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NFT 2.0 Era: How to Comprehensively Evaluate the Value of NFT Projects?

As a popular concept throughout the recent bull market, the emerging innovation in the NFT field has become the key to its continued popularity. Now I think NFT has ushered in the “2.0 stage”. The characteristics of these NFT 2.0 projects are that they can bring more practical rights to users , including but not limited to generating income, commodities, private yacht parties, Michelin star omakase Exclusive access rights, coffee beans, membership in the Alpha Group, playing and earning games, musical compositions, meeting celebrities, access to IRL events and parties, and more.

NFT 1.0 projects like CryptoPunks and Art Blocks triumphed by building gated small groups around their digital collectibles, while NFT 2.0 teams focus on using the Web3 technology stack to tell stories and build worlds, creating positive system dynamics. The NFT 2.0 team is trying to build a socio-cultural environment, or can be understood as a set of belief systems, to organically form Web3 lifestyle brands that are decentralized by the community.

This development makes the space even more difficult to navigate. Therefore, this article aims to help readers identify quality projects. As a person who has worked in the NFT field for several years, in this article, the author proposes a method for evaluating NFTs, mainly for virtual images on Ethereum and “Metaverse” NFTs, which are also the most popular NFT categories at the moment.

Evaluate NFTs

NFT 1.0 projects can be assessed by their artistic value, while NFT 2.0 projects need to be assessed based on their potential risks. That said, the lifespan of a project depends on smart resource allocation, which will generate long-term holder benefits, which in turn feed back into increased demand for the underlying NFT.Since business sustainability is a prerequisite for long-term value generation, this assessment process is similar to the process of finding high-growth companies with sound business models.

Therefore, NFTs in the early stage (floor price below 2 ETH ) and growth stage should be viewed with different evaluation criteria. Early-stage projects focus more on narrative, storytelling, and experimentation, while later-stage projects focus more on granting utility to holders and generating revenue through sound treasury management. Therefore, the evaluation of NFT should also use fundamental and technical analysis, specifically looking at innovation potential, management, community strength, on-chain indicators and macroeconomic indicators.

Innovation potential

Are there unique ways for NFT projects to advance this space? Does it have some kind of unique advantage?Broadly speaking, innovation can take many forms.

  • Technically: Space Doodles (not simply additional issuance or airdrop, but value-added by re-customizing NFTs)
  • Artistic: Cyberbrokers (on-chain artwork composed entirely of compressed SVG).
  • Finance: Nanopass (each pass generates a weekly BlackBox funded by the community treasury)
  • Ideology: Loot (decentralized and composable world building infrastructure), Pak’s ASH ecosystem (burning Pak NFTs for ASH tokens via burn.art).
  • Social sector: Proof Collective (alpha group with holding thresholds
manage

For NFTs, the most critical is actually not technological innovation, but economic model and cultural innovation. They can become new media for social communication and organization. As such, storytelling is one of the most underrated but also one of the most important metrics when evaluating an NFT project.Good management knows how to control the narrative, which means they under-promise, over-deliver, and drive expectations by using deliverables to incite hype and FOMO. For example, if done right, airdrops can increase the flow of capital into the entire NFT ecosystem by attracting priced holders, anchoring higher floor prices, and incentivizing the community. And airdrops are just one of many value-added deliverables whose management can make or break a project.

Also, it is important to take the time to do due diligence on the team. Who are the founders, have they been or are being sued, can they lead, grow and drive the organic growth of the project? Is there a good balance of artists, community moderators and development on the team? While the MekaVerse series has great art and launched earlier than some of the current top projects, management has proven inept when it comes to continued growth and has handled fraud scandals and Discord hacks poorly. The series has since faded out of sight, dropping from a floor price of 8-9 ETH to 0.4 ETH.

