The metaverse has quickly become a buzzword both in the business world and among consumers. The number of metaverse projects is growing fast, and many big companies are dipping their toes into the virtual reality world. Decentraland is a one of the promising projects combining the metaverse and blockchain technology.

Beginnings

Decentraland is one of the largest virtual worlds, besides The Sandbox, Metahero and others – where users can buy and sell digital property, explore and interact with each other through virtual avatars, and create and design their own virtual spaces. The Decentraland platform is built on the Ethereum blockchain and has its own coin – MANA – which can be used for all in-world transactions and purchases.

Work on Decentraland began in 2015 when the level of blockchain technology and the public acceptance of it were still generally low. The team behind Decentraland pursued a goal to create a blockchain platform for digital real estate that users can own and sell. Th first version of this world was represented by a 2D grid. In 2016, the team started working on a 3D world consisting of virtual estate parcels. Since then, Decentraland has significantly improved its user-oriented technology and now allows for complex virtual experiences, in-world transactions, and interactions between users. Along with Sandbox and Cryptovoxels, Decentraland is one of the largest players in the field of blockchain-based metaverses.

The Decentraland virtual universe consists of 90 061 parcels of LAND – non-fungible tokens representing a 16mx16m area of the Decentraland world. Users can purchase LAND and develop them according to their wishes. To guide the LAND development by the community, the Decentraland metaverse is broadly divided into thematic districts such as cyberpunk-inspired Aetheria, Chinese-themed Dragon City, and a gambling area – Vegas City.

The Decentraland universe is governed by the community through a DAO (Decentralized Autonomous Organization). The Decentraland DAO owns or controls the most important smart contracts and assets in the universe, issues grants, and decides on matters like banning specific names and designating new points of interest. All decisions are taken by voting on proposals submitted by the community members.

Uses

Decentraland users can be broadly divided into “retail” users who mostly value the entertainment and social media aspects of the metaverse, and “investors” who aim to monetize their assets. This division is arbitrary though, as “retail” users can also invest in rare wearables or other Decentraland NFTs hoping to resell them for a higher price.

A gaming-like experience for Decentraland users is provided through exploring the metaverse which includes communal spaces, art galleries, virtual shops and exhibitions, and participating in user events, artistic performances, and games. This is powered by a robust tokenomics framework, powered by the MANA token. To enter the metaverse, users create a customizable avatar to express their individuality. Anyone can access the metaverse in guest mode, however, to access full functionality and be able to perform in-world transactions a wallet compatible with Ethereum-based dApps is required. In December 2021, Decentraland reported around 300 000 monthly users and 18 000 daily active users (for comparison, another blockchain-based project Sandbox reported only 30 000 monthly users).

The Decentraland metaverse has attracted the interest of some big investors seeking to invest in virtual properties and works of digital art. In 2021, Decentraland made news when it sold a parcel of virtual estate for $2,4 m to the crypto investor Tokens.com. This property is in the metaverse’s “Fashion Street” district and is intended for use in fashion events and virtual clothes sales. This case illustrates the main attraction for virtual property investors – the opportunity to monetize their purchases by offering value to “retail” users through selling NFTs or providing virtual experiences. In January 2022, Decentraland NFTs trade volume reached $7 M per week, with the average price of an NFT at $24 000. For the same period Sandbox demonstrated $9,5 M NFT turnover with a $9 900 average price.

Decentraland native cryptocurrency MANA has a market capitalization of $5 B at the time of writing. Like other cryptocurrencies, MANA has experienced significant volatility, in 2021 in particular as the interest in metaverse projects exploded. Starting from $0,1 in the beginning of the year, the price of MANA exceeded $5 in November, dipped more than 50% a the beginning of 2022 before resuming an upwards trend towards $3.

Outlook

In 2021, the consumer and business interest in virtual reality and virtual assets received a significant boost when Facebook introduced Meta. Even before Facebook’s announcement, many businesses and investors were looking to virtual opportunities: fashion houses like Gucci and Balenciaga created virtual clothes, and music artists were performing in the virtual events.

The metaverse industry expansion continues to see increased competition between existing and new players in the metaverse industry, from technological and graphics performance to addressing specific community needs in the areas of work, education and entertainment. At the same time, decentralization comes with its price. One of the obstacles to further increasing the number of users and transactions in a decentralized setting is expensive and sometimes slow transactions on blockchain. On this issue, Decentraland is working with the Layer 2 solution – a side-chain of Ethereum which allows significantly faster and cheaper transactions.

Attracting existing brands with strong consumer following and replicating existing events in the metaverse has been a way to maintain and expand user base for both virtual and real-world partners. While Sandbox is partnering with sports giant Adidas, Decentraland has established a partnership with Australian Open which includes a release of a collection of NFTs and organizing a virtual tennis event. In March 2022, Decentraland will host the metaverse fashion week. Furthermore, the country of Barbados is set to open its virtual embassy in Decentraland, establishing a precedent for other countries hoping to attract investors and tourists.