NFTs: How To Use Fundamentals to Assess Value
2022.04.22 15:06
NFTs: How To Use Fundamentals to Assess Value
- NFTs have become very ubiquitous in the world.
- Factors such as art, utility, liquidity, and social proof reveal the value of NFTs.
- Also, NFT fundamental analysis is important before the investment.
NFTs are a new asset class taking the world by storm. This is why there is no rule book on how to assess their valuation. The parameters we use to evaluate traditional investments simply do not apply to these assets. Typically, the last buyer’s payment provides some indication of the worth. However, with NFTs, it’s difficult to predict what the next buyer would pay based on their estimations.
As a solution, there are a few fundamental factors that one can consider before making any NFT investments. While there are no such factors that can guarantee success, looking for projects that follow a few fundamental principles might increase the chances.
Factors to Consider While Evaluating NFTs
The world is right now on its path to mass adoption of web3, and there is no defined framework for assessing NFT projects. However, there are a few factors one can consider to evaluate NFTs.
The Art
When investing in NFTs, it may seem self-evident that the art is quite important. And, for the most part, it does matter. Some people like complex 3D art, while others prefer basic hand-drawn work. Furthermore, some artwork stands out for being hilarious, cool, or ‘memeable’ and this adds as a factor to consider before investing. In fact, we’ve seen projects with these traits succeed. Cryptopunks is by far the greatest example of this.
Utility
Utility emerges as a major metric for evaluating NFTs. An NFT must have usefulness in a real-world or online application in order to be valuable. For example, NFTs that enable the tokenization of real estate, precious metals, and even equities might be seen as prospective investments. Even NFTs that represent virtual land or gaming assets can have the potential to be appreciated in value.
An NFT derives its value from its intrinsic qualities right after it is minted. The value of the underlying project grows with time, based on its utility and community strength. CrayonDAO’s High Sloth Society (HSS) collection is a great example of NFTs providing multiple utilities.
Social Proof
Another deciding criterion in determining the value of an NFT is the social proof linked with the initiative behind it. Checking their social media pages, such as Twitter (NYSE:TWTR) and Instagram, can assist determine their acceptability. Social evidence reflects what the general public thinks about a project and aids in decision-making.
Furthermore, another point that would come under the category of social proof would be the team behind the project. If they are anonymous, what their backgrounds are, who they are, and what their reputation is.
Liquidity
NFTs with high liquidity also have a greater value. Secondary markets provide a frictionless environment for trading NFTs, allowing purchasers rapid access. Traders like to invest in NFT categories with a large trading volume since more liquidity makes it easier to grab profits. Even if the related platform is shuttered, a highly liquid NFT is more likely to preserve its value.
Importance of Fundamentals Analysis for NFT Investments
Everything in a given discipline relies upon the fundamentals and this is also true for NFT investments. One cannot simply invest in any random projects that pop out on Twitter. NFT fundamental analysis is very significant just like the crypto-token fundamental analysis. It is the basis on which one can make decisions to invest or not.
Although NFTs are still in their early development stages, the fundamentals have already been established; the majority of which originates from fungible tokens such as cryptocurrencies. While not all NFT projects include all of the stated fundamentals, there is a handful that stands out from the others.
And, one among them is the High Sloth Society (HSS) NFT collection by CrayonDAO. HSS is an NFT PFP collection aimed at bridging the sacred artifact of Korea and the crypto space. The project helps people participate in the preservation and ownership of values that come from the upper echelon of collecting, culture preservation, and heritage.
Beyond that, HSS’s rare collection offers plenty of utilities. Exclusive membership to the HSS club, governance/voting rights, future whitelist access along with passive income opportunities are some of them.
Sticking to Fundamentals is the Key
NFTs have no surefire formula for investment success. They can be risky and even promising ideas often fizzle out. Also, what you believe to be excellent artwork may not be appreciated by others. Having said that, the majority of the greatest NFT investors tend to stick to the fundamentals to make the most of their investments.
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