 

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While decentralization is a core principle of Web3, most NFT projects, at least initially, require the leadership of a strong, centralized team. When you’re investing in a project, it’s important to remember that you’re also investing in people, and make sure you spend enough time to understand who’s working behind the scenes.

community power

As an extension of the previous point, the strength of a community depends on the team. More specifically, a team must be driven by mission, values, and vision, and leadership must effectively mobilize resources within the community. In contrast, both Azuki and BAYC have strong core values ​​that they build upon and rely on to help founders weather the storm and stick to their roadmaps. Teams with these elements found that after a healthy pullback, speculators were washed away and replaced by steadfast believers. Teams without this value-based belief found the opposite.

Speaking of which, there are some easy ways to measure the strength of a community, like checking their Discord and reading chats and checking Twitter: how do people rate it? How many followers do they have?What is the engagement/follower ratio? Are engagement levels artificially increased through tactics such as giveaways? Are people trying very hard to be whitelisted? Check Google search statistics. Check other Discords channels for alpha chat: are they talking about it? Perhaps most importantly, are giant whales involved? A giant whale following a project is worth more than 1000 anonymous followers. Of course, beware of giant whales whose projects pay for advertising, and proceed with caution.

Another approach to community building is bottom-up. Web3 is ultimately about decentralized ownership and increased creator emancipation. This creates memory points, a lot of memory points. The community grows stronger if there are great memos and spinoffs that spin out of a project. For example, the Mfers by Sartoshi collection does not have any centralized team, nor does it make any value-added commitments to its holders, but has grown tremendously. Mfers are also CC0, so anyone can do whatever they want with NFTs. This freedom has led to the explosive growth of Mfers’ cultural influence, embodying the origins of Mfer’s utopia, where all holders vibrate in a state of harmony. “Let’s toast Dionysus!” said the cigar-smoking, black hoodie-clad Dominator Mfer. “Stop the Apollo chatter,”. As Sartoshi himself wrote: “I don’t know what this is going to look like in the end — that’s the problem… No one knows…. I think the best I can offer Mfer holders is The valuable thing is to amplify their best ideas and creations to reach a larger audience.”

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 Sartoshi 

macroeconomics

Cryptocurrencies are still highly correlated with the performance of macro financial markets, and NFTs are also one of the important crypto assets. If the broader market is vulnerable, NFTs could collapse. In our current moment, with the Russian-Ukrainian war, rising inflation, and panic in the public market, investing in NFTs should be done in an extremely cautious manner.

However, as fear, uncertainty, and doubt ease, blue-chip NFTs, broadly defined as the collection of floor prices over 2ETH and trading volumes over 10KETH, will see a recovery first. In addition, these series will also be relatively less volatile, as the prices of small-cap growth projects are adversely affected by high gas fees.

Because once the market starts to recover, the popularity of altcoins on DEXes will pick up, which will clog the network. This will increase the transaction cost of NFT, which will discourage many investors. Although the price of blue-chip NFTs will also fall with the sharp decline in the currency market. However, due to the existence of buying, NFT will rebound quickly after the price of ETH stabilizes. In general, when ETH rallies or plummets, NFTs are negatively impacted because they are at the end of the asset class risk curve.

Notably, during an economic downturn, perceptions of blue-chip NFTs are more likely to be based on USD than ETH. Finally, the trading volume of the NFT market is an important indicator to measure the market demand for NFTs, and a lower trading volume usually indicates the arrival of a bear market. Overall, while the macroeconomic impact on NFT prices remains controversial and legitimate concerns point to a bear market hit for the foreseeable future, the long-term dynamism of the space remains to be expected.

Selection of specific collections in a series of projects (internal evaluation of the project)

Picking the right NFT in the collection can sometimes be a challenge once you decide to invest in a specific project. Typically, the floor (the most common NFT in the ensemble) brings better value to each NFT due to the lower base fee for the underlying deliverables.

