Can You Bring Crypto to the Real Estate Market?
Blockchain is a rising technology that allows for decentralized transactions in which both parties can trust the process. The hope is that this could help streamline transactions, reduce costs, and allow more transparency about information concerning the property. But the big question in today's real estate market is: Are we ready?
Meagan Loyst founded Gen Z VCs, a global community centered around empowering the next generation of leaders in venture capital, growing it to more than 11,000 members since November 2020. The youngest investor at Lerer Hippeau, she's sourced and helped lead three investments, working with 12 portfolio companies. Loyst's Gen Z VCs Summit included 3,000-plus attendees from 71 countries.
Know More About Gen Z VC https://www.genzvcs.com/
Can You Bring Crypto to the Real Estate Market?
Going back to what you said that you think it is warranted all this hype. A lot of real estate investors subscribed to this show, and they are seeing people get rich quick overnight in that tab. Real estate investors build their fortunes over decades and decades, and there are crypto millionaires, even billionaires buying these different coins that are popping crazy.
Many real estate investors I know have a lot of LPs now who are diversifying away from crypto into real estate, but rather, having a boggle strategy of investments like Cool Aid. The real estate person, partly our audience here, is trying to get their heads around what is going on. Many people feel the idea of virtual land seems something I can understand because I’m a real estate expert. I can come in and buy something. A lot of that is driven by FOMO. Do you think the analogy holds that you can take the real estate perspective and bring that to the metaverse?
In some ways, yes. A really good analogy is that there is only so much square footage in New York City for people to build around. I live in Manhattan, and it is crowded. There are lots of people in the metaverse, especially with the crypto metaverses. Within The Sandbox, there is a finite number of plots of land that are driving demand, so it is a very similar analogy.
There is only so much space that you could actually go and buy and develop in the metaverse in certain metaverses. Decentraland, for example, I called it the Beverly Hills at the metaverse in my article because their plots of land are a little bit more expensive and pricey generally than The Sandbox, but it has already sold 2/3 of their available land in the metaverse.
Buying real estate in New York City and the metaverse are absolute parallels.
There are going to be opportunities to rent land in the metaverse for events. There are going to be very similar applications to owning and renting real estate in the real world as there are in the metaverse. At the end of the day, there is a limited supply. Companies like Republic Realm, for example, are going and buying up land like crazy because they are going to own and develop that land.
It is going to be a really interesting investment strategy for them. I talked to companies all the time on the Lerer Hippeau side. If you were in gaming or you have a really successful NFT project, you want that project to live outside of Discord. Oftentimes, that will happen in a metaverse. You need to have land to be able to do that. There are so many different ways to tackle that. The real in-person buying of real estate in New York City and the metaverse are absolutely parallels.
When we buy real estate, let’s assume residential real estate and multifamily buildings, people will live in those buildings because it provides shelter. It is predictable and dependable that you build this home. There is a market price for it and someone needs to be here. Help our viewers understand if you buy a plot of land in Decentraland or crypto in The Sandbox. There are lots of platforms, and there are a few that are very well known that have a lot of value. Where is the value people often living yet inside of these virtual land?
Not yet, but this goes back to the cultural aspect. If someone paid $450,000 to buy a plot of land next to Snoop Dogg in his new first. A 24-year-old Meagan can not be neighbors with Snoop Dogg in Beverly Hills or whenever he lives because I do not have that money. I do not know if I will ever have that money, but that is the case for a lot of people. In the case of the metaverse, it opens up this opportunity of being able to interact with people and also with money in a whole new way. You have exclusive and limited access to Snoop Dogg through your ticket. Your plot of land is your ticket into the Snoop first because of the metaverse.
Some of that will transport between virtual and real life. If you were really engaged with new first in the metaverse, there would also be in-person opportunities and exclusive events. Look at VeeCon and what Gary Vee has done with VeeFriends. VeeCon is bringing this digital community in person. You have to think of it as a ticket in some way, shape, or form, similar to why all the brands are gravitating towards roadblocks.
They have 200 million monthly active users. Their target users are spending time in one place at any given time. If you are some of these and thinking there are hundreds of millions of people every day buying digital art and doing this, you need to be where those users are. From a residential perspective, maybe it is not quite as strong yet, but this Snoop first case is an interesting one. There is no doubt that people are spending more time in these ecosystems, so having a presence as a consumer and a business is still important.
It feels that you are not buying that virtual plot of land to flip. My personal opinion is speculators are going to be the death of the metaverse. They come in, buy all this land, hold onto the land, and there is no utility. If there is nothing in that neighborhood like urban design rather than planning, people are not going to come, and ultimately, plots will drop. The ecosystem requires developers to own it and to create more value in utility for the collective good rather than coming from a centralized place.
I completely agree with that and it also comes with the success of NFT projects. Again, these are real parallels. There is no value if there is no community. You have to have some type of strategy around how you keep people engaged and involved. For some people, you are buying an NFT because you think it is going to be an investment, the same way you think maybe you buy a plot of land, you think it is going to be an investment, but you stay, and there is value accrued because of the community and the access that it provides.
Oftentimes, the best projects start small.
It is like buying a Ferrari, Hermes bag, or any type of physical item that gets you access to special parties or special clubs. Maybe you can also define NFTs for some of our viewers who are tuning in, but the utility is more than digital art.
On the NFT side, Bitcoins are fungible. One Bitcoin that I trade with your Bitcoin, they are one and the same, but if I create a one-on-one NFT of this paper towel roll, I minted it as an NFT, and I sell it, you can’t take a similar paper towel roll, put it on the blockchain, and be like, “Let’s trade. They are worth the same.” They are inherently not fungible. That is the easiest way to describe it. It is really complex. This is why when you think of broad and mass adoption of NFTs and a lot of this, so much of it is gated in a lot of this terminology that the average person does not care about.
