Metaverse Mania: An Overview of Decentraland and Sandbox

Metaverse: a virtual-reality space in which users can interact with a computer-generated environment and other users

What is the Metaverse?

On a base level, the concept of the ‘Metaverse’ is a digital world where players can participate & create social and economic experiences with other individuals in shared virtual environments. These computer-generated environments range from detail-oriented recreations of popular destinations such as Hawaii or the Australian Outback to dystopian future worlds in movies we all love; the possibilities are endless! Games like Runescape, Minecraft/Roblox, Counterstrike, Club Penguin & even Pokemon Go showed younger generations how to interact with each other in a virtual world and taught key economic principles that would spark an entrepreneurial spirit in many. 

While many of these games provided storylines or objectives to follow, due to the open-world nature and introduction of economies, players began to develop their own motives & goals. Players began to work outside the boundaries of set gameplay and started speculating on in-game assets and developing peer-to-peer marketplaces. For example, players could trade on the “Grand Exchange” in the game Runescape and take on multiple roles in a bustling market. As market makers, players could facilitate trades and provide liquidity for buyers and sellers. As laborers, players could farm in-game resources using their time, skill and knowledge to sell goods on the market. As collectors, players could speculate on and purchase rare items they deemed valuable. Finally, as hardcore gamers, players could buy the best items to acquire better stats for their character.

The inception of peer-to-peer virtual economies was ground-breaking. For the first time, players had a choice outside the ones funneled to them by the game’s designers; financial gain, entertainment, social interactions all intertwined in a pseudo-decentralized fashion. 

As these games rose in popularity, the centralized and closed-loop environments quickly revealed themselves. Even though players paid for the game, they did not own collected and purchased assets within it and could not transfer items from one game or “world” to another (even if it was a direct sequel or upgrade). Many companies even enforce strict terms-of-service around trading in-game assets for fiat currency. Enter the concept of the Metaverse. 

When most people hear the concept of the Metaverse, they think of a dystopian Ready Player One society. While that is entirely possible, I think the first iterations that become popular will be a more realistic social environment that mimics experiences we currently enjoy. We all know how much life has changed in the past year, so let's paint a picture of the Metaverse. You wrap up work for the week and get ready to hang out with some friends on a Friday evening, who live on opposite ends of the world.  Because of the distance between you, you choose to see your favorite DJ perform his very first set in Decentraland. Due to the time difference, you have a few hours to kill before the concert starts, and well, who goes to a concert without a pregame? You all head to the local ZED Run (a virtual NFT horse racing game) track to watch some horse races and have a few cold ones. Your buddy mentions that he owns a horse that will be racing in 10 minutes, and if he wins, the next round is on him.

As you and your friends cheer Strawberry Diesel on, she pulls ahead and sprints past the finish line in first place. What a day! Excited and pumped to continue on, you all head over to the pub on site, your mate orders the round he promised, and you all continue to chat about how exhilarating the race was. Ten to fifteen minutes go by and you hear the doorbell ring. A local food/alcohol delivery service has just brought a 6-pack of beers your friend ordered at the ZED Run Pub. Back to the Metaverse now with a cold drink in hand, you all clink glasses and continue the banter. The day continues as you have a few more drinks at the pub and watch some more races. It's finally almost time for the main event….

What are Non-Fungible Tokens, and how do they make this all possible?

Non-Fungible Tokens, often referred to as NFTs, is defined by a quick google search as “units of data stored on a blockchain that certifies an asset to be unique and therefore not interchangeable. NFTs can be commonly used to represent items such as photos, videos, audio, and other types of digital files.”  While we see NFTs representing digital items primarily right now, it’s a popular misnomer to believe that NFTs are only digital and cannot represent physical objects. The initial ERC-721 standard for Non-Fungible tokens was introduced in January of 2018 with the intent to create & implement a uniform API into smart contracts enabling the tracking & transferring of these tokens.

Modeled after the popular ERC-20 token standard, ERC-721 tokens added an element of further identification needed when differentiating tokens from one another. The original proposal states that the new standard was inspired by the ERC-20 standard but is ‘insufficient for tracking NFTs because each asset is distinct (non-fungible) whereas each of a quantity of tokens is identical (fungible).’ The unique identifying properties of ERC-721s allowed new use-cases to develop; virtual collectibles, real estate, artwork, debt contracts and other “negative value” contracts.  Put simply, ‘In general, all houses are distinct and no two kittens are alike. NFTs are distinguishable and you must track the ownership of each one separately.’