For example, the CloneX series produced 3 derivatives worth 2-3 times their public sale price, while Bored Apes gave holders Mutant Apes, Kennels, and APE tokens. Buy 5 floors instead of a single rare item, as five floor pieces may result in a 5x token. Floors also provide superior liquidity than rare coins and are more sensitive to price fluctuations, as floor NFTs are in fact fungible, the prices of most PFP collectibles follow a log-normal distribution, and most NFTs are traded at floor value. Therefore, for most investors, the floor is the best option.

 

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While rare breeds have low benchmark values, poor price discovery, and poor liquidity, ultra-rare breeds can be an attractive option for long-term investors. Their value has held up better, and because of their ability to capture long-tail gains, they may be able to beat the floor in terms of long-term returns. In the high-end field of collectibles, NFTs have more artistic properties, as giant whales will gather together and collude to control the floor price of rare items. These rare pieces can fetch 5x – 25x the floor price, and for established collectibles like CryptoPunks, this multiple can be as high as 120x.

In addition, there is a native reason for Web3 to buy high-rarity works: because whales will be incentivized to keep the community strong. For a giant whale that already owns 100 NFTs, one more NFT means one less person who can buy it, and this person really identifies with the brand’s identity, but can only afford one. At one point Pranksy had over 1200 boring apes. This translates directly to 1,200 fewer potential BAYC members who can better grow the community and strengthen the brand. A capricious billionaire could buy Pranksy’s entire collection for a mere 800 ETH in April. Once so, Yuga Labs will be removed from the ecosystem. So, for whales who are bullish on a particular collection, the positive-sum strategy is to buy the rarity. On top of that, rare PFPs can be strategically exploited, as having a golden ape or xenopunk comes with an aura of legitimacy. If you’re long-term and have spending power, Super Treasures are your best bet.

source of liquidity

An avid speculator will seek liquidity from multiple sources. There are marketplaces that allow users to match buyers and sellers of NFTs via order books, the most popular being OpenSea , although LooksRare and X2Y2 have gained some traction with their novel incentive designs. However, long-tail assets in most markets end up illiquid. Therefore, it is common practice for traders to seek liquidity on an ad hoc basis by reaching out to buyers for over-the-counter transactions. Complex transactions involving combinations of multiple sets of NFTs and fungible tokens are common. However, this trading method is inherently very risky. Unless you’re tech-savvy and happy with what you’re doing, stay away. If you must do this, I only recommend using NFTTrader, an audited hosting service. Of course, NFTs can also be purchased through aggregators like Gem these days, because they aggregate liquidity from all markets, so liquidity is better.

However, the increasing DeFiization of NFTs provides novel solutions for liquidity sources. P2P lending protocols like NFTfi are being enhanced by P2Pool lending platforms like Pine and Bend that provide instant liquidity based on machine learning and algorithmic valuation. 0xmons even developed an AMM NFT DEX for Sudoswap. While an in-depth analysis of these new forms of liquidity sources is beyond the scope of this article, companies like Gradient, which offers NFT collateralized lending, yield mining, and Abacus, which offers NFT derivatives and exotic structured products, have received considerable market attention. Spend. I look forward to the perpetual contract trading of NFT floor prices through NFTues and Injective Pro in the future. An exchange-backed NFT marketplace will bring shelved capital into the space, making NFT transactions more accessible, while a better front-end design and integration with SocialFi will optimize price discovery and lead to the next wave of NFTs.

in conclusion

For an NFT 2.0 project, a successful investor must make a comprehensive judgment through intuition, market conditions, technical and fundamental analysis of why they believe the project will provide desirable value returns in the future. However, at a high level, when evaluating a PFP NFT, I recommend asking yourself if you would use it as your profile picture. Philosopher Walter Benjamin once pointed out that “ownership is the closest relationship a person has with an object”; do you want this JPEG image to represent you in the Web3.0 space? In addition, always remember that the most important thing in the market is opportunity, please resist the urge to trade every day, and learn to plan for a longer term.