Messari Report: The Sandbox Q1 digital land sales return to normal levels, how will the ecosystem expand in the future?

Written by: Mihai Grigore, Messari

Compiled by: The Way of DeFi

Key Points

• Given the overall market cooling, secondary sales of digital land decreased by 54%, but still grew by 865% compared to Q3 2021.
• Primary sales volume increased by 23% due to the issuance of new parcels.
• Since the launch of Alpha Season 2 of the game in March 2022, The Sandbox has surpassed 2 million registered users.
• A gas-free staking project launched on Polygon.
• The Sandbox focuses on partnerships in gaming, music, entertainment, and sports.

1: Overview of The Sandbox

The Sandbox is a platform for creating and hosting entertainment experiences in a virtual world. In The Sandbox, anyone can create 3D assets, such as buildings, in-game items, and non-player characters. These assets can then be used to create diverse experiences, including games, music and fashion events, social activities, quests, art exhibitions, and competitions. The Sandbox provides creators with a set of intuitive tools that require no programming background or design experience.

These tools include a 3D editor for creating and animating projects, a game maker for creating experiences, and a game client. The Sandbox is trying to make these tools as user-friendly as possible to unleash the creativity of its community. For example, the 3D editor combines different in-game tokens to create user-generated assets.

These user-generated assets are ERC-721 non-fungible tokens (NFTs) that can be monetized on public markets. The Sandbox ecosystem leverages a range of tokenized gaming features, including: in-game digital currency (SAND) for purchasing, monetizing, and creating assets; digital land (LAND) that can be owned in The Sandbox virtual world; larger land (ESTATE) created by combining parcels; and interactive experiences (GAMES) that bundle assets and script logic.

3D virtual images created by players (ASSETS); burning tokens to give assets attributes (GEMS); and burning tokens to create assets (CATALYSTS). Due to the tradability of these user-generated assets in its virtual world, The Sandbox has a robust in-game economy.

In addition to owning the assets they build, creators can offer experiences on LAND parcels in The Sandbox Metaverse. The long-term goal of The Sandbox is to enable creators to build immersive experiences.

The potential to monetize LAND and game experiences has attracted investors to acquire LAND. Top owners of LAND include major investors in The Sandbox, such as Binance, Everyrealm, and Galaxy Interactive, as well as NFT communities like Whale, MetaKovan, and Cyber Kongz.

Moreover, The Sandbox is actively partnering with businesses willing to develop experiences in its virtual world and become early adopters. These partnerships span a range of commercial verticals, including gaming, music, entertainment, fashion, and lifestyle. Examples of partners are introduced in the "The Sandbox Ecosystem: Notable Events" section below.

2: Macroeconomic Overview

The number of LAND in The Sandbox is limited—166,464 parcels. New LAND parcels require primary sales, which are sold to private entities (partners) or auctioned. Notably, 65% of LAND parcels have already been allocated, an increase of 2% compared to Q4 2021.

As the turbulent Q1 2022 came to a close, secondary sales of LAND decreased by 54% compared to the previous quarter. From this perspective, secondary sales in Q1 2022 still grew by 865% relative to Q3 2021. The decline this quarter is a result of the metaverse hype beginning to subside since Meta announced its rebranding in October 2021. The market is simply seeking its balance point, and despite a buying frenzy in Q4 2021, demand for LAND remains healthy.

Meanwhile, primary LAND sales increased by 23% compared to Q2 2021. Primary sales target newly issued LAND parcels, which are typically sold to partners or auctioned. Nevertheless, in Q1 2021, primary LAND sales (16 million USD) accounted for only 12% of the total market LAND sales (136 million USD).

In terms of usage, The Sandbox launched its game Alpha Season 2 in March 2022. Notably, during this release, The Sandbox reached 2 million registered users. Given that the release lasted four weeks, tracking its daily or monthly active users at this time is not useful. Instead, unique LAND buyers may serve as an alternative proxy for interest in LAND utility. Conversely, unique LAND buyers may represent another form of interest in LAND utility.

The number of monthly active LAND buyers returned to sustainable levels prior to Meta's announcement in late October 2021. This raises the question: given that currently only a limited number of users can host and monetize experiences, what drives the value of digital land in The Sandbox virtual world?

In the ++previous quarterly report++, we conducted an in-depth analysis revealing that LAND ownership is quite concentrated, with top owners holding onto their parcels. A follow-up question is whether this holding behavior is only applicable to top owners. This quarter's report analyzes LAND holding times and discusses the potential implications for land value in the virtual world.

3: Microeconomic Overview—Holding Behavior

To understand LAND holding times, different clusters of purchasing and holding behaviors can be considered. In this sense, for example, long-term purchasing behavior can be viewed as holding parcels for over a year, while buying and selling can be seen as holding periods of less than 30 days. Current segmentation of LAND holding times shows that 7% of buyers hold LAND for over a year, while 11% hold LAND for less than 30 days. Meanwhile, the vast majority (72%) of LAND buyers hold their assets for 1-3 months.

In other words, 83% of buyers choose to sell their LAND within 3 months of purchase. This indicates that profit-taking is a driving force for LAND owners buying and selling their assets. Below, we analyze profit-taking behavior by looking at buy and sell transactions that occurred within 30 days. For each transaction, the difference between the selling price and the corresponding buying price is calculated on a daily basis.

