MetaPortal Research - Inside The Sandbox
Thanks to Sebastien Borget for feedback and comments.
In this edition of the MetaPortal newsletter, we wanted to dive a little deeper into the $SAND token. $SAND is the native token for The Sandbox game (TSB) and is one of the largest positions in the Metaverse Index (MVI).
The Sandbox game is not new. The original, non-blockchain version was developed and released in 2012 by game studio Pixowl. It wasn’t as popular as rivals such as Minecraft or Roblox. Still, it did generate 40 million downloads and consistently had over a million monthly active users (MAUs). The latest iteration, The Sandbox Evolution, hit 2.6 million MAUs at its peak. For some context, Alien Worlds on WAX blockchain currently has the highest MAUs in the NFT gaming space, at 1.3 million, according to DappRadar and Axie Infinity is sitting at close to 700k.
In 2018, Animoca Brands acquired Pixowl for $4.875 million in cash and stock, intending to build a blockchain version of the game. Animoca Brands is one of the pioneers in the NFT gaming space and has recently raised $88 million at a $1 billion valuation. They are behind both $REVV and $SAND tokens and games like The Sandbox, F1® Delta Time, MotoGP™ Ignition, and Crazy Defense Heroes, among others.
So what is The Sandbox exactly? In terms of the game itself, perhaps Roblox is the most straightforward comparison. Like Roblox, The Sandbox is a pixelated-art game with its unique virtual world, where user-generated content (UGC) is king. Developers can use the tools provided by the Sandbox team to build and publish experiences. Players and users can then interact with these experiences by playing the game.
The Sandbox gaming toolkit is also very similar to what’s offered by Roblox. For example, the Roblox platform consists of the Roblox Client used to experience the virtual world, the Roblox Studio used to create UGC and the Roblox Cloud for infrastructure.
The Sandbox has its Voxel Editor and Game Maker, which combined are comparable to the Roblox Studio. Voxel Editor allows developers to build 3D voxel models and upload them to the marketplace, while Game Maker allows anyone to use one of the assets from the marketplace on their land, either for decorative purposes or to implement elaborate gameplay mechanics.
Now, The Sandbox doesn’t have the infrastructure component. Instead, it has its marketplace. The marketplace is essential because:
It’s the primary monetisation avenue for players and developers; and
It’s what differentiates the traditional gaming business model and that of an NFT game.
One of the differentiating features of The Sandbox metaverse is the partnerships around intellectual property. The team has secured more than 50 partnerships to develop content on the platform with brands like Shaun the Sheep, Dapper Labs, Square Enix and Atari.
In our view, The Sandbox’s team is building a virtual world that comes pretty close to our definition of the metaverse, using blockchain technology, NFTs, and token economics as the building blocks. In one of their early posts, The Sandbox’s team stated that their goal is to “disrupt existing game makers like Minecraft and Roblox by providing creators with true ownership of their creations as non-fungible tokens (NFTs) and reward them for their participation in the ecosystem.” We believe that play-to-earn will also be part of the game design, although to what extent remains to be seen.
The $SAND token
Alright, let's talk about the $SAND token. $SAND was designed as a utility token and sits in the centre of the Sandbox ecosystem. It is the basis for all transactions and interactions. For example, buying items in the marketplace is only possible with $SAND.
The Sandbox ecosystem has three primary actors: players, creators, and landowners. Players will need $SAND to buy items from the marketplace, customise their avatars, etc. There are two types of creators: artists that design in-game items, like swords and statues, and those who create comprehensive experiences within the Sandbox virtual world, for example, games. For in-game assets, artists need $SAND to upload them onto the marketplace and buy gems that define the rarity and scarcity of an item. For those designing experiences, first, they need the land. Land can only be acquired with $SAND. Creators also need to purchase in-game items, whether decorative or functional, which can only be bought with $SAND.
Then there are landowners. The Sandbox virtual world has a total of 166,464 (408*408) land parcels. Owners can do what they please with their land, including publishing games and other entertainment experiences on their property. They can also choose to rent their plots out to creators. Lands have a lot of exciting monetisation opportunities. We covered the evolution of monetisation strategies in traditional video games here, and it's pretty clear to us that lands will incorporate most of them. We are talking about things like microtransactions, season or pay passes, loot boxes, etc.
Overall, it's rather apparent that the token itself will have meaningful utility in the Sandbox metaverse. But is it designed to capture value for token holders?
Value accrual & tokenomics
Okay, so the value accrual mechanism for $SAND is simple and transparent. All transactions within The Sandbox metaverse are subject to a 5% fee. This is important. The fee doesn't just apply to transactions in the marketplace but all transactions, including payments between players for real estate rentals and any microtransactions and entrance fees related to in-game experiences. The fee is charged in $SAND. The proceeds will be split equally between the Sandbox company and the "Foundation," essentially meaning the DAO. The DAO should then be able to decide how the funds are split between the 3 community pools: Staking Rewards, Creators Funds, and Play-to-Earn. This allocation of resources is currently decided by the core team with the DAO likely to assume the responsibility sometime next year.
In a relatively recent change to the revenue distribution, 50% of the land and premium NFT sales are now going to the DAO as well. About 50% of the land has been sold to date and the land supply should continue well into 2022. We cover recent land sales below but this should provide a reliable revenue stream for the DAO.
