State of The Sandbox Q2 2022

Key Insights

• Secondary LAND sales (USD) continued to slide from the Q4’21 peak, down 80% QoQ in Q2’22, though still representing an impressive ~300% on a YoY basis.
• Q2’22 primary sales ($USD) retraced to the lowest level in 12 months, recording $7.7 million in sales volume on just 372 sales transactions (3554 parcels minted).
• KPIs resulting from the Alpha Season 2 event, which ended in March 2022, were released. Of note, 292,069 players participated in the second alpha test, more than doubling the 128,622 participants in Alpha Season 1 in Q4‘21.
• The LAND and SAND token contracts have been deployed on Polygon, along with a bridge developed by The Sandbox for token holders to transfer their assets.
• The Sandbox announced a multitude of new metaverse partnerships across gaming, music, and entertainment, along with the listing of the SAND token on Coinbase.

A Primer on The Sandbox

The Sandbox is a platform for both creating and hosting entertainment experiences in virtual worlds. In The Sandbox, anyone can create 3D assets like buildings, in-game items, and non-player characters. These assets can then be used to build diverse experiences including games, music and fashion events, social activities, quests, art exhibits, and contests. The Sandbox offers creators a set of intuitive tools that require no background in coding or in designing experiences. These tools include a 3D editor for making and animating items, a game maker for making experiences, and a game client. The Sandbox is actively working on making these tools as user-friendly as possible in order to unleash the creativity of its community. For instance, the 3D editor combines different in-game tokens to create user-generated assets.

These user-generated assets are ERC-721 non-fungible tokens that can be monetized on open markets. The Sandbox ecosystem leverages a series of tokenized gaming features including:

• a digital in-game currency used for purchases, monetization, and asset creation (i.e., SAND);
• ownable digital land within The Sandbox virtual world (LAND);
• a combination of LANDs to create a larger plot (ESTATE);
• a bundle of assets and scripting logic to create interactive experiences (GAMES);
• 3D virtual images created by players (ASSETS); tokens burnt to give attributes to assets (GEMS); and
• tokens burnt to create ASSETS (CATALYSTS).

Thanks to the tradeable nature of these user-generated assets within its virtual world, The Sandbox has robust in-game economics.

Performance Analysis

LAND Parcel Distribution

There is a finite amount of LAND in The Sandbox — 166,464 parcels. New LAND parcels are typically minted (primary sales) through publicly scheduled minting events (fixed price or English Auction), while private sales to partner projects also take place. During these auctions, LAND is usually sold on a first-come-first-serve basis, with prices announced through a blog post ahead of each event. Prices also vary based on rarity (regular vs. premium) and larger ESTATES are often auctioned on Opensea. Not all mints result in immediate sales, however, as The Sandbox will also mint LAND for the purpose of private sales to partners at a later date.

• The proportion of LAND parcels that have been distributed has increased to 67% of the maximum supply in Q2 2022, up 2% QoQ.
• This gradual ~2% pace has remained relatively stable since Q3‘21 and a notable downshift from the >5% quarterly LAND distributions that occurred in 2020 through mid-2021.

The Sandbox team’s management of new land sales likely comes as a welcomed move by current land holders, who may have concerns about oversaturation of LAND supplies on the open market at a time when demand has taken a decisive step back.

LAND Primary Sales

Note: On-chain tracking of Private Sale, ESTATE Sale, and other non-standard sales data is limited without first having details on transaction size, wallet address, or other identifiable characteristics (often not readily available information). The Sandbox Team provided primary sales data to fill gaps in publicly available datasets. The additional data provided by The Sandbox accounts for $5.5 million of Q2'22 primary sales (primarily from private sales) and all non-LAND primary sales.

The Sandbox recorded $7.7 million in primary LAND sales volume on 3,554 parcels minted in Q2‘22 – though not all mints resulted in immediate sales. This took place over two public mints on April 7 (Shibuya) and April 28 (Mega City 2). Q2 2022 marks the lowest volume (in USD) seen in over 12 months and represents a sharp 80% retracement from the $27 million peak in primary sales achieved in the prior quarter.

Using LAND mints as an imperfect proxy for LAND parcels sold, average sales price during the latest quarter fell to ~$2,157 per unit. Although these prices are down from the ~$5,633 average price experienced during the Q4‘21 investor euphoria, they are still well above the $803 average price paid for plots in Q2’21. With that said, primary LAND sales volume ($7.7 million) is notably smaller than the $27.5 million in marketplace secondary sales volume.

