Should bridging lenders underwrite loans in the metaverse?

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Hannah visiting a plot in Decentraland

Excitement around the metaverse is palpable. You can almost taste it. Canada’s TerraZone is providing mortgages for virtual property.

Luxury brands like Rolex, Hermes and Gucci are frantically setting up digital shops. And the finite spaces are going fast.

Could this be the weirdest land-grab in history? And should bridging lenders underwrite loans in this surreal virtual arena?

To find out more, I took a visit to these worlds myself, and spoke to six experts with strikingly different views.

Is the metaverse really “the future”?

At the time of writing, the cheapest plot (or “parcel”) on the market in Decentraland is 4,939 ETH, around £2,060. Equivalent to the average monthly wage in the UK. For this price, buyers get a scarcely-noticeable nook on the edge of the virtual world.

Land for sale in Decentraland
Land for sale in Decentraland

Creating an Avatar was easy, so I jumped in and wandered – well, stalked and skipped – around the estate.

I was excited to be thrown into the future… But, disappointingly, the glitchy graphics felt more like something from the 90s. The user experiences are much better on Grand Theft Auto or FIFA. Childhood memories of SIMs resurfaced. Doubts started creeping in. Is this … IT?

It’s hard to believe that such a backward-looking platform will be an explosive feat of 3D engineering. But, according to the experts, the metaverse is in its infancy.

“In the future, we will see just about every existing physical space or program represented in the Metaverse”, explains Breanna Faye, technology futurist and founder of Metarkitex. It’s not about the experience of today, but the potential of tomorrow.

“It’s the future”, affirms Co-founder and Head of Commercial at Maxcap Financial, Harry Esqulant. Maxcap is one of the few firms planning to broker loans for properties in the virtual world, and the founders really believe in it’s potential.

I see more and more people trying to build a better life for themselves within the metaverse”, he reveals.

For both Esqulant and Faye, the metaverse is the natural extension of social media and video calls, which both sky-rocketed since the start of the pandemic.

The metaverse will be a continuation of those types of experiences”, Faye elaborates. “Yet amplified and displayed in a different way, three-dimensionally as opposed to two-dimensionally”.

Most of the experts agreed that the metaverse, if nothing else, is going to be quite big… at least for a while.

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How can metaverse property generate an income?

As the virtual world populates, eager investors believe there’ll be ample opportunities to line their wallets.

We’ll see many new and different monetization models”, Gilad Amir, Digital Operating Partner at Pollen Street Capital explains. “Models which may not fit perfectly into concepts that we understand today”.

Some eco-systems are already taking shape. Faye for example, is a virtual architect, creating imaginative structures in the metaverse.

We’ll see the rise of play-to-earn models too, where gamers generate an income on their skills.

Other monetization models feel more familiar. “Virtual land and buildings can be used in a similar way to the real world”, explains Faye.

You will be able to buy, sell and rent. For example, a company with remote employees might want to rent a venue to host a virtual event, or you may meet your friends or family who live far away”.

Another way of generating income is with the sale of smaller non-fungible tokens (NFTs).

Exclusive items such as “avatar accessories” can be bought and sold using cryptocurrency. Adidas, for example, has sold more than $22 million-worth of NFTs already, while luxury fashion brands are projected to rake in $10 billion by 2030.

Perhaps the strangest of these goods is the rise of NFT “art”. Actor Jonny Depp recently jumped aboard the NFT bandwagon selling 11,000 pieces of his artwork. Possibly one of his more surreal career moves.

One bridging lender, Yasin Patel, a Director at Autarky Capital, recently purchased a Mickey Mouse NFT art piece for $40 and sold it for a whooping $900 one hour later. But despite this, he still wouldn’t issue loans for the metaverse.

I have no doubt that prices will go up”, he comments. “But I also think they will come crashing down”.

At the root of the metaverse is the paradox of scarcity. “The market has witnessed explosive growth in the past year”, explains Faye. “Mostly due to scarcity models created by leading companies and projects in the space”.

Each world has a limited number of plots, and each item for sale is unique, even though infinite new worlds can be created. Like cryptocurrencies, some will be more valuable than others, and the tricky part is deciding which world or item to plug for.

How do you value land in the metaverse?

Valuing virtual properties opens a huge can of worms. To start, the cryptocurrencies needed to purchase land can fluctuate wildly in value.

How can we control that the money we give the client has the same intrinsic value in the metaverse? And that is has the same value when it comes back out?”, Esqulant asks.

From there, lenders need assurance that the choice of virtual world is bullet-proof. Decentraland, Somnium Space and Sandbox are among the leading platforms today. But in this hyperactive environment, would this still be the same tomorrow?

Then the biggest question of all, how can we be sure this isn’t just a fad? For two months in 2016, every pavement featured a small Rattata, Pidgey or Weedle as I buried my face in the Pokémon Go app.

