State of The Sandbox Q2 2023

Key Insights

• The Sandbox experienced QoQ increases in nominal activity around total NFT mints (+59%), total primary sales (+52%), and total active buyers (+22%).
• The 30% increase in non-LAND primary sale volume and 18% rise in ESTATE volume anchored total revenue into only a 15% QoQ fall while five other revenue metrics fell by over 25%.
• The SEC filed lawsuits against Coinbase and Binance in which they took the position that a number of cryptocurrencies and tokens, including SAND, were securities. In addition, the outcome of SEC v. Ripple Labs will likely impact ongoing and future crypto regulation in the U.S.
• The Sandbox partnered with brands like Paris Hilton, Cipriani, Warner Music, Marathon City, Metafight, and Playground. Several other brands and companies also focused on building virtual experiences in the Web3 industry.
• According to The Sandbox roadmap, it plans to release new features such as the ability to self-publish experiences on the map by the end of Q3. It will also enable users to create ESTATEs and rent/lease LANDs and ESTATEs in Q4 2023.

Primer on The Sandbox

The Sandbox is a gaming metaverse where players and creators can make 3D assets and experiences (e.g. games) that can be monetized via NFTs. The tokenized and gaming features leveraged by The Sandbox are listed below.

• SAND — an ERC-20 token and digital in-game currency used for purchases, monetization, and asset creation
• LAND — digital ownable land within The Sandbox virtual world
• ESTATE — a combination of LANDs to create a larger plot
• ASSET — assets created using the VoxEdit application that are converted to ERC-1155 tokens when uploaded to The Sandbox marketplace
• GEM — tokens burnt to give attributes to ASSETs
• CATALYST — tokens burnt to define an ASSETs tier/scarcity
• Game Maker — a toolbox that enables users to create 3D games and experiences in The Sandbox virtual world

The Sandbox provides Mindcraft-esque gameplay with digital ownership and more robust in-game economics due to the tradeable nature of the SAND token and the other assets within the Sandbox virtual world.

Sandbox offers a variety of in-game NFTs as well as user-generated NFTs. The VoxEdit NFT builder is used for creating 3D objects (ASSETs) such as characters, equipment, wearables, and art.

The Sandbox was initially launched as a 2D mobile game in 2012 by the software development company Pixowl. Pixowl was founded in 2011 by Arthur Madrid and Sebastien Borget. The mobile game iteration of Sandbox accumulated more than 40 million downloads by April 2018. In May 2018, The Sandbox rebranded as a 3D metaverse game and blockchain-focused development began. In August 2018, Pixowl and The Sandbox were acquired by Animoca Brands, a gaming-focused software development company and VC Fund.

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Key Metrics

Q2 2023 saw the recovery of active non-LAND buyers, non-LAND minted, and LAND minted after a universal fall in The Sandbox’s key network metrics (except for SAND staked) in the previous quarter. While the daily average SAND staked continued to increase QoQ, it dropped as a percentage of the SAND supply due to more SAND unlocking and entering the circulating supply.

Regarding financials, the 30% increase in non-LAND primary sale volume and 18% increase in ESTATE volume anchored revenue — thus, total revenue only fell 15% QoQ while the five other revenue metrics fell by over 25%. As non-LAND primary sale volume increased, it surpassed private LAND sales in dominance and accounted for 37% of total revenue (up from 24% the previous quarter).

Performance Analysis

Unique Active Buyers

Unique active buyers measures the number of distinct wallets purchasing LAND and non-LAND assets.

Activity on The Sandbox is conducted through digital real estate called LAND NFTs. As such, LAND is valued for its fundamental role. Non-LAND NFTs are valued lower, though they are still necessary in The Sandbox metaverse for various types of activities (e.g., CATALYSTS to create ASSETS and GEMS to give attributes to ASSETS).

With a difference in general monetary value, LAND is harder to acquire (at a 0.28 ETH floor on OpenSea as of writing), lowering the buyer pool. Non-LAND assets are priced lower (at a 0.0001 ETH floor on OpenSea as of writing), enabling a larger pool of buyers. These differences are accentuated by poor market conditions, which may contribute to the number of active LAND buyers continuing to fall (–10% QoQ) and to active non-LAND buyers increasing (+30% QoQ).

Total Primary Sale Volume

The total primary sale volume measures the USD amounts for which assets from The Sandbox were sold. The Sandbox company retains the earnings from primary sales.

