How should NFTs be valued? Consider three aspects of technology, function and hedonic value

The author of this paper establishes a basic model of NFT from three aspects: technology, function and hedonic value, which embodies the concept that NFT can also be valued.

The following is the text:

The pricing of NFTs (non-fungible tokens) is different from that of BTC, ETH and other equivalent tokens. The value of an NFT depends on its type, design, and in some cases financial properties and utility. As more and more people begin to learn about NFTs, the questions that remain unanswered are:

How do NFTs gain value?

The reality is that there is no solid science behind this, and no black-and-white answer—mostly, if not always, gray.However, unlike unforgeable physical artworks like the Mona Lisa or Jackson Pollock, NFTs have some unique digitally traceable features that allow for objective valuation. In my opinion, these characteristics or value factors should be taken into account when valuing NFTs. These value factors can be divided into:

  • Technical value: the security, decentralization and scarcity of the chain.
  • Functional Value: The utility and liquidity of NFTs.
  • Hedonic value: expectations for NFT, NFT creator + community.

technical value

chain security

The point of NFTs is that they are immutable, guaranteed digital assets (built on top of their underlying blockchain infrastructure remaining immutable and guaranteed). As such, Ethereum is the ruler of the NFT network, thanks in large part to being the most secure smart contract platform available today, and that dominance is expected to continue for the foreseeable future.

How should NFTs be valued? Consider three aspects of technology, function and hedonic value

Number of NFT projects on Ethereum

In other words, minting an NFT on a reliable chain helps guarantee its value, which is why NFT minted on Ethereum is currently more valuable than NFT minted on other chains.

scarcity

This is a major reason for the manifestation of value, similar to the total supply of a homogenized token. The rarity factor is the core element of NFTs, and the rarest NFTs in collectibles are usually the most valuable on the market.Take the example of CryptoPunks below , which is a simple description of the relationship between scarcity and selling price, providing insight into market value, and a quick formula model for validating market valuations.

How should NFTs be valued? Consider three aspects of technology, function and hedonic value

Source: Cointelegraph

This is not to say that this mathematical formula is valid for CryptoPunks, it is also valid for other NFT projects whose characteristics and properties are different. NFT creators programmatically adjust the supply of NFTs to affect rarity.For example, for minting 1000 basic collectibles, there are only 10 gold-level collectibles. In other words, with all variables remaining the same except for rarity, the price of a more scarce NFT will be higher. This forms the basis of a valuation model for collectible NFTs based on the statistical rarity of attributes.

degree of decentralization

NFTs minted entirely on-chain, such as Avastars, Aavegotchis, and Art Blocksdrops, exist only by virtue of their respective Ethereum smart contracts. This means that they will be around for as long as Ethereum exists, which could be a very long time.

On the other hand, some NFT projects make their NFTs rely on external, off-chain providers (such as Amazon) for convenience and flexibility. This introduces a dimension of trust, so you have to pray that the project will stick around and keep its servers running. Otherwise, your NFT could go blank in a few years. Therefore, the value of NFT on-chain is self-evident – it proves itself and can prove itself at any time.

functional value

practicality

This is perhaps the most open aspect of NFTs, the utility of an NFT describes its functionality and financial value.

  1. NFT holders have rights to functional goods, services or assets. For example, accessing software through NFT licensing, protecting intellectual property or delineating insurance coverage.
  2. NFT holders have the right to future cash flow, which can be valued according to a discounted cash flow model.Examples of this include resale royalties, digital real estate, and yielding NFTs.

For example, a more novel concept is NFT staking or mining. This refers to staking NFTs on a protocol for yield. It brings passive benefits to NFT, which can be considered as the combination of DeFi and NFT.

Onessus Blockchain Systems is a US-based publisher of blockchain games and NFTs. Its WhenStaking platform has proven that the concept of yielding NFTs is gaining popularity.