_{EIP721 Documents SANDBOX Whitepaper}

Now that we understand what NFTs are from a technical standpoint and why they were created, let's delve into why this technology is at the core of the Metaverse. Many of the issues we discussed earlier are a result of a single centralized studio or company controlling all aspects of the game/economy. With traditional development studios reaping all of the rewards of these digital economies, they have no incentive to share that revenue back with its players. Now, forward-thinking studios are starting to see that a small percentage of residual income (in the form of royalties or marketplace fees) on valuable assets can equate to a much longer-term revenue stream for the studio and increased value to the end users. Games such as Axie Infinity, F1 Delta Time & ZED Run are pushing the boundaries of what it means to develop these experiences, digital assets & ecosystems for users. This leads us to the following issue- interoperability. Currently there is no incentive for gaming companies to let you use assets in later iterations of the same game or cross-ecosystem gaming as they would be losing out on potential revenue by letting players do so. However if you can't use your items how you want and where you want, it leads to a few of the biggest questions in NFTs, do you really own that item? If you can’t sell that item, is it really yours?

Owning your items, being able to take custody of them outside the game, being able to trade your items freely & use them in multiple games or platforms are all very novel concepts but the framework for something like this just simply didn't exist before NFTs. Let's look at the main advantages of blockchains & the main reasons Metaverses use them: 

I) Immutability of Assets

II) Ownership 

III) Interoperability

IV) Publicly Accessible Primary & Secondary Markets for Digital Assets 

Why is content creation such a powerful tool? 

One of the most significant value adds and shifts in corporate business models came with the realization that revenue could be generated from user created content on a platform. Instead of charging money to take part in a community or paying to view content published by the business itself, companies could create infrastructure for content creators and capture a large portion, if not all, of the revenue generated by that individual. We’ve seen a massive shift in society towards content generation, sparked by companies like Myspace and Facebook. At the end of the day though, very little of this revenue earned from user-generated content actually ends up in the users pocket. 

Using NFTs and crypto, many projects aim to disrupt this parasitic chain. Commonly referred to as Play to Earn rewards or Ecosystem incentives, Dapps and protocols have developed various unique ways to reward participants in communities/ecosystems. A few examples in ways protocols are choosing to attract participants are: issuing a currency as rewards to participants in an ecosystem, enabling the framework for creators to build & sell content/works as NFTs for a native currency, and allowing the ability for creators to directly earn revenue off content generated. This provides the opportunity for content creators to earn a living by trading that native currency for any preferred currency or asset all while not having to worry about a centralized company that could suddenly and without cause restrict that revenue stream.

The Metaverses

Decentraland 

-- What is Decentraland/Abstract:

“Decentraland is a decentralized virtual reality platform powered by the Ethereum blockchain. Within the Decentraland platform, users can create, experience, and monetize their content and applications.” - decentraland.org/whitepaper.pdf
The platform utilizes NFTs to make LAND a scarce asset, that is the base for developers to build on top of. By creating Decentraland SDK and the tools for users to monetize their creations, users can develop their LAND and provide entertainment in various forms, including interactive experiences on top of traditional goods and services.  Decentraland aims to build an open economy governed by the community in the form of a Decentralized Autonomous Organization (DAO), which also controls the creator fund used to bootstrap the growth of the Decentraland metaverse. 

Origin

The Decentraland ecosystem has two core components; Parcels of LAND, a non-fungible asset (ERC721) & MANA(ERC20), a fungible currency, which is used to purchase LAND and other in-game transactions. The Decentraland project initially began in 2015 as a proof of concept using the Ethereum network. The first iteration of the proof of concept was dubbed ‘Decentraland’s Stone Age’ by the team; it consisted of a 2D grid of pixels with the owner & color of each plot encoded into the metadata. It then progressed to a mock-up of a 3D virtual world in late 2016, as the team explored options to host the data on-chain and make each parcel accessible to its testers. Since this was pre-Ethereum, the team elected to use a modified version of bitcoin’s blockchain to host a ‘Distributed Hash Table’ or a directory of sorts. Users could then look up the parcel they desired in the hash table, and it would direct them to the file which contained the parcel’s content. Users could then load up the files and interact and roam around the parcels, all of this in a fairly decentralized manner. This proof of concept was, in many ways, the building blocks of what Decentraland is today. 

Technicals 

Fast forward a few years, the tech stack has evolved into something much more complex. In today's iteration, Decentraland is built on top of the Ethereum network and consists of a few components to enable ownership & an open economy to exist that we touched on earlier. On the technical side, the protocol consists of three layers:

1) Consensus layer: Who owns the LAND & What is displayed in it?

This layer utilizes a smart contract to store the relevant information of the non-fungible LAND parcels in the correct format and then store it in a ledger. The key metrics that are stored are: the owner, the coordinates of the parcel & the content within the parcel (‘Content Description File’). 