Though total LAND sale volume eclipsed non-LAND primary sales, non-LAND primary sale volume grew by 30% and was greater than any individual LAND sale type. Throughout Q2’23, users could mint different non-LAND assets from various notable collections like Hell’s Kitchen and Paris Hilton, which also held events throughout the quarter.

Secondary Sale Volume & Royalty Revenue

The secondary sale volume measures the USD amounts for which assets from The Sandbox were sold on secondary exchanges like OpenSea and LooksRare. The Sandbox company retains a 5% royalty on the secondary sale volume.

LAND continued to dominate secondary sale volume even as the LAND floor price dropped, going from above 0.5 ETH at the start of April to under 0.4 ETH by the end of June. Regardless, both LAND and non-LAND assets have suffered secondary trading declines throughout each quarter over the past year. While the drop in floor price can contribute to lower volume, the ongoing poor market conditions may have also suppressed secondary activity.

Total Revenue

Total revenue is the sum of the total primary sale volume and total royalty revenue. Royalty revenue is 5% of the total secondary sale volume.

Historically, revenue accruing to The Sandbox largely came from LAND sales (with a couple exceptions). This quarter added another exception as non-LAND primary sales accounted for 37% of the total revenue accrued to The Sandbox. The rise in non-LAND primary sale dominance came amidst QoQ declines in non-LAND royalty (–28%) and LAND royalty (–42%), private (–40%), auction (–50%), and primary sales (–29%). The increases in non-LAND primary sale volume (30%+) and ESTATE volume (+18%) led the total revenue to only decline by 15% QoQ.

Daily Average SAND Staked

SAND staked as a percentage of the circulating supply is included to observe what percentage of SAND staking makes SAND illiquid and temporarily impervious to sell pressure.

Daily SAND staked continues to grow with a 5% increase QoQ. Though the amount of SAND staked has increased, SAND staked as a percentage of the circulating supply fell by 2% QoQ due to the 3% QoQ of the circulating supply. Although more SAND has been staked nominally throughout each quarter over the past year, the amount of newly unlocked SAND has released more liquid SAND into the economy. The added liquid SAND could be placing more sell pressure on the SAND token.

SAND Staking Rewards

SAND staking is conducted on the Polygon network and involves two staking pools: one for LAND owners and one for everyone else. LAND owners can stake up to 2,000 SAND per LAND asset in this pool. In the other pool, any SAND holder can stake their SAND, though LAND owners receive a multiplier based on the number of LANDs they own. In total, both pools distribute 150,000 SAND per week.

SAND staking rewards show the aggregate amount in USD that users staking the SAND token earned. It is contrasted with price to show the often-weighted relationship. SAND staking rewards in USD terms are also affected by the amount of SAND rewards in SAND.

In Q2’23, staking rewards fell by 48% in SAND and 57% in USD terms. While rewards have been declining in USD terms throughout the past year, Q3’22 and Q4’22 saw roughly 30% QoQ increases in SAND rewards. Users seeking rewards by staking SAND appear to be more affected by the USD price of SAND than the nominal SAND rewarded. The distribution of SAND from staking only accounts for less than 0.2% of new SAND entering the market, making the sell pressure from SAND staking rewards negligible. Price appears to be largely a consequence of market trends in the gaming sector.

SAND FDV

Changes in fully diluted valuation (FDV) reflect an asset’s price. Moreover, tracking FDV complements price volatility with a sense of scale for the asset’s significance.

SAND’s fully diluted valuation has yet to drop below $1.1 billion. In Q2’23, it hovered between $2.1 billion and $1.1 billion. Regardless, SAND’s FDV ended at $1.22 billion, only 1% higher than at the start of 2023. From the start to the end of Q2’23, SAND’s price dropped by 35%. This drop in the price of SAND follows the general trend of the gaming market in crypto. The three next largest gaming tokens also experienced similar falls in price, with MANA declining by 36%, AXS by 30%, and GALA by 41% throughout the quarter.

Qualitative Analysis

Throughout Q2’23, The Sandbox held events, announced new partnerships and integrations, and updated its future roadmap. Despite mixed signals on the regulatory front, The Sandbox remains focused on building out and improving its gaming ecosystem.

Notable Events, Partnerships, and Integrations

The Sandbox ecosystem continues to grow with new partnerships and integrations being announced in Q2 2023. Many projects have partnered with The Sandbox to offer customized metaverse experiences to its users, and several notable ones are listed below.

