Why Would Land in the Metaverse Be So Scarce?

First and first, I want to thank Nir.eth, a member of the team of NFT platform Yup.io, for voicing a concern that has been bothering me for years.

Hopefully, you can see why this isn't just a good question, but one that has been tearing through Crypto Twitter in recent days. Yuga Labs, the firm behind the Bored Ape Yacht Club, completed the sale of "Otherdeeds" for virtual land plots in its projected "Otherside" metaverse project this week, bringing the company a whopping $285 million. Otherdeed NFTs' floor price has declined by as much as 12% after the sale, which feels like a top signal in a market where similar "blue chip" mints have frequently witnessed fast post-launch runups.

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What makes land so valuable?

Of course, copycat proliferation will be a concern in metaverses. There are dozens of metaverse initiatives in the works right now, all of which can sell "land," as Multicoin Capital's Tushar Jain recently pointed out.

We should only design scarcity into systems when it is absolutely necessary for the system to function.

Abundance is almost always better.
— Tushar Jain 🎈 (@TusharJain_) May 4, 2022

However, the concerns voiced by Nir and others in recent days are far more basic, and they may indicate weaknesses in the paradigm regardless of the competitive situation. Above all, the notion that virtual geographic space will accrue value in the same way that real-world land does appears to overlook certain key characteristics.

Real-world land values are determined by two factors: location and utility. Land in Tokyo and New York is among the most valuable in the world since it is adjacent to interesting places. Because each piece of land has a fully distinct geographical location relative to every other piece of land, this geographical reality is inextricably linked to the scarcity of real-world land.

The issue for metaverse land buyers is straightforward: in a 3D digital world, all distances are fictitious.

There's no reason why any virtual parcel should be more valuable because of its location, any more than a web address should be valued because it's "near" to another. You can teleport your avatar to any location in the virtual world at any time. As another Twitter user pointed out, bolstering metaverse land values would need placing wholly artificial limits on users, worsening the experience and ultimately repelling the users who are the metaverse's true source of value (on which more in a second).

Some thoughts on recent events in the metaverse.

TLDR; scarce virtual land is not only unethical it's almost certainly a losing strategy. Here's why.
— Charl3s 🏝️⚔️🔫 (@charl3svii) May 2, 2022

Then there's the practical utility of real-world land, which is the second value. This can include topics like whether it has the necessary soil or water sources for farming or other natural resources in the actual world. However, because there is no such thing as a "natural resource" in the metaverse, linking specific rights to virtual property would be necessary to have it mirror the value structure of the real thing.

Nifty Island co-founder Charles Smith points out that the most apparent option here is attaching the right to generate content to land ownership in a post criticizing the land-sale business.

The allure of prelaunch tokens and scarce virtual land is that they generate easy money and engagement.

The truth is, it's an incredibly costly way to raise capital.

You're taking on a debt in the form of game design constraints and a corrupted relationship with the player.
— Charl3s 🏝️⚔️🔫 (@charl3svii) May 2, 2022

However, applying this patch to boost land values would have the unintended consequence of negatively impacting the user experience and, as a result, frightening away artists who make shared worlds engaging and valuable. Smith continued, "Look at Minecraft, Roblox, and even YouTube." "Would it be preferable if the right to produce on these platforms was restricted to a small number of landowners?"

Nifty Island has been outspoken about not include land sales in its business plan. At the very least, this implies a viable option for investors seeking to diversify their funding sources.

The skeuomorphism trap in finance

Given this criticism, you may call the entire concept of investing in metaverse land "financial skeuomorphism." The inclination to create digital products in ways that imitate the physical world is known as skeuomorphism, and it was a hot topic in interface design during the iPhone's early development.

As users become more accustomed to the contrasts between digital and physical objects, visual skeuomorphism in interface design has diminished. The same might happen with metaverses, with the added twist that a group of people recently spent $285 million in the financial equivalent of a drop-shadow app icon, rather than Yuga Labs stock.

While Apple was able to gradually move away from skeuomorphism, metaverse initiatives based on land plot valuations may have ingested a poison pill that they can only spew directly into their investors' faces. To maintain land values, developers may be forced to implement artificial constraints that impair the user experience and, ultimately, the system's actual value. Making it easy to move about or create content in a metaverse, on the other hand, would nearly invariably lower land values.

This could just be a case of entrepreneurs moving so quickly that they haven't fully considered the consequences of their core models. The less charitable reading is that they're taking advantage of purchasers' skeuomorphic prejudices by employing the metaphor of "land" in a way that implicitly exaggerates the intrinsic value of the virtual things they're selling, and laughing all the way to the bank.

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