When I was writing this article, I was locked in my room by myself for five days. It was two days of hardcore research, then three days of writing. The article is 26 pages long. I could have kept going. It could have been 100-page. I tried to keep it simple and in-depth as best as possible. My family banned the use of the word NFT during the holiday because I was talking about it so much. I am talking about the metaverse. They call it the Meagaverse now on Twitter because my name is Meagan.
The average person on Twitter is different from the average person that I’m going to meet in a coffee shop here in New York or back home on Long Island. Everyone’s inclination towards NFTs is very different. You get that light bulb go off when you start bringing in examples about culture and brands that people understand. Adidas is into the metaverse NFT drop and getting exclusive access to Adidas merch, both in-person and online, and people understand that.
People are like, “They did 24 million in sales in an afternoon.” These are tickets. People are buying tickets to get access to things. It is not you are buying in a picture. A lot of people were like, “These are JPEGs. Why are people spending so much money on JPEGs?” It is like, “It is not just a JPEG. It is access to a community. It is belonging.” Everyone looks for that. There is so much complexity in a lot of this stuff, and we still have a long way to go in getting the masses. There are three million people who have bought NFTs so far. It is still a very small sample of the stat.
It is not just a JPEG because the underlying technologies are powered by the blockchain. Therefore, that removes any question in the real world. Is that a real Gucci bag or a counterfeit Gucci bag? There is no question about that because of the underlying technology in the blockchain. What makes the industry very exciting and also makes it very scary? It is emerging. There is a lot of insecurity, and I mean that literally. I do not know if you have heard about the Bored Ape Club.
There was a hack on OpenSea where some hackers took advantage of some of the underlying internal technology. They were able to buy a Bored Ape for an effective price of $1,750 and instantly flip it for $190,000. There is a lot of concern that if you enter now in even the platform OpenSea, which has a tremendous valuation, your money is not secure.
They even talk about Coinbase, which is a platform to facilitate exchange. They say, “Not your key, not your coins.” What are your thoughts on the security aspect of what is going on here? Doesn’t that make it dangerous for someone to come in and stop buying these objects, NFTs, and virtual lands because there is a risk of me losing in the event if something gets hacked? It happens every day.
There's no value if there's no community. You have to have some strategy around keeping people engaged and involved.
It does. It is a real problem and concern. Also, it is a real opportunity. We are going to see more companies tackling this in different ways, partnering with MetaMask and Rainbow Wallet. They are going to be these marquee consumer access points into Web3 and the metaverse, and the wallet is the key in a lot of ways of figuring out ways to secure that through partnerships and new technology. I actually didn’t see that news, but that is insane. That event is genuinely crazy. It is wrong. There are always going to be bad actors when there is massive opportunity and success. That is human nature, unfortunately. For the little bit of bad, there is also a lot of good that happens alongside that. I think we will see a lot more focus on security, secure access, and everything like that.
What makes this ecosystem so prone to error and even human error? Is that ultimately binary like there are 1s and 0s? In one case, someone accidentally listed a plot of land or even NFT and accidentally forgot if it is 0.01 rather than 1. That is a 100X difference in price, and that happens all the time. There is a methodology to value real estate.
Even if you want to misprice it, it is difficult to misprice it because the market is there, but also you can hire an appraiser. You can look at market comps, rent roll, and apply a multiple to the NOI, which is Net Operating Income. How does one value these plots of land in NFTs? Could you give us some thoughts, particularly around the metaverse side, platforms like Decentraland and The Sandbox? If some of our audience wants to go in and buy a virtual plot of land, how do they even think about valuation for land?
A lot of it is being decided by the market, unfortunately. It is a great question. It is something that I need to be spending more time around. There are definitive prices that are being thrown out. There is similar to when a collection launch or even a new project. The market decides what the price is or you can put a floor on it in many ways, but oftentimes, the best projects start really small.
As the demand heats up, it is all about distribution and how you are putting that word out there. For The Sandbox, in particular, they have done such a wonderful job attracting talent and interesting projects companies into their metaverse. Naturally, they see a lot of demand. When I wrote the article, there were 300 million NFT sales that week.
Again, every plot of land being sold in the metaverse, in The Sandbox in particular, is an NFT. A quarter of those 300 million in sales was from The Sandbox alone. There are people driving a ton of volume towards that because other people are there. In Decentraland, maybe it is because there are less pots of land. I can’t remember off the top of my head, but because there may be a more limited supply, their prices are a bit higher. If you look at real estate in the metaverse in a very similar way, there are definitely tools and analyses that you can look to make those types of decisions.
Subscribe to Zain Jaffer: https://bit.ly/2SWhYW5
Follow the PropTech VC Podcast:
Listen on Apple - https://apple.co/2Izoznu
Listen on Spotify - https://spoti.fi/2STWDwq
Listen on Google Play - https://bit.ly/2H7s6c0
Follow Zain Jaffer at:
Current Ventures: https://zain-ventures.com/
The Metaverse—What It Is and How It Can Present Real Solutions https://youtu.be/al3Nyitg71U
How the Metaverse Could Offer Marked Changes in Workflows and Utilization https://youtu.be/uol2i8S-CgE
Real Estate in the Metaverse https://youtu.be/NeuouWh6Xgs
About Zain Jaffer:
Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780M.
His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as "Forbes 30 Under 30," "Inc. Magazine's 35 Under 35," and the "SF Business Times Tech & Innovation Award." He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.
- The Sandbox
- Republic Realm
- Lerer Hippeau
- Rainbow Wallet
- The PropTechVC Podcast on Google Podcasts
- The PropTechVC Podcast on Apple
- The PropTechVC Podcast on Spotify
- The PropTechVC Podcast on YouTube