How to Invest in the Metaverse
In 1992, writer Neal Stephenson released his third novel titled “Snow Crash.” In it, Stephenson’s characters interact in a completely digital environment where appearances can be changed on a whim and digital real estate is just as valuable as its real-life counterpart. Stephenson called his digital environment, the Metaverse.
Twenty-eight years later, public companies like Meta (formerly Facebook) and decentralized autonomous organizations (DAOs) like the Decentraland Foundation have been working to make the metaverse a profitable reality. That has opened up entirely new revenue opportunities for retail investors, gamers, digital collectors and developers.
It’s important to note, however, that the metaverse is still in its infancy and its value proposition has yet to be proven. Any investment in the metaverse should be considered speculative and highly risky.
The least volatile option for retail investors seeking to buy into the metaverse is to invest in publicly traded companies whose business models or profitability are tied to the metaverse. The list includes:
- Meta Platforms Inc (NASDAQ: FB) – In October, Mark Zuckerberg announced the company formerly known as Facebook Inc. would undergo a major rebranding and become Meta Platforms Inc. Since the announcement, Meta has released a virtual reality metaverse platform, Horizon Worlds. Meta’s Oculus Quest 2 VR headset was also one of the hottest gifts over the holidays. It remains to be seen, however, if increased headset sales will result in more Horizon Worlds users.
- Roblox (NYSE: RBLX) – Roblox is an online metaverse platform that allows gamers to create and share virtual worlds with other Roblox users. Roblox has grown rapidly since its inception in 2006, with 9.5 million independent developers, 24 million unique digital experiences and 49.4 million daily active users – up 35% year over year. Still, despite those numbers, the company has yet to turn a profit.
- Boeing (NYSE: BA) – Boeing is using the metaverse to expand and improve production capabilities. In an interview with Reuters, Greg Hyslop, Boeing’s chief engineer, said that the plane maker is planning to create a proprietary digital environment where its human, computer and robot employees can communicate and collaborate seamlessly across the world.
- Microsoft (NASDAQ: MSFT) – Microsoft is looking to find its metaverse niche in the professional world. The company plans to release Mesh for Microsoft Teams in 2022. The add-on to the popular video conferencing platform will allow individuals to generate personalized avatars and collaborate in a holographic 3D environment that transcends geographic boundaries. A key feature of Microsoft Mesh will be Holoportation, which is a tool that allows users to access the previously mentioned digital environment with a VR headset. The user appears as a digital lifelike representation of himself with the ability to interact with team members as if they were in person.
Metaverse real estate
Although the metaverse is still in its infancy, platforms like The Sandbox and Decentraland have already begun selling digital real estate in the form of non-fungible tokens (NFTs), digital tokens on blockchain networks that can represent a wide range of unique items. When an individual purchases a piece of metaverse real estate, the blockchain network powering the metaverse platform verifies the sale and transfer of ownership.
Once the virtual real estate is purchased, the owner of the metaverse real estate NFT can rent, sell or build on his digital property. Japanese video game maker Atari recently purchased 20 parcels of digital land in Decentraland and created its very own crypto casino. Using its own native ERC20-based Atari token, gamblers can place bets and receive winnings in crypto tax-free. Atari has also announced plans to launch its own virtual hotel complex in 2022.
How to buy land in the metaverse and other digital items
Several metaverse platforms have created marketplaces where users can buy and sell digital land and other collectibles in the form of NFTs. Here is how to do it.
- The user who wishes to purchase metaverse real estate needs to identify which platform he would like to purchase digital real estate. Popular options are Decentraland and The Sandbox, although there are several others. Do your own research before buying any land in the metaverse.
- The user needs to create a digital cryptocurrency wallet, a type of computer software that connects to a blockchain network and stores cryptocurrency and is compatible with the associated blockchain that powers the metaverse platform.
- From there, the purchaser needs to access the marketplace of his chosen metaverse platform and connect his digital wallet to it. Marketplaces can typically be found on metaverse platform websites.
- At this stage, purchasing digital real estate looks a lot like buying real estate in the physical world. A buyer needs to consider the price, location and future value of the digital land he is considering purchasing.
- Once the buyer has identified a piece of land, he needs to acquire the tokens or coins to buy it with and store them on his digital wallet. The type of token or coin that will be needed to execute the transaction varies by metaverse platform. For instance, to purchase digital land in Decentraland, the user would need to purchase MANA tokens. If he wished to purchase land in The Sandbox, he would need to acquire SAND tokens.
- If the buyer has already connected his digital wallet to the metaverse marketplace and funded it, all he needs to do is place a bid on the land or buy the land outright. The cost of the land will be removed from the digital wallet and the NFT representing the land will be transferred to the user’s wallet.
- The same process applies to buying other metaverse NFT items such as clothing and accessories for avatars.
Metaverse projects on blockchain networks are powered by fungible tokens – tokens that are divisible and can be mutually exchanged. These tokens are used to purchase digital assets like virtual land or outfits for avatars. They can also be traded for other crypto or fiat currencies. Certain metaverse cryptocurrencies also allow their owners to vote on decisions within a metaverse platform such as where money should be invested or which new features to release first.
Theoretically, as the value of digital assets rise, so will the value of their associated tokens. Furthermore, some metaverse platforms like Decentraland burn all MANA tokens used to purchase digital assets, removing them permanently from circulation and increasing the value of the remaining tokens.
Below are metaverse tokens listed in descending order by size of market capitalization (market cap). These options are inherently risky and should be considered a speculative investment. As a general rule, it’s advisable to never invest more than you are willing to lose.
- Decentraland (MANA) – With a market cap of about $6 billion at the time of writing, Decentraland’s MANA token powers the Decentraland metaverse and is used as a medium of exchange on the platform’s marketplace.
- Axie Infinity (AXS) – Unlike Decentraland’s MANA, which is used to purchase digital goods and services, Axie Infinity’s AXS token is a governance token. Those who own AXS will be able to vote on proposed decisions that will affect the Axie Infinity ecosystem, including how funds in the community treasury are spent. There are future plans to modify the AXS token so that it can be used to purchase digital goods and services on Axie Infinity.
- The Sandbox (SAND) – The Sandbox is focused on a metaverse of user-generated content, much like Roblox. The SAND token is awarded to individuals who participate in The Sandbox’s alpha user testing. SAND tokens can also be purchased on digital exchanges. SAND is a utility, governance and staking token. Owners of SAND can use it to purchase digital goods and services, vote on proposed initiatives within The Sandbox and stake their SAND to earn further rewards.
- Enjin Coin (ENJ) – Enjin is a blockchain gaming company. Unlike The Sandbox or Axie Infinity, which offer only a single metaverse product, Enjin offers its users a host of interconnected play-to-earn gaming experiences. Enjin is unique in that its native token, ENJ, is “infused” into every NFT minted within its ecosystem, arguably providing real-world value for digital assets.
The future of the metaverse?
Companies heavily invested in the metaverse are spending millions of dollars convincing consumers that the dawn of the metaverse is upon us. But will it usher in an era of mass adoption and barrier-free digital interaction or will it be a niche product, reserved for gamers and future tech enthusiasts? Only time will tell. For now, retail investors interested in the metaverse should explore these platforms and consider the metaverse’s future value for themselves.