2) Land Content Layer/Content Distribution Layer: Where are the files for the parcels stored & how are they accessed?

This layer communicates with the Consensus layer through the smart contract to fetch the file for the content from a decentralized database.  The file is then rendered for the user to see as they pass through the different lands. This is very important as Decentraland does not lean on centralized servers, meaning that the world can continue to exist as long as users continue to host/create content and foot the bill for the decentralized server costs. In Decentraland’s words it “provides [them] with strong censorship-resistance, eliminating the power of a central authority to change the rules or prevent users from participating.”

3) Real-time layer: How do users interact, communicate and perform tasks in the same virtual environment?

Since there are no centralized servers to host worlds where players can interact, players must do this themselves in a peer-to-peer fashion.  The original bootstrapping meant that supporters of the project had to host the servers themselves and figure out how to coordinate it among the community to disincentivize bad actors, but now the DAO can vet hosts and ensure reputable members of the society are hosting servers.  Essentially this layer is where the integration of other users, voice and text communication as well as interactions with the environment happens on a global scale for all the players, making it a vital part of the ‘metaverse’ experience. While the other two layers ensure the ownership, tracking and rendering of the environment, the real-time layer is what connects players of Decentraland together in the same space.

Source: https://decentraland.org/whitepaper.pdf

-- What makes Decentraland Unique?
-DAO/ Foundations for creators

One of the things that makes Decentraland a first mover is the breakneck pace at which they have built and implemented technology in the blockchain space. Not only has Decentraland structured and implemented the DAO to govern the protocol, the protocol itself is fully decentralized at the time of writing. So what exactly is the Decentraland DAO? 

The DAO is represented by the community, and also owns the major smart contracts and assets that govern and control Decentraland. Along with this, the DAO also has control over a large amount of MANA for community initiatives and other operational tasks to keep the Metaverse running. The community can propose and vote on policy updates as well as various other items such as partnerships, NFT projects to allow within the Metaverse  through the DAO portal powered by the Aragon Protocol. The DAO is supported by a Security Advisory Board (SAB) to address technical smart contract bugs and upgrade needed contracts. This board is made up of 5 members that are appointed by the Decentraland team and community. 

Below is the estimated yearly inflation (at the time of the public sale for MANA) based on the emissions of Foundation funds to creators in order to bootstrap growth, all of this is subject to change based on DAO proposals & amendments. 

-SDK & Game builder

Decentraland provides both a Drag & Drop game builder where users can use an array of items to build an experience, as well as a command line SDK that gives developers much more control over generated environments.

-- Tokenomics & Scarcity

MANA Use Case:
-Original use was to purchase LAND in Primary LAND Sales: Burn 1000 MANA -> 1 LAND

-Purchase LAND on the secondary market
-Buy Goods in-game (Wearables, Names, NFTs, etc)
-Pay for Services (such as Land Development or entertainment)

-MANA is also set aside into a ‘Creator Fund’ to incentivize content creators to keep building and contributing to the community

-Hold MANA tokens to participate in the Decentralized Autonomous Organization (DAO) that governs Decentraland

LAND Max Supply: 90,000 LAND

Source: https://medium.com/decentraland/the-decentraland-token-sale-terms-81861704c086

The Sandbox

-- What is Sandbox?

The Sandbox is a unique type of Metaverse geared toward creating a sustainable gaming and content creation ecosystem. Using the 3D Voxel style showcased in popular games such as Roblox & Minecraft, Sandbox aims to provide the tools to build not only experiences that are attached to specific locations, but assets that can be used and sold throughout the ecosystem. One of the key focuses of the platform is to enable creators in a decentralized fashion, meaning that along with their LAND NFTs and ERC20 SAND token, they employ the ERC1155 standard (which we will explore more in depth later) to create ASSETS. ASSETS are the second type of NFT in the Sandbox ecosystem; the team utilizes this unique NFT standard to tackle the issue of content creators not receiving a share of the revenue they directly generate head on. Instead of pouring hours of time and energy into the game to find an indirect way to benefit from it, the Sandbox team provides the framework for creation of these ASSETS as well as a marketplace to monetize them directly to consumers.

The ecosystem consists of three core components centered around the beliefs of composability between games/metaverses & rewarding content creators:

-History of The Sandbox

The Sandbox initially began as a mobile game in 2012 developed by its parent company Animoca Brands on both Android & iOS. This app was widely played and amassed 40M downloads in the early days of mobile gaming and reached nearly 2.6M monthly active users at its peak. In 2015 the Sandbox game was made available for download on PC through popular gaming platform Steam, where users created 70 million unique worlds & environments for other users to interact with. This early experience with user-generated content led Animoca Brands to take the leap into blockchain gaming and pivot their flagship product, The Sandbox, in 2019.

