6 key indicators for NFT collectors: how to evaluate an NFT project
The popularity of NFTs (non-fungible tokens) is growing due to the emergence of new applications and ways to use tokens in a wide variety of areas.
Main conclusions:
- NFTs are incredibly popular in the decentralized market due to their limited supply, value, and universal application.
- When buying NFTs for speculative purposes, users need to consider several basic factors to assess potential value.
- Among them: practical application of NFT, rarity, community scale, trading volume, potential and source.
1. Practical application
The usefulness of the NFT depends on the actual use cases of the token in the physical and/or digital world. As the two worlds converge, there is a need for an asset class to transfer value from reality to the digital world.
2. Rarity
Rarity or uniqueness is the main property of NFTs. Some NFTs are created by famous artists. Other NFTs are tokenized assets from the real world. All NFTs are unique, anyone can verify the ownership and authenticity of the token. NFT cannot be changed, but the owner of the token can change in case of buying, selling, donating or exchanging NFT. As a rule, the value of NFTs with high demand is greater.
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3. Community size
The community is a decisive factor for NFTs, since its size determines the number of potential users and buyers in the open market. The larger the community, the more people will remember NFTs. For example, the community of the popular Bored Ape NFT collection is large and active. Due to its size, a wider audience will learn about the project. Another important factor to consider is the number of NFTs in the secondary markets. The abundance of NFTs combined with low auction prices or low buying activity may indicate that supply is outstripping demand.
4. Potential of NFTs
The potential determines the development opportunities of an NFT project based on the rarity and size of the community. The upside potential can be estimated by examining the supply/demand ratio for NFTs.
NFTs with strong community support may be more valuable: in the future, the project is likely to be more successful, demand will increase, and NFTs will become relatively more in demand, and therefore more valuable.
5. Source
This point is related to the origin of NFTs. Thinking about buying an NFT, the user should first of all find out about its author. It is worth, among other things, to find out about the biography of the creator, the background of NFT, to assess the popularity of the author in the market.
The more famous the author, the higher the chances that his work will be valued in the market.
6. Personal taste
There are objective criteria that should be taken into account when deciding to buy an NFT, but do not forget about subjective priorities and individual preferences. The user may simply like the NFT for several reasons: because of the image and for aesthetic reasons, because of the personal connection with the work, the relevance of using the NFT, or the relationship to the author's project.
These are just a few of the factors that influence a collector's personal appreciation of NFTs.
