How to Assess the Value of NFT?
Introduction
The Crypto market is one of those industries that is constantly booming with time as new assets such as Altcoins, Stablecoins, and other project tokens are becoming popular among the youth. However, from the last few years, there is another kind of digital asset, which is not only attracting celebrities and creators, the brands and businesses are jumping on this bandwagon too!
That new digital asset is known to be NFT (Non-fungible tokens) which are spreading virtually across the decentralized industry and bridging the gap between the real and digital world.
Why NFT value is worth a million dollars?
Fungible tokens and non-fungible tokens are two kinds of tokens in the crypto world. Unlike fungible tokens which can be replaced and exchanged, Non-fungible tokens have a different approach. Each of the NFTs is different in nature, they cannot be replicated or exchanged with another token.
Thus, the category of this kind of asset is based on its distinctive and authentic qualities. As the NFTs cannot be replicated, they can be easily verified and can always belong to their original creators.
How to calculate the value of NFT?
Depending on the asset represented by NFT, the four main components can determine the value of a one-of-a-kind asset.
The formula for the same is:
Value of an NFT = Liquidity Premium + Ownership History + Utility + Future Value
This framework is used by investors to examine and estimate if an NFT is worth investing in or not. Developers also use this to think of ways to increase the value of NFTs to attract users and investors.
Basically, the key structure of this formula is that NFT creates many ways for values to be created for both the developers and investors.
- Liquidity Premium: Higher liquidity results in a higher value of NFT. It is the primary reason why tokens that are created on-chain have a higher value than off-chain assets.
There are some cases where this digital asset loses its value after the associated platform is closed, the high-level NFT still has the value till the time users will buy and sell.
- Ownership history: Two key factors on which value is dependant are: The previous owner of non-fungible tokens and the identity of the issuer. The high ownership history is mainly of those NFTs which are created or issued by well-known artists or brands to build a strong presence among the audiences.
The value can be increased by:
- By cooperating with businesses and organizations that have strong brands for issuing NFT tokens, as it will naturally bring users and traffic to the ecosystem.
- By reselling NFT which were previously owned by authoritative people. As this new asset is a relatively newer concept, it is challenging to find out the previous owners. However, the marketers and sellers can bestow an easy-to-use tracking interface for increasing the value of Best NFT Marketplace.
- Utility: Dependant on the NFT value, the usage of utility value can be determined. Two major categories having high utility values are Tickets and Game assets.
Another way to increase the utility value is by forming partnerships with other brands and companies that will provide benefits to people who are holding your NFT. Hence, a win-win solution for both the parties involved!
- Future Value: Both future cash flow and valuation changes can be derived from the future value.
The valuation is done by speculation and at times, could be the primary reason behind price appreciation. This is driven by speculation and scarcity.
To conduct the speculation, the main focus should be on NFT by including the price performance of non-fungible items or through appreciating in value.
What are the elements of NFT value?
Due to a newer concept, the exact value cannot be determined. While fungible tokens can easily be understood because of their defined value; the same is not in the case of non-fungible tokens. Investors take a lot of time to analyze and evaluate whether the asset or collectable is worth investing in and if they want or need it.
Three main elements are:
- Tangibility: Some values of NFTs are given in terms of tangibility as they are restrained to real-world objects. In other words, they are backed up by ownership immutability. Essentially, any object is able to back up by non-fungible tokens to solidify owner rights. But, there is no surety of making it unique or of high quality. Scarcity, practicality, and personal satisfaction are three of the factors that determine the value of the object.
- Rarity: Non-fungible tokens are rare and challenging to find. The innate value of this type of digital asset intrigues lots of people; the owner of the NFT possesses the blockchain proof of ownership. Accordingly, offering a sense of distinction and determining the superior value of NFTs.
- Utility: The utility of non-fungible tokens comes from their real application; no matter if it is the digital or real world. Hence, giving NFT an expeditious value that arises with time; nonetheless, the popularity contributes too in this scenario. Is DeFi’s growth a hype or an opportunity
Final Thoughts
The value assessment assists in acknowledging the supply and demand dynamics while taking the above elements and framework into consideration. Although it is probably a matter of individual perspective, the intrinsic value obeys ‘n’ number of market rules. Cutting it short, NFT value hinges on long and short-term resale value.
This may sound exciting but go ahead with it only after examining and analyzing the factors, risks involved with it, and if you will be able to bear the loss. Research deeply by taking all the aspects and then only proceed further!
