Introduction

What’s the Story? The metaverse, a virtual reality space where users can interact with one another, is not just a buzzword. It has been in development for decades, butCoresight Research has identified the expanding metaverse as a key trend to watch in retail in 2022 and beyond, as new technologies continue to emerge and evolve that support the development of virtual environments and digital opportunities as part of “Web 3.0” (the third version of the Internet, which allows users to have greater control over their digital assets and identities). In this report, we explore three unique virtual environments—Decentraland, The Sandbox and Bloktopia—covering their backgrounds, structures and strategies, and the attractive virtual real estate opportunities they offer brands and retailers.

• For more on recent developments related to the virtual land-grabbing craze, see the first report in our new Metaverse Latest series.

Why It Matters Metaverse platforms can have thriving economies thanks to non-fungible tokens (NFTs)—non-interchangeable units of data that represent digital assets and are stored on a decentralized digital ledger known as blockchain. Heightened interest in blockchain games, which are developing and growing quickly, has led to businesses purchasing plots of virtual real estate worth millions of dollars in both Decentraland and The Sandbox, with intentions to build partnerships and develop land for commercial use. Investors will begin purchasing land in Bloktopia when it launches in March 2022. The three metaverse platforms have limited land and token supply, so as the games grow in user base and more land is purchased, opportunities to establish a digital presence will become costlier. Total virtual real estate sales totaled $501 million in 2021, and could double to $1 billion in 2022, according to metaverse data provider MetaMetric Solutions. One of the key drivers of the metaverse is the steadily expanding VR/AR (virtual and augmented reality) market. The boost to global GDP is set to grow from $206.5 billion in 2022 to $855.3 billion by 2027, according to PwC (see Figure 1). Advancements in AR/VR tech will also lead to advancements and growth in the metaverse.

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Figure 1. Impact of AR/VR/MR on Global GDP (USD Bil.) [caption id="attachment_142815" align="aligncenter" width="700"] Sources: PwC/Statista [/caption]  

The Virtual Land Grab: Coresight Research Analysis

1. The Blockchain-Driven Metaverse: Decentraland, The Sandbox and Bloktopia Many virtual environments, such as Fortnite and Roblox, already boast active economies and are actively partnering with retailers. However, these non-blockchain games are not interoperable with Decentraland, The Sandbox and Bloktopia—nor are these metaverse platforms interoperable with one another, even though they are built on the same (or compatible) blockchains. This means that users cannot yet bring digital assets (or avatars) with them across environments. Until interoperability is more commonplace, businesses that want to establish a virtual presence have a big choice to make about what they want their digital offerings to include, and each of the three metaverse platforms offers different opportunities. In Figure 2, we present key information about each platform and its land/tokenization strategies.

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Figure 2: Decentraland, The Sandbox and Bloktopia: Key Information

Decentraland	The Sandbox	Bloktopia
Founder(s)/Management
Ari Meilich and Esteban Ordano founded Decentraland in 2015; they have now stepped into advisory roles The Decentraland Foundation is a nonprofit, independent organization within Decentraland that ensures neutrality	Sebastien Borget founded mobile game developer Pixowl in 2011, then developed The Sandbox in 2012; he remains COO	Paddy Carroll, who serves as CMO, and Ross Tavakoli, who serves as CEO, founded Bloktopia in 2021
History and Funding
Has raised $25.5 million since founding Launched its alpha version in 2017 and opened its doors to the general public in February 2020	Has raised $95 million since founding Animoca Brands acquired Pixowl in August 2018 to build a blockchain-based version of the game; alpha version was released in November 2021	$4.2 million in total funding Beta version of the game is set to launch in March 2022, with infrastructure still being constructed
User Base
Roughly 300,000 active monthly users and 18,000 active daily users	Roughly 500,000 total users (wallets) and 30,000 active monthly users	N/A—March 2022 launch
Blockchain
Built off Ethereum blockchain, soon partnering with the Layer-2 Ethereum scaling solution, Polygon	Built off Ethereum blockchain, soon partnering with the Layer-2 Ethereum scaling solution, Polygon	Based on the Polygon blockchain
Land and Asset Information
Contains a limited total of just over 90,000 land parcels, with around 43,000 private parcels, 33,000 public (districts), 9,000 roads and 3,500 plazas Each parcel measures 16m x 16m and is represented by an NFT, LAND, which has unique “x,y” coordinates as well as description files containing information about desired characteristics by the land owner	Contains over 160,000 plots of land (limited), 10% of which is privately held by The Sandbox for special events, and 16% is held in reserve Each plot of land measures 96m x 96m, represented and verified in ownership by LAND. Users who develop, design, publish or purchase digital objects and assets have exclusive ownership of those assets via the ASSETS NFT	“VR skyscraper,” with 21 levels as a nod to the finite 21 million bitcoin supply; access to each level depends on the user’s experience with cryptocurrencies Real estate acquisitions and ownership are verified by REBLOK NFTs, and rights to advertising on one of five advertising totems located on each of the 21 levels are exclusively held through the ADBLOK NFT
Tokenomics
Transactions for LAND, assets and other NFTs are conducted in MANA cryptocurrency, up over 14,700% (price return) since its initial coin offering (ICO) in September 2017	Transactions for the ASSETS, LAND and other NFTs are conducted in SAND cryptocurrency, up over 3,500% (price return) since its ICO in August 2020	Transactions for NFTs, assets and advertising are conducted in BLOK cryptocurrency, down 83% since its ICO in November 2021

