Decentraland is an attempt to build a consumer grade, fully decentralized, virtual reality ecosystem.
For a discussion on the potential value of assets likely to be generated in virtual/gaming worlds over the coming years, please refer to the first section of our previous review of Enjin coin.
The Decentraland project has been described as a blockchain + VR version of the Second Life game. Whereas in Second Life, in-world assets are actually owned by the company, Decentraland, by adding decentralization, lets its players truly own their goods.
A visualization of Decentraland as depicted by decentraland.org:
How it works
In Decentraland, LAND are non-fungible digital assets (using the ERC 721 standard) that are available for purchase and development. MANA is used to pay for LAND and is also the native currency for in-world goods and services.
LAND owners can use the space to develop their own businesses, which could include games, applications, gambling services, creative 3D scenes, informative sites, and more.
A portion of the Decentraland map:
Economics of MANA
Three forces have the potential to drive the upward value of MANA.
First, there is supply reduction. When you buy LAND, Decentraland burns the MANA you purchase it with. The last of three initial LAND auctions was held in December 2018, concluding with all 9,331 remaining parcels being purchased, “amounting to a total of 109,521,854 MANA burned, or roughly $6.6 million USD,” according to a Decentraland blog post. It is unclear if more LAND will be created and, therefore, it is uncertain if the supply of MANA will continue to be reduced through MANA burning.
The second force to drive the value of MANA is speculation on LAND value. If economic activity in Decentraland increases, LAND may be perceived as having a higher value. People may invest in LAND by spending MANA, which would drive the value of MANA. All LAND in Decentraland (except for a small portion withheld by the creators to be given away to artists) is now available on a secondary market. Currently, the cheapest plot of LAND is 11,750 MANA. The highest selling plot went for 2,000,000 MANA, the equivalent USD 175,578 at the time, in March 2018, according to data from nonfungible.com.
Top Ten LAND purchases by value in Decentraland
Finally, the popularity of goods and services in Decentraland can drive the value of MANA. As MANA is the native currency of the virtual world, people wanting to make economic interactions in Decentraland will need to obtain MANA to do so. This would drive the price upwards.
The downward pressure on MANA’s price is significant.
First, as only 40% of MANA were distributed to token sale participants (the token sale was completed in 35 seconds in August 2017 and net USD 24 million), the remaining 60% has the potential to be dumped on the market. Twenty percent were allocated to the development team, early contributors, and advisors, 20% is reserved for ‘content creators,’ and the remaining 20% is held by the Decentraland Foundation, with Founders’ MANA subject to 3-year vesting.
Second, MANA has an inflation schedule of 8% of the first year’s total supply. This inflation schedule is not active as of June 2018, and is subject to MANA holder voting, but is likely to be upheld at least in the mid-term.
The creators’ primary objective is to support the growth of Decentraland as a platform, and as a community. To that end, the Decentraland creators have built the Decentraland SDK, which contains the API, tools, and documentation that developers need to build the interactive 3D content that can be hosted on LAND.
Turning dreams into virtual reality, however, takes time. As of May 2019, Decentraland is still not live and activity within the network has yet to achieve any significant scale (Decentraland is expected to go live in Q2 2019). Active daily users on the network are currently trivial, at less than 100 transaction per day across Decentraland marketplaces.
No direct competitors
Decentraland is fairly unique in the blockchain world because it has – to this author’s knowledge – no large, direct competitors.
The first big challenge is technological. Building a consumer grade, fully decentralized, VR ecosystem takes time, and Decentraland is at the very beginning of the process.
Second, powerhouse competitors like Sony and Microsoft are building their own explorable VR worlds that may easily capture early-adopter market share. Such VR worlds don’t have the decentralized do-it-yourself appeal of Decentraland, but it’s not clear if that is an advantage or disadvantage.
For most of its existence, the price of MANA is USD terms has languished far below its all-time-high of USD 0.44/MANA, which was achieved in January 2018. Relative to BTC, however, MANA appears to be locked in fairly steady boom-bust market cycle:
Decentraland has, more than most projects in the crypto-space, an ability to capture the imagination of a technologists. This has made it one of the most discussed ERC20 tokens, and its marketcap remains in the top 100 despite making slow progress and with limited network usage. Additionally, there continues to be a steady flow of high value LAND purchasing, indicating fundamental support for the network.
These factors combine to produce a medium chance that buying MANA while it is at a low price relative to BTC will result in significant BTC gains when the alt-cycle repeats.