Focusing on the four dimensions of market sentiment, digital rarity, economic utility and ecology, the relevant 10 price influencing factors are discussed in detail.
write in front
Despite being in a bear market, NFTs are still a buzzword in the ups and downs. According to Chainanalysis, more than $40 billion in NFTs will be sold in 2021 alone. As of July 2022, $42 billion of NFTs have been sold, and total sales are expected to reach $60 billion or more by the end of the year.
However, it’s not just the overall sales of NFTs that are jaw-dropping. Many individual NFTs have sold for record-breaking staggering prices, including Beeple’s famous Everydays – The First 5000 Days, which sold for $69.3 million in 2021. In February 2022, Julian Assange and Pak’s Clock NFT sold for $52.7 million, the same month CryptoPunk #5822 sold for a staggering $23.7 million.
After seeing the crazy prices of some NFTs, many people can’t help but ask, why are they so expensive? Where does this value come from? As a specific asset, the value of NFTs can also vary due to various important and secondary factors.
The evaluation of the value of NFT is usually based on four variables, which are market sentiment, digital rarity, economic utility and ecology. Based on these four variables, market influencing factors are derived, including marketing, community operations, Practical applications, etc. In this article, we will discuss these 10 factors in more detail around these four dimensions.
01 Market Sentiment
1. Cultural genes and core community values
The issuer or individual of each NFT creation needs to clarify which type of social group behind his work is represented, and which type of social phenomenon and cultural characteristics the work reflects. Because this cultural feature represents the aesthetic and emotional resonance of a natural group, followers are more likely to have a sense of belonging and identification in the face of familiar cultural features. For the project, such supporters can lay a solid foundation for the long-term operation of the community. Good cultural genes and community core values.
For example, Cryptopunk NFT embodies the strong fundamentalism and punk spirit of the encryption circle, behind the boring ape embodies the nihilistic attitude of existentialism, and behind Azuki contains a strong Japanese culture. The unique circle characteristics and cultural attributes of this writing provide the driving force for the long-term construction and community operation of the project.
Once a work with such characteristics is released, it will attract the attention of such circle groups, and supporters will more actively promote the work and have better community interaction. Compared with NFTs without emotional connections, such projects can form market consensus faster, and constantly influence the market to attract new members to the influx, which has a positive impact on the price of NFTs.
▲ Screenshot from OpenSea
2. Pre-sale and reserve price
In general, marketing around NFTs takes off before a single NFT is minted. The pre-sale will have a multiplier effect on the marketing of the entire NFT. The project issuer will usually market on social media before the pre-sale and create one or more Discord or Telegram groups. Larger projects may create different groups for different countries or languages.
Using these channels, they reveal sample images, memes, and videos of NFTs to early participants, and discuss the stories and meaning behind the collections to be released. The more successful this marketing push, the more likely it is that the NFT collectible will skyrocket in value after its launch.
During the pre-sale release, NFT creators can also create an exclusive whitelist that allows early participants to mint NFTs during a specific “pre-sale” period, which typically lasts from a few hours to a few days. If the collection project is warmed up enough in the early stage and the market is hot, it will strengthen the confidence of early participants to buy. If nothing else, they can buy it at a much lower price than the public sale.
▲ NFT collections with the highest price floor provided by NFT Price Floor.
Before the pre-sale, the creator of NFT will set an initial minting price, which is the minimum price for minting NFT. If a project is well prepared in the early stage, with the popularity of bidding during or after the pre-sale, the specific NFT reserve price and ultimately the reserve price of the entire collection will continue to rise. When existing NFT holders start selling on the secondary market, the floor price will also be the lowest price at which they are willing to sell the NFT.
As of August 2022, the NFT holding with the highest reserve price is undoubtedly BAYC, at 84.19 ETH, which is close to $137,000.
3. Cooperation endorsement and hype
The marketing strategy of IP co-branding in the traditional Internet is not uncommon, and it is also a win-win strategy in the Web3 world. If the project party cooperates with well-known brands and celebrities, it can fully drive the market’s expectations in the early stage. For example, celebrities in the entertainment and sports circles have also begun to endorse various NFTs, and some celebrities have even participated in the distribution and production of some NFT projects.
Trend art platform Ezek and Jay Chou’s brand, PHANTACi, released the first digital avatar NFT, and limited sales of 10,000 Phanta Bears. Although the project was not launched by Jay Chou himself, he also put on the avatar of Phanta Bear, and the remaining NFTs were sold out in just 40 minutes, with a total value of more than 62 million yuan at that time, which became the global NFT transaction volume of the day. top of the list. It has to be said that this NFT project has attracted much attention since the news came out due to the blessing of Jay Chou’s star halo traffic.
