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January272022

Monetizing the Metaverse: Can Virtual Real Estate Translate into Real Profits?

Jigar Shah, CPA

1.27.22 | Industry Insights

The Metaverse is currently the talk of Silicon Valley and Wall Street. The Metaverse, a network of 3D virtual worlds, is preparing for a virtual real estate boom with investors paying millions for a slice of what digital currency investor Greyscale predicts will evolve into a global market for goods and services worth $1 trillion annually. The Metaverse Group has assembled a portfolio of investment properties in the Metaverse with names like Decentraland, Somnium Space, Sandbox, and Upland. Another digital land pioneer, SuperWorld, has mapped the entire globe and now offers 64.8 billion plots of virtual land as non-fungible tokens or NFTs.

Michael Gord, co-founder of the Metaverse Group, claims that “It’s inevitable that the Metaverse will be the No. 1 social network in the world.” And last week Matt Ball, Roundhill Ball Metaverse ETF founder, told CNBC that in his view, the move to the Metaverse will be a “multi trillion dollar multi-decade transition.”

Gord and Ball are hardly alone. In October, Facebook CEO Mark Zuckerberg rebranded his company as Meta. And over the past several months, companies have been shelling out large sums for a piece of the action.

Companies such as Tokens.com and Boson Protocol are working on monetizing the Metaverse. In October of last year, Tokens.com purchased a 50 percent stake in the Metaverse Group for about $1.7 million. The following month they paid roughly $2.4 million in cryptocurrency (each Metaverse accepts its own form of crypto, in this case, the deal was completed in ‘MANA’) for virtual real estate in the Fashion Street district of Decentraland. Subsequently, Tokens.com has “broken ground” on what is to become a virtual equivalent of L.A.’s Rodeo Drive or Chicago’s Magnificent Mile. Real world luxury retailers such as Louis Vitton and Burberry have entered the Metaverse, looking to capitalize on the Metaverse gold rush by selling NFTs of their products as well as leasing ad space in the virtual world.

The Metaverse’s appeal is not limited to the high-end retailers. This week it was reported that Walmart has filed trademark applications with the U.S. Patent and Trademark Office (USPTO), indicating that it plans to offer its own cryptocurrency and NFTs in preparation for opening stores in the online universe. According to its USPTO application, the big box retailer plans to sell virtual merchandise including appliances, personal care products, furniture, lawn care, patio items, office supply, and, of course, video games.

Similarly, Nike is also laying the groundwork for entry into the virtual world with the announcement it will be creating a virtual ‘Nikeland,’ while Under Armour and GAP have begun selling NFTs of their products in the online world.

All this activity may prove to be a boon to the Metaverse’s virtual landlords.

And while the Metaverse seems to have captured the collective imagination of the tech, finance and media worlds, it has a surprising history rooted in pop culture and science fiction. Fifty years ago, rock legend Pete Townshend envisioned a world where people were connected, via headsets, to a common grid as part of his abandoned Lifehouse project. A decade later, by the early 1980s, the film Tron depicted a virtual world inspired by video games. The actual term ‘metaverse’ comes from a 1992 sci-fi novel by Neal Stephenson called Snow Crash which describes a dystopian future (which in some respects anticipated our current reality) where people find an escape from it via online avatars.

But investment in the Metaverse, to say nothing of the Metaverse itself, is still highly speculative. As Ball acknowledged in his interview with CNBC, right now “we are talking about it more than we can experience it.” And a recent article in Vox asked: “Who would pay real money for the rights to a piece of a virtual world that doesn’t entirely exist yet and will never exist in the real world?”

Not all tech CEOs are on board for the ride. Phil Libin, the founder and CEO of Evernote and the CEO of the videoconferencing software Mmhmm derided the Metaverse’s monetary potential because, in his words, “no one wants to spend any amount of time with a plastic thing strapped to their face.”

Libin gives the Metaverse a big thumbs down, telling Insider that it is his view that the Metaverse is simply “a gloss that uncreative people and companies put over fundamentally a lack of good ideas.” “There’s a part of me,” continued Libin, “that hates it and a part of me that fears it, but since I think it’s so spectacularly stupid, there’s actually not that much to fear.”

But for those who believe in the Metaverse’s profit making potential and who have the appropriate appetite for risk, virtual property in the virtual world is available for purchase through third-party platforms such as OpenSea or NonFungible.com, or directly on specific metaverse platforms like the Metaverse Group.

Questions: Contact Jigar Shah at 212.331.7499 | Jishah@berdonllp.com or reach out to your Berdon Advisor.

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