Performance Measurement of Blockchain-based Virtual Land in the Metaverse: A Repeat Sales Price Index for Decentraland

Abstract

The rise of blockchain technology has led to the creation of a new generation of virtual world projects, which have attracted a range of commercial activities. The economic potential of these virtual environments has caused an increase in the virtual land market. While there are many virtual worlds, the land in each is limited in size and ideally cannot be changed, which reduces investment hold-up issues and constraints. Thanks to publicly available open-source technology, it is now possible to easily explore these new blockchain-based virtual land markets and its price dynamics. This study provides guidance on how to adequately model virtual land price indices. The study analyzes one of the first and most relevant large-scale blockchain- based virtual worlds, Decentraland. The data set used in the study is compiled from secondary market sales from the most relevant NFT (non-fungible token) marketplace. Using information on identical virtual land parcels, the study develops a weekly repeat sales index of prices for the period between January 2019 and August 2022. The study also performs several performance tests, which show that the repeat sales method provides superior index estimates compared to using an arithmetic price average or median price, which are often used in the market for virtual land. In addition to serving as a price benchmark, a virtual land market index can be appealing for asset pricing studies, as it can be used as a proxy for an unobservable market portfolio. Therefore, research on the physical real estate market can guide any research of virtual land markets.