There is no set formula for valuing NFTs. You can’t use the same metrics to evaluate NFTs that you would use to evaluate private companies or conventional investment vehicles like stocks. The last buyer’s payment is usually a good indicator of the product’s worth. For NFTs, on the other hand, estimating what the next buyer will pay is difficult because of the wide range of estimates.
As a result, buyers often quote NFTs based on their lack of understanding of their value. It’s also difficult for token sellers to know how much they’ll get in return for their tokens. As time passes, the perceived value of NFTs rises or falls based on perceptions that neither buyers nor sellers have any say in shaping.
An example is a great way to make a point more clearly. For a short period, artwork NFT may be in high demand, with potential buyers assuming it is rare and anticipating a return on their investment. A sudden discovery may come to light that the NFT has no buyers left because the digital image is freely available online.
Factors That Determine The Value Of NFTs
Tokens associated with well-known artists’ work or tangible assets may have a set value. Investors and traders, on the other hand, frequently have difficulty estimating the value of an NFT.
1. Utility
The utility of NFT projects emerges as a key factor in determining how to evaluate them. An NFT’s utility in a real application is required for it to have any monetary value. Tokenizing real estate, precious metals, and even securities; representing virtual land or game assets; and many other uses are possible with the use of NFTs. The NFT industry is still in its infancy, and as it develops, new and creative applications will appear.
An NFT’s intrinsic properties are what give it value immediately after it is minted. In the long run, the project’s utility and community strength will determine its value. The project’s Decentraland NFTs, which represent virtual land plots, is a great illustration of this type of token.
2. Interoperability
Using NFT tokens across different platforms and applications is an important part of the NFT value proposition. If the same weapon can be used in multiple games, the token has a better chance of being worth something. Transactions will always be easier because of the way nonfungible tokens operate on different blockchains.
To achieve true interoperability, developers will need to create a vast network of apps that can make use of the tokens. NFT interoperability is bolstered by a set of compelling use cases. Another approach that developers can take is to form alliances with other projects to provide benefits to token holders.
3. Ownership History
The value of an NFT is influenced by the identity of the issuer and previous owners. The ownership history value of tokens created by well-known individuals or corporations is higher. To increase the perceived value of NFTs, consider partnering with individuals or companies who have.
Another strategy for gaining traction is selling NFTs that were previously owned by prominent individuals. A simple tracking interface provided by NFT marketplaces and sellers can help buyers locate information about NFTs’ previous owners. Buyers can gain valuable information by highlighting the addresses of investors who made a lot of money in NFT trading.
4. Speculation
Speculation can drive price increases, as it did in December 2017 when the price of CryptoKitty #18 jumped from 9 Ethereum to 253 Ethereum in just three days. Speculation may be viewed as a negative by some, but it is a part of human nature and cannot be eradicated.
Financial instruments like derivatives are built on speculation, even in the traditional financial system. Speculation’s emergence as a significant player in the NFT ecosystem is not surprising in this context. There are a variety of factors that can drive up the price of NFTs, including changes in the assets underpinning a project and even events beyond your direct control.
5. Rarity
To determine how rare an NFT is, you need to know how many of them are in existence. As with celebrity-minted tokens, original works of art by renowned illustrators could serve as good examples of rare NFTs. This category can also be applied to some rare game items. There is a lot of value in these NFTs because of the rarity of the item.
Because of the NFT’s uniqueness and value, the person who owns it can be proud of their possession. NFTs with a rare element include Beeple’s The First 5000 Days and Jack Dorsey’s first one.
6. Tangibility
The tangibility of NFTs that are linked to real-world objects is emphasized. When this is combined with the immutability of ownership on a blockchain, a tangible value is immediately created. It is possible to use NFTs to clearly show who owns what and to weed out instances of fraud. The value of NFTs depends on how they are used in the projects in which they are involved.
NFTs that have real value are ideal for both short- and long-term trading. Some NFTs, such as tickets, may have an expiration date, while others, such as real estate, can grow in value over time, making them more useful.
7. Social Presence
In determining the value of an NFT, social proof is one of the most important factors. You can get a sense of how well-liked or disliked a person is by looking at their social media profiles on sites like Twitter and Instagram. This indicates that they haven’t yet built a solid foundation for themselves, so the numbers are low.
For the first time, it is natural to follow the lead of the people around a new person or project. A project’s social proof tells you what the general public thinks about it, which helps you make a decision.
8. Liquidity Premium
As a result, the value of high-liquidity NFTs rises. NFTs can be traded on the secondary market in a frictionless manner, allowing buyers to immediately access the supply. As a result, traders prefer to invest in NFT categories with a high volume of trading because it makes it easier for them to take their profits. Even if the associated platform is shut down, the value of a highly liquid NFT is likely to remain high.
Token economics emphasizes the importance of increasing NFT value proposition engagement and liquidity. Incorporating a system that depreciates NFTs when they are left idle for a long period and encourages the use of competing assets can help to build a robust market. There are systems in place to support asset liquidity as the NFT market grows.
Conclusion
You just need to keep in mind that not all shiny things are diamonds when you’re using an NFT value estimator. When making a decision, be patient and consider a wide range of factors.
