Cozomo de Medici’s personal collection of NFT, aka Snoop Dogg (Photo: OpenSea)
The NFT phenomenon seems unstoppable. OpenSea, the largest marketplace, reached $ 5 billion in volume in January alone, traded by over 500,000 users. Nft.Nyc, the first global event dedicated to NFTs, gathered over 5,000 attendees in New York City a few weeks ago, and some of the most followed characters on Twitter bought Nft to define their avatar in the metaverse (the latest among them , Paris Hilton).
OpenSea monthly volume (Photo: @ rchen8 on Dune Analytics)
The NFT market is huge: exchanges do not take place only on OpenSea, and not only on Ethereum. There are many other marketplaces and above all many other blockchains in which NFTs can be created, sold and exchanged. As with cryptocurrencies in 2017, NFT collections are also a bubble in the sense that the vast majority will lose 99% of its value after a few months. There are some aspects to consider in order to understand if an NFT will hold its purchase value, but first it is necessary to describe the meaning of some terms:
- Collection Nft: is the set of several NFTs with common characteristics
- Floor price: is the purchase price of the NFT with the lowest price
- Mint (English verb): it is the action of generating a new NFT by interacting with the smart contract
- pfp (all lowercase): stands for profile picture.
These definitions are essential to understand if an NFT will keep its value over time, and if it really makes sense to buy it. The criteria described below do not have to be taken individually, but a correct analysis must take into account all the criteria at the same time. (Note: market conditions may change over time, as well as the dynamics of interaction between users and the perception of value, so these aspects are only indicative and intended as guidelines, not as instructions for use).
The type of collection
First of all, you need to know how to recognize the right Nft collection. Not all collections are set to go mainstream or have a purpose in the crypto world. There are basically three types of collections that have enjoyed increasing success in the last 4 years:
- Generative art collections: they are created only with the mint on the site dedicated to the collection. They are usually limited in quantity (often 10 thousand units) and each unit has a unique and unrepeatable characteristic over time, generated by an algorithm with random variables. One example is the collection Art Blocks.
- Collections ‘pfp’: collections of avatars generated with predefined components. Usually restricted to 10,000 units, it is the best known type of collection. The acquired image is put as a profile photo on various social networks, especially on Twitter where in the United States it is already possible to connect it to the actual NFT. An example is the Bored Ape Yacht Club.
- Collections of metaverse characters: An Nft can also represent a character to be used as an avatar in a game in the metaverse, for example in The Sandbox O Axie Infinity. It can be customized and enhanced with other NFTs and tokens, and in this way increases in value.
Floor price e volume
The floor price is a great indication ofmarket interest towards a collection: it can also be identified as the price at which the NFT can be liquidated. In a nutshell: if you have an NFT bought at 1 Eth, for example, and after months the collection has a floor price of 2 Eth, then it means that there are excellent chances that, as soon as it is put on sale at a price of 2 Eth, someone buys it in a short time. This reasoning holds true if, together with a high floor price, there is also a volume Consistent: The larger the daily volume, the greater the chance that one of the trades generating that volume could be yours.
This Dune Analytics board is a great way to analyze floor price trends over time for the most popular collections.
And metadata
Unlike what you might think, an NFT is not a certificate of a digital asset, but it is the good itself. Everyone can access it, just as everyone can go to the Louvre to see the Mona Lisa, but only those who have the keys can see it in their collection, sell it or even rent it. But many NFT creation services, including OpenSea, save NFT information (i.e. attributes and content) on their servers, so if for any reason those same servers go offline, or if OpenSea fails, those Nft would no longer have attributes or content, and therefore no value. For this, it is necessary to check that the NFT you are purchasing is permanently saved on the network, through decentralized storage services such as Ipfs O Arweave. Fortunately, platforms like OpenSea itself now display NFT badges whose information is permanently saved.
The Permanent badge on the NFTs of the Bored Ape Yacht Club collection (Photo: OpenSea)
The author
Regardless of the type of collection, and with a view to the future, the value of an NFT is also given by its history of creation. If an unknown artist has created a beautiful collection of generative art with very particular formulas, the floor price of that collection will still be lower than a collection of Cozomo_de_Medici, aka Snoop Dogg, just because he created it. The value increases in correlation with the importance of its author, and his activity in the crypto world (Snoop Dogg has been very active as an NFT trader in the last 12 months, for example).
History
The last aspect of the value of an NFT is also a question of hype: its history. If an NFT has passed through the Paris Hilton or Tom Brady wallet, it automatically acquires more value because the history of the transfer of ownership is indelibly written on the blockchain. It is the equivalent of buying a shirt worn or signed by a famous footballer.