What is Decentraland?
The first fully decentralized virtual world, Decentraland allows users to create avatars, buy land, goods, and services, create events and experiences, and interact with other users—all through a blockchain-powered world. The virtual space itself is called LAND, and the space is further subdivided into unique non-fungible tokens (NFTs) called parcels that users can buy and sell. LAND parcels aren’t the only aspect of Decentraland that can be monetized — almost any good or service, e.g. a specific name for your avatar or virtual art, can be exchanged, bought, and sold on the Decentraland marketplace.
This virtual community was created in 2015 by Ari Meilich and Esteban Ordano and it gradually evolved into the complex, NFT-powered world that it is today. In 2017, the team completed a token sale, raising $25M, which led to the creation and distribution of MANA tokens. Most tokens were distributed to participants in the token sale, investors, and held for future participants, but 20% were held in reserve for the Decentraland Foundation, the non-profit organization that manages Decentraland development and operations.
While the Decentraland Foundation serves as the development team, it acts for the benefit of the Decentraland community and is governed by the Decentraland DAO, or decentralized autonomous organization. The DAO entity owns the core smart contracts of the virtual world and coordinates community votes on proposals to make changes to Decentraland. Voting by community members is managed via the MANA token which conveys voting power to its holders.
Decentraland has some notable investors, such as the Digital Currency Group, and partnerships, such as the recently launched virtual art gallery by Sotheby’s, the international auction house.
What is the MANA token?
MANA is an ERC-20 token created by the Decentraland protocol to establish distributed and participatory governance. Anyone who holds MANA tokens can create and vote on proposals via Decentraland’s governance platform.
MANA can also be used to buy goods and services in the Decentraland world, as well as buy LAND parcels, which are ERC-721 non-fungible tokens (NFTs). MANA tokens are actually burned in exchange for LAND tokens, which helps control the supply of MANA tokens. LAND holders can also create and vote on proposals as DAO members.
How does MANA compare to Bitcoin?
MANA differs from Bitcoin in a few key ways.
First, MANA is an ERC-20 token, meaning it is a token that runs on—and is backed by—the Ethereum blockchain. This means that MANA does not have its own miners. Ethereum miners perform the task of processing and validating MANA transactions, just like how Bitcoin miners process and validate bitcoin transactions.
The second major difference between MANA and Bitcoin is their age. MANA was only created in 2017 and opened to the public in 2020 compared to Bitcoin’s 12 or so years, which means it’s less proven, less distributed, and has a significantly smaller market value than Bitcoin.
Similar to Bitcoin, a malicious participant or group of participants who gain enough control could negatively impact the value of the asset. If one person or an aligned group of MANA holders decided to manipulate its development, they could draft a malicious proposal and vote it through (similar concentration risk to a 51% attack on the blockchain.) This risk is much higher for an asset like MANA that has such a limited supply of tokens.
However, it should be noted that, although MANA is different from Bitcoin, it is far from independent from it.
Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that MANA will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) And if Ethereum, the coin that powers the blockchain that supports MANA, crashes, then MANA’s price could be impacted. However, if MANA crashes, Bitcoin may be less likely to get hurt by virtue of its size.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Decentraland, including an opinion that MANA is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of MANA prior to making it available on Wealthsimple Crypto and has concluded that MANA is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated MANA based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of MANA, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created MANA;
- The supply, demand, maturity, utility and liquidity of MANA;
- Material technical risks associated with MANA, including any code defects, security breaches and other threats concerning MANA and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with MANA, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of MANA.
Like all other crypto assets, there are some general risks to investing in MANA. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. Further, the Decentraland community is not under any legal or regulatory obligation to disclose material information to the public regarding its activities. Holders of MANA have no recourse to Decentraland or Wealthsimple if MANA declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading MANA. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.