It’s also worth highlighting that staking for $SAND will be enabled later this year. Details are scarce but we believe that all token holders will have the ability to stake $SAND in what could be a staking module. Furthermore, there might also be functionality to stake $SAND in a particular plot of land and earn passive income from that land as well as gems and catalysts. Per the whitepaper, this would be “the only way to get valuable Gems and Catalysts, needed for asset creation.”
Overall, we see the business model here is similar to Roblox and other traditional games in the same genre. The Sandbox flywheel centres around UGC combined with the alignment of interest and incentives through the $SAND token. Artists and creators are rewarded with $SAND to create high-quality content and experiences. Players are then incentivised to play the game through play-to-earn mechanics and rewards. This flywheel results in more players and creators, generating higher and higher transaction volumes that accrue value to the $SAND token.
It's worth pointing out that everyone in the ecosystem owns $SAND. Once Sandbox transitions to decentralised governance, token holders will have a greater say in the development of the Sandbox metaverse, including the allocation of the Treasury resources. This further aligns the interests of all stakeholders.
The Sandbox – current status & roadmap
As of today, the Sandbox metaverse is not live. The roadmap suggests that the Official Release 1.0 should happen this year with multiplayer and multiplatform functionality. Some teasers from the team indicate that the alpha launch is close and will feature some play-to-earn mechanics. While the main hub will be available to all, players will need a ticket in the form of an NFT to participate in the pre-season 0 event of the game. From there, players will be able to claim rewards in the form of NFTs and $SAND for completing different quests and challenges.
The staking mechanism is also expected to go live this year, giving us a better idea around tokenomics and value accrual.
The marketplace, however, is live and has been in beta since the end of March. During the first phase of the beta, 46 artists were able to upload just over 100 NFTs onto the marketplace. Any data or analytics are hard to come by, unfortunately. For the marketplace, DappRadar shows 370 unique users and 845 transactions over the last 30 days. For The Sandbox as a whole, there are 669 unique users and just over 1,000 transactions. We don't have much confidence in this data, however. NonFungible.com, for example, reports 1,303 active wallets and 2,768 sales totaling over $2.7 million over the last 30 days.
Another thing we can look at to judge demand and interest in the Sandbox is the recent land sales. The most recent land sale, Euphoria, was on May 27th, with 1,400 virtual lands sold in 15 seconds and 675 new landowners picking up real estate in the Sandbox virtual world. The sale generated 2.7m $SAND or roughly $1 million, with a further $600k from the auction of 11 estates. In $SAND terms, a total of 4.5 million was raised.
Before Euphoria, The Sandbox held a land sale in April, selling off 1,874 premium lands and 32 estates (13 directly and 19 via an OpenSea auction). This sale was record-breaking for Sandbox, raising 8.9 million $SAND or ~$5.9 million at the time.
According to the COO of The Sandbox, Sebastien Borget, The Sandbox community had 6,124 unique landowners at the time. At the time of writing though, the Sandbox land owner club is 7,164 strong.
Lastly, we would like to highlight the growth in the Sandbox ecosystem. Game Maker, for example, has been in the hands of 1000s of creators around the world who have come up with novel ways to build cool things. The team runs a game maker academy as well with more than 100 streams per month, with 20 different creators in many languages. All that on top of the Game Maker Fund and the Creator Fund.
In our research, we came across some questions that we weren't able to comprehensively answer.
The Sandbox has raised several rounds of capital by selling both equity in the company and the $SAND token. For example, the most recent raise in March 2020 was 83% cash and 17% digital assets. The earlier funding round in 2019 was 40% in cash. According to the ASX filing by Animoca Brands (which used to be a publicly traded company on the ASX), "the majority of Investors allocated their investment to the purchase of both SAND and future equity via the SAFE notes (in the amount of US$2 million)." At this point, the relationship between the $SAND token and equity in TSB is unclear to us. We are cognisant of potential conflicts between the interests of equity investors and token holders.
Another open question is around the timing of the execution of the roadmap. This article from 2019 mentions marketplace launch being slated for Q3 2019, with the game launch expected in the fourth quarter of 2019. We don't have much colour around those timelines, and if they were in any way official targets for The Sandbox team. However, the marketplace beta launched on March 30, 2021, and the game's initial release is also expected in 2021. We appreciate the amount of time and effort that has gone into building the blockchain version of The Sandbox game, but these are significant delays. The team released their first Dev Diary post a few days ago, sticking to the 2021 timeline for the alpha version. According to the team, they "had to delay it (alpha version) from our initial release date earlier this year as we weren't fully satisfied with the level of quality of the client."
Based on the current roadmap, The Sandbox DAO will not be able to participate in significant decisions on the Game Platform until 2023. Decentralisation of certain functions will begin this year though and the team plans to progressively distribute governance and $SAND ownership to the community over the next several years. That said, delays in the decentralisation of the platform would be quite unfortunate.
Overall, we see many reasons to be excited about The Sandbox. The team's vision for an authentic metaverse that empowers players and creatives is well-aligned with the evolution of social and economic structures. We also have high confidence in the 100+ strong team with decades of experience in building successful games. The token design is well thought out, and we look forward to the release of the game to assess the quantum of activity and, therefore, value capture. While some open questions remain, we expect the team to address them in time.