Another increasingly popular form is the redeemability of NFTs. Redeemable NFTs allow holders to exchange NFTs for physical or digital goods. While not new, their status is constantly improving. For example, NiftyVille is further exploring redeemable NFTs, and this redeemable element in the game creates a Metaverse and real-world crossover entertainment platform that connects gaming and real life.

fluidity

This is also what attracts a premium from investors. Blockchain-based collectibles have higher liquidity value than ‘off-chain’ collectibles. Investors may value NFTs issued on Ethereum given the ease of sale and volume. However, several other public chains are gradually taking over Ethereum’s market dominance.

How should NFTs be valued? Consider three aspects of technology, function and hedonic value

Public chain that supports NFT

hedonic value

Expectation

This involves the experience that NFTs bring to their buyers.

  1. Perceived sociocultural value, such as a relationship with an artist, group, event, or cultural realm. This also includes the social benefits of owning an NFT — for example, access to exclusive digital communities, identification with the team or being respected and praised.
  2. A personal, emotional or aesthetic bond between the buyer and the NFT.
  3. This hedonic value can simply be the pleasure of hunting rare items or completing a collection.

Creator + Community

If someone with no fans and no history made an NFT on OpenSea or Rarible and didn’t announce it, would it sell?Sometimes yes, but more errands are needed to get community attention. This is why an NFT published by a major artist or creator gives it value. It is imprinted with the magic of the issuer’s digital fingerprint, which of course is indistinguishable from a signature. The key thing to remember is that an engaged community creates demand.Naturally, the more popular the creator and the larger the community, the more valuable the NFT is, and this dynamic is true for any market.

And communities exist largely on Twitter, Discord, or Telegram. The hallmark of a promising NFT collectible is an enthusiastic community, with new members joining every day. Therefore, the following points must be noted:

  1. The number of users in this NFT’s Discord or Telegram group.
  2. The number of Twitter followers.
  3. The number of Discord/Telegram users and Twitter followers has grown over time. If Discord is dead, or Telegram is full of bots, that’s a red flag.
  4. Are there any benefits to NFTs, such as exclusive content or chat rooms.

“helvetica=”” 26px;”=”” arial,=”” font-size:=”” helvetica,=”” neue”,=”” open=”” sans”,=”” sans-serif;=”” style=”color: inherit; font-family: “>结论

When it comes to NFTs, don’t take it lightly. We’re all still figuring out how to evaluate them exactly, and of course there’s no right answer yet. Judging by the speed at which the space is developing, it is likely that we will evaluate them differently now than we will be a year from now. The bottom line is that we have to approach the valuation of NFTs from multiple angles. But if you can build a model, you’re ahead of the market.

Translator’s Notes:

To sum up the author’s point of view, the dimensions that an NFT needs to pay attention to are:

  1. public chain
  2. The scarcity of this NFT in the collection
  3. The degree of decentralization of the project
  4. What special purpose or service does this NFT have?
  5. cultural attributes
  6. aesthetic
  7. Community popularity

The author mentions that “Ethereum is the ruler of the NFT network, thanks in large part to being the most secure smart contract platform today, and that dominance is expected to continue for the foreseeable future”, which is indeed true The status quo of NFT is equivalent to the status quo of the L1 public chain battle. There are only a handful of NFTs that can be named in other public chains, but this is only the status quo. At present, most of the popular NFTs are of the PFP type (personal avatar type), followed by the art type. Almost all blue-chip projects in these categories are on the Ethereum chain. However, the drawbacks of high GAS and low TPS of ether make more GameFi NFTs deployed on the BSC chain, and Flow , which is well-connected with sports and entertainment capital, may be a hotbed for the development of sports and music NFTs…more The development of chain competition, I think, can progress.

I believe that the end point of NFT is not the market value, but NFT as a tool that makes people unperceived and ubiquitous, imprinted in the blood of crypto.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/how-should-nfts-be-valued-consider-three-aspects-of-technology-function-and-hedonic-value/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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