Crypto Gloss

Decentraland: A Blockchain-Based Virtual World

Authors Ordano, Esteban; Meilich, Ariel; Jardi, Yemel; Araoz, Manuel
Year 2017
Project Decentraland
License MIT
Official Source https://decentraland.org/whitepaper.pdf

This page is an educational summary and analysis of an official whitepaper or technical paper, written for reference purposes. It is not a verbatim reproduction. CryptoGloss does not claim authorship of the original work. All intellectual property rights remain with the original author(s). The official document is linked above.

Decentraland is described in a 2017 whitepaper by Esteban Ordano, Ariel Meilich, Yemel Jardi, and Manuel Araoz as the first large-scale blockchain-based virtual world. The core premise: finite, tradeable parcels of virtual land (LAND) whose ownership is recorded on Ethereum as NFTs, enabling a persistent virtual world where property rights are enforced by smart contracts rather than a central game company.

The whitepaper introduces two foundational concepts:

  1. Scarcity of digital space: LAND parcels have fixed coordinates in a finite world (90,601 total parcels in Genesis City); unlike centralized games where the publisher can create arbitrarily more virtual land, Decentraland’s land supply is capped by smart contract
  2. User-owned content: LAND owners control what experience (scene) is deployed on their parcel — no central developer approval required

> Whitepaper (PDF): decentraland.org/whitepaper.pdf

Publication and Context

Decentraland was founded in Buenos Aires by Ordano and Meilich in 2015, originally as a 2D pixel-art grid experiment. The project conducted an ICO in 2017, raising $24M in its token sale (MANA, an ERC-20 token). The 3D virtual world launched publicly in February 2020.

The whitepaper was written during (and influenced by) the CryptoKitties moment (2017) — when digital asset scarcity was proven in practice by a game that brought Ethereum to its knees with NFT cat breeding. Decentraland extended this concept: if digital cats could have verifiable scarcity and ownership, so could virtual real estate.

The Decentraland Foundation was established to manage early development. The project transitioned to DAO governance in 2020, with the Foundation no longer having unilateral control over protocol.

LAND: Finite Virtual Real Estate

LAND is an ERC-721 NFT representing ownership of a 16m × 16m parcel in Decentraland’s genesis city:

  • Finite supply: 90,601 LAND parcels in Genesis City (a fixed grid)
  • Coordinate system: Each parcel has a (X, Y) coordinate; parcels range from (-150, -150) to (150, 150) approximately
  • Adjacency: Adjacent parcels are identifiable on-chain; owners of multiple adjacent parcels can combine them into an Estate (a multi-parcel NFT)
  • Content control: The LAND smart contract records a content hash (IPFS CID) pointing to the scene deployed on the parcel

Estates: For large developments (theme parks, shopping malls, offices), multiple adjacent LAND parcels can be grouped into an Estate NFT, which is managed as a single unit.

MANA Token

MANA is the ERC-20 fungible token powering Decentraland’s economy:

  • Used to purchase LAND in auctions and from other users
  • Used to purchase Wearables (avatar cosmetics) in the marketplace
  • Burned when purchasing LAND directly from the Decentraland DAO’s LAND auction contracts
  • Used in DAO governance: MANA-weighted votes on proposals

MANA’s demand model: growth in Decentraland participation creates demand for MANA to purchase LAND and Wearables. LAND purchases burn MANA, creating deflationary pressure.

Scenes and the SDK

Scenes are the 3D experiences deployed on LAND parcels:

  • Built with the Decentraland SDK (a TypeScript framework)
  • Scenes run client-side in the user’s browser
  • Content is stored off-chain (IPFS) and referenced by the on-chain LAND record’s content hash
  • LAND owners deploy new scenes by updating the content hash (an on-chain transaction)

The scene architecture means server-side computation (NPC AI, multiplayer state, game logic) is not natively provided by the blockchain — scenes can connect to external servers, but the blockchain only provides ownership and content pointer, not execution.

Decentraland DAO

The Decentraland DAO is an Aragon DAO holding:

  • The LAND smart contract ownership
  • The MANA token contract
  • Development grants treasury

Governance: MANA holders and LAND holders can vote on Decentraland Improvement Proposals (DIPs) and governance proposals. Voting weight is based on VP (Voting Power) derived from held MANA, LAND, and Name tokens.

Proposals can change protocol parameters, fund development grants, modify the fee structure, or update official content policies.

Wearables and Avatars

Wearables are ERC-721 NFTs representing avatar clothing, accessories, and emotes:

  • Categorized by rarity (Common, Uncommon, Rare, Epic, Legendary, Mythic, Unique)
  • Purchased with MANA in the Decentraland Marketplace
  • Third-party creators can submit Wearable collections for DAO approval
  • Worn by the user’s customizable avatar (a 3D humanoid representation)

The Wearables market created a significant secondary market; rare items have sold for thousands of dollars.

Reality Check

Decentraland is the longest-running blockchain virtual world with real token value and active governance. Its DAO has made hundreds of governance decisions.

Honest limitations:

  • Low concurrent users: Despite significant media attention (especially during the 2021–2022 “metaverse bubble”), Decentraland’s concurrent active user count has rarely exceeded 1,000–2,000 per day. By comparison, popular centralized games have millions of concurrent players.
  • Performance limitations: Running a 3D world in a browser with content loaded from IPFS results in poor rendering performance relative to native-app games. Graphics quality is far below commercial games.
  • Virtual land bubble and crash: LAND prices peaked in late 2021 (one parcel sold for $2.4M equivalent in MANA) and subsequently crashed 95%+. The “metaverse real estate” thesis was widely criticized as speculative.
  • Content quality: Without professional game development resources, most LAND parcels remain empty or host low-quality experiences.

Legacy

Decentraland pioneered blockchain-secured virtual real estate and demonstrated that virtual world governance could be transitioned to a DAO. The Wearable NFT market and SDK design influenced subsequent metaverse projects (The Sandbox, Somnium Space, etc.). The DAO governance model remains one of the longest-running decentralized protocol governance experiences in crypto.

Related Terms

Research

  • Ordano, E., Meilich, A., Jardi, Y., & Araoz, M. (2017). Decentraland: A Blockchain-Based Virtual World. decentraland.org.

— Primary whitepaper; describes LAND NFT mechanics, MANA tokenomics, Estates, and the scene deployment architecture.

  • Janssen, M., Weerakkody, V., Ismagilova, E., Sivarajah, U., & Irani, Z. (2020). A Framework for Analysing Blockchain Technology Adoption. International Journal of Information Management 50.

— Framework for evaluating enterprise and consumer blockchain adoption; provides context for Decentraland’s attempted transition from speculative asset to lived virtual world.

  • Vasan, K., Janosov, M., & Barabási, A.-L. (2022). Quantifying NFT-driven Networks in Crypto Art. Scientific Reports 12.

— Empirical study of NFT market dynamics; Decentraland’s Wearable and LAND markets exhibit similar speculative dynamics as described in this analysis.