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How to Earn Yield With Virtual Real Estate

Staking some virtual real estate allows land holders to earn the platform's native utility token while maintaining ownership of their land.

May 22, 2022

7 min read
earn-yield-metaverse-staking

Key Takeaways

  • Blockchain based virtual worlds such as Metroverse and NFT Worlds are beginning to implement NFT staking as a mechanism to provide yield for landowners.
  • NFT staking allows virtual worlds to gamify their assets and incentivize long term holders by rewarding them with in-game tokens like $MET and $WRLD.
  • Staking land can earn APR that is competitive with other yield farming protocols.
  • There are tradeoffs and risks associated with NFT staking that should be evaluated before making any investment decisions.

One of the promising aspects of owning digital land in blockchain-based virtual worlds is the potential to earn income from participating in the metaverse economy. This digital economy will eventually have just as many types of businesses selling goods and services as does the real world. Perhaps you build and operate a virtual retail store, sell advertising space on your virtual property, or are simply seeking a renter for your land. . While enticing, widespread demand for these services may still be years away. The common question that prospective virtual landowners continue to ask is: wen yield?

Many blockchain-based virtual worlds sell individual land parcels as NFTs. However, more recently developed worlds, such as NFT Worlds and Metroverse, have adopted concepts from DeFi to enable users to begin earning yield on their land right away. So, wen yield? Now, here!

The key technology enabling this yield generation is NFT staking. NFT staking works in a similar way to other DeFi yield farming concepts. By locking up NFTs through a platform’s smart contract, users can receive rewards depending on the properties of the NFT being deposited, the staking duration, and the number of tokens being staked. This process is demonstrated in the following example with Metroverse land:

Buy: The user acquires Metroverse land, typically through an Ethereum ($ETH) transaction via an NFT marketplace such as OpenSea.

Stake: The user then deposits their land into a smart contract which is built into the virtual world’s game interface.

Earn: The user then begins receiving the game’s native utility token, $MET. In this case, the single parcel of land earns the user 300 $MET tokens per day.

Claim: The user may then claim the $MET they have accumulated and swap it for another currency such as $ETH or $USDC via a decentralized exchange (DEX).

Re-sell: Users may also withdraw their land from the smart contract, similar to how they deposited it. Once withdrawn, they may choose to re-sell it on an NFT marketplace.

Staking allows land holders to earn the platform's native utility token while maintaining ownership of their land.


Advantages

NFT staking offers benefits for land holders and virtual worlds alike. Land owners can earn passive income while holding and speculating on the value of their land. This allows investors to forecast their potential earnings and better manage risk.

NFT staking also opens new opportunity for virtual worlds to gamify their assets, potentially attracting users to participate and drive demand for NFTs in their world. Additionally, worlds can gamify the rewards that staking earns in new ways. For example, bonus rewards may be earned in Metroverse for collecting land that have common features.


Comparison

Virtual worlds Metroverse and NFT Worlds both incentivize users to stake their land and earn native tokens $MET and $WRLD, respectively. Presently, over 80% of land in each of these worlds is being staked by their communities. The following chart compares the upfront cost to purchase a single land parcel, the daily staking rewards earned from that parcel, and the annual percentage rate (APR) one may expect to earn. It is important to note that these values are based on risky assumptions that will be outlined later.

Disclaimer: None of this should be considered as financial advice.

The projections in this section are based on the following assumptions:

  • The price of $ETH remains constant at $3,000 USD.
  • The price of $WRLD remains constant at $0.15 USD.
  • The average NFT Worlds parcel earns 109 $WRLD tokens per day
  • The price of $MET remains constant at $0.05 USD.
  • The average Metroverse parcel earns 300 $MET tokens per day
  • The price of 1 land parcel in NFT Worlds is $24,000 USD (~ 8 ETH)
  • The price of 1 land parcel in Metroverse is $3,000 USD (~ 1 ETH)
  • The transaction fee to purchase land is $42

*prices as of April 15, 2022

Payback Period

The payback period is the amount of time it will take to recoup the initial investment.


The following chart shows the net position (USD) of purchasing and immediately staking a single parcel of land in NFT Worlds:

The following chart shows the net position (USD) of purchasing and staking a single parcel of land in Metroverse:

Prices are as of April 15, 2022. Where the price of 1 ETH is about $3,000 USD.