▲ Screenshot from OpenSea
In fact, BAYC will sell at a price of 0.08 ETH in May 2021. At first, no one cared about it. It was not until the NFT boss PranKsy purchased BAYC in batches. After the first wave of popularity, the BAYC team also possessed a certain ability, and immediately started a series of activities such as airdrop distribution and offline gatherings, and gave the boring ape social attributes in a short time. It became popular all over the Internet within a month. After that, more and more celebrities began to pay attention to and buy BAYC. For example, NBA star Stephen Curry bought a BAYC for $180,000 and used it as his social media avatar; TRON founder Justin Sun paid $10 million for a BAYC. The purchase of a BAYC has detonated public opinion in the encryption circle.
However, because the influence of celebrity endorsement is too great, the popularity of the project can also reach deceptive popularity through hype. Some copycat hype projects have a wide range of marketing, from paid advertisements to buying fake accounts, to paying navy touts, and even inviting celebrities to promote them at high prices. For example, famous YouTuber and boxer Jake Paul has been in the news for his recent promotion of Animoon, a Pokemon-inspired NFT collection whose founder lied to fans and failed to deliver on many promises. Paul is estimated to have made around $2 million from promoting cryptocurrencies and NFTs, around 90% of which turned out to be obtained through deceptive means.
▲ Information screenshot from CryptoSlate
Some pull-crotch projects will eventually be criticized by the market, but in many real cases, due to the hype in the early stage of the project, some people who held and sold in the early stage still obtained objective returns, but because of the lack of long-term planning and the ability to cash in the project, NFT itself The value will also continue to decline.
4. Traditional Artists and Celebrities Admission
Similar to the projects with celebrities, traditional artists or celebrities issue NFTs directly in their own name and bring their own loyal users, which has a positive appeal to the market and has inherent advantages, and entering the circle is a blue chip. Damien Hirst is a successful example of a famous traditional artist entering the NFT field.
▲ NFT official website of traditional artist Damien Hirst
Considered one of the best-selling living artists in the world, with over $200 million in art sold, Hirst was a major player in the Young British Artists (YBA) movement of the 1990s. Unlike Beeple, which is dedicated to selling extremely expensive personal NFTs, Damien Hirst prefers the collectible route, with his 10,000 NFT collection “The Currency” starting at $2,000 per NFT and soaring to over $20,000 per NFT (recently bottoming at $8,200 to $8,200 per NFT). around $9,200).
02 Digital Scarcity
The rarity of features
Within the same collection of NFTs, the price of NFTs can vary widely. For example, we have already mentioned that the cheapest BAYC NFT is close to $137,000 as of August 2022. However, NFTs in the same series sold for over $3.4 million in October 2021, 2,400% above the current reserve price. Much of this price difference comes down to rarity.
Issuers add to the scarcity of the final product in terms of supply and demand, and creators often design with common features, uncommon features, some rare features, and some ultra-rare features. NFTs in collections with multiple extremely rare traits typically get the most value and have the highest reserve price.
The rarity of an NFT is very important to collectors, and there are several methods and tools on the market that can be used to determine the overall rarity of an individual NFT, some of which include Rarity.Tools, Rarity Sniper, Traitsniper, and Rarity Sniffer, each of which provides Extensive rarity and price data for thousands of NFT collections. For example, the picture below shows the data of tracking the rarest Moonbird NFT with Rarity.tools.
▲ The rarity data of the rarest Moonbird NFT
2. NFT destruction
The digital scarcity of NFTs can not only be achieved by programming some NFTs with rare characteristics, it can also artificially interfere with scarcity by destroying or “burning” some NFTs in the collection. An NFT, like a homogenized token, can be destroyed by sending it to a non-existing or locked wallet address, leaving the NFT out of circulation permanently.
NFT burns are usually done by issuer designs to introduce scarcity into the mix. In addition, sometimes whale collectors also perform such actions, arguing that the loss of NFTs burned can be compensated by the rising price of NFTs.
For example, in the case of Damien Hirst’s NFT collectible The Currency, collectors who buy the item have a year to decide whether they want to own the NFT or the accompanying physical artwork (they can’t own both). Every time a collector chooses a physical artwork, the accompanying NFT is burned, and every time they choose an NFT, the artwork is destroyed. After the final exchange deadline of July 2022, 5,149 NFTs were burned in exchange for physical art, bringing the total NFT supply from 10,000 to 4,851, and the series rose from $2,000 to $20,000 during this period , a full 10 times increase, and NFT destruction has become the main driving force.
