How to Assess The Value of an NFT
Crypto Basics

How to Assess The Value of an NFT

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3 months ago

Today, CMC Academy gathered the wisdom of Crypto Twitter to create this unique guide to valuing NFTs.

How to Assess The Value of an NFT

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If you have read our article about the top NFT trading strategies, you must be asking yourself:

That's all fine and dandy, but how do I assess the value of an NFT? What makes a jpeg so valuable???

A fair and important question. We gathered the wisdom of Crypto Twitter to create this unique guide to valuing NFTs.

A Complete Guide on How to Value NFTs

Most articles will give you cookie-cutter solutions on valuing NFTs. Utility this, rarity that. This guide will give you precise do-this-to-assess-the-value instructions to make your life easier.
The credit for it goes to NFT wizard riddles.eth, who compiled a fantastic thread that we expanded upon:

Assessing the Value of an NFT Qualitatively

The Founding Team

riddles.eth first covers the qualitative side, i.e., the why and how. The founding team is the first and most important factor:

For instance, Yuga Labs (Bored Apes) and Larva Labs (Crypto Punks) are considered the gold standard in the NFT space. If they release new projects, there's a high chance those will succeed. New projects should ideally have a team that is doxxed and involved in the NFT project.

Your action plan to assess this factor:

  • Check for prior success stories.
  • Scan how transparent the team is about their background.
  • Monitor if they stick to the roadmap.
  • Assess the level of engagement within the community.
  • Ask yourself if they are innovative or just copypasta other projects.

Utility

The utility is quickly increasing in importance after the first NFT hype has subsided.

An NFT can be useful in its own way, especially when it comes to factors like reputation and enabling access to communities.

Your action plan to assess this factor:

  • Consider whether the utility is achievable and desirable (i.e. access to an exclusive club may be desirable but is it realistic?).
  • Think about whether the market for this utility will grow or remain flat.
  • Ask yourself: do I think others will find this useful? (even if you don't personally)

Community

One of the biggest success factors is community.

A project without an engaged community is worthless. Only the community can build the kind of reputation and social status that distinguishes a "blue chip NFT" from an ordinary one.

Your action plan to assess this factor:

  • Look for an engaged and well-managed community on Twitter and Discord.
  • Assess whether the vibe in the community is positive and not exclusively focused on floor prices.
  • Check if the team is doing regular AMAs, townhalls and other events.
  • Bonus points for having stars in the community; that is a signal the collection is making waves.

Execution

Execution is the mother of all success stories. That is no different in the NFT space.

Tracking the execution of a project is pretty easy: you just compare the promises to what has been delivered. The more a team ships, the more promising the collection.

Your action plan to assess this factor:

  • Check a project's roadmap and track if the team is delivering.
  • Bonus points for delivering extra stuff or shipping early. Shipping late is not a huge problem as long as the team is transparent in its communication.

Art

Art is a subjective factor, as riddles.eth correctly states:

Not much to add here. Think about whether the art appeals to you and whether you think it could appeal to others.

Your action plan to assess this factor:

  • Survey NFT Twitter to get a grasp of how influencers feel about the art. Careful with those that shill projects they are invested in!

Historical and Cultural Relevance

Another fairly subjective factor:

A plain ol' jpeg collection will not become culturally relevant at this point. However, an NFT collection can still aspire to become timeless by being innovative.

Your action plan to assess this factor:

  • Ask: can this collection become the first sports league NFT/dog owner community NFT/etc? You are looking for an NFT collection to be a first-ever, not only to have nice artwork!

Assessing the Value of an NFT Quantitatively

Subjective factors are, well, subjective. Even better if you can put some hard numbers next to a collection and compare it to competitors.

Total Addressable Market

An NFT collection is, at the end of the day, just a piece of content that is targeting a niche. Think about how big this niche is:

A "WomeninWeb3" NFT primarily targets women, although men will, of course, buy as well. A sports league NFT collection targets sports fans only. Take these factors into account.

Your action plan to assess this factor:

  • Consider two questions: to how many people in crypto could this be interesting? To how many people outside of crypto could this be interesting? If you find an innovative collection with a big addressable market outside of crypto, you may be onto something.

Benchmark Against Blue Chip NFTs

If Apes and Punks are the gold standards, you want to learn how to compare your collection to them:

You can do weighted probabilities as riddles.eth suggests, or you can do (if math isn't your thing) a simple scoring table. Be realistic. A new collection will likely not score as high as those two unless anyone and everyone is talking about it.

Your action plan to assess this factor:

  • Score the collection you found against Apes and Punks. Bonus points if you include weighted probabilities.

Learn to Value NFT Market Caps

The most difficult factor to finish it off. If you build a good framework to compare market caps, you can quantify all the previous factors and estimate the worth of a future collection:

This is the most basic version of a price model. You can also go deeper by segmenting for rarity since a rare Ape will not be as much in demand as a floor price Ape. However, if you've come this far, you already have an excellent understanding of how to assess the value of an NFT.

Your action plan to assess this factor:

  • Estimate a realistic floor price for a collection according to the previous factors and cross-compare it to existing collections.

Conclusion

Assessing the value of an NFT collection isn't as hard as it seems. With these nine valuation factors, you will find it much easier to compare the value of NFT collections.

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