While Metroverse may seem to be at an advantage by achieving breakeven in 7 months compared to 49 months in NFT Worlds, it’s important to consider the tradeoffs between owning land in each of these virtual worlds. First, Metroverse is a land trading strategy game, similar to SimCity, where the objective is to combine parcels that together generate high yield. Whereas NFT Worlds enables land owners to build experiences on their land through a Minecraft client. This creates opportunity for land owners to earn more by building experiences that other users can visit and spend $WRLD tokens.

Furthermore, NFT Worlds allows landowners to rent their land, in addition to staking it. By renting, the land owner is allowed to set the following terms of the rental contract:

  • The monthly price in $WRLD required to rent their world.
  • The deposit required to rent the world. If a tenant defaults before the term ends, the land owner keeps the deposit.
  • The minimum and maximum rental term lengths, available in months.

Because of these and other factors, at the time of this writing the average value of a Metroverse parcel is about 1 $ETH, whereas each NFT Worlds parcel is about 8 $ETH.Next we consider the risk factors that NFT staking introduces to holding land in these virtual worlds.


Risks

The risk factors of NFT staking and blockchain protocols in general are important to understand. Some of these factors are listed here, although there may be others which is why it is important to always DYOR.

  • Cryptocurrencies are volatile. Drawdowns in price can easily outweigh the rewards earned. Staking is optimal for those who plan to hold their asset for the long term regardless of the price swings. To exemplify this the following charts show the YTD price of $ETH, $WRLD, and $MET.

$ETH price chart from Jan 1 - April 16, 2022

Source: https://coinmarketcap.com/currencies/ethereum/

$WRLD price chart from Jan 1 - April 16, 2022

Source: https://coinmarketcap.com/currencies/nft-worlds/

$MET price chart from Jan 1 - April 16, 2022

Source: https://coinmarketcap.com/currencies/metroverse/
  • Some protocols require a minimum lock-up period during which land cannot be withdrawn from staking. In other words, if you rent out your NFT Worlds parcel, it must remain locked for the minimum rental period. Conversely, there is no lock-up period for staked land in Metroverse.
  • Token supply and distribution are also important factors to consider. The total supply for $WRLD tokens is capped at 5 billion, with 35% reserved for staking rewards, 50% reserved for play-to-earn incentives, and 15% of tokens reserved for the founding team and early adopters.*
    The token supply for $MET is unlimited and released through a fair launch. The only source of $MET token emissions is the Metroverse Vault. All $MET tokens owned by the team are earned by staking city blocks just like the rest of the community. There are no $MET vesting schedules. $MET tokens are burned when they are used to purchase new in-game assets such as land within Metroverse.
  • Smart contracts can be hacked, resulting in a total loss of staked funds. And since the assets are not protected by insurance, it means there is little to no hope of compensation. This is why it is important to request audits of the smart contracts involved in staking mechanics. NFT Worlds has released an audit report by Certik. Metroverse has not released an audit report although they have shared links to their smart contracts which can be found in their Discord.

Conclusion

New virtual worlds are being created to address one of investors’ primary desires; seeking high yield earning properties. NFT Worlds and Metroverse are two examples of the next generation of decentralized applications that create fun, innovative, play-to-earn gaming experiences. These virtual worlds sit at the intersection of three markets, each of which have strong growth potential: NFTs, Gaming, and DeFi. As digital economies continue to develop within the metaverse, the opportunities to earn yield with virtual real estate continue to grow and become more diverse. That being said, it is up to the investor to vet the risks and opportunities presented by these worlds.


*Token supply is important to understand whether a token is inflationary or deflationary. An inflationary token (like fiat money) does not have a max supply and will continue to be produced as time goes on. A deflationary token model is simply the opposite, where there’s a max supply the token is capped at, like Bitcoin’s 21 million.

* There are two basic ways most crypto tokens are generated - pre-mined or released through a fair launch. A fair launch is when a cryptocurrency is mined, earned, owned, and governed by the entire community. There is no early access to the token or private allocations before making them public. On the contrary, pre-mining is when a number of the crypto tokens are generated and distributed among some exclusive addresses (usually project developers, other team members, and early investors) before going public.

Sources


Parcel Lockup
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