Find the next Okay Bear: How to value NFTs

KingData ·2022-06-10

Original title: "NFT Projects: How To Analyze Them Like A VC Pro"
Original author: Magic Eden
The world of NFTs may be difficult for ordinary people to navigate, and your NFTs may break through the floor price in an instant. If you start hyping yourself and think that you are the best NFT trader in the world, your NFTs are likely to become worthless the next second.

In this article, we answer a long-standing question: How do we value digital assets?

Before you start reading, you can have a notebook ready, because what comes next may change your life. Now, let's get to the point together.

Project Types and Value Assessment of NFTs

It's not easy to find a good project from thousands of different NFT projects, because they are really different types and have their own advantages. For the convenience of the reader, we have simplified it into seven different categories in this article, as follows:

  1. Digital Collectibles NFT

Image credit: Tanyo Gochev

The collectibles market has expanded further over the past few years. In 2021, a LeBron James rookie card sold for more than $5.2 million, reflecting the huge growth in the current sports collectibles market.

This is no longer uncommon in the NFT world. At present, the total sales of digital NFT works such as Turtles has exceeded 69,000 SOL, which also shows that people have a high demand for digital collectibles on Solana.

So, what increases the value of NFT digital collectibles? I think the answer to this question can be found in real-world collectibles, which is scarcity.

LeBron James' rookie cards are so valuable not only because the sports collectible cards are valuable in their own right and LeBron is widely regarded as one of the best players of all time, but more importantly because there are only 23 of them in the world. card. By the same token, the rarer your collectible, the more valuable it is.

2. Artwork NFT

Most of the NFT artwork you see on the secondary market is what we call "generative art". These types of NFT creations combine two powerful elements: technology and creativity. Therefore, we can define any NFT created using a computer as a work of "generative art".

More mature SOL NFT projects like Solana Monkey Business (SMB) and Thugbirdz are also generative art, and they have developed countless derivative projects.

So why are original projects more valuable than derivative projects? This is because most artwork NFTs are not just some good-looking photos, but also provide some utility.

For example, holding an SMB NFT allows you to join a community of SOL NFT experts; or if you own a Thugbirdz, you can join their DAO. Therefore, if you want to become an NFT art collector, you have to dig out what value NFT works can offer you beyond pure artistry.

3. Pass NFT

NFTs are a new technology that will disrupt many traditional industries, such as ticketing, because they can be used to verify proof of ownership of almost anything.

After all, the value of a ticket depends on the type of access it grants. For example, a ticket to a premium networking event costs more than an event you host at a bookstore for a local writer.

The same is true for pass NFTs, Magic Eden's pass NFTPortals is an example. Holding such NFTs does not give you permission to participate in specific activities; instead, they are your key to the entire Solana-based metaverse, and therefore have a very high value. At the time of writing, the market price for one Portal NFT is 55 SOL.

To be a successful pass NFT trader, you must understand the permissions they grant and how valuable that permissions are compared to other ticket NFTs.

4. Music NFTs

Record companies have not managed their relationships with musicians, and this is one of the biggest problems in the music industry. Musicians are forced to sign long-term contracts, and their highly creative work ends up being meager pay. No matter how popular the albums they release, the record companies always make a lot more money than they do.

The emergence of music NFTs has changed that - musicians no longer need to sign with a record label. With Music NFTs, musicians can self-release records and release their own albums as NFTs.

Best of all, they can set their own royalty rates so that with every sale of their work, they receive a corresponding royalty income. In other words, music NFTs allow musicians to get paid directly from their fans without going through a record label.

While it's still early days, music NFTs seem to have done a lot of wonder.

Digital artist Daramola launched Supply Chain Project on Magic Eden, the NFT project for the artist's fourth solo album. Although a relatively new project, it has already sold 2400 SOLs. At the time of writing, its total sales have exceeded $200,000. That's quite a number for a fourth solo album.

5. Game NFT

For years, gamers have complained that newly released games are blatant money grabs that almost drain players' wallets to the bottom. These games may start out free, but as the game progresses, you have to start paying. The problem with this mechanism is that gamers simply don't get any real return on their investment in the game.

Gaming NFTs can help solve this problem by giving gamers de facto ownership of their in-game assets for players to freely sell and trade. If we included this mechanic in video games, we could change the entire in-game economy and make playing games a way to make money.

The value of game items depends on several factors: The first is the number of active players (ie, Metcalfe's Law).

6. Virtual Land NFT

If you went back to the 2010s and told people that virtual fat real estate was going to be worth millions, you might have been locked up. Today, however, land NFTs can really make you a virtual real estate tycoon. (We're working on a guide on virtual real estate, and a few interesting projects to watch right now are Portals, Chillchat, and Sovana).

Real estate NFTs have various uses, you rent out your land, or use it to build something on your land, like a digital office space or a blockchain game, and charge visitors a fee. You can use your imagination to create endless possibilities.

