Sam Huber, CEO of LandVault, explains why virtual land sells as NFTs instead of being free. Scarcity creates value like real estate does. Owners monetize their parcels while the platform takes 1-2% of sales. About 80,000 landowners globally control the market, making prices volatile, but secondary sales will eventually dominate as supply runs out.
I think for this, it's important to understand how metaverse platforms basically are structured.
Mm-hmm.
So if we take an example of Web2, so the current version of the internet and a platform, let's take an example of a platform like a game like Fortnite, for example, right? So Fortnite is built by Epic Games.
Mm-hmm.
And Epic Games is basically building the whole thing. So they created the map of the game, they created the characters, they created the interactions. And then as a user, what you can do is just go through the different missions and, you know, play in the multiplayer mode and so on. But you can't really create much of the worlds. You basically follow, you know, the path that Epic Games has created. Now in the metaverse, or in the Web3, which is the metaverse powered by the blockchain, the concept is a little bit different where the platform is only building the map, basically, of what the world is going to look like. So they create a map and they break the map down into small parcels that are pieces of virtual land. And each of those parcels are actually an NFT. So there's a unique location and also unique ownership of whoever wants to buy this NFT. Now, there's a market for this already. So as the price is going to be dependent on supply and demand, the more popular, the more demand there is, the more demand there is for the land and the more, the higher is the price, right? So we've seen a huge fluctuation in that market and huge growth over the past couple of years. When you own a piece of land, you control what you want to build on top of it. So it's not the platform that builds the world. They use their community to actually build the content, which is going to be either a game or a shopping experience, whatever you want to build. The platform gives you the tools to build whatever you want to build on that land. And more importantly, they also give you the right to own the business model on that piece of land.
Hmm.
So whether you want to sell virtual items, let's say I want to build a shop and I want to sell, you know, digital clothes, or maybe I want to build a concert venue and I want to sell tickets. for people who can attend my virtual concerts, whatever it may be, right? I get to keep basically the revenue there. The platform generally gets a 1 or 2% fee. How is that possible? Because they sold the land in the first place. So they've already made their money.
Right.
Instead of taking a 50% revenue share or 70% revenue share like Roblox does. So, you know, people say, oh, land is a cash grab. You're creating something out of nothing and you're selling it for money. So, you know, that's, that's a common objection that it should be free. It can be free, but if it can be free, the platform needs to make money in another way. And generally what they would do, you know, if you push the analogy, right, is if, if land was free, then it would be unlimited. And then if it's unlimited, then everyone could build in that world. And then as a creator, how do you then stand out? Well, you probably end up paying the, the platform to be featured as— to stand out from the crowd, which is a traditional advertising model. And so basically you end up with a model similar to Google, where to be able to be seen in an infinite array of content, you need to pay to be featured on top of the page. And so whatever you haven't paid in virtual land to start with, you end up paying it in advertising fees to actually stand out. So So what the land does is it limits the number of parcels. So maybe it's 100,000, maybe it's 5,000, depends on the platform, which creates this in an artificial way, yes, but it does create scarcity of content. And so when the platform grows and has billions of eyeballs, these billions of eyeballs will still be focused on the 100,000 pieces of land that exist, which creates value for people who hold the land.
But that's interesting because that's not a—
Yeah.
Like how you describe it, it's, first of all, it just clicked for me. So, this is phenomenal. But second, it's like, it's not a— is it a long-lasting strategy for someone who wants to monetize? Because at the same time, if you have your land drop, and you sell all of your land and all of your space, because you do that so that you enable, you know, free-flowing of human creativity on top of it and whatever, it's like, I'm limiting my chance to tap into that ecosystem once it does get the billion avatars. Which is probably where the real revenues are made, right? When you got billions of eyeballs. So how does the land creator actually tap into that long-term revenue?
Secondary sales. So the beauty of blockchain and NFTs is that you can track ownership and provenance of that asset, no matter how many times it gets sold. So if I create an NFT, I sell it to you, and then you sell it to someone who sell it to someone to sell it to someone. As the creator, I can get secondary sales on all the future sales, and it might be 2%, 3%, 4%, whatever, but I would make money forever when that asset gets sold, which is not the case with most products, right? If I sell, if I buy a chair and I resell it, the owner of the chair or the person that crafted the chair doesn't get anything. They only get it once.
Right.
But because it's digital and it's tracked on the blockchain, the blockchain knows who was the initial creator of that. And so the platforms do take secondary sales on all the assets that are being created and sold.
Interesting.
But it's not 50%. It's like 2, 3, 4%. So the creator or the landowner get most of it, but the platform, because of the volume, still makes money from it. And so if you look at The Sandbox, which is the biggest Web3 metaverse platform right now, if you look at their quarterly reports, I don't want to say the wrong numbers, But primary sales, so what they sell directly every month—
Much smaller?
I think it's pretty much equal. Oh, there you go. It's pretty much equal. And they're still selling in primary, right? In a matter of years, they probably won't have land to sell. All the land would have been bought at this point.
Yeah, so you're just relying on the trade.
But already today, secondary sales is a significant part of their business. That's interesting.
And do you think that incentivizes The Sandbox or other projects to ensure that there is liquidity in the land market over time? Because if they make money on the secondary sale, then that means that they want them to be traded.
Yes.
And that can create really volatile worlds, or?
Yes. I mean, yes, that's a consequence of that for now. I think one of the reasons why it's volatile is also that there is not that many buyers. So even though there was a lot of activity, it was only, you know, a handful. I mean, we're talking, I think there is 80,000 landowners across all the platforms right now. in the world, right? So it's a very small market.
We're early.
And you have a lot of big players. I mean, funds are getting into it, and a fund can easily swing the market by buying a significant amount of land. So I think the small amount of participants is what makes it more volatile than it should be, for sure. And as the market develops and matures, It's going to be— it's going to become a lot more stable and there's going to be a lot more benchmarks and rules around the prices.
