly find a PAY button on the Decentraland dApp. Upon paying off the full loan, the buyer can claim full ownership from the smart contract by using the CLAIM feature on the Decentraland dApp.

If the buyer does not repay the mortgage amount (up to 7 days after the loan expiration date), the lender is allowed to request the mortgage back using the same feature. In this case, a “Defaulted” notice will appear on the parcel page. The buyer will lose the paid amount, along with the option to claim that parcel.

TerraZero is the first land developer to facilitate a virtual mortgage.

The biggest deal to date for a virtual home was valued at $2.43 million. 

$500 million in virtual land sales were executed in the metaverse last year. In January 2022, the market grew by $85 million. It’s likely to reach $1 billion by the year’s end, according to a report by data firm MetaMetric Solutions.

Michael Gord, a co-founder of the Metaverse Group, said, “Imagine if you came to New York when it was farmland, and you had the option to get a block of SoHo. If someone wants to buy a block of real estate in SoHo today, it’s priceless, it’s not on the market. That same experience is going to happen in the metaverse.”

Fashion brands also have an eye on expanding their operations into Decentraland. Metaverse Group wants to help them do that. “Metaverse Group also plans to establish partnerships with several existing fashion brands who are looking to connect with new audiences and expand their e-commerce offerings within the metaverse,” the company statement said.

Recently, Tokens.com struck a deal in Decentraland’s fashion district for around $2.5 million. The company, which claims the real estate transaction was the largest in metaverse history, plans to establish the area as a virtual shopping center for high-end fashion brands.

Between June and December last year, the average price of virtual land doubled from $6,000 to $12,000 across the four main Web 3.0 metaverses that include Decentraland, The Sandbox, Somnium Space, and Cryptovoxels – according to a recent JPMorgan report. 

Brands buying up space to create virtual stores and other experiences are the reason virtual property prices are going through the roof.

“This democratic ownership economy coupled with the possibility of interoperability could unlock immense economic opportunities, whereby digital goods and services are no longer captive to a singular gaming platform or brand,” the report said.

In June 2021, one land parcel in Decentraland was sold for $913,000, with the developer Everyrealm turning it into an entire shopping district, Metajuku.

The metaverse will become a $1 trillion market opportunity in yearly revenues, given that its virtual worlds will “infiltrate every sector in some way in the coming years,” claims the JPMorgan report.