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Blockchain-based metaverses typically operate a multi-token system where different tokens represent real estate, assets, and in-universe money.
How does the metaverse work?

The metaverse” is a loose term used to describe many connected technologies, including blockchain, virtual and augmented reality, and AI, that can be used in parallel. Projects and companies are developing separate metaverses based on different use cases, design principles, technologies, and platforms.

Tokens in the metaverse

Decentralized metaverses incorporate the use of blockchain-based tokens with different types of utility to enable ownership of various assets. Non-fungible tokens (NFTs) are used to represent land – parcels of real estate that are priced according to supply and demand on the open market. Owners of real estate can use it in various ways – rent it out for a fee, develop it into a commercial interest within the metaverse, such as an e-commerce storefront, or simply speculate on its value by trading.  

NFTs are also used to represent other unique or scarce in-metaverse assets, such as wearables, weaponry and armor, vehicles, and more.

Decentralized metaverses also use fungible tokens as the currency of the metaverse, which acts as the medium of exchange for trading land and assets. Fungible tokens also often play a role in the game mechanics underlying the metaverse by acting as a reward for participatory activities that strengthen the metaverse.

Although the term “decentralized” is often used, some blockchain-based metaverses may be under the control of centralized projects or entities. However, others, such as Decentraland, also use tokens to underpin a decentralized autonomous organization (DAO) that plays a role in governing the development and rules of the metaverse.

Land and asset NFTs for major metaverses such as The Sandbox and Decentraland are available to trade on NFT marketplaces such as OpenSea. Fungible metaverse currency tokens like SAND and MANA are listed on exchanges. Metaverses also operate their own in-app marketplace for trading their native tokens.

No matter how assets are acquired, users will need a compatible cryptocurrency wallet such as MetaMask to be able to interact with decentralized metaverses.

Types of metaverses

The purpose of metaverses currently falls into two broad categories: gaming metaverses and exploratory metaverses.

Gaming metaverses

Gaming metaverses serve a particular game or gaming ecosystem, where players typically compete to win either currency tokens or assets. The Sandbox is a decentralized gaming metaverse that started out as a centralized game builder for mobile game developers and evolved into a blockchain project following an acquisition by Animoca Brands in 2018. It made its initial blockchain debut on Ethereum, and later expanded to Polygon.

In the Sandbox metaverse, users can purchase parcels of LAND and use them to build games or gaming-related spaces such as meeting spaces or tournament areas. It offers developers access to a suite of tools enabling them to create design elements and build games using the token-based assets they’ve created or purchased.  

The Sandbox has attracted significant adoption from household name brands, celebrities, and franchises, including Warner Music Group, Time magazine, Snoop Dogg, and The Walking Dead.  

Other examples of decentralized gaming metaverses include Axie Infinity, Chain of Alliance, and Alien Worlds.

Exploratory metaverses

Exploratory metaverses are more agnostic regarding their use case than gaming metaverses, opening them up to a broader range of utilities for developers and brands. The most well-established example is Decentraland, a VR metaverse based on Ethereum, which began as a project in 2015 and launched in 2020.  

Decentraland operates using the standard multi-token methodology where real estate is represented by LAND tokens, and MANA is the native currency of the Decentraland universe.  

Due to the open nature of Decentraland, there are a broad array of different commercial enterprises exploring new ways to connect with users via the metaverse. Metaverse Fashion Week is one of Decentraland’s flagship events, featuring a virtual runway with digital designs from traditional brands such as Dolce & Gabbana and Tommy Hilfiger, as well as samples from a new generation of digital-native fashion designers.  

Other familiar names in Decentraland include Sotheby’s auction house, which trades art NFTs, and the Atari casino for gamers.

Some other examples of decentralized exploratory metaverses include Somnium Space and Upland.

Centralized metaverses vs. Decentralized metaverses

Centralized metaverses share some of the features of decentralized metaverses in that they are virtual universes where individuals can interact via avatars using VR or AR technologies. They can also be focused on gaming, such as Roblox or Fortnite, or exploratory, such as Meta’s Horizons platform.  

Centralized metaverses may also feature in-universe credits that can be spent in virtual stores on wearables or other assets.

However, centralized metaverses don’t use blockchain technology. All currencies and assets are issued by the centralized entity that operates the metaverse. Assets in centralized metaverses only exist within the metaverse itself – they cannot be transferred or traded off the platform, so their value is limited.

Similarly, the operating entity can also change any rules of the metaverse at their discretion, at any time, including revoking users' accounts and assets.

On the other hand, centralized metaverses have some competitive advantages over decentralized ones. They are operated by well-funded, often publicly owned companies and employ large teams of developers, so they can offer a superior user experience compared to decentralized metaverses. The fact that users don’t take custody of assets is considered an advantage from some perspectives, as it lowers the risks involved and removes the need to securely store private keys.

How the metaverse works essentials

  • Decentralized metaverses operate multi-token systems to issue assets such as real estate and wearables as NFTs, and in-universe currencies as tokens
  • Metaverses can be focused on gaming or be more exploratory, allowing developers and brands creative freedom
  • The Sandbox (gaming) and Decentraland (exploratory) are two of the best-known decentralized metaverses, whereas Roblox and Meta Horizons are two well-known centralized equivalents.

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