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As of February 28, 2022 Source: Coinbase/company reports/Crunchbase/NFT Plazas 2. Platform Appeal and Virtual Property Sales   Revenues generated from virtual gaming worlds could grow from $180 billion in 2020 to $400 billion in 2025, at a CAGR of 17.3%, as estimated by Ark Invest. Additionally, the market value of gaming and esports is currently projected at $1.28 trillion, and the market value of the Web 2.0 stage of the Internet is $14.8 trillion, according to Grayscale Investments. Despite these large numbers, however, the current Web 3.0 market size is only $28 billion, Grayscale estimates. As the evolution toward Web 3.0 continues, and gaming continues to surge in popularity, many businesses involved in Web 2.0 and gaming will begin to shift their strategies for virtual compatibility on decentralized technologies, meaning that the Web 3.0 market size should increase steadily and substantially as AR and VR become ingratiated into everyday life. Republic Realm, which purchased the most expensive piece of virtual real estate in the metaverse, sold the plots it originally owned in early 2021 for $15,000 each. The company’s CEO, Janine Yorio, said that the same plots are selling for $300,000 almost a year later, similar to the US’s median home price in 2021, demonstrating the recent surge in popularity and rapidly increasing entry costs into the virtual world. Decentraland, The Sandbox and Bloktopia are aiming to partner with external businesses, brands and retailers to improve the offerings and experiences of their environments, meaning that prices will likely only continue to climb. The structures of the in-world economies offer brands and retailers compelling opportunities to enter completely new markets and offer avatars from every corner of the globe the same immersive experience, in a new, “direct-to-avatar” business model. Each game also offers different NFT structures to verify the ownership and authenticity of assets. With limited token and land supply, as the shift to Web 3.0 is fully realized and these environments grow, land parcels and respective cryptocurrencies (MANA, SAND, BLOK) become more valuable (and therefore more expensive) as digital foot traffic increases. Various NFT structures allow for attractive in-world economies, as we discuss for each platform below. In addition, each game is continually working on new types of NFTs to provide exclusive ownership of in-game assets and digital items. Decentraland

• Ownership and Security of Digital Assets

LAND (NFT) transactions in Decentraland are represented by a distributed ledger, and new land parcels must share a border with existing ones. Decentraland is also integrating a core payment system for trustless (lack of third-party), instant and global exchange of digital currency, goods and services. An identity system, where tracking and ownership of digital objects (including avatars and assets) is secured by cryptographic hashes (NFTs) protects originality and creates scarcity. The Sandbox

• Ownership and Security of Digital Assets

Through the use of these NFTs, The Sandbox is able to establish an economy within its metaverse.  Every item can be tokenized, meaning that even if the game was shut down or abandoned, digital assets remain uncorrupted and the user has ability to trade without concern of being fleeced (thanks to immutable records of transactions in the blockchain).

