Last week, 55,000 blocks of “virtual land” were sold for more than $300 million on the Ethereum blockchain, the largest non-fungible token (NFT) mint ever. This is not without controversy.
In return for paying nearly $6,000, the buyer received an Otherdeed NFT that verifies the buyer’s ownership of a piece of digital real estate in developer Yuga Labs’ new Otherside gaming environment.
What can you do with a piece of virtual ground? Well, you can develop your own online game on it or build a digital art gallery etc. Additionally, you might expect a lot of online traffic to propel you forward, as the “Otherside” “world” is an extension of Yuga’s popular Bored Ape Yacht Club (BAYC) NFT project.
The sale began on April 30 at 9:00 PM ET, and the NFT sold out in about three hours. During that time, gas fees on the ethereum blockchain skyrocketed — eager customers sometimes required thousands of dollars to complete a transaction. This goes beyond the cost of the plot. Hundreds of investors not only failed to acquire Otherdeed tokens, but also lost their ether (ETH) gas fees. The Ethereum blockchain even fell into darkness for a while.
Some have accused Yuga Labs of being partial in the process, for example by saving all the good “land” for itself or the existing owners of the Bored Ape Yacht Club NFT.
Others want to know how all this affects games and NFTs. If a package costs $6,000 and gas costs $6,000 just to play games, is it all a playground for the rich?
The sale also raises questions about ethereum’s scalability — again — and the blockchain-based project’s susceptibility to manipulation and self-dealing.
Still, even if the Yuga Labs sale isn’t entirely smooth, should it still be considered a milestone in the crypto/blockchain world, especially at a time when the prices of Bitcoin (BTC), Ethereum, and other cryptocurrencies are rising Flat or recession?
Consider a report by Kraken Intelligence last week that reinforced the notion that Metaverse — an online community of “worlds” with many dedicated to role-playing games — is the brightest in the crypto-based galaxy today. one of the stars. Kraken noted that over the most recent 12-month period, the Metaverse industry has delivered an annual return of +389%, compared to -34% for Bitcoin, +3% for Ethereum, -10% for Layer 1 networks and decentralization Financial (DeFi) projects are -71%.
The Metaverse division includes assets such as Decentraland (MANA), The Sandbox (SAND), Axie Infinity (AXS), and projects such as Yuga Lab’s Apecoin (APE). In online “communities” such as the Ethereum-based play-and-earn (P2E) game Sandbox, players can build a virtual world, including purchasing digital land whose ownership is guaranteed by ERC-721 standard non-fungible tokens. Fungible SAND is an ETH-20 standard token that is not only used to purchase land, purchase equipment, and customize avatar characters, but also enables holders to participate in The Sandbox’s governance decisions.
“Metaverse is still a relatively new topic in the crypto industry,” Thomas Perfumo, head of strategy at Kraken, told Cointelegraph to help explain why Metaverse appears to be thriving when other industries are trading sideways. “When Facebook changes its name to Meta in the second half of 2021, we see a corresponding increase in the price of Metaverse-linked fungible assets such as SAND and MANA. Until then, this is not a priority for most market participants.”
It also represents part of the ongoing evolution of the crypto industry. Perfumo said in a press release earlier that “it expands from financial utility to creative expression and community building.”
Still, $320 million for 55,000 “virtual land” seems a bit steep. Mark Stapp, the Fred E. Taylor professor of real estate at Arizona State University’s WP Carey School of Business, was asked if “virtual land” had any special qualities or uses that might be widely overlooked — and could explain Otherdeeds’ sizable payouts and their ilk. He told Cointelegraph:
“I think ‘virtual land’ has value for marketing purposes, so it exists in a platform/world adjacent to others. Capturing the relative location of visitors and awareness would be desirable attributes.”
In other words, it can enhance your own personal or business brand or game, if that’s what you’re creating, for example, having Snoop Dogg as a neighbor in your online ecosystem. This happened recently, when someone reportedly paid $450,000 for a virtual lot bordering Dogg’s The Sandbox estate.
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It all seems like a new application of the traditional real estate adage: “Location, location, location”. As Sandbox points out on its website:
“LANDs that are close to key partners or social hubs are likely to get higher traffic from gamers, which could mean more revenue through monetization.”
Along these lines, some complained at last week’s Otherdeed launch, about the quality of the “land” being offered to the public. Really good patches are kept by insiders like existing BAYC holders, while others are charged. According to Crypto Twitter celebrity CryptoFinally:
I wanted to participate in yuga, but one of the worse parts of the other act: Non-BAYCs who wanted to participate paid cheaper land, BAYCS got the only land worth it. yuga seems to have no interest in decentralization beyond the existing core group. Pricing.
— CryptoFinally (@CryptoFinally) May 2, 2022
Are there bubbles forming?
What if the sky-high prices of virtual world real estate herald a bubble in the making—one that could burst at any moment?
