Experimental Land Rights in Virtual Reality

Virtual reality is a prime space to experiment with property rights because space is infinite. What is finite, however, is distance to experience. If land can be infinite, then locating close to meaningful virtual experiences is what becomes valuable. This provides ample opportunity to experiment with new property rights, all perhaps, even in the same virtual space.

A few weeks ago, I had a chat with the Cryptovoxels community on ideas on how to increase or decrease land in this decentralized virtual space. I want to share two such ideas: a COST (Harberger Tax) zone, and a Bonding Curve zone. Both rely on land being minted and destroyed as desired. Both generate value back into the community.

Let’s look at Cryptovoxels.

In Cryptovoxels, players can buy a parcel and create whatever they want it. As it lies in between the intersection of crypto, gaming, and art, you find all manner of interesting spaces in there. There’s a lot of people who turned their parcels into art galleries, stuffed with art, also hosted on Ethereum.

After the original square of plots sold out (the developers sold them), a question arose as to where to build additional land, and how. As you can see, it’s expanded into additional islands. Additionally, there is still the question of how much land there needs to be. Too much, and you may dilute the value of the existing plot holders such that they exit the economy. Too little, and you stifle the economy, and its creative expressions.

The two proposals: COST zone and Bonding Curve zone also manages the scarcity of the economy such that it aims to be maximally utilised (not too much and not too little).

COST Zone

Common-Ownership Self-Assessed Tax (COST), or Harberger Tax functions as follows: you always have to specify a sale price, and whilst holding the asset, you have to pay tax on it. At any point in time, someone can buy the asset from the previous owner. It will always have a sale price. I’ve used this model for “This Artwork Is Always On Sale”, and it is used in Wildcards for conservation.

In VR, the proposals are as follows: at any point in time, a player can mint a new parcel of land attached to an existing parcel of land. They must then self-assess its value and in doing so, set it up for always being on sale.

After a while, the zone might look like this: all plots being valued by the respective parcel owners, and it always being on sale. If a parcel decides to forfeit ownership or forecloses on their parcel (because they couldn’t pay taxes), then the parcel is destroyed (taken out of circulation).

And so, the zone can grow even more and in some places shrink as owners foreclose (forming islands).

These gaps, being freely able, can then be subsequently minted again if someone wants to have a parcel in between the islands in the zone.

And so you can see this zone would grow and shrink based on demand and vicinity to meaningful plots close by.

The tax revenue of keeping these parcels can go to various beneficiaries: the developers, or even the zone as a whole (eg, everyone on this zone, who developed the properties, earn tax revenue), to a quadratic funding pool, or a DAO consisting of parcel owners. In essence, the revenue would support development of this zone.

The downsides of course to COST is that a parcel owner always needs to set a sale price, always need to pay a tax, and their parcel can always be bought away from them. They can’t exclude it from the market.

In a virtual space, however, with this zone being voluntary (vs the other parts of Cryptovoxels), it should be fine, as it is opt-in. If you invest time into a parcel and it could be taken away from you (at a loss or a profit depending on how you value your parcel), would the virtual landscape and its creations look different to what you would find in traditional property rights zone? Maybe, the personalised, private spaces would lead to more communal space and design, such that if it bought away from a person, all the investment wasn’t for nothin? A key component and value of Cryptovoxels is that people wish to share their spaces.

Bonding Curve Zone

This model works similar to a previous post I made on using a bonding curve to grow and constrain the size of collectibles. It also grows and shrinks similar to the COST zone.

Similar to the COST zone, a player, can at any point in time, mint a new parcel adjacent to an existing parcel, BUT at a hardcoded price that’s dependent on how the large the current zone is. More parcels in the zone, the higher the price. Fewer parcels, the cheaper it is to mint new parcels. The bonding curve sets the algorithmically hard-coded price at any point in time in the economy. The money that’s paid gets put into the a reserve pool. This reserve pool’s core function is to provide a price floor for all parcels in circulation. At any point in time, a player, can choose to destroy their parcel by selling it back into the bonding curve and receiving some money from the reserve pool. The bigger the economy, the more value you will get for selling your parcel back.

In the same manner to the COST zone, any open space adjacent to an existing parcel can be newly minted. So if a parcel is removed, someone else can step in and mint it again.

The reserve pool could be modified in unique ways to funnel back funds into the community. Upon each buy, some of the funds goes towards revenue for the developers, the zone owners, a DAO, or however you’d want to divvy it up.

The Bonding Curve Zone model has a few advantages to the COST zone, and a few disadvantages. The Bonding Curve Zone still allows for pure private ownership and the exclusion of it from the market. In other words, you don’t always have to set a sale price, or worry that a whale might buy it away from you. You can still trade it with others even though there’s a floor price. You also don’t have to pay tax to keep it. It also sets an automated price and along with it, always providing liquidity for parcel owners if they want to sell.

Unlike the COST Zone, however, the Bonding Curve Zone implicitly caps the amount of land that’s available. Every new parcel will cost more than the previous one. At some point it will be too costly to mint new parcels.

However, the COST Zone, if successful, will likely generate a lot more revenue for the zone.

COST + Bonding Curve Zone?!

Of course, you could combine the two. There’s a floor price always available to sell the parcel into, and you always have to self-assess the parcel. But, the complexity increases dramatically.

My Favourite?

I think the Bonding Curve Zone is my favourite atm, because it doesn’t entirely modify the experience of what people are currently doing in Cryptovoxels. It allows people to buy and own their parcels forever, and create the amazing gallery spaces they currently are doing without requiring additional overhead. Thus, the Bonding Curve Zone, only modulates how parcels comes into and out of existence, not the day to day experience of owning a parcel.

However, the COST Zone likely could result in some interesting outcomes creatively if ownership isn’t perceived to be forever.

Conclusion

Land rights in virtual reality can readily be experimented with, with different economic models existing the same space, competing with one another. Because space is infinite, it allows this new experimentation, whilst still ensuring scarce value that’s derived from proximity to other experiences.

Regardless, experimenting with land rights in virtual reality is going to be very interesting in time. I do also believe that this could help us understand what it might look like if we applied these models in the real time. It might not port over at all to the real world, but it could help us learn in a semi-practical context.

Make it beautiful.