Non-LAND Primary Sales

Non-LAND primary sales represent other NFTs sold and used within The Sandbox Ecosystem, primarily Partner IP Avatar Collections, ASSETS, and User-Generated Content (UGC is currently not available for purchase). Due to the collaborative nature of the partner IP collections, these sales tend to be more volatile.

For example, in Q1‘22 The Sandbox recorded $4.7 million in “Special IP Collections” primary sales after reporting no revenue from this category in the previous four quarters. In Q2‘22, Special IP Collections only captured $236,592 in sales, though this remained the vast majority of non-LAND primary sales in the quarter. The Sandbox accrues 100% of these sales as revenue and subsequently pays an undisclosed negotiated share back to the IP owners who’ve partnered with the protocol on partner IP collections.

A 5% transaction fee is generally charged on primary sales transactions (both LAND and non-LAND). The Sandbox Foundation and The Sandbox Company split this fee evenly, accruing it as revenue. Q2‘22 primary sales generated $77,199 in transaction fees, down 86% QoQ and 74% lower on a YoY basis.

Secondary Sales Volume

The vast majority of USD volumes are attributable to secondary sales of LAND parcels. Secondary sales peaked at $283 million in Q4 2021, followed by a 90% retracement over the two consecutive quarters since. With secondary sale volumes standing at just $1.2 million in Q4‘20, the >230x rise in 2021 came amidst investor euphoria across NFT markets. The Sandbox secondary sales volumes reached a fever pitch in November 2021 shortly after Facebook rebranded to Meta — effectively marking the top of the bull cycle in Q4‘21.

Through the first half of 2022, The Sandbox secondary sales experienced a 90% decline from the peak, down to $28 million in Q2’22 (~80% decline QoQ compared to Q1‘22). Despite the significant pullback in volume, the Q2‘22 secondary sales figure still tripled in just a 12 month span (compared to $8 million in Q2‘21).

The Sandbox Foundation and The Sandbox Company each accrue 2.5% of all secondary marketplace sales. In the latest quarter, this fee translated to ~$1.4 million in total revenue accrual for the organization ($688,682 each), down from the $6.9 million from royalties captured in Q1‘22 (mirroring the 80% QoQ decline in secondary sales volumes). As with its secondary sales volume, the platform can still claim to have tripled its royalties YoY, up from the $416,482 total in Q2 ‘21. As with most things in crypto, “zooming out” helps put The Sandbox’s recent struggles in perspective by appreciating the many accomplishments they’ve achieved in such a short amount of time.

Network Activity

The number of distinct wallets purchasing land (“Active LAND Buyers”) has continued to trend lower, reaching 3,379 buyers in Q2‘22. The 57% QoQ decrease from the 7,805 active buyers recorded in Q1‘22 is a 12 month low and well-below the 14,955 distinct wallet addresses recorded during the Q4‘21 peak. Similarly, the number of distinct land parcels changing ownership has also diminished during this period (down 43% QoQ).

Given the lack of publicly available in-game player data, active buyers and land transfers act as a proxy for general network activity. A challenging macro environment has driven a deep decline in investor sentiment across broader crypto and global markets, quelling the rampant speculation seen at the end of 2021. Market participants have generally become more hesitant to take on additional exposure to risk assets, and transaction volumes have slowed, as would be expected.

Participants in Alpha Seasons can also be used as a proxy indicator of network activity. Through this lens the figures show a strong improvement, according to the KPIs resulting from the Alpha Season 2 event, which ended in March 2022 (results reported in April). A total of 292,069 players participated in the second alpha test, more than doubling the 128,622 participants in Alpha Season 1 in Q4‘21. Given that there have only been two iterations of Alpha Seasons thus far, there is not much historical data to analyze. Metrics related to Alpha Season 3 participation will be key indicators to watch in Q3 to better understand the current resiliency of the network.

“Land Flipping” Profitability

Peak profit taking occurred on Nov. 24, 2021 — roughly one month after the Meta rebrand announcement. Since then, traders have seen a rapid decline in aggregate profits. Additionally, between January 2020 through all of 2021, traders only witnessed 19 days where aggregate land sales resulted in a loss (Dec. 31, 2021, having the largest negative balance). In just the first 6 months of 2022, however, traders have experienced 23 days of aggregate losses. In other words, land flipping has become much less of a “sure thing” as markets have soured globally

The case for digital land is still in its early days in terms of the building of experiences. Intuitively, making immersive experiences available in The Sandbox may be a potential catalyst for sustainable value creation and capture.