03 Economical utility
Under the eye-catching art form of NFT, blockchain has endowed it with pioneering technological progress, and its utility can be combined in the Web3 ecosystem to produce compound effects, which can directly multiply the value of NFT.
Common forms of NFT utility include art, social, functionality, assets, etc., and we can see NFTs in various fields such as games, music, domain names, insurance, and identity. NFTs can come in a variety of formats, providing different functions through various tokens, such as game NFTs in Axie Infinity that provide users with a gold-digging function; music NFTs that aggregate artists and copyrights into catalogs; collateral and NFTs that use NFTs as collateral loans, etc.
In addition, the mainstream community is associated with unique artwork NFTs, and purchases NFTs through games and investment communities to achieve superposition of efficiency. The benefits or rewards generated by these NFTs can further catalyze the increase in the value of NFTs.
1. Design of the token economic model
A good token economic model is the backbone of the sustainable development of the project, which profoundly affects the long-term value of NFT holders. Model design provides builders with a richer and more expressive toolset, and good system design can connect everything in the ecosystem and bring constant liquidity to the ecosystem.
For example, StepN is an outdoor running game product. Its Token design is to reward people for doing things that are beneficial to them. It has the basis of long-term sustainable development and has a certain guarantee for the long-term value of its sports shoes NFT. According to statistics, this application The monthly active users are as high as 2 million, and there is a huge core user group. Even if there are no new users coming in, their market has a certain degree of liquidity. Coupled with the project party’s continuous improvement of the token economic model, it can promote the project to move forward. A more sustainable direction has a positive impact on in-game NFTs.
2. The minted blockchain
There are many chains for NFT minting, but Ethereum is still the most popular. Other popular NFT blockchains include Ethereum L2 Polygon, as well as other L1 blockchains Solana and Binance Chain.
The ecological foundation and casting costs of different chains are different, which will also have a certain impact on the supply-demand relationship and price.
▲ SolMonkeys on Solana NFT Market
Currently, most of the famous and expensive NFTs, including CryptoPunks and Bored Ape Yacht Club, are minted on the Ethereum blockchain. For example, the most expensive sale of Ethereum NFTs has reached tens of millions of dollars, but the most expensive Solana NFT to date has been sold for $2 million. Solana NFT sales finally crossed the $1 billion mark in January 2022, a milestone number for Solana but still a far cry from Ethereum sales.
It is worth noting that the casting on which chain has little effect on celebrities like Damien Hirst, and casting on the unknown Palm blockchain does not affect his fame and popularity at all.
3. Cryptocurrency Market
In addition to the token model and specific blockchains, cryptocurrency prices may also affect NFT price fluctuations. They are not positively correlated, but affect the supply-demand relationship and the issuer’s strategy. For example, from the beginning of 2022 to the middle of the year, the overall monthly sales of NFTs will slow down significantly. It should be noted that while NFTs are often denominated in specific cryptocurrencies, such as ETH or SOL, the prices of those cryptocurrencies fall and sellers may increase their prices to combat cryptocurrency inflation.
write at the end
We have listed 10 regular factors that affect prices from the above four dimensions, but unfortunately, there are many illegal price manipulations such as money laundering, insider trading and carpet pulling in the dark.
Money laundering transactions, for example, occur when someone buys an asset at a low price and then secretly sells it back to themselves at a higher price to defraud the market. So much so that some cryptocurrency experts believe that more than 33% of NFT sales are made up of laundering transactions, and blockchain data platform CryptoSlam even estimates that on the popular NFT marketplace Looksrare, money laundering transactions account for 95%.
Insider trading is another issue in the NFT market, which in some cases can affect the value of NFTs. In June 2022, a former OpenSea executive became the first person in the United States to be charged with NFT insider trading after it was reported that the executive used confidential information about NFT listings for his own financial gain. As with wash trading, insider trading schemes sometimes temporarily raise the price of an NFT, but then the price plummets, leaving potential victims with losses.
Carpet pull is a pig-killing operation in the NFT field. The price of NFT will rise during the pre-marketing period, and then collapse after the issuer completes the money and leaves.
In short, in the world of NFTs, all that flickers is gold, and its price is also affected by various factors. Before collecting or purchasing any NFT, you need to make comprehensive judgments from various dimensions and do your own research.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/four-dimensions-reveal-where-the-value-of-nft-comes-from/
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