• Fitness Brands — Gym Aesthetics, Salsation, Go24, Cycliq, Stages, Playinnovation, Trib3, and Myzone.
• DanceFight — A renowned dance battle app, released an exclusive avatar collection on The Sandbox based on 10 of the world’s top street dancers.
• Marathon City — Launching a metaverse experience-themed “Nipsey Hussle’s Universe” to honor the Late rapper’s legacy.
• Cipriani — Announcing a partnership with Cipriani with a plan for experiences featuring iconic venues such as Harry’s bar.
• Playground — Launching a unique digital environment on The Sandbox for fans of NBA Star LaMelo Ball.
• Paris Hilton — Launched Paris Hilton’s first avatar collection (5,555 unique units sold).
• Open Campus — Acquired LAND in The Sandbox to offer a Web3 education-themed metaverse experience.
• SBS Content Hub — A subsidiary of South Korean Broadcasting Station, SBS Content Hub partnered with The Sandbox to bring popular media content to its metaverse
• Nuclear Blast — An independent record label, partnered with The Sandbox to create “Blast Valley” a heavy metal-themed metaverse experience
• Gamer Arena — Turkey’s leading gaming platform is launching an interactive gaming experience in Sandbox for its users.
• Affyn — Singapore-based Web3 company, Affyn, is partnering with Sandbox to launch interoperable metaverse experiences focused on a  global community of creators and collaborators.
• MMA management game — MetaFight is launching an exclusive, time-limited MMA-themed experience, separate and complementary to the MetaFight game, with unique gameplay activity and rewards.
• Infinite Pulse — A music-themed neighborhood featuring major artists and labels such as Warner Music Group, Jamiroquai, Elvis, and more, kicked off with the initial sale of its 1,015 LAND.

Roadmap and Updates

Future upgrades planned for LAND owners are as follows:

• Ability to self-publish experiences on the map planned for release by the end of Q3 2023. The feature will be rolled out first to creators.
• Enabled the minting and selling of in-game assets with features as NFTs on the blockchain by the end of Q4 2023.
• SAND staking program with 100,000 SAND in weekly rewards for both SAND only and SAND for the LAND owners pool. The program ended on July 4, 2023.
• Starting in April 2023, LAND owners who have held LAND for over three months are eligible to claim one exclusive NFT.
• Upcoming LAND sales for Movie Verse, Sports LAND, and more local community LAND sales with brands like Warner Music Group, Adidas, Lionsgate, and more scheduled for Q3/Q4 2023.
• Ability to create ESTATEs and rent LANDs and ESTATEs planned for release in Q4 2023.
• Experience hosted on Premium LANDs will get extra visibility on the map in Q4 2023.

Mega City Land Sale

Sandbox launched a LAND raffle for Mega City 3, a virtual city incorporating aspects of Greater China. Seventeen brands and IPs were welcomed to the virtual city, and the raffle offered 222 regular LANDs and 12 premium LANDs with a bundle of exclusive NFTs. Additionally, 6 estates and 12 1x1 LANDs were auctioned on OpenSea.

Coinbase and Binance Actions

The SEC filed lawsuits against Coinbase and Binance, accusing them of operating unregistered securities exchanges in violation of U.S. law. The suits took the position that a number of cryptocurrencies and tokens were securities, including SAND.

Shortly after the suits were filed, the district court overseeing the SEC’s separate action against Ripple ruled that XRP is not inherently a security. That said, it also ruled that certain transactions involving the initial sales of XRP were “investment contracts” and securities under U.S. law. This ruling may impact ongoing and future enforcement actions and regulations relating to crypto in the U.S., including the suits against Coinbase and Binance.

Closing Summary

Despite facing a tough quarter with a fall in revenue (–15%), staking rewards (–48% in SAND terms), and SAND price (–19%), The Sandbox stayed its course by facilitating new partnerships, launching new ASSET collections (Paris Hilton, The Wild Ones, etc.), and adding experiences for current users. With the regulatory uncertainty of the mixed signals regarding the SEC classifications and court rulings, The Sandbox ecosystem will continue to face an uphill battle. However, with the new partnerships and QoQ increases in total NFT mints (+72%), total primary sales (+52%), and total active buyers (+22%), The Sandbox is in a position to grow its network at the next turn of the market.

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