“Inside-out tracking” is an almost magical phrase in VR. It refers to virtual reality that doesn’t require external cameras or towers in order to let you move through digital space — which, more than simple processing power or image quality, is the real difference between a mobile headset like the Gear VR and a top-of-the-line Rift or Vive. But that’s what Oculus says it’s cracked with a new prototype, known as Santa Cruz.

Santa Cruz was shown briefly on stage at Oculus Connect today in a video, where it was described as a wireless, mid-range compromise between Gear VR and Rift. But it wasn’t until afterwards that I was able to try it for myself. Hidden in a back hallway of the convention center, the demo booth is arranged like a moderately sized Airbnb living room, its edges lined with all kinds of things you’d hate to run into: pillows, books, a guitar. (There was no photography or video allowed.) As we saw during the keynote, the headset itself is an Oculus Rift body packed with new electronics and sensors, including four wide-angle cameras around the edges of the front. Those cameras will detect real motion and translate it into your virtual environment. They’re the key to the whole system — and, from what I can tell, they work really well.

A backpack PC, without the backpack, or the PC

The demo I was given started in a simple, slightly dingy spaceship’s interior, then moved into a bright papercraft cityscape featuring gardens, paper-doll people, and (for some reason) UFOs. None of it would come close to pushing even the Gear VR’s power limits, let alone the Rift’s. Santa Cruz’s components are arranged around both the front and back of the headset, connected via a tape-like cable that runs around the side, giving its designers some flexibility that phone makers — which have to fit everything into a tiny slab — don’t have. All the same, an Oculus team member told me that we could expect graphical capabilities not too far from the Gear VR’s.

At this point the whole thing looks about a step away from being hot-glued together, and I was barely able to touch it myself. But it’s very light for an all-in-one headset, and probably feels more so because it’s not front-loaded the same way as the Gear VR. More importantly, once I had it on and took my first step inside the demo, my in-world view matched the way I’d moved.

It wasn’t quite perfect. Occasionally, the world swam a tiny bit, as though it were getting its bearings around me. But Santa Cruz mimicked my actual head and body motion extremely precisely. Over the couple of minutes I used it, I was able to look around, walk, crouch, and shake my head without it ever losing track of me. In a lot of ways, it felt just like using a backpack PC with an HTC Vive, but with no backpack or external setup. And the slight swimming effect was less exaggerated than what I’ve felt with location-based VR experience The Void, which uses its own backpack-and-sensor setup.

“We're going to really focus on standalone as the new category for the next few years.”

I’m not sure how a lot of Santa Cruz’s tech works. For one thing, I’m not sure how you set up the guardian system that the Oculus team had drawn around the room, warning me before I ran into a wall. I’m not sure exactly what kind of lighting conditions you’d need for the cameras to be able to detect the outside world accurately. And I’m not sure how you would add real interactivity, beyond looking and walking around. Including something like Touch controllers is the next step, but calculating their motion accurately and making sure the cameras can detect them at all times, no matter where you move your head or hands, could present problems. “There's always challenges to make these things a great experience,” CEO Brendan Iribe told me afterward. “So the team's hard at work on it, and we have a lot of confidence we'll deliver a great input experience there, but that's the next step."

Iribe and everyone else I spoke to at Oculus stressed that this was just a prototype. But it’s one that’s very important to the company — the next big leap, after Rift and Gear VR. “I think we're done with new product categories right now. So standalone is a big new product category we're going to now put a lot of energy behind for the next few years,” he said. “I don't see another one coming in the near term. Things could change. But I do think we're going to really focus on standalone as the new category for the next few years."

Watch: Oculus Connect 3 Event recapped