In this sense, users are eagerly awaiting immersive crypto-consumer gameplay experiences to be launched. Creators are well positioned to build immersive virtual experiences and make them available for users. In terms of capturing that value, owners may acquire specific LAND parcels with the hope that hosting virtual experiences on those parcels may, in turn, drive increased user activity. This could further create a flywheel for immersive experiences to be adopted on a large-scale, which, in turn, would boost the value of LAND parcels over the long-term.

However, it is not presently possible for creators to make experiences available to others using LAND parcels, which may hinder real demand for the time being. While most LAND buyers may be initially inclined to hold, the absence of practical means to monetize in the near-term may ultimately lead to heightened profit taking. To maintain its current trajectory, The Sandbox must continue building the backbone upon which an immersive metaverse experience can grow.

Qualitative Analysis

The Sandbox Ecosystem: Notable Events

Partnerships & Integrations

Note: Some recently announced partnerships plan to unveil their location through a future LAND auction and thus aren’t currently reflected on the game map.

It seems like an endless line of brands has formed at the gates of The Sandbox, and they continue to march one by one into The Sandbox ecosystem, taking their first steps into “the metaverse.” Driven by the vast possibilities of building and monetizing digital experiences, many well-known organizations have announced partnerships with The Sandbox across various industry verticals. In Q2 2022, notable entrants to the ecosystem include:

• Gaming:
  • GamerHash (pooled computing power ecosystem and gaming studio)
  • ICONIX Animation Studio (virtual theme park game based off Pororo show IP)
  • BAYZ (top Brazilian gaming company planning future collabs with The Sandbox)
    
• Music:
  • KNOTVERSE (Slipknot and Knotfest partnership)
  • Elvis Presley (Elvis-On-Chain Metaverse and Avatars)
  • “Rugged Festival” NFT collection (enabling music festival experiences on LAND)
    
• Entertainment:
  • Cheech & Chong (NFT Collection and dedicated Cheech & Chong LAND experience)
  • RLTY (live virtual event architecture platform)
  • LOTTE WORLD (world’s largest indoor amusement park metaverse expansion)
  • Lionsgate (bringing action film IP content to The Sandbox via “Action City” experience)
    
• Diversity and Inclusion:
  • CJ ENM (leading diversity and inclusion content company creating culture and trends)
  • People of Crypto (Pride Month Celebration collaboration with NYX Professional Makeup)
    
• Fashion and Lifestyle:
  • Time Magazine (Times Square “virtual hub” for curated art and commerce)
  • The Council of Fashion Designers of America (CFDA)
  • The Museum of Contemporary Digital Art (MoCDA)
    
• Infrastructure:
  • MTR Corporation (rail transport operator building rail system in The Sandbox)
  • Ledger (hardware wallet promoting crypto security and self-custody education)
  • Dubai’s VARA (first asset regulator to establish official presence in metaverse)

Developing further partnerships will remain a focus area for The Sandbox for the foreseeable future. Additionally, The Sandbox announced integration with the Coinbase Wallet client to interact with its platform (previously, MetaMask was the only wallet client available). The SAND token listing on Coinbase took place at quarter end, as well.

Acquisition of Cualit Gaming Technology Firm

The Sandbox announced the acquisition of the Uruguayan company Cualit, a full-stack development technology firm experienced in gaming, to boost its Web3 and blockchain innovation and development capabilities. Cualit will be rebranded as “The Sandbox Uruguay” and will be considered The Sandbox’s second development office in South America, alongside the existing dev office in Argentina.

LAND and SAND deployment on Polygon / mSAND claim for LAND owners

As of June 29, The Sandbox announced the successful deployment of the LAND and SAND smart contracts on Polygon, achieving another milestone on the gaming platform's path to fully transition to Layer-2. Both LAND and SAND are now fully supported on Polygon’s network and a specialty bridge has been made available, which users are encouraged to use to transfer their assets. Users will receive a 10 mSAND “cashback” bonus sent to their Polygon wallets once they’ve successfully bridged over their first asset from The Sandbox.

