When most investors think about earning passive income with crypto, they immediately think of staking. But there are a variety of other ways to generate passive income, especially if you are active in virtual metaverse worlds such as Decentraland (MANA 1.38%). In early December, Decentraland formally introduced a new passive-income option that might appeal to metaverse users: virtual-property renting for owners of digital land.
In other words, if you already own digital land in the virtual world of Decentraland, you can now rent it to others who might want to set up a short-term presence in the metaverse, perhaps for festivals, product launches, or community events. It’s an interesting concept because it works similarly to real-world property renting, which has always been a popular source of passive income. So is this metaverse-inspired passive income opportunity right for you?
While buying virtual land in the metaverse sounds interesting, it also comes with a high bar to entry. If you’ve never explored a metaverse world like Decentraland before, you’ll need to get up to speed on how these worlds work and how they differ from traditional role-playing video games. You’ll also need to familiarize yourself with metaverse land prices, which can range from a few thousand dollars to over $1 million, and then become acquainted with a map of Decentraland, which has over 90,000 parcels of land.
Since all transactions in Decentraland take place using MANA, the in-game governance token, your rental income will be in the form of Decentraland tokens. This comes with some risk and volatility, given the price swings possible in metaverse cryptos. Thus, you will have two things to worry about: falling land prices and potential currency devaluation.
In late 2021, the metaverse was all the rage, and Facebook even rebranded itself as Meta Platforms (META 0.49%). Celebrities and major brands were announcing their involvement in the metaverse, and the future looked limitless. Paris Hilton headlined the first-ever Metaverse Festival, which featured over 80 artists within Decentraland. But then came 2022, and things are looking a lot more dicey for the Decentraland token, which has fallen in price by 88% this year.
However, this high risk does come with potentially high reward. For example, experts such as consulting giant McKinsey continue to predict that the metaverse will be a nearly $1 trillion market opportunity within a few years. And there is certainly a lot of interest about what the metaverse is, and how to get involved in it. According to the latest study from Capgemini, a multinational information-technology services and consulting company headquartered in Paris, more than 90% of consumers are curious about the metaverse.
As I see it, the Decentraland passive-income opportunity comes down to this: Get in early while people are still figuring out the metaverse, buy land while it’s relatively cheap, and then transform your parcel of land into something that brands and creative influencers will want to use for one-time events. If you are lucky enough, you might find some brands, artists, musicians, or small businesses eager to rent Decentraland land parcels from you for brand launches, festivals, or conferences.
Is virtual-property renting worth it?
For now, this new “passive” income opportunity sounds way too “active” to attract the attention of casual investors. And it certainly requires too much of an up-front investment to be viable for most people just getting involved in crypto for the first time. The average cost of a parcel of land in Decentraland today is $2,380.
Unless you’re already an active user within Decentraland and have a social network in place, I don’t see how this can be a recurring source of passive income. Virtual-property rentals are not like real-world rentals, where you can lock in rent for 12 months at a time. Even if DJs, fashion designers, and streetwear brands are knocking down the digital door to rent from you in Decentraland, it seems like you’re going to have to hustle quite a bit to make recurring rental income a reality.
Why not just stake MANA?
It might be easier instead to just stake your Decentraland tokens in order to earn passive income. For example, right now you can earn staking rewards of 3% on your Decentraland tokens via some popular cryptocurrency platforms. This might not sound like a lot, but it’s easy and it’s passive.
Thus, as of now, I’m out on virtual-property rentals as a source of passive income. While Decentraland is certainly an interesting crypto to consider as a possible rebound candidate in 2023, I need to see more activity within the metaverse before I can recommend the Decentraland token as a buy, or to consider virtual-property renting as a viable source of passive income.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Dominic Basulto has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.