(Bloomberg) — Despite recent market volatility, the cold of crypto winter is becoming a distant memory for traders of digital tokens. The launch of spot Bitcoin exchange-traded funds in January and enthusiastic support from Republican presidential candidate Donald Trump helped them recover from the slump triggered by the FTX collapse.
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However, the situation is very different for the meta universe built on digital assets.
The interconnected system of digital worlds is claimed to herald a new frontier in human creativity, dubbed web3. One of the promises of web3, which is based on blockchain technology and digital tokens, is that people can monetize their creativity independently of big tech. In fact, key measures of web3’s value — like the prices of NFTs and other tokens associated with certain much-hyped platforms — are mostly in decline.
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“We believed in the promise of Web3, but I started looking around and realized that no one was making money in this space, and I challenge anyone to show me a Web3 company that was still making money,” said Andrew Kiguel, CEO of a metaverse company once known as Tokens.com. “The promise of this has failed.”
Tokens.com made a big bet on web3 in 2021, spending $2.5 million on a plot of real estate in Decentraland, a then-popular metaverse that allowed visitors to use a web browser to access a virtual space. Once there, visitors could engage in activities like playing poker or attending a fashion show. Kiguel likened buying metaverse land at the time to buying real estate in a growing city, and Tokens.com planned to develop and rent out a portion of its portfolio to tenants.
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Digital parcels of property on such platforms are essentially non-fungible tokens that can be bought and sold. Like other crypto assets, their value increases and decreases in response to changes in demand.
When a series of scandals rocked the crypto industry in 2022, Decentraland took a hit along with the rest of the market. The community-owned platform lost about 90% of its user base, according to data site Decentraland Metrics, and property values fell about 95%, according to data from blockchain information firm DappRadar. Decentraland’s cryptocurrency, Mana, currently trades for less than 30 cents, down from a peak of more than $5 in late 2021. Representatives for Decentraland did not respond to a request for comment.
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Even large companies trying to create their own centralized versions of the Metaverse have faced challenges. Meta Platforms Inc.’s Reality Labs recently reported a quarterly loss of nearly $4.5 billion, highlighting the difficulties even a tech baron like Mark Zuckerberg faces in profiting from a digital existence.
According to Kiguel, Tokens.com’s virtual real estate portfolio lost 80% of its value. The company has since abandoned the metaverse, formally changing its name to Realbotix and began developing AI-powered silicone humanoid robots after acquiring Simulacra, a company that makes hyper-realistic sex dolls.
A business that aimed to offer metaverse property loans also took a hit in the collapse. In early 2022, TerraZero Technologies Inc. said it completed one of its first metaverse mortgages, the start of a plan to improve access to digital property after rising prices squeezed potential buyers.
The company provided a loan for a $40,000 property with a 25% down payment. The company’s CEO, Dan Reitzik, said in an interview that it has rejected every loan application since then. All the mortgage applicants were merely speculating on the price of land, and none were planning to build anything, he said.
And when land values fell, that first and only mortgage was paid back at cost.
Crypto and NFTs are still too complicated for the average person, according to Reitzik. “The consumer is not ready for this. Brands are not ready for this,” he said.
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A fiat-powered metaverse is much more likely to appeal to the general public and businesses, Reitzik said.
James Casey, an associate professor of computer game design at George Mason University, shared a similar sentiment, believing that fiat currency and centralized assets are necessary for a successful metaverse in the near future.
Before entering academia, Casey worked as a video game developer for more than 12 years, creating massively multiplayer online games that were a kind of precursor to current expressions of the metaverse. These games often featured customizable avatars, expansive worlds, and in-game marketplaces where players could buy, sell, and trade virtual items for real money.
“Blockchain is a great technology, but a gaming company wants to own their own databases,” he said. “When you have a virtual playground where you can do anything, people still want to own things, they still want to own the virtual world. They just see it as a new frontier of ownership.”
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–With assistance from Michael P. Regan.
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