NFT involves many categories such as art, games, etc. Whether to purchase an NFT is usually closely related to personal hobbies and tastes. However, as a type of digital asset, asset attributes determine that there are bound to be many ways to allow us to evaluate and value it subjectively or objectively. In addition to a purely subjective perspective, there are some methods that can help us judge the value of an NFT and judge whether it has potential as a collectible.
Traditional data valuation methods
At present, according to the valuation theory, there are mainly three valuation methods: income method, asset method and market method. All three methods can be used to determine the subject matter to measure the fair market value.
In terms of income method, in order to value NFTs, investors need to judge their profitability (ie, economic benefits or cash flow). This kind of cash flow can empower creators in the form of payment for secondary creation, royalties, etc. In this case, investors can estimate the additional costs in the circulation of appropriate NFTs.
Using the method of exempting royalties can be used to obtain the fair market value of the NFT of the subject matter. This is an income-based method whose value is based on the cost savings brought about by owning the underlying assets of the NFT without paying royalties. . For example, if an artist creates an NFT music album, the investor can estimate the income stream related to the underlying asset and apply the appropriate royalty rate to calculate the savings in royalties. For example, on Ethereum.org, the original owner of EulerBeats receives an 8% royalty every time it sells an NFT. Once the balance of royalties is calculated, it can be adjusted to the after-tax basis and converted to the present value. The discount rate should take into account the inherent risks associated with this type of asset, and the sum of the present value of the after-tax royalty savings will represent the fair market value of the underlying NFT.
Regarding the asset law, we can treat NFT or NFT ownership as a combination of asset holdings and non-operating. The fair market value of a single NFT asset can be approximated based on comparable NFT asset classes currently in several NFT markets. In addition, if digital assets unique to a particular project are used to purchase NFTs, the value of NFTs is likely to be determined by the value of the digital assets used in the transaction, and the data involved in the transaction can better reflect the fair market value.
Finally, applying the marketing method, generally speaking, the popularity of NFTs cannot be separated from the marketing drive, and most of the popular NFTs have corresponding companies behind them. When using the applied market method, investors can choose comparable companies with NFTs as their main business, or companies with NFTs as investment, and determine the appropriate valuation multiples applicable to the subject of evaluation. The selected multiple may include, for example, the ratio of enterprise value to revenue, the ratio of enterprise value to EBITDA, and so on.
Through the research of the companies behind NFTs, the analysis of NFTs’ transaction multiples, such as the selling price, the ratio of selling price to the seller’s disposable income, or the ratio of selling price to EBITDA, can be used to determine and apply to the financial characteristics of the target entity.
Finally, it should be noted that the company may have one type of NFT or multiple types of NFTs as investment or non-operating assets, and it may also have other businesses.
Five key issues
1. Check whether NFTs are on the chain and are they changeable?
Nowadays, most NFTs are cast on the chain, relying on their respective Ethereum smart contracts to exist, which means that NFTs can exist for a long time. On the other hand, some NFT projects rely on external off-chain providers such as AWS for casting. Although this is very simple and flexible to a certain extent, it also creates trust issues. Therefore, users must believe that the project can persist and keep their servers running. Otherwise, the validity period of the NFT may only be a few years.
Data source: NFTGO
2. Are NFTs issued in unlimited quantities, or are they scarce; what are the relative scarcity and absolute scarcity?
In the NFT ecosystem, we will see that there are only two versions of NFTs released by creators and multiple (such as 10, 50, 100, etc.). Obviously, unique NFTs are very scarce, so they are more valuable than a large number of works. However, this does not mean that a large number of versions of NFTs are worthless. We often see that the unit price of a large number of NFTs is as high as thousands of dollars, and the degree of rarity of NFTs in a collection needs to be paid attention to.
BAYC has issued 10,000 NFTs, each of which is a unique data source: NFTGO
Similarly, the number of NFTs released by creators within a year is also worth paying attention to. Is it tens of thousands or a few? Figuring out the production speed of a particular NFT is the key to understanding its value. A project with an unlimited amount of NFT and a unit price of 0.01 is usually not as attractive as something created by an artist who only produces 25 NFTs. Of course, those outstanding artists who only release a few selected works each year often sell their works higher than those of the same level who release works several times a week, and they often sell out before they go public.
3. When was NFT cast?
NFTs can also evaluate the value based on their casting time. NFTs will begin to heat up at the end of 2020. Therefore, NFTs before this time period have a certain status of “digital cultural relics”-the earliest works in this digital cultural revolution . However, the development of NFT is still so early that the “casting time” factor has not yet played a role. In the end, it may be that any NFT or anything established before 2030 may have special meaning. At the same time, the earliest NFT projects have received impressive valuations (such as CryptoPunks). These NFTs were born in 2017, and this fact has attracted the attention of many collectors.