Note that the peak profit-taking occurred on November 24, 2021—about a month after Meta's rebranding announcement. Since then, profit-taking behavior has returned to sustainable levels. Additionally, since October 2020, there have only been 19 days of total profitability showing negative growth, with the most severe negative growth occurring on December 31, 2021. One might consider purchasing LAND as a bullish option on The Sandbox, thereby attracting a large number of users.

Although the 2 million registered users indicate a high interest in The Sandbox gaming experience, in terms of experience building, the case for digital land is still in its early stages. Intuitively, offering immersive experiences in The Sandbox could be a potential catalyst for sustainable value creation and acquisition.

In this sense, users are eagerly awaiting the launch of immersive crypto user gaming experiences. Creators can effectively build immersive virtual experiences and offer them to users.

In terms of acquiring that value, owners may acquire specific LAND parcels, hoping that hosting virtual experiences on these parcels can, in turn, drive increased user activity. This could further create a "flywheel" for the mass adoption of immersive experiences, thereby enhancing the long-term value of LAND parcels.

However, currently, creators cannot use LAND parcels to offer experiences to others. This may temporarily hinder actual demand. While most LAND buyers may initially prefer to hold, the lack of practical means to monetize LAND, despite having rich experiences, may entice them to (sell) take profits. Therefore, it is crucial for The Sandbox to continue building the pillars of immersive experiences and increase user accessibility.

For The Sandbox to continue to grow, it needs to create and adopt immersive experiences on a large scale. In this sense, an important metric will be the number of active users of complete game versions unrestricted by specific time intervals.

4: The Sandbox Ecosystem: Notable Events

Partnerships

Brands show no signs of fatigue in joining The Sandbox ecosystem. Driven by the immense potential for building and monetizing experiences, a range of brands have announced partnerships with The Sandbox across multiple verticals, particularly: gaming (Ubisoft, SM Media, and Ethernity), music (Warner Music Group), entertainment (SHIBUYA109), diversity and inclusion (World of Women), sports and gaming participation (HSBC), and fashion and lifestyle (Gucci, Arianee). In the foreseeable future, developing further partnerships will remain a key focus area for The Sandbox.

The Sandbox Alpha Season 2

In March 2021, The Sandbox launched Alpha Season 2 of its virtual world. The gameplay lasted for 4 weeks, during which users could obtain Alpha Passes and earn SAND, The Sandbox's utility and governance token. The Sandbox reached the milestone of 2 million registered users for the first time. As part of Alpha Season 2, The Sandbox released 200 quests and over 35 experiences available to PC and Mac users with free registered accounts. With the upcoming release of Season 3, The Sandbox will continue to expand its user base.

Staking on Polygon

In February, The Sandbox launched gas-free mSAND staking. While SAND has already established a liquidity pool on Uniswap, this project allows everyone on Polygon to receive a share of the weekly reward of 500,000 mSAND. Additionally, mSAND holders providing liquidity for the program will be eligible to share a monthly token allocation of 500,000 mSAND. More staking rewards were also introduced in The Sandbox Alpha Season 2.

5: Roadmap

Looking ahead, The Sandbox has several notable development projects underway.

Progressive Decentralization

Through progressive decentralization, The Sandbox aims to incentivize its community to propose their own experiences. In other words, The Sandbox is encouraging its community to build experiences for players, potentially unleashing the next generation of highly successful games. Although not yet deployed, The Sandbox DAO will be able to vote on foundation grants and make decisions regarding game development. The Sandbox DAO will be jointly managed by SAND token holders and LAND holders.

Network Effects and Ecosystem Growth

As LAND continues to be gradually opened and distributed in 2022, The Sandbox needs to expand its network effects. Continuous efforts will be made to ensure further partnerships and develop its ecosystem. The goal is to expand and attract various businesses—metaverse agencies, fashion companies, virtual real estate markets. Ideally, these businesses will establish their own sales, creating jobs and providing a broader range of experiences for players in The Sandbox.

Launching Public In-Game Experiences

The Sandbox is still in the alpha stage, meaning there are currently no in-game experiences. Once launched, these in-game experiences are expected to further expand The Sandbox user base. In the coming quarters, The Sandbox plans to allow users to publish experiences directly on their LAND parcels for other players to access.

6: Conclusion

The Sandbox ecosystem continued to grow in Q1 2022, boasting significant partnerships and over 2 million registered users at the launch of the Alpha Season 2 game. In the past quarter, it also experienced the effects of an overall market pullback.

As the metaverse hype begins to subside, the market sales of digital land have returned to sustainable levels. The ambition of The Sandbox is broad, with the potential to become one of the largest experiential entertainment platforms.

Based on its numbers and partnerships, The Sandbox remains at the forefront of the virtual world. However, there are still some potential downsides. The true test of The Sandbox's long-term viability will be the establishment of more immersive experience-building technological pillars for its future players.

With the successful launch of the alpha version, it is now time to test what works effectively, track the adoption of features, and take strategic measures regarding the roadmap and its execution. The ability to quickly adjust and adopt strategies that best suit the technological development of its virtual world will be key. For The Sandbox to become a true entertainment metaverse, large-scale creation and adoption of immersive experiences are needed.