What Makes an NFT Valuable?

Hannah Scherwatzky

What Are Non-Fungible Tokens (NFTs)?

NFT stands for “non-fungible token”. A “fungible” asset refers to something that is interchangeable with another unit of that same asset. A good example of a fungible asset is the US dollar. If I exchange my $1 bill for your $1 bill, nothing really changes. Both bills represent the same exact value. That’s fungibility. 

Conversely, a non-fungible asset refers to something of a distinct value. There are no two exactly the same. A good example of a non-fungible asset is a house or a car. A non-fungible token is where things get really interesting. Blockchain technologies allow us to implement a lot of radically new ideas that weren’t before possible. A non-fungible token allows us to create a digital certificate that represents a unique asset. We can attach these tokens to pretty much anything, including digital files—say, a photo, a video, an audio recording, or even this article. This allows us to create proofs of authenticity for digital content that can be owned, bought, sold and traded. Because these tokens are stored on an open and distributed blockchain (such as Ethereum), their embedded metadata and transaction history are completely verifiable by anyone in the world with an Internet connection. That means we can all know what digital wallets own what tokens at any given point in time. 

The implications of this are truly infinite, and we’ve just begun to scratch the surface of possibilities.

What Types of NFTs Are on the Market?

It’s important to note that ‘NFT’ is a very general term. Many different types of NFTs exist on the market and the variety should increase over time as more use cases for the technology are discovered. There are currently ten main categories of NFTs:

  • Art 

e.g. - Beeple, Chromie Squiggles, Where My Vans Go

  • Collectibles

e.g. - CryptoPunks, Bored Ape Yacht Club, VeeFriends

  • Membership passes

e.g. - Proof Collective, Quantum Key, VaynerSports Pass

  • Tickets

e.g. - VeeCon, Rocket Factory Mothership 

  • Virtual Land

e.g. - Otherside, Sandbox, Decentraland

  • Domain names

e.g. - ENS domains, Unstoppable domains

  • Gaming

e.g. - Axie Infinity, Sorare, Illuvium 

  • Fashion

e.g. - RTFKT, Adidas Originals, 10KTF

  • Music

e.g. - Royal, Snoop Dogg, Spottie WiFi

  • Film

e.g. - Calladita, Keepers of the Inn

What Makes an NFT Valuable?

NFTs have two main sources of value: collectibility and utility. These characteristics are both subjective and oftentimes not easy to define. Understandably, two people may assign very different valuations to the significance of an art piece or the benefits of going to a conference such as VeeCon. This is why it can be helpful to have a framework for understanding why specific NFTs have value. 

An NFT may have collectible value for a number of reasons. First, an NFT may be desirable due to its historical nature if it was created prior to the current adoption cycle of the industry. Second, people may want to collect a specific project because it represents some level of technological innovation. Third, an NFT may be collectible if it was launched by a significant brand or culturally relevant creator. 

A little history lesson. ‘Crypto art’ was perhaps the first true use case of NFTs. Most projects that launched between 2014-2019 were art-forward collectibles such as Rare Pepes, Curio Cards, and CryptoPunks. Being early artifacts of the blockchain, these collections remain very much in demand. Market participants assign significant value to them because of their OG status. Moving further down the timeline, there are certainly a select group of art projects thriving in today’s market such as Fidenza by Tyler Hobbs and Where My Vans Go by Drifter Shoots. While many NFTs have value exclusively due to their collectible nature, most digital goods launched in today’s environment derive their value from utility. 

NFT utility comes in many different forms. The two most widespread examples are token-gated access to content and IRL (in real life) events. A plethora of projects, such as Kevin Rose’s Proof Collective, create content exclusively for holders. In other words, you can only access and consume specific content if you own a Proof Collective membership card. Additionally, most commonly during the largest Web3 conferences, NFT projects will host parties and large events that are only open to holders. In terms of IRL utility, some brands will allow NFT owners to claim limited-edition merchandise which typically have substantial resale value. 

To address the other common types of utility, let’s use the Bored Ape Yacht Club (BAYC) as an example. BAYC has a history of rewarding holders in a number of ways. Most notably, they've conducted multiple successful airdrops. Airdrops are events where the team behind a project sends additional NFTs, or fungible tokens, to wallet addresses that own a specific asset. ApeCoin was the largest BAYC airdrop of this market cycle. Each Bored Ape owner could claim 10,094 $APE tokens per ape, which equates to $38,000 today. These tokens can be used to participate in the ApeCoin DAO, also known as a decentralized autonomous organization. Owning any amount of $APE tokens grants holders the ability to propose ideas and vote on various initiatives related to the project. Directly participating in governance is an increasingly popular source of utility among NFT projects. 

How to Look up the Values of NFT Projects?

Now that we’ve established the different types of NFTs and the reasons behind why people may assign value to them, how do you actually look up market prices? The most common way is to search on OpenSea.

One option is to look up a specific collection using the main search bar. Collection pages display important statistics such as current floor price and all-time volume. Alternatively, you can hover over the stats tab in the navigation bar. This will present you with a button to check out the rankings page where OpenSea lists projects according to a broader range of statistics. You can also filter through to different time frames including 24 hours, 7 days, 30 days, and all-time. 

Cryptoslam, NFT Price Floor, and Nansen are other useful resources for researching NFT values. These platforms aggregate prices from multiple marketplaces and are fairly easy to navigate around.

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