Data source: NFTGO
4. Does this type of NFT have aesthetic value, or does it have a strong community?
We are beginning to see more and more visual NFT works accompanied by audio. This dynamic effect provides users with a richer artistic experience than ordinary NFT. Who doesn’t like to hear music while playing their NFT? With this in mind, audio can increase the sensory added value of NFT, especially when audio is done in collaboration with major artists. It is expected that audiovisual integration will become an artistic norm through NFT.
If a person who has no fans and no history of NFT creation puts an NFT on OpenSea and there is no publicity, will this work be sold? If there is no further effort, of course it cannot be sold.
This is why the NFT forged by a major artist or creator has value. Importantly, involving the community can create demand. Naturally, the more popular creators and the larger the community, the more valuable NFTs are. This dynamic is basically applicable to any market.
5. What have the giant whales been paying attention to lately? What are their historical records?
Subjectively, in addition to being a buyer, one’s own hobbies and preferences in the art world. We can track influential people. If you invest in an NFT collection too early, it is very likely that you will not see the benefits, but if you track an influential seller, we can see his personal sales behavior over a period of time to track the sales trend of an NFT product. You can also track those “giant whales” to observe how influential buyers make money by buying and selling NFT assets.
Data source: NFTGO
Looking at the credibility of the trading platform, many influential NFTs happen to be sold on the same big platform. Endorsed by the platform’s reputation can start with NFTs with better qualifications. By looking at the sales history of an NFT, when we see that the price of an NFT continues to rise, we know that its development momentum is good, and it may be a good time to start.
When evaluating NFT, there may not be a right or wrong answer, but if you try to make a valuation, you will inevitably consider many dynamic factors. The best option is to take a holistic approach to understand all aspects of a work before making a decision.
How much is this NFT worth in the past? How much is it worth today, and how much will it be worth in the future? Over time, how does its value change, whether it changes rapidly or suddenly, will it grow or fall into a trough? In-depth study of these issues can help to better evaluate NFT.
How to quickly grasp first-hand information?
NFT is mainly minted on various chains such as Ethereum, Flow, and BSC, and each blockchain has an isolated protocol ecosystem. Although these individual protocols provide a variety of NFT experiences, the decentralized trading market will face huge challenges when trading and viewing NFT information, or spreading across multiple protocols. On the one hand, users who are new to NFT may not know which exchanges are available to purchase NFT. On the other hand, there are different trading interfaces for different transactions, which increases the user’s awareness and learning costs to a certain extent.
Imagine that you want to find the NFTs of the hottest projects in the trading market, or your favorite encrypted artworks, and it turns out that the NFTs of the projects on the BSC chain cannot be found in the Ethereum trading market, or, Even under the same chain, you need to switch between different trading markets to see all NFTs. If you are an investor, maybe you want to see the current data and various indicator information of all NFT markets, but because the information on each chain is too scattered, the data that you can see immediately in “a few seconds” becomes It takes tens of minutes to calculate.
In this endless NFT world, the chain carries a huge amount of information. For most people who are new to NFT, they often feel that there is not enough time and will spend a lot of time searching for content, but still can’t find enough useful information.
Data aggregation refers to the aggregation of information and data related to themes of the entire network, and placing all data in different categories in one place for users to access. On the one hand, the data display function, the data aggregator is like a huge search engine, only collecting necessary information, eliminating all unnecessary information, on the other hand, the data analysis function, data aggregation can be algorithmic and influence from massive data Factors generate various indicators and valuable information for users’ reference.
The NFT aggregator is to gather all kinds of NFT transaction information on major chains in one place, saving time, improving efficiency, and achieving a better transaction experience. The aggregator has a large amount of NFT information and also provides a wealth of data dimensions. Users only need a platform to understand the current NFT data or market, and even directly access and purchase items through it.
In addition, instead of searching for NFTs on Google or Baidu, users can search directly in the aggregator to be more accurate and efficient. The current good aggregation platforms include CMC’s NFT section, NFTGO, Token Terminal, nonfungible, etc. Later, NFT Labs will also write a comparative analysis article on different data platforms to help you choose the platform that suits you.
All in all, different people will evaluate NFT in different ways. In addition to the basic information and objective description of the NFT, when we look for a valuable NFT, we must also form our own bird’s-eye view around all its data and information. With such an evaluation process, we can discover valuable NFT products and stand at the forefront of NFT ecological research.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/how-to-find-a-good-nft/
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