 With a noble and innovative step, the team states their mission is “to build a system where creators will be able to craft, play, share, and trade without central control, enjoying secure copyright ownership with the ability to earn SAND.”  While there is already a massive market for Voxel-based free-form games, the team believes that by building the Sandbox ecosystem with blockchain technology and incorporating NFTs, they are able to tackle a lot of the problems that currently plague the gaming industry such as:

Sandbox Whitepaper

What is the ERC-1155 Token Standard? 

Similar to both the ERC-20 & ERC-721 token standards we discussed earlier, the 1155 standard can be used to create either fungible, non-fungible or even semi-fungible tokens. To understand why the 1155 standard was created, let's first look at the constraints of the existing two standards in regards to both user & professionally generated content. 

With the ERC-20 tokens, they can not be uniquely identified and require a new contract to be published for every type of ERC-20 token created. The use of ERC-721 tokens is important when each item needs to be completely unique and each minted token is different from one another in the collection but can be expensive and cumbersome if there are duplicate NFTs in the collection as part of the contract. In this case we would look to use a ERC-1155 token standard, this would allow us to create multiple tokens from a single contract with each token having specified metadata, supply and other details.

Source: https://medium.com/@bhavishramaswamy/erc-721-erc-1155-c9b18eb19a5d

For example, if we were minting Pokemon cards with an ERC-721 contract we would need to create a new contract for each card type to account for different rarities, supply etc. which would have massive costs due to the gas fees needed to deploy each contract and mint each card which would be a unique token. Alternatively, this same task using a ERC-1155 contract is much easier and cheaper. Using the semi-fungible capability we are able to create multiple card types as a separate token IDs and specify not only the metadata, but supply to be minted of each all within the same contract.

Layer 2 Scaling

The details have not been fully announced but on Jun 28, 2021The Sandbox team indicated they would be partnering with Polygon (Matic)’s Layer 2 scaling solution and looking to implement it in the future to combat the constraints and high costs of the Ethereum main chain. 

VoxEdit & Game Builder
The Sandbox VoxEdit is a very robust tool that allows users and developers to construct environments & ASSETS with great detail. Pictured below is the Game Builder, which allows users to build on top of LAND and add advanced gameplay mechanics into experiences they create.

​​
Partnerships & Major IP

The Sandbox’s partnerships with real world and crypto native IPs and Brands is second to none, at the time of writing the team boasts over 50+ IP partnerships highlighting some of the main household names below. Parent company Animoca Brands is well known for its investment portfolio including names such as Binance, Flow, Dapper Labs, Atari & Polygon. Along with the impressive investment portfolio,  Animoca owns not only a plethora of real world IP rights & invests in some of the biggest infrastructure in the NFT space, but is responsible for some of the biggest blockchain games thus far as well, such as F1 Delta Time.
Source: Sandbox Whitepaper

-- Tokenomics & Scarcity

Source: Sandbox Whitepaper

SAND USE CASE:

-Users/Players purchase in-game ASSETS & LAND using SAND tokens

-Artists/Creators use sand to upload ASSETS to the marketplace and purchase ‘crystals’ to define the ASSETS rarity

-Players can hold SAND tokens to take part in governance/the DAO

-SAND can be used to stake and receive passive revenue paid out in SAND, Catalysts & Gems. The latter two are used for ASSET creation

-A foundation to incentivize the continued growth and high quality content creation in the Sandbox ecosystem. 

***Fee Capture Model= 5% Transaction fees of any purchases with SAND within the ecosystem are distributed back equally to the Foundation & for Staking Rewards

Source: Sandbox Whitepaper

Max LAND Available Through Primary Sales : 166,646 Parcels

As we can see the price & volume both MANA and SAND are strongly correlated with underlying strength in both price & volume early on in MANA. More recently however trading volume has surged on SAND while it also closed the price gap between MANA and itself.

Looking at the prior three months of sentiment data as well as the average tweet volume, we can see MANA has held a very consistent volume in tweets by the community. Even though avg tweets dropped off from May to June, SAND over the same period was stagnant as well and didn't really see an increase in mentions until more recently. Sentiment around these projects has stayed fairly consistent and highly correlated with each other.

This report is for informational purposes only and is not investment or trading advice. The views and opinions expressed in this report are exclusively those of the author, and do not necessarily reflect the views or positions of The TIE Inc. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report. You are fully responsible for any decisions you make; the TIE Inc. is not liable for any loss or damage caused by reliance on information provided. For investment advice, please consult a registered investment advisor.