Source: market.decentraland.orgReal estate conversations in NYC nowadays will likely reference events such as the (non)-Amazon HQ2 in Long Island City, the (non)-shutdown of the L-train, and the continuous YIMBY-development high-rises in the neighborhood. The effects of these events have been well documented. It is interesting to examine the real estate investment strategy for new developments. This includes investing large amounts to buy rights to greenfield property, attracting commerce, housing, and developing the territory. Then, investors will begin the process of building utility into their assets using the soon-to be launched builder tools. I was interested in the patterns of digital real estate behavior in a crypto-enabled market. These are supposed to serve as common areas that are managed by different blocks in the community.$MANA is the payment token in the Decentraland economy, though the functionality may change over time.Timeline[2017.12] Auction 1: Decentraland completed their first auction, selling off 34,356 parcels of $LAND (for ~$16.63MM USD). [2018.03] Marketplace – Secondary trading of previously auctioned $LAND parcels. [2018.08] Estates – Connect multiple parcels of LAND adjacent to each other to transfer, buy, sell, or dissolve in bulk. [2018.12] Auction #2: The remaining 9,331 $LAND parcels were sold (for $2.99MM US). Location & Block ParametersWe can analyze smart contract metadata to see the relative positions of $LAND assets that were being auctioned. The central area of the first auction was sold for a large sum (34K $LAND), while auction 2 (Right)[0] Location Pricing of Scarcity[0A] — auction 1I wanted to see if buyers considered the proximity of the “hot-spot” location as a motivating factor. Let’s suppose that landmarks (the roads and districts, as well as the genesis block) could serve these points-of interest. We can filter the price paid by parcels based on their distance to different types of landmarks. For example, Auction 1 had a distance of 60 from the nearest road. A parcel with road location “1”, is one block away from the nearest road and 1/60th the maximum distance. We would expect to see a higher price for those that are closer to landmarks. The ratio is a measure of the average or median $USD paid. A decreasing function would indicate a positive relationship between proximity and price paid. For a higher signal, we can eye-ball linear trendlines starting at Auction 1. [0B] — Auction 2If the same analysis were done for Auction 2, we would see almost no relationship between the price and the location for all three landmarks. We find that Auction 2 prices are higher than Auction 1 for all the landmark location parameters. One reason could be perceived scarcity in $LAND assets. Another reason could be project timing and execution risk, which are priced into the assets (a full calendar year of development and market activity). [1] Marketplace Pricing of Location & ScarcityWhile the majority of parcels that were auctioned (90%) have not yet been sold, we can still observe the market for the property asset values’ behavior. To determine the perceived market value of property assets, we can look at the behavior of the buyer. One thing we can learn from watching the turnover behavior of $LAND parcels bought on the secondary market is that they tend to cluster. We also noticed that parcels with high turnover were more likely to be clustered. This could indicate that whales or $LAND lords perceived these parcels as underpriced and used a uniform pricing system to determine their bids. This might belie the purchaser’s expectation, from a UX perspective, that a user might begin by exploring the landmarks, and then venture into adjacent $LAND neighborhoods/parcels.Turnover on AtlasPricing Multiple on Atlas[2] Estate Pricing of Location & ScarcityEstates refer to $LAND parcels that are adjacent to each other and aggregated as a single collection. The idea behind an estate is to be able to create city-like experiences by owning it or building it. It is not surprising that estates have a positive relationship with their size. $USD vs Estate Size. What about the marginal value for adding $LAND to an estate’s estate? It doesn’t matter. Estate Size vs. USD. What about the marginal value of an additional $LAND to an estate? [2A] $LAND Flipping. An early hypothesis was that buyers would buy adjacent $LAND parcels and then combine them into estates. The estate would then be sold. This behavior was observed for all market participants in the auction. The data below shows that the majority of estates sold did not include parcels purchased on the marketplace. This could indicate that estates were formed by buyers who have not yet sold on the secondary market. Section [1B] may suggest that these estates were not made up of assets purchased on the secondary market. These estate owners may be waiting for the market’s reaction to actual construction and building these interactive environments before they sell the $LAND estates. [2B] Estate Free RidingIn the estate diagrams we see that many parcels have been purchased adjacent to estates. While a more detailed timeline analysis is needed to dig deeper, it is likely that $LAND is valuable to own next to an estate. This is similar to the logic of sitting next to a landmark. The Decentraland analysis is unique in that it attempts to understand NFT feature-specific variables, which might drive different valuation characteristics than other fungible crypto assets. These features are essentially related to their size and proximity. Decentraland is intended to be interactive. It will be interesting to see how $LAND owners use their assets (building, leasing and buying adjacent), as well as whether they wait for favorable speculation. These findings could help determine whether $LAND was distributed via auction to those who were most likely to make the most of their land (and thus bring utility to Decentraland), or rent-seekers, wealth-parkers, or speculators. However, scarcity parameters are not fixed forever, as in many crypto use-cases. Virtual world scarcity is not limited by physics in the case of $LAND. This idea is being explored in Decentraland. This could change over time through the use of $MANA (largely overlooked in this analysis), as a governance token for Decentraland. It may eventually be used as a voting token on proposals related to scarcity or utility, such as increasing the map’s size or parcel dimensions (regarding the conundrums of governance In virtual worlds, we collectively build an entertainment society in a vacuum without the long-standing economic and social driving forces that create places like NYC. We are all part of the generation-long experiment phase of new incentives, environments, and so, while Decentraland may take some time to build, we can at most track the utility in real time. How long until my Decentraland estate gets gentrified?All data was sourced via the $LAND smart contracts and on 2019-02-28.Disclaimer: The content provided on this site is for informational and discussion purposes only and should not be relied upon in connection with a particular investment decision or be construed as an offer, recommendation or solicitation regarding any investment. This article does not endorse any company, project or token mentioned. All information is provided “as-is,” without warranty of any sort, express or implied. Forward-looking statements could prove to be incorrect. CoinFund and its affiliates could have long or short positions with the tokens or projects mentioned in this article. People are responding to this story by highlighting it and responding to it on Medium.



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