Last week, 55,000 plots of “virtual land” were sold on the Ethereum blockchain for more than $ 300 million, the largest non-fungal token (NFT) mint ever. It was not without controversy.
In exchange for a peel near $ 6,000, a buyer received Otherdeed NFT, which authenticates that buyer’s ownership of a piece of digital real estate in the new gaming environment from developer Yuga Labs.
What can you do with a virtual ground plot? Well, you can develop your own online games on it or build a digital art gallery, among other things. Moreover, you may be expecting a lot of internet traffic driving your way because the “world” of Otherside is an extension of Yuga’s popular Bored Ape Yacht Club (BAYC) NFT project.
The sale began at 9:00 pm EDT on April 30, and the NFTs were exhausted in about three hours. During that time, gas prices on the Ethereum blockchain soared – with eager customers sometimes needing thousands of dollars to complete a single transaction. That is above and beyond the cost of the plot. Hundreds of investors not only failed to secure a Otherdeed token, but they also lost their Ether (ETH) gas quotas. The Ethereum blockchain has even darkened for a while.
Some have accused Yuga Labs of favoring the process, saying, for example, that it has kept all the good “land” for itself or existing owners of Bored Ape Yacht Club NFTs.
Others have wondered what all this has to say about gaming and NFTs. If it cost $ 6,000 per package, and as much as $ 6,000 in gas fees just to play, did it all become a playground for the very rich alone?
The sale also raised questions about the scalability of Ethereum – again – and the susceptibility of blockchain projects to manipulation and self-treatment.
The Metaverse shines brightly
However, even if Yuga Labs ’sales didn’t go quite smoothly, shouldn’t it still be celebrated as a milestone of sorts in the crypto / blockchain world, especially at a time when the price of Bitcoin (BTC), Ether and others. were cryptocurrencies flat or declining?
Consider a report published Kraken Intelligence last week, which reinforced the notion that Metaverse – a community of online “worlds” with many dedicated role-playing games – is one of the brightest stars in the crypto-based galaxy today. Over the most recent 12-month period, the metaverse sector has noted an annual return of + 389%, noted Kraken, compared to Bitcoin at -34%, Ether at + 3%, layer-1 networks at -10% and decentralized finance ( DeFi) projects at -71%.
The Metaverse sector includes activities such as Decentraland (MANA), The Sandbox (SAND), Axie Infinity (AXS), and also projects such as Apecoin from Yuga Lab (APE). In online “communities” such as Sandbox, an Ethereum-based game-to-win (P2E) game, players can build a virtual world, including the purchase of digital land, the ownership of which is guaranteed by an ERC-721 standard unbreakable token. The fungible SAND, a standard ETH-20 token, is used not only to purchase land, purchase equipment and customize avatar characters but also to enable owners to participate in the management decisions of The Sandbox.
“The Metaverse is still a relatively recent topic in the crypto industry,” Thomas Perfume, head of strategy at Kraken, told Cointelegraph to help explain why the Metaverse seemed to thrive when other sectors moved sideways. “When Facebook rebranded as Meta in the second half of 2021, we saw a corresponding rise in the price of fungible assets with metaverse like SAND and MANA. Before that, it wasn’t major for most market participants.”
It also represents part of the ongoing development of the crypto industry. Perfume said earlier in a press release that “it is expanding from financial utility to creative expression and community building.”
However, $ 320 million for 55,000 plots of “virtual land” seems a bit expensive. Mark Stapp, the Fred E. Taylor chair of real estate at Arizona State University’s WP Carey School of Business, was asked if “virtual land” has any special qualities or uses that can often be overlooked – and could explain the considerable expense. by Otherdeeds. and their kind. He told Cointelegraph:
“I view the ‘virtual country’ as having value for market purposes so the platform / world it exists within proximity to others. A relative place to capture visitors and awareness would be desirable attributes.”
In other words, it could improve your own or brand or game if you create it by having Snoop Dogg, for example, as a neighbor in your online ecosystem. This has been happening lately when someone reportedly paid $ 450,000 for a virtual parcel bordering Dogg’s estate The Sandbox.
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It all seems like a new application of the traditional real estate: “place, place, place.” Like Sandbox notes on its website:
“LANDS that are closer to major partners or social centers are likely to receive higher player traffic, which may mean more revenue through monetization.”
Along these lines, some grumblers attended last week’s launch of Otherdeed on the quality of “land” offered to the public. The really good bits were kept by insiders as existing BAYC owners, while others were charged. According to Crypto Twitter celebrity CryptoFinally:
I wanted to participate in a game, but one of the worst parts of another deed: not BAYCs who want to participate, paid for a much worse land, BAYCS got the only land worthwhile. yuga does not seem to show interest in decentralization outside the existing core group. priced out.
– CryptoFinally (@CryptoFinally) May 2, 2022
Is a bladder forming?
What about the notion that the astronomical prices paid for metaverse real estate are indicative of an evolving bubble – one that could burst at any moment?