Additionally, a snapshot was taken on May 13 that unlocked 5 million mSAND on the Polygon Network, which will be distributed proportionally across LAND owners. LAND owners can claim their mSAND on The Sandbox’s website.

This news comes after The Sandbox introduced gasless mSAND staking in February, which enabled a seamless single-sided staking experience on Polygon.

Roadmap

Full Transition to Layer 2

In an effort to promote sustainable, more affordable participation in the ecosystem, the following features are expected to transition to Polygon over the coming year:

• LAND sales on Polygon (the next public minting event will be held on Polygon)
• LAND staking features
• ASSET smart contract to be deployed/bridged
  open ASSET minting contract to be deployed
• ESTATE creation and modification
• Experience publishing on LAND through Polygon

Looking ahead, The Sandbox has a few notable developments in the pipeline.

Progressive Decentralization
Through progressive decentralization paired with digital asset ownership, The Sandbox aims to incentivize its community to build their own experiences and, ultimately, foster the next generation of massive video game franchises. While not yet deployed, The Sandbox DAO will be able to vote on Foundation grants as well as make decisions on game developments. The Sandbox DAO will be governed by both SAND tokenholders and LAND owners.

The Sandbox Alpha Season 3

Source: The Sandbox

On April 30, The Sandbox announced preparations have commenced for the third installment of its Alpha test. After a successful Season 2, which welcomed 290,000+ alpha participants (>125% increase vs. Alpha Season 1) and reached 700,000 players through the social contests, The Sandbox Team is laying the groundwork for an even more immersive experience in Season 3.

From the limited details released thus far, Alpha Season 3 will run for 10 weeks with over 90 immersive experiences developed by brands, studios, and users — a notable step forward in variety compared to the more controlled selection of experiences that were closely curated by The Sandbox in previous Alpha Seasons. Additionally, the announcement highlights the fact that guaranteed rewards will be made available for those who’ve invested directly into The Sandbox Ecosystem (LAND owners, Avatar Holders, or associated NFT collectors).

After adding a whopping ~683,000 unique wallets in Q2 to reach 3.45 million wallets total since launch, it’s fair to assume expectations for the next iteration have been set high despite the troubling market environment at large. I think The Sandbox Community can feel confident that The Sandbox Team will do their part to deliver the best Alpha Season experience yet!

Enhanced Land Functionality

Historically, in-game experiences on land parcels have been limited in scope and availability, but there are plans to gradually roll out greater functionality as development of The Sandbox continues. In fact, at the core of the investment thesis behind LAND speculation sits the expectation that one day landowners will be able to monetize their parcels via in-game experiences. This aligns with The Sandbox’s stated long-term goal of enabling creators to build immersive environments for metaverse guests to enjoy.

Shortly after the close of Q2, The Sandbox Blog announced features such as asset creation, testing through Game Maker, and sharing via the gallery will now be made available to all users. This is one large step closer to the full functionality LAND owners have been waiting for: hosting immersive experiences on LAND for the public to view and interact with in real-time.

The top owners of LAND include large investors in The Sandbox, such as Binance, Everyrealm, and Galaxy Interactive, prominent NFT collectors such as WhaleShark and MetaKovan, along with well-known NFT communities like Cyber Kongz. These investors and other LAND owners will likely be the greatest beneficiaries of a successful rollout of full LAND functionality, which is slated to release by late-2022.

Closing Summary

Despite far from ideal market conditions, The Sandbox continued to deliver on its promise to build a robust metaverse for its increasingly diverse community. It only takes a bit of “zooming out” to see the clear positives to The Sandbox’s financial picture. Few platforms can survive secondary sales volume declining >90% and still tout 300% YoY growth on that very same metric. And, as is often the case, the mass exodus of speculators may ultimately be the healthiest thing for the platform. Bear markets are for building the next bull market, after all.

With that said, The Sandbox’s revenue model should continue to incentivize the community to build a robust ecosystem powered by network effects. Because revenues are effectively a function of the economic activity spurred within the borders of its network — the 5% cumulative fee on secondary sales act as a sales tax — a path to sustainable growth is in every stakeholder’s best interest. It’s still early days for the platform; The Sandbox is likely to see continued growth in its community and, subsequently, its revenues over the long term.

With its status as a market leader in the space and backing from some of the most prominent funds active in crypto, The Sandbox’s ecosystem is on a clear path to success, irrespective of the short-term market volatility.

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This report was commissioned by The Sandbox. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

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