25th Feb 2022
NFT real estate is attracting a lot of buzz nowadays, building off talk about the metaverse and an excitement about all things digital. As well as driving investment in digital property itself, the rise of virtual real estate could attract more people to think about NFT related company stocks to buy as part of their investment portfolio.
What are NFT stocks?
Non-fungible tokens, or NFTs, are digital tokens that are based on blockchain and represent a digital asset. NFTs’ USP (unique selling point) is that they can authenticate ownership of digital assets, which was previously almost impossible.
Any answer to the question “what is NFT stock?” has to include companies supporting the entire ecosystem of blockchain-based tokens, including infrastructure for trading and minting real estate NFTs.
What are virtual real estate NFTs?
Just like you can use NFTs to prove ownership of a Bored Ape or a meme, you can use them for digital property. Metaverse platforms utilize NFTs to provide users with ownership of a parcel of a decentralized world, called “land.” Once you own the land, you can sell, develop, or interact with it however you like, and trade it on platform, or on off-platform open marketplaces.
Note: Virtual real estate is not the same as the tokenization of physical real estate, where NFTs are minted to record the trade of a parcel of physical land or an actual building.
In a way, virtual real estate NFT games like Upland, Decentraland and Sandbox are the natural progression of universe-building games like Minecraft or Roblox, where players craft their own buildings, monuments, landscapes, etc. The difference is that Minecraft players can’t claim ownership of their creations, but real estate NFT games are decentralized, handing ownership of the property over to the players themselves.
“Minecraft and similar games are shaping how children interact with technology and with each other. Decentraland and the other adult crypto-based virtual worlds are designed to attract players who have aged out of the children’s games,” writes Janine Yorio, head of real estate at Republic. “The user experience (UX) of the adult games uses the same conventions as the children’s versions.”1
Virtual real estate NFTs are a building block of the metaverse
The metaverse, an alternate universe where you can work, pursue leisure, have relationships with others and buy and sell items, is currently a hot topic. Virtual real estate on platforms like Decentraland, the Sandbox, Axie Infinity, and CryptoVoxels will be where metaverse interactions take place. Metaverse users will develop real estate NFTs into homes to welcome their friends, stores to sell digital products, and digital public spaces for metaverse events.
People buying up virtual real estate NFTs are typically excited to get in on the ground floor of a new asset class. Virtual property is unique and in limited supply; secured by a non-fungible token. So the process of the buying virtual real estate is similar to that of buying an NFT. The NFT is the proof of ownership ,allowing you to resell the property, or prove you own it in order to build leasable buildings on it etc. You’ll need to open a digital wallet and place in it cryptocurrency that is accepted on the metaverse platform compatible with the virtual real estate that you want to buy. To buy land in Decentraland for example ,you need MANA coins. At that point it’s just a few clicks to select and “buy” the property, at which point the currency leaves your wallet and the NFT referring to that virtual property enters it.
Not surprisingly, most investors are younger people who are comfortable living their lives online, familiar with the metaverse, and often can’t afford to invest in physical real estate. The ecosystem is strong enough that you can even get defi-backed mortgages for your virtual property, meaning that decentralized crypto currency can be used as collateral for your mortgage. 3 As with non-virtual real estate, investors need to consider all the risks of fluctuating property values and their ability to repay any loans. The metaverse is in its early days and there are no guarantees that virtual land values will rise.
Part of the appeal is that digital experiences go beyond building and trading. Users can rent digital spaces and open virtual stores, for example. Uplands lets you join treasure hunts and city tours.4 Artist Krista Kim opened up her Superlands property, Mars House, to the public, selling virtual tours and allowing people to rent it for virtual weddings and other private events. 5
Virtual real estate prices remain strong
While this is no guarantee of future performance, , virtual land prices for three major platforms have more than tripled since 2019 6
In February 2021, a parcel of “land” in the Axie Infinity platform sold for $1.5 million;7 land prices on CryptoVoxels shot from $800 to $3900 in the first 2-3 months of 2021;8 and Krista Kim sold Mars House for over $500,000 in March.9 16m by 16m parcels of land on Decentraland sold for approximately $100 each in 2017; by June 2021, undeveloped parcels cost around $1,400. Today, the total value of all Decentraland’s LAND is about $100 million and growing.10
The virtual real estate ecosystem is risky yet flourishing
It seems like new platforms and tools are appearing every time you blink. In November, new entrant Upland raised $18 million for its Monopoly-style NFT virtual real estate game. Upland is overlaid onto the physical world, so you can buy digital versions of the same land that exists in the physical world, like your house or the Empire State Building.11 So far, players have earned more than $1.5 million, purchased over 2 million NFTs, and bought up all the land in Manhattan and San Francisco.12 There is no guarantee that these properties will hold their value, but consumer enthusiasm is evident.