Lex Sokolin, chief economist at ConsenSys, told Cointelegraph he would call it a bubble. Rather, he prefers to talk about cases of “finding valuation of future appreciation”. But, in this case, as with crypto in general, different dynamics can play. Sokolin said:
“In traditional markets, you would discount future expectations based on some probability of meeting those expectations, and some cost of capital. In crypto, corporate value is immediately capitalized by tokens and becomes highly volatile when sentiment changes.”
That doesn’t mean the business ideas here are wrong or misleading, he added, just that there can be “long-term disconnections between how people project the future and how it’s actually constructed.”
Why is Ethereum gas so expensive?
Then there’s the issue of Ethereum’s gas quotas, which by one estimate may have reached up to $ 14,000 during the sale of Otherdeed. Should we worry about the world’s second largest blockchain network?
“There is no debate that gas quotas as high as $ 6,000 per transaction are indicative of the ongoing climbing challenges facing Ethereum,” Perfume told Cointelegraph. “But it is important to note that ordinary transactions and money laundering of NFTs are not fully comparable activities on the Ethereum blockchain,” he said, adding:
“In this specific example, too many people seem to be making money at the same time. As such, smart contract optimization by itself probably wouldn’t have changed much.”
Sokolin added that Ethereum provides scarce computing resources and is a natural destination for high-value transactions “because capacity is limited by blockchain.” And, there were also scalable solutions available that could avoid the transaction crisis, but Yuga Labs chose not to use them. “That said, having NFTs on Ethereum gives them higher perceived status and the largest secondary market, which is probably why Yuga Labs has gone this route.”
Presight Capital cryptocurrency advisor Patrick Hansen went even further, claiming that the launch somehow showed Ethereum’s current status. “Ethereum has massive challenges ahead, visible again in yesterday’s crazy gas quota,” he said. tweeted on May 2. “But the fact that some people are willing to spend a whopping $ 4k for #Ethereum transactions also shows how valuable its blockchain is. No other blockchain is close in that regard.”
Sokolin agreed. “Right. If people didn’t want to pay transaction fees, they wouldn’t pay.” It is one of the peculiarities of the crypto economy that the arbitrary activity in such events is so high that even the long-term players “have to pay a very high price to scalpers,” he observed.
Leaving a bad taste
However, the record launch left a sour aftertaste for some. “I think the sale of Otherdeeds was scammed, causing a reaction from users,” Aaron Brown, crypto investor, told Bloomberg.
But, perhaps a certain amount of manipulation just seems to come with the virtual territory? “I believe that what many companies call ‘ownership’ in the metaverse is not the same as ownership in the physical world, and consumers risk being deceived,” wrote lawyer João Marinotti recently.
Land scams are happening in the physical real estate world, of course, so there may not be too much of a reaction here, but there are some differences. “Normally a prudent and informed buyer of real estate would do due diligence, and the bidder would be subject to regulatory controls including required disclosures,” Stapp told Cointelegraph. In the case of virtual real estate, “I don’t know of any required disclosures or regulatory oversight,” he said, adding:
“Regulation aims to prevent fraud, misrepresentation and keep the uninformed out of trouble. The current environment to sell these ‘opportunities’ is ripe for fraud or at least disappointment.”
Betrayal of the roots of crypto?
Finally, what about inclusion and the favorite democratic atmosphere of the crypto world. What does it say if you need $ 10,000 or more just to participate in a blockchain-based community?
“There’s always been freedom in the idea that anyone could participate with any amount they want,” Mark Beylin, co-founder of Myco, told Cointelegraph. Bitcoin is separable to eight decimal places, so even if you owned only a tiny fraction of Bitcoin, you still got the same benefits as someone who owned a lot, like control of your own finances or freedom to trade, because for example, said Beylin, adding :
“This is not true for NFTs, however, because owning a fraction of NFT usually does not give any rights to owners, beyond the speculative additional potential.”
There were other kinds of disappointments as well. Some potential investors, for example, have lost all of their Ethereum transaction fees and have yet to invent any ground tokens. These “gas” losses have met with thousands of dollars in some cases. When Yuga Labs announced on May 1 that it was working to reimburse gas dues to all Otherdeed miners whose transactions failed, some were skeptical.
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However, on May 4, the developer posted this message:
“We refunded gas fees to everyone who made a transaction that failed due to network conditions caused by the mint. The fees were returned to the wallets used for the initial transaction.”
The developer repaid approximately 500 transactions with a collective value of 90,566 ETH, or about $ 244,000 at the time of repayment. The largest single refund was for 2,679 ETH, valued at approximately $ 7,877 on May 4 when refunds were sent, according to at the Etherscan.
Meanwhile, Beylin, who had some bitter things to say about Yuga Labs earlier this week, struck a more positive and philosophical note by the end of the week. “In the long run, the best projects will find a way to open up access for many instead of just a few,” he told Cointelegraph.