• Use of Marketplace

The community is comprised of players and creators (individual users or businesses/retailers that build games and design ASSETS NFTs). Dedicated to empowering creators and digital designers, Pixowl offers two development tools to The Sandbox users. The first, VoxEdit, is a 3D modeling package allowing creators to build digital objects and Voxel-based NFTs. Players can use the second tool, Game Maker, to decorate their LAND and place their ASSETS (NFTs). Through the ASSETS marketplace, players and creators have the opportunity to purchase digital objects made by creators to decorate their personal spaces and avatars, and define unique features for their environments and games. For example, some users have created virtual fairy wonderlands, ancient towns and futuristic space stations. These spaces attract other users and form high-traffic areas to entertain themselves and socialize in, and businesses to advertise in.  In the marketplace, creators can also host building and crafting experiences, such as competitions and workshops for the construction of personal spaces. Bloktopia

• Ownership and Security of Real Estate

Players can have sole ownership of real estate BLOKs, which would be represented by a single NFT, REBLOK—or they could have joint ownership, represented by multiple NFTs and shared with others; investors could also purchase multiple NFTs. In joint ownership, revenues generated by the space (whether it be from leasing or entertainment) are split based on the portion of NFT owned. As real estate is purchased, Blokopia plans to “burn” BLOK tokens used for the purchase of land, reducing token supply by up to 22%—which will drive up scarcity and therefore prices. Players can either use Bloktopia’s software development kit (SDK) or purchases from the marketplace to furnish their spaces, which can be sold in the marketplace at any time (in any state of development).

• Ownership and Security of Advertising

Investors are given the opportunity to purchase advertising space for revenue, through the ADBLOK NFT, giving them verified and exclusive rights to ad space. Depending on where the advertising space is located, the ADBLOK NFT will vary in cost. Because all avatars “spawn” on the first level, this will have the highest footfall and will therefore be the most expensive. 3.  Opportunities for Brands and Retailers  Decentraland Most metaverses, though decentralized, will have some type of governing authority (usually the developer). Decentraland, however, is not controlled by a centralized organization, meaning no single agent has the ability to alter the software, the cryptocurrency economics or the contents of the land. A nonprofit foundation (not necessary for the platform’s survival) is responsible for ensuring the environment remains fully decentralized. Developers still make updates and improvements, but Decentraland, for the most part, is a self-sustaining environment without much structure other than that the basic principles for a working economy have been established (security, verification, instant payments, scarcity). Since there are no technical specifications for the formatting and design of a land parcel, opportunities for all types of retailers and brands are bountiful; in theory, a virtual environment can have any offering an avatar may want. Developers will be able to build and monetize applications and land spaces by designing/selling virtual goods (also protected by NFTs) and services in Decentraland’s marketplace. Brands could also design NFTs on different platforms and sell them via OpenSea to Decentraland users. Because new land parcels must be adjacent to existing ones, businesses have the opportunity to purchase multiple LAND NFTs, creating themed neighborhoods and districts, such as fashion and shopping. Being located near high-traffic areas will be expensive, but will drive interest and generate demand for whatever offering exists in the environment. Vegas City, located in the gambling district, and Dragon City, located in the Chinese district are two of the most expensive spaces in Decentraland’s current environment. Advertisers may also use billboards, high-traffic neighborhoods, and land parcels to advertise their products. Decentraland envisions neighborhoods and districts becoming virtually as popular as areas in the physical world, such as Times Square in New York City, representing a major advertising opportunity. Avatars from different parts of the world can come together and experience the same offering, giving businesses potential to drastically expand customer bases. [caption id="attachment_142819" align="aligncenter" width="480"] Companies such as Samsung can build virtual stores and advertise in Decentraland
Source: Decentraland[/caption]  

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Figure 3. Purchases of Land in Decentraland by Brands and Businesses Over the Past 12 Months [wpdatatable id=1800 table_view=regular]

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Source: Company reports/Coresight Research The Sandbox The Sandbox, though based on a decentralized autonomous organization model, has much more structure in terms of its path moving forward. Owners of SAND currency and LAND NFTs are given the right to vote in governance decisions and decisions regarding content and game creators. With VoxEdit, the Marketplace and Game Maker, The Sandbox has ambitious plans to grow its monthly active users to 1 million over the next few years. With strong economics and promising plans for growth, The Sandbox offers enticing opportunities for businesses looking to build a presence in the metaverse as creators. The more users, the more active the marketplace, and the bigger the opportunity to sell ASSETS created via VoxEdit. These assets, for use by avatars, could be digital artwork or accessories that retailers could create collections from. For example, Gucci designers are using the VoxEdit and Game Maker tools to design collections for The Sandbox avatars and an in-game retail experience modeling the Vault e-commerce store. Like Decentraland’s NFTs, The Sandbox’s NFTs can be sold on marketplaces such as OpenSea, giving businesses the power to expand customer base to people not active on The Sandbox. Each parcel of land comes with a pre-set terrain, but owners can adjust to fit their goals/specifications. LAND can also be rented to creators who do not own the NFTs to develop their games and share their content with the community. The Sandbox plans to create an ESTATES NFT, which can be owned by multiple users to create themed districts and neighborhoods. Much like Decentraland, The Sandbox will also offer opportunities to advertise in these areas and in areas relevant to a particular brand. Unlike many existing metaverses, Sandbox avatars, ASSETS and LAND can be transferred to other environments, such as Zepeto, a non-blockchain virtual reality. SAND holders are also able to participate in staking, where a user commits holdings to secure a blockchain network and confirm transactions, and earn CATALYST and GEM NFTs in return, which can be used to define avatar attributes and establish their scarcity. Staking to earn GEM and CATALYST NFTs is another potential source of revenue for businesses in The Sandbox. As digital avatars and style will likely become the most important “meta status symbols,” GEM and CATALYST NFTs will become increasingly valuable. [caption id="attachment_142820" align="aligncenter" width="480"] Source: The Sandbox[/caption]  

