Meta Metaverse Weekly: Issuing Bonds for First Time While ‘Land Bubble’ Pops

Meta has been spending so much money on the virtual reality (VR) worlds it is now named after, that it’s cut into not just profits but the stock price in a very significant way — it dropped 20% after quarterly earnings results that would have met expectations without the metaverse investments.

With that in mind, Meta announced plans to raise money separately Tuesday (Aug. 9), saying it had raised $10 billion in its first-ever bond offering in order to fund some of its pricy investments like building its metaverse, Reuters reported.

That sounds reasonable, as CEO Mark Zuckerberg has said the real metaverse he wants to build, an immersive virtual world in which people will live large chunks of their lives, is about 10 years off. And Meta spent $10 billion building it in 2021.

Meta’s VR and augmented reality (AR) division, Reality Labs, which is building the its metaverse, spent $2.8 billion in the second quarter, pulling in just $452 million. The stock price dropped almost 4%.

Popping Noises

Metaverse enthusiasts and speculators appear to have come to the same conclusion as crypto fan and “Shark Tank” star Mark Cuban, who said this week that buying “land” in the metaverse is the “dumbest [idea] ever” — although he used a less polite four-letter word, CNBC reported Wednesday (Aug. 10).

In metaverses like Ethereum-based Decentraland and The Sandbox, plots of “land” are sold as non-fungible tokens (NFTs), which, by itself, is reasonable. In order to build something in a metaverse — whether it’s a game, a virtual casino or a physics-casual replica of auction house Christie’s Bond Street headquarters in London — you need somewhere to put it. So metaverses are divided up into pieces of real estate.

But in the last year, metaverses have started pushing the idea that “location, location, location” matters as much in virtual worlds as it does in the real one. Decentraland, for instance, has neighborhoods dedicated to themes like fashion and the arts (thus Christie’s). It also has speculators and fans — either of which could be a likely description of the person who paid $450,000 for a plot of land next to the Snoopverse neighborhood built by the recording artist and metaverse booster Snoop Dogg.

However, metaverses also seem to have another feature of the real-world real estate market: speculative bubbles.

Land sales in the major Ethereum-based metaverses are down 85% this year, crypto industry publication Cointelegraph reported this week.

In February, the average price of a plot of land in Decentraland was more than $37,000; as of Aug. 1, it was about $5,000 — a roughly 13.5% drop, per the report. The Sandbox saw prices tumble from about $35,000 in January to $2,800 this month — about an 8% decrease.

As Cuban pointed out to CNBC, “it was great money for [the metaverse developers], but that wasn’t based off utility.”

After all, there’s no real land scarcity in virtual worlds, and “there’s unlimited volumes that you can create,” Cuban said.

Stability Concerns

The Bank of England called Tuesday for “robust consumer protection” if use of cryptocurrencies becomes widespread in the metaverse.

Owen Lock and Teresa Cascino, researchers for Britain’s central bank, argued that the metaverse could become a potentially serious source of real-world financial risk.

“If an open and decentralized metaverse grows, existing risks from cryptoassets may scale to have systemic financial stability consequences,” they wrote in a blog post. “Widespread adoption of crypto in the metaverse, or any other setting would require compliance with robust consumer protection and financial stability regulatory frameworks.”

While calling crypto assets “ill-suited as a medium of exchange” due to their “highly speculative” nature, the pair said the “importance of cryptoassets in the open-metaverse means that if an open and decentralized metaverse grows, existing risks from cryptoassets may scale to have systemic financial stability consequences.”

For all PYMNTS crypto coverage, subscribe to the daily Crypto Newsletter.