Lex Sokolin, chief economist at ConsenSys, told Cointelegraph that he would not call anything a bubble. Instead, he prefers to talk about examples of “overestimating future appreciation.” However, in this case, as with cryptocurrencies in general, a different dynamic may emerge. Sokolin said:
“In traditional markets, you discount future expectations based on some probability of meeting those expectations and some cost of capital. In cryptocurrencies, enterprise value is capitalized immediately through tokens and becomes very much as sentiment changes. unstable.”
That doesn’t mean the entrepreneurial ideas here are wrong or misleading, he added, just that “there may be a long-term disconnect between how people predict the future and how they actually build it.”
Why is Ethereum gas so expensive?
Then there’s the issue of Ethereum’s gas fees, which are estimated to be as high as $14,000 during the Otherdeed sale. Should the World’s Second Largest Blockchain Network Be Worried?
“There is no doubt that gas fees of up to $6,000 per transaction indicate that Ethereum faces ongoing scaling challenges,” Perfumo told Cointelegraph. “However, it is important to note that ordinary transfer transactions and minting NFTs are not fully comparable activities on the Ethereum blockchain,” he said, adding:
“In this specific example, there seems to be too many people minting coins at the same time. So the smart contract optimization itself probably won’t change much.”
Ethereum provides scarce computing resources and is a natural destination for high-value transactions “because the capacity of each block is limited,” Sokolin added. Also, there are some scaling solutions available to avoid transaction crunch, but Yuga Labs chose not to use them. “That said, having NFTs on Ethereum gives them a higher perceived status and the largest secondary market, which is probably why Yuga Labs is going this route.”
Patrick Hansen, a crypto venture advisor at Presight Capital, went further, claiming that the launch, in a sense, showcases the current state of Ethereum. He tweeted on May 2: “Ethereum faces huge challenges, visible again in yesterday’s crazy gas fee spike. But some people are ready to spend an incredible +4k USD for #Ethereum transactions Facts also show how much it’s worth.” Block space is. No other blockchain can come close to it in this regard. “
Sokolin agreed. “Exactly. If people aren’t willing to pay transaction fees, they won’t.” One of the hallmarks of cryptoeconomics, he observed, is that arbitrage activity in such events is so high that even long-term participants” A very high price must also be paid for scalpers.”
leave a bad taste
Still, the record release left some with a sour aftertaste. “I think the Otherdeeds sale was botched and led to a backlash from users,” cryptocurrency investor Aaron Brown told Bloomberg.
But maybe the virtual turf seems to carry a certain level of manipulation? The legal scholar João Marinotti recently wrote: “I believe that what many companies call ‘ownership’ in the virtual world is different from ownership in the physical world, and consumers are at risk of being deceived.”
Granted, land scams happen in the brick-and-mortar real estate world, so perhaps you shouldn’t overreact here, but there are some differences. “Typically, due diligence will be conducted by a prudent and informed buyer of real estate, and the offeror will be subject to regulatory controls, including required disclosures,” Stapp told Cointelegraph. In the case of virtual real estate, “I am not aware of any necessary disclosure or regulatory oversight,” he said, adding:
“Regulation is designed to prevent fraud, misrepresentation, and keep the uninformed out of trouble. The current environment for selling these ‘opportunities’ is ripe for fraud or at least disappointment.”
Betrayed the roots of cryptocurrency?
Finally, what about inclusivity and the democratic spirit that the crypto world holds dear? What does it say if it costs $10,000 or more just to participate in a blockchain-based community?
“The idea that anyone can participate in any amount they want has always been a freedom,” Myco co-founder Mark Beylin told Cointelegraph. After all, bitcoin is divisible to eight decimal places, so even if you only own bitcoin For a fraction of a coin, you can still get the same benefits as someone who owns a lot of bitcoin, such as control over your own funds or freedom to trade because, for example, Beylin said, adding:
“This is not the case for NFTs, though, as owning a small portion of an NFT typically does not give the holder any rights other than speculative upside potential.”
There are other kinds of disappointments. For example, some potential investors lost all their Ethereum transaction fees and still didn’t take out any land tokens. In some cases, these “gas” losses run into the thousands of dollars. When Yuga Labs announced on May 1 that it was working to refund gas fees to all Otherdeed minters whose transactions failed, some were skeptical.
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Still, on May 4th, the developer posted this message:
“We have refunded the gas fee to everyone whose transaction failed due to network conditions caused by the Mint. The fee was sent back to the wallet used for the initial transaction.”
The developer refunded about 500 transactions with a total value of 90.566 ETH, or about $244,000 at the time of the refund. According to Etherscan data, the largest single refund was 2.679 ETH, which was worth around $7,877 when the refund was sent on May 4.
Meanwhile, Beylin, who had some bitter words to say about Yuga Labs earlier in the week, ended the week with a more positive and philosophical comment. He told Cointelegraph: “In the long run, the best projects will find a way to open up access for the majority, not the few.”