But how do we value these digital lands? The traditional real estate industry has always followed the principle of location priority, and for land NFTs, location is also very important. Those digital land NFTs next to popular fashion brands are definitely more expensive than land in other areas.

For example, if a Lux real estate NFT is priced at $300, but when Snoop Dogg becomes your neighbor, how much will that NFT be worth in $300? (And there are no maintenance costs involved with virtual land, and no rowdy tenants).

7. Avatar NFT

Profile Pictures (PFP), also known as pixelated avatars, have been all the rage over the past year. In a sense, the more unique the NFT of your avatar, the greater your influence.

Therefore, when evaluating PFP NFTs, we must take into account the size of the community, the rarity of the NFT, and its historical price movement. To be on the safe side, we should also judge its fashion trends. It's prudent to also see how they trend. If you see a lot of people using NFTs as their profile pictures, then it's definitely a bullish sign.

Evaluation of NFT projects and their potential risks

Image credit: NeONBRAND | Unsplash

Next, we will take you to evaluate various NFT projects and make you an NFT valuation expert. Here are the five most important factors that determine the long-term potential of NFT projects:

Cost-effective

To value an NFT project, the first thing we have to judge is its cost performance. Whenever you encounter an NFT project, first ask yourself, "If I invest in this project, can it have any practical use, and is it worth it relative to its price?" If the answer is no, please don't Invest in this project.

The utility of NFTs takes many different forms, such as Magic Ticket which gives you the opportunity to enter MagicDAO to contribute to Magic Eden. Other projects, like Stoned Ape Crew, are more focused on giving their holders passive income through staking.

Risk warning

It may be overpriced (say 10 SOL) compared to the utility provided by the item. The team was reluctant to publish its roadmap. The promoters of the project have a history of bad behavior.

Community quality

If we want to figure out whether an NFT community is healthy or not, it's relatively easy to get a rough idea by just looking at their Discord chats. If you see that most people are looking forward to the project and are willing to contribute, then people are bullish on it. Also, we can see how active the founders of the project are on their project Discord.

It would also be a positive sign if some industry celebrities hold the NFT. Degenerate Ape Academy is an example, NFT enthusiasts want to get involved in this project, because then they can find like-minded people in the community.

Risk warning

We need to pay particular attention to whether someone talks about sweeping the floor in Discord. This market manipulation will artificially increase project prices, which is not required for a high-quality project.

Project uniqueness

If we want to know the uniqueness of a project, we have to pay close attention to the NFT space. Generally speaking, once a project catches fire, people immediately copy it. Although this behavior is understandable, it makes it difficult for us to find a unique NFT project again. For every Degen Ape Academy, hundreds of spin-off projects follow.

risk warning

If a project is talking about being the new one or the next "insert successful NFT family name", we need to be vigilant, as projects that do so rarely succeed as well.

Roadmap Feasibility

A roadmap is critical to the success of a project. While not all successful projects have a roadmap, a good one can set the tone for what you can expect from the project.

However, it is also an easy tool for market manipulation, as anyone who is excited about an ambitious roadmap design will want to invest in a promising future. (It's like if you only invested $10 today, you can get $1000 tomorrow, but this is obviously unrealistic)

And that's the problem, scammers prey on ordinary people who can easily believe in a good roadmap. So, empirically, we need to look for pragmatic and even conservative roadmaps, because in the end we want results, not some exaggerated but unrealistic hype.

Risk warning

The project team was overly optimistic about their roadmap. They are constantly revising the roadmap and changing the rules. The project team has become less and less informative on social media.

The team behind

The most critical element in NFT research is the team behind the project, because you are investing your money in their ability to execute the roadmap. Therefore, we must find these founders.

We need to find their LinkedIn profile and see their past work experience and personal achievements. At the same time, we also need to focus on their experience in the cryptocurrency space and NFT projects. These factors are all very important when you are looking for promising projects.

However, there are exceptions to this rule, because we may not find information about the founders of some successful NFT projects. In fact, some of the most successful projects may be anonymous. Still, getting to know the team behind a project and getting familiar with their track record can give you more confidence in them.

risk warning

The team is not actively engaging with the community on Discord or Twitter. The team may have an intersection with some disgraced influencers. They might mention things like sweeping the floor every now and then. The team behind this project is completely anonymous, and there is absolutely no information online about their past successful projects.

Evaluate your favorite NFT projects

You are now a cryptocurrency investor, do you feel ready for such a complex world of NFTs? Now that you are familiar with the different NFT types, understand their valuation methods, and know what to look out for in your project, it's time to put it all into practice.

You can start researching your own favorite NFT collection from now on. There are thousands of NFTs for you to browse on Magic Eden, the most liquid NFT marketplace on Solana. At the same time, be sure to pay attention to the real-world value of these NFT projects.

Cheers to your next blue chip!

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