How do you judge the value of an NFT?

Learn the pricing matrix

There is no rule book about how to evaluate NFT valuation. The metrics you use to evaluate private companies or conventional investment vehicles like stocks simply don’t apply to the NFT. Usually, the payment made by the final buyer provides some indication of value. For the NFT, however, it’s hard to predict how much the next buyer might pay, depending on their estimate.

Most buyers lack the skills to reasonably determine the value of an NFT and base their quotes on guesswork. For merchants, too, it is difficult to determine what they can get for the tokens they hold. Overtime, the value of NFT is driven by awareness which both buyer and seller may lack any control.

An example might give you a better score. A piece of NFT art can be in great demand for a certain period of time, with buyers likely to consider it a rarity and hope to pick up value in the near future. Then, all of a sudden, they may discover that digital images are freely available on the Internet and there may be no NFT buyers left.

Related: Unusable Tokens: How to Start Using NFT

Factors that determine the value of NFT

NFT artwork by famous artists or tokens associated with tangible assets of reputation that can have a deterministic value. However, in most cases it is difficult for investors and traders to determine how much the NFT is worth.

rarity

The demand for the NFT is directly proportional to its perceived scarcity but how can you tell how rare the NFT is? Unique artworks from renowned illustrators can be good examples of rare NFTs as well as tokens minted by top celebrities. Some rare items in the game can also successfully call for this category. The element of rarity gives these NFTs a lot of intrinsic value.

An immutable proof of title gives NFT holders a sense of distinction and, subsequently, value. Every day is the first 5000 days of Beeple and Jack Dorsey’s First NFT are good examples of NFTs with a rare element.

Practicality

To figure out how to evaluate NFT projects, utility emerged as a key parameter. To carry value, an NFT needs to have a utility in a real application. For example, NFT can be used to tokenize real estate, precious metals and even securities; to represent virtual land or game assets and in many other ways. The NFT world is still in its infancy, and as it matures, new innovative use cases are bound to emerge.

Immediately after Mint, an NFT derives value from its inherent properties. Over time, the value accumulated depends on the utility and community strength of the project within. Decentraland NFT, referring to virtual land The land plots in the project, are a great example of such tokens.

Related: How to Create NFT: Instructions for Creating Unusable Tokens

Tangibility

NFTs associated with real-world objects draw a tangible element. Clubbed with immutable ownership on blockchain, it creates an instant tangible value. NFT can be used effectively to emphasize ownership and eliminate instances of fraud. The actual use of NFTs in the projects they participate in influences their value.

NFT holding tangible value is a perfect fit for short-term as well as long-term trading. Some NFTs, like tickets, may have an expiration date, while others, such as those representing real estate, may increase in value over time.

Interactive abillity

ONE important factor in the NFT . value proposition is interoperability, i.e. the ability to use tokens in different applications. For example, if the same weapon can be used in different games, there is a greater chance of accumulating token value. The way nonfungible tokens work on different blockchains will make transactions simpler.

However, it is difficult to realize interoperability because developers have to build a vast network of applications where the tokens can be used. A set of compelling use cases help infuse the interoperability of NFT. Another strategy developers can follow is to develop partnerships with other projects to benefit their token holders.

Social proof

The social proof associated with the project behind the NFT is one of the determining factors in determining the value of the NFT. Check out their profiles on social media platforms like Twitter and Instagram can help people gauge their acceptability. If the numbers are low, it shows that they have not been able to create a solid foundation for themselves.

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When meeting any person or project for the first time, there is a natural tendency to take cues from the people around the project. Social proof tells what people in general think about a project and helps with decision making.

Ownership history

The identity of the NFT’s issuer and previous owner influences its value. Tokens are created by famous people or corporate organizations benefit from the high historical value of ownership. You can enhance your NFT value proposition by working side-by-side with people or businesses with strong brand values ​​to issue NFTs.

Reselling NFTs previously held by influencers is another way to gain traction. Marketplaces and sellers can help buyers find information about past owners of NFTs by providing a simple tracking interface. Highlighting the addresses of investors who have taken home large amounts from NFT transactions will help buyers gain valuable insights.

Liquidity premium

NFTs with high liquidity also offer higher value. The secondary market provides a place to trade ERC or BSC standard NFTs easily, instantly giving buyers access. Traders prefer to put their money in NFT portfolios with high trading volume because the higher liquidity makes it easy for them to profit. The highly liquid NFT is likely to retain its value even in the event the relevant platform is closed.

Token economics emphasizes increasing interaction and, subsequently, liquidity will drive NFT value proposition upwards. An integrated system that reduces the price of NFTs due to long periods of inactivity and incentivizes competing assets can help build a strong market. As the NFT market grows, systems will come into existence to support asset liquidity.

Speculative

There are times of speculation become For example, the catalyst behind the price surge, CryptoKitty #18 price slid from 9 ETH to 253 ETH in just three days in December 2017. While a stream of thought opposed speculation as one of the dynamics. valuation force, speculation comes naturally to man and cannot be practically eliminated.

Even in the conventional financial system, instruments such as derivatives are based on speculation. In this context, it is not surprising that speculation has become an important component of the NFT ecosystem. Price performance charts of NFT commodities, changes in assets underlying projects and even events beyond your direct control can fuel speculation and drive the price of NFTs .

Continuous change in the NFT . ecosystem

NFTs are a nascent ecosystem that is undergoing continuous development. The different factors that affect the value of the NFT are evolving rapidly, and to increase accuracy you need to take all of them into account. Furthermore, value is generally a subjective concept, although you could argue that the discussion is about intrinsic value. In this case, solve how you determine future NFT value becomes even more challenging.

Since NFTs are an asset class with endless possibilities, we can safely assume that their versatility will steadily grow and lucrative opportunities will be available in a variety of sub-categories. The number of NFT use cases has been growing at a rapid rate. Now, NFT can be used in applications such as ticket distribution to secure voting rights.

While exploring the NFT value estimator, just keep in mind that all things that shine are not diamonds. So be patient and take all factors into account when coming to a decision. At a time when all kinds of NFT markets are emerging, from all-inclusive platforms like OpenSea to niches like Real Nifty, due diligence and informed decision-making becomes more particularly important.