Chainalysis Report: Real Estate & Gaming are Growing in the Metaverse

This swift adoption of the metaverse is a testament to its current and future utility – and it’s reflected in virtual real estate pricing. As research by blockchain data platform Chainalysis uncovered, blockchain-based virtual real estate prices grew by 879% from September 2019 to March 2022. Real real estate prices, meanwhile, grew by 39%.

The comparison isn’t apples-to-apples – the Case-Shiller index tracks actual housing while the Metaverse index tracks virtual parcels – but it’s nonetheless surprising that the growth of virtual real estate prices has outpaced that of physical real estate by 532%. Why might that be? Let’s dive in.

What’s the utility of metaverse property?

Blockchain-based virtual real estate (VRE) offers both present-day and prospective benefits to the people who own it. Let's take a look at both types of amenities.

Present-day utilities

Embedded videos, images, NFTs, and interactive objects
In-game single-player and multiplayer activities
Play-and-earn integrations
Screen-sharing and town hall functionalities
Access to private events and NFT-gated communities

This last feature – access to private events and exclusive communities – has been a big driver of NFT demand to date, and it looks to be translating into sales of virtual real estate. Bored Ape Yacht Club, for example, has always bundled its NFTs with entertainment, socialization, and digital community. and they’ve since parlayed that appeal into a $310 million metaverse land sale.

Prospective utilities

Renting and leasing
Free airdrops of future VRE NFTs
Future AR/VR integrations and functionalities

Not all metaverse projects have all of these utilities, but most of them have a combination of many.

Where’s the most affordable metaverse housing?

The biggest differences in metaverse land pricing seem to be between blockchains, not within them. Relative to metaverse land on Ethereum, metaverse land on Solana has much lower entry-level pricing.

They’ve also, like metaverse projects, exploded in popularity and funding. DappRadar recently reported that blockchain-based gaming activity has increased 2,000% over the last year. Furthermore, blockchain-based game companies fundraised $2.5 billion last quarter, up 150% from the quarter before.

But what about traditional games and game companies? What would happen if already-popular games adopted NFTs and cryptocurrency? Let’s take a look and see (with a healthy suspension of disbelief).

A blockchain gaming thought experiment: EA Sports on the blockchain

In the fiscal year 2021, Electronic Arts (EA) generated $1.62 billion from its FIFA, Madden, and NHL Ultimate Team offerings.

In Ultimate Team (UT), players assemble, trade, and compete against one another with a squad of athletes, each of which is represented by a trading card. Players can buy packs of 12 to 30 of these trading cards with either point, which can be purchased with real money, or coins, which can be collected for free by playing. Players can then sell the cards they’ve drawn to other players in exchange for coins – but they can never convert these coins into points or real money.

At least in theory. In practice, despite EA’s best efforts, there’s a gray market for these coins that undercuts EAs pricing. For example, to buy an Ultimate Pack – EA’s highest-tier and most expensive pack – players must spend either 2,500 points or 125,000 coins. Bought with points purchased from EA, this pack costs $23; bought with coins purchased on the gray market, this pack costs $7.50.

In other words, this gray market both threatens EA’s main revenue stream and makes “good citizen” players worse off. When third parties sell these coins for real currency, EA gets nothing – but players get three times the value for money.

But what if, instead of maintaining a closed-loop economy and forgoing this revenue leakage, EA minted their trading cards as NFTs, which could then be sold between players on a secondary market? How would this alter their revenue – and create new ways for players to make money?

For one thing, it would introduce a new revenue stream for EA. Usually, when an item is minted as an NFT, a portion of every sale is passed back to its creator as royalty. UT already features a 5% transaction fee on its player-to-player market – so this is hardly unprecedented– but today it’s not an actual revenue stream. Instead, it’s a “gold sink” – a way to prevent coins from hyperinflating.

For another, it would heighten the concept of rarity. While no cards in today’s UT economy have a predefined supply, this is the de facto standard for NFTs – and a key reason why they can fetch such high prices.

Lastly, it would give UT players the ability to make money. This is a win-win: if players can sell their cards for cryptocurrency, they can earn back some or all or even multiples of their original spending; if EA enables these trades, they can collect a small slice of every sale price.

Modeling Ultimate Team with NFTs

We now construct a simple financial model for both EA’s revenue and Ultimate Team players’ earnings in a game mode reimagined with NFTs.

Assumptions:

25 million active players. Ballpark estimate based on EA statements.
$65 annual player spend. Ultimate Team revenue ($1.62 billion) divided by active players.
5% resale royalties. A common rate for NFTs.
NFT primary sale price = secondary sale price. While improbable – any given card could sell for more or less than its primary sale price – this simplifies the model.

Variables:

Annual resales: 100% | 300% | 500%. This means that for every $1 of annual player spend, there is $1 | $3 | $5 of secondary market activity.

It’s worth noting that in this model, primary sales would still be EA’s main revenue driver. But the secondary sales, while accounting for only a fraction of EA’s $1.87 billion in revenue, would benefit players immensely. Even if we relax the assumption that the NFTs hold their original value, players of Ultimate Team could still walk away with hundreds of millions in earnings collectively – a far cry from the $0 they earn as “good citizens” today.

The metaverse is fast-approaching

All trends point to the metaverse. Virtual real estate now offers real-world utility; VR technologies are coming closer to reality; and blockchains are imbuing digital ownership with meaning.

A copy of the full research can be found here.