November also saw the launch of Parcel, a niche marketplace for NFT real estate. Parcel aims to become the address for all virtual real estate management services, like help renting out your land and finding architects to design your buildings. Currently, it aggregates listings from other platforms and offers tools to help players decide about purchases. In time, it will also provide rich data about virtual real estate, like maps and other UX features. 13
Real estate development firm Republic has even launched the first virtual real estate development firm, Republic Real Estate Inc. It will function like a physical development company, buying up, developing, and monetizing digital property. Instead of working with contractors and engineers, virtual real estate firms will employ digital designers, web engineers, and 3D modelers. 14
Republic Realm bought 16 acres of digital land in Decentraland for more than $900,000, making it the largest single parcel of land on the platform 15, and now it’s seeking a hospitality brand to co-develop a hotel and bar on one of its virtual sites.16
Virtual real estate opens up a whole new arena for NFT stocks
The more use cases there are for NFTs, the larger the potential market for companies involved in any aspect of the NFT ecosystem, and the better the outlook for NFT related company’s stock price. The rise of virtual real estate may thus encourage more people to consider investing in stocks of companies involved in the NFT ecosystem.
The decision of which stocks to buy isn’t an easy one, especially since this is a new sector and there’s little history to draw on when examining the many company’s out there. That’s why some investors turn to an ETF like Defiance’s NFTZ. This offers the option of spreading your investment across a number of company stocks with NFT related revenues and exposure , to help mitigate the risk of trying to decide for yourself on just one or two stocks and hoping to choose a winner.
Please note that not all companies mentioned in this article feature in the NFTZ ETF. For a full list of holdings see here.
1 “Here Comes the Virtual Real Estate Boom” February 16, 2021 https://www.coindesk.com/business/2021/02/16/here-comes-the-virtual-real-estate-boom/
2 “NFT Trend: Virtual Real Estate” https://www.nftqt.com/nft-trend-virtual-real-estate/
3 “Netvrk Joins Vera to Enable Metaverse Mortgages for Virtual Land Sales” October 9, 2021 https://blog.vera.financial/netvrk-joins-vera-to-enable-metaverse-mortgages-for-virtual-land-sales-3d081e292e6e
4 “Upland raises $18M at $300M valuation for NFT-based virtual real estate game” November 2, 2021 https://venturebeat.com/2021/11/02/upland-raises-18m-at-300m-valuation-for-nft-based-virtual-real-estate-game/
5 “Virtual Mars House Opens to Public for Events” June 18, 2021 https://www.xliveglobal.com/experiential/virtual-mars-house-opens-public-events
6 “Virtual Land Prices are Booming, and Now There’s a Fund for That” March 19, 2021 https://www.bloomberg.com/news/articles/2021-03-19/virtual-land-prices-are-booming-and-now-there-s-a-fund-for-that
7 “Virtual Property Sells for $1.5M in Ether, Smashing NFT Record” February 9, 2021 https://www.coindesk.com/markets/2021/02/09/virtual-property-sells-for-15m-in-ether-smashing-nft-record/
8 “NFT Real Estate: The Future Of Owning Virtual Property” https://cyberscrilla.com/nft-real-estate-the-future-of-owning-virtual-property/
9 “Artist Krista Kim sells “first NFT digital house in the world” for over $500,000″ March 22, 2021 https://www.dezeen.com/2021/03/22/mars-house-krista-kim-nft-news/
10 “Here Comes the Virtual Real Estate Boom” February 16, 2021 https://www.coindesk.com/business/2021/02/16/here-comes-the-virtual-real-estate-boom/
11 “Upland raises $18M at $300M valuation for NFT-based virtual real estate game” November 2, 2021 https://venturebeat.com/2021/11/02/upland-raises-18m-at-300m-valuation-for-nft-based-virtual-real-estate-game/
12 “Upland raises $18M at $300M valuation for NFT-based virtual real estate game” November 2, 2021 https://venturebeat.com/2021/11/02/upland-raises-18m-at-300m-valuation-for-nft-based-virtual-real-estate-game/
13 “Parcel Challenges OpenSea in Bid to Rule Virtual Property in the Metaverse” November 18, 2021 https://thedefiant.io/parcel-nfts-opensea-metaverse/
14 “NFT Trend: Virtual Real Estate” https://www.nftqt.com/nft-trend-virtual-real-estate/
15 “Most Expensive Virtual Plot of Land Ever Sells for $900,000 on Decentraland” June 21, 2021 https://finance.yahoo.com/news/most-expensive-virtual-plot-land-185000712.html
16 “Virtual Land Prices are Booming, and Now There’s a Fund for That” March 19, 2021 https://www.bloomberg.com/news/articles/2021-03-19/virtual-land-prices-are-booming-and-now-there-s-a-fund-for-that