Decentraland  -  Market Evolution

We had already proposed a short analysis of Decentraland's economy some time ago, about 1 month after the official marketplace launched.

Zoup2018-08-19

We had already proposed a short analysis of Decentraland’s economy some time ago, about 1 month after the official marketplace launched.

The Marketplace has just celebrated its 4 months of operation on July 19th. The opportunity has come again to provide an overview of the project, and the evolution of its market.

The context

Let’s start with a little reminder. The evolution of the LAND market on Decentraland can’t be understood or analyzed without taking into account the global context of cryptocurrencies.

MANA (Decentraland’s ERC20 token), is in the Top 100 of Cryptocurrencies in terms of capitalization ( CoinMarketCap – Decentraland ). Despite this market capitalization, MANA follows the Bitcoin fluctuations like any other Cryptocurrency. Thus, the MANA course evolution has to be analyzed while taking into account the Decentraland project’s actuality and the global cryptocurrency market.

It’s quite different for LAND. LAND tokens are NFTs (Non-Fungible Tokens): more simply, it is a single item, whose characteristics are unique and cannot simply be replaced by any other LAND token. You can read this excellent article written by Decentraland team explaining what a NFT is.

Here, the unique and non-Fungible features of the token are geographical xy coordinates on a map. LAND parcels may be close to a high traffic area, a road, or a District., all of which can impact the perceived value of that parcel.

NFTs have this very particular characteristic in the cryptosphere: the evolution of their value is relatively independent from the price of crypto-currencies.

We can consider LAND as an unusual NFT: it is far more than a cryptocurrency or cryptocollectible to speculate on. LAND is what makes up the virtual world of Decentraland it embodies the possibility for anyone to build their own business, application, game, or structure in this future ecosystem.

Market evolution over 4 last months

All data presented in this article as well as in the infographics are provided by NonFungible.com : the reference about NFT Markets evolution.

March: An incredible start!

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If we have a look at the Decentraland Marketplace’s overall statistics, we can see that the equivalent of $3.5 million USD has been exchanged in less than 4 months, and $1.3 million USD during the period from March 19 to 31.

This launch period is obviously the most impressive one: we observed the most expensive sale in the metaverse history: 2,000,000 MANA for a single LAND. We also saw an average of 62 LAND sold per day and an average sale price of 20,324 MANA (approximately $1,714 USD).

We need to put this launch in context to understand what happened. Before the launch of the official Marketplace , LAND was sold in a parallel market based on the trust and reputation of the various stakeholders. A member of the community announced on the Decentraland chat the information about the LAND parcel he or she wanted to sell, and the most interesting offer won the sale.

The buyer had to transfer the sum in MANA to the seller’s account, and … cross their fingers hoping that the seller is honest. The arrival of the marketplace represented a considerable evolution in this market with the intervention of a trusted third party that was free, reliable, decentralized.

Parallel market transactions stopped a few days before the Marketplace was released.

Obviously this launch has crystallized a lot of expectations for both. buyers and sellers.

This context, and those expectations, can explain the extremely large number of transactions and the prices we’ve seen.

April / May slowdown

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We then saw a progressive slowdown in the market in April, with a successive decline of 18% then 45% of the sales volume per month.

More interestingly, we noticed that the total amount of MANA exchanged lowered further : -46% on April then -56% in May. This implies that beyond the number of transactions, the overall assets had been devalued.

Indeed, between March and May, we saw the average value of LAND lowered from 20,324 to 10,615 MANA, a drop of nearly 50% of the NFT value.

It is very difficult to precisely identify the reasons for this devaluation, but here are some hints that seem relevant to us:

  • The global fall in the prices of cryptocurrencies and the general concern about long-term impact of digital assets (relayed by the media)

  • The Decentraland project went through a backend work period, without any important announcement to the community.

  • The lack of stakeholders renewal in the flipping LAND eco-system: the number of LAND owners remained practically the same through those months. Cf. etherscan.io

Note, however, that the average price of LAND in dollars is the only key performance indicator (KPI) to have increased over May, mainly because of the positive evolution of MANA price.

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After analysis, it appears that the evolution of the lowest and the highest prices during the different months does not represent any relevant pattern, since the lowest prices are often determined by mistakes (9.9 MANA, 950 MANA, …), and the highest prices raised some suspicions about the legitimacy of the transaction.

June: Market wakes up!

We saw an important change in June: the sales volume, average selling price, and overall transaction volume all went up, despite an unfavorable climate in the crypto-sphere.

There is a rebound of almost 43% in sales volume, increasing the number of sales per day from 11 to 17.

The average price of LAND in MANA also increased by 21% during the month of June, without any “spectacular” sales exceeding one million MANA.

It is extremely interesting to note that despite an overall fall in cryptocurrency prices for several months, the LAND market picked up momentum in both sales volume and asset prices.

Regarding the overall volume traded in MANA, we observed a real boom with an increase of 73% in comparison with the month of May. This increase has to be compared with an increase of only 22% of the volume exchanged in dollars. This is explained by the gradual decline in the price of MANA over the period.

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July: value before volume.

Contrary to our expectations, the LAND market experienced another major decline in July, despite the rebound in June.

In July, we saw the lowest number of sales since the opening of the marketplace, with an average sales / day of less than 10, for the first time since March.

The volumes traded on the market were impacted accordingly- down 38% compared to the previous month (in MANA).

It should be noted, however, that average transaction prices increased, while volume was decreasing. We can conclude that there was a lower volatility of the LANDs but a higher valuation of these assets.

We analyze two points in this phenomenon:

The purchase value of LAND continues to increase steadily, despite fluctuations in the cryptocurrency markets

Volatility is still declining, suggesting that speculative logic is slowly fading away.

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The trends of overall sales and transaction volume are perfectly consistent, and follow the trend of declining then stabilizing between March and May, before gradually increasing through June.

The average price of LAND in MANA also follows this trend, however it is interesting to note that the price in USD does not experience the same fluctuations as it also depends on the evolution of the price of the MANA, which experienced a significant rise in May.

In comparison with the global environment of NFTs, Decentraland is the first platform to propose NFTs with an average value greater than $1,000 USD. It represents an incredible challenge to launch a market and an economy based on items of this price, in a tense economic context for cryptocurrencies.

Conclusion: What defines LAND value?

Defining the value of a LAND is a complex exercise. We can consider that value of LAND is defined in two stages: the speculative dimension of the asset, and the promise of experience it contains.

To take a concrete example, a parcel of 1km2 on Manhattan in the 16th century was cheaper than today. What has changed is not the parcel in itself, it is what we built there. What we made of the parcel defines its actual value.

Unlike many NFTs today, LAND token offers a second level of value perfectly comparable to these lands on Manhattan.

What defines the value of LAND today ( speculation about the hypothetical potential of the land AND the project ) is not what will define its value tomorrow ( the actual use and the service offered on the parcel and in its direct proximity ).

The LAND valuation model we have described here will most likely be extremely different in the coming years, depending on the projects launched on the platform and the emerging business models.

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