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Figure 4. Purchases of Land in The Sandbox by Brands and Businesses Over the Past 12 Months [wpdatatable id=1801 table_view=regular]

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Source: Company reports/Coresight Research Bloktopia  While Decentraland is self-sustaining and The Sandbox is more focused on creators, Bloktopia is focused on growing its user base by utilizing an advanced real-time 3D creation engine to create superior visuals for players. It is committed to partnering with external businesses and offering opportunities for them to monetize the platform through NFTs via sponsorships, advertisements and real estate.  By attracting businesses with these opportunities and users with its advanced visuals, Blokopia is hoping to act as a central hub where users can gather in communities to learn and entertain. Because it has not launched yet, however, it does not yet have retailers advertising or developing spaces within its platform, but opportunities will be plentiful when it does launch the beta version in March 2022. To enter the Bloktopia environment, a user must first create a Bloktopia Wallet, where BLOKs are stored; the wallet supports multiple blockchains (opening the door for interoperability) and acts as a player’s e-passport. After creating an avatar (with opportunity for further customization through exclusive NFT assets), characters all “spawn” on Level 1, outside of the Bloktopia skyscraper, meaning this area will have the highest digital foot traffic. This level will feature live cryptocurrency prices, a help desk, resources to navigate the environment, an agenda for upcoming events and the best opportunity for advertising, making it the most expensive to have a presence. Level 1 is where premium brands and retailers will advertise and open stores, with space becoming less valuable the further users travel up the building. This floor will also feature a trading board for latest cryptocurrency prices. Levels will have different environments and interactions for users. For example, Level 21 is a luxury penthouse area reserved for exclusive gaming, such as gambling and poker. Level 6 features an auditorium, where special presentations will be given, rewarding attendees with BLOK; the vision is to create an atmosphere within the auditorium similar to a sports game. The game consists of 21 large advertising totems and 84 small advertising totems (with exclusive ownership through ADBLOK), where businesses will have opportunities to advertise to large audiences with immersive displays. There are four smaller totems on each level and they can display static imagery or videos. Large totems are located in one central location on each level. Bloktopia promises a captive audience and guarantees high dwell times and play-through rates, which should be an exciting prospect for advertisers. From an advertising standpoint, Bloktopia also offers opportunities to advertise on virtual buildings, while Bloktopia Radio, which can be accessed anywhere, anytime, gives users customized programming and ability to listen to stations with specific themes. The radio provides businesses with opportunities to increase their virtual exposure by advertising their events. [caption id="attachment_142821" align="aligncenter" width="480"] Source: Bloktopia[/caption]  

What We Think

“Metaverse” is not just a buzzword; technologies have been in development for decades and are finally beginning to converge. As metaverse technologies continue to improve and user bases grow, new business models, such as “direct-to-avatar”, will begin to emerge and evolve; brands and retailers will be able to reach audiences from practically every corner of the globe that has access with the same immersive offering. With NFTs allowing for exclusive ownership and authentication across an immutable record of transactions (the blockchain), digital assets are becoming extremely valuable and scarce. There are opportunities for almost any brand to sell their product within the metaverse along with a physical copy in the real world, for unique advertising and to build immersive experiences. The rise of blockchain and NFT technology is also fueling the emerging era of decentralized finance, which is important for metaverse environments to facilitate instant, verified and secure payments. This financial freedom encourages active cross-world trade not delayed by third parties. Decentraland, The Sandbox and Bloktopia have all established the frameworks for digital economies, but because of their limited token and land supply, the longer brands and retailers wait to get involved, the more difficult and expensive doing so will become. Much like in the early 1990s, businesses should begin to consider how they want to build their presence in the next stage of the Internet.