But after one obsessive summer, I left the platform and never went back. People have short attention spans.

Even the long-reigning Facebook is finally accepting it’s slow death. In 2008, it was the most-visited social media site, but today plagued with dwindling numbers and toxic algorithms, the brand is pivoting…

To the metaverse. How do we know that the metaverse isn’t just another fad in a chain of billionaire pivots?

Who’s buying land in the metaverse?

The answer could lie in the users. “There are a lot of young people diversifying and investing in intangible assets like NFTs and Bitcoin”, Esqulant explains.

Research shows that around 70% of Gen-Zs are interested in exploring the metaverse, but only 37% would invest in it.

Perhaps surprisingly, it’s the older generation, Millennials, who are leading the hype. 51% of US Millennials are interested in putting their money into NFTs.

On the other end of the spectrum, we have the big guns. The Silicon-Valley-based venture capitalists out to make a killing. But, as Time reports, many of them are self-serving.

They’re often looking to host a gaming investment or something similar. “A lot of this is also hype”, adds Patel. “It’s free marketing, many of these firms will probably benefit in the real world from the extra publicity”.

Investors are developing land in the metaverse
Investors are developing land in the metaverse

Deutsche Bank recently made some moves towards investing in the metaverse, but overall traditional investors seem to be quite thin on the ground.

Many funds have legacy investments in Microsoft, Amazon, and Meta, and will inevitably get caught up in the metaverse as a result… But even these investments are stalling.

After Meta’s CEO Mark Zuckerberg announced plans to invest in the metaverse, shares in the company plummeted by a jaw-dropping 23%. Traditional investors want out.

All in all, the calibre of investors – crypto-enthusiasts, younger investors, or Silicon Valley tycoons – might be a little worrying for lenders. But as the adage goes, no risk, no reward.

Is it lending… or gambling?

Despite a lot of effort, it was difficult to find any bridging lender who thought lending for metaverse properties was a good idea.

It’s not like going home in the physical world, where you’ll actually use the property”, elaborates Patel. “It’s an application, you’ll switch it off. The metaverse cannot replace the real world”.

“We wouldn’t do it”, agrees Orcutt. “And I have a hard time seeing any other established [lenders] lending on virtual”.

Across the board, experts seemed to agree that metaverse worlds and traditional lenders are not a good fit. “Lenders are not here to take a gamble”, affirms Patel. “We’re here to make an assessment on credit“.

Is it ethical?

The idea of someone taking out a mortgage for a foot on the virtual property ladder feels unnerving.

Especially as we try to claw our way out of a recession. For Amir it comes down to the regulators. “I think regulators – particularly the FCA – will need to protect consumers, and be proactive about it”, he comments.

The FCA have already issued emergency warnings about floods of young people losing all their savings to crypto-assets.

A potential risk for lenders is that regulators could come out with warnings against metaverse loans too, although its ability to enforce them could be limited.

The wider question of ethics is another painful sticking point. For me, there’s something unsettling about investing in virtual homes, when we have a real poverty and climate crisis here on Earth.

Cameron Orcutt, co-founder of, OnLadder feels the same. “There are so many massive real world problems that need addressing, whether it is the first time homebuyer problem, upgrading housing stock for net zero, or even the cladding crisis!

Conversations around virtual homes must be frustrating for people like Orcutt, who’s firm focuses on securing much-needed mortgages for under-served groups.

People need real help now, and meanwhile billions are going into this new area of investment, primarily because a tech giant with bad PR decided it needed a rebrand”, he comments.

For myself, I can’t help but feel the same way… Have we already given up on this world? Shouldn’t lenders be issuing loans in green construction, rather than some billionaire’s virtual playground?

Stop talking about going green and start underwriting new technology

Hannah in Somnium Space
Hannah in Somnium Space

COULD bridging lenders underwrite loans in the metaverse?

So, should bridging lenders underwrite loans in the metaverse? A last-minute interview with another expert provided the perfect answer… And it was a twist I should have already anticipated.

There ARE currently DeFi products that allow for borrowing or lending”, explains Geran de Klerk, Co-founder of Kingly, a UX design and development studio in Cape Town.

Bridging lenders and mortgage providers are going to be one of the very first industries to be disrupted and replaced in the metaverse.

“Smart contracts allow for the removal of traditional processes like legal costs, transfer duties and agent fees”, de Klerk continues. “There is no real need for a middle-man”. 

For those lenders who want to be a part of this opportunity, the moment to start planning was yesterday. Blink and the opportunity has gone.

For the team at Maxcap, they’re looking beat the competition and start brokering through their upcoming app, Capatool.

We’ve looked at a couple of options for phase two”, Esqulant explains. “One would be to lend in crypto and the second would be to try and place ourselves within the metaverse”.

Finding the sweet spot between speed-to-market, risk and reward is a challenge this new breed of property lender will need to overcome… For real.

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