Ten dimensions to evaluate whether an NFT project is worth "investing in."

2021-12-30 12:31:52

Collection

The rapid development of the NFT industry is the reason for the success of an NFT project today.

Author: NFT Labs

Original Title: 《The Top Ten Evaluation Dimensions of NFT Projects: Community, Artistic Value, Use Cases, Rarity, Storytelling…》

"How to determine if an NFT project is worth investing in?"

This is a common question in many NFT communities.

Some people spend large sums of money on courses to find answers, but data and analytical models may provide some direction. The rapid development of the NFT industry itself is a reason for the success of an NFT project; six months later, existing perceptions may undergo dramatic changes.

When answering the following questions, consider whether you can respond with "yes" or "maybe." If your answer is "no," be cautious. You may need to pay extra attention to this project to see if the answer changes from "no" to "yes." Otherwise, it might be worth looking for a new project.

1. Artistic Value of the Project

Let’s first address the most subjective question: successful projects usually have eye-catching and unique artistic value. While beauty is in the eye of the beholder, you may gradually see some trends in project aesthetics based on the popularity of apes and pixel art over the past few months, as well as the recent popularity of Doodles.

Ask yourself, does this art:

Catch the eye? Would you be willing to use it as your avatar every day, or keep it in your wallet, feeling joy each time you open it?
Stand out? Even when displayed as a small profile picture, can it be easily recognized by others?
Have clear contrasts? The design should have distinct differences in details. If the details are extremely similar, it’s hard to differentiate between the two.
Be unique? Unique projects consist entirely of different individuals. In a collection, each NFT should look different from the others. Generally, people prefer to own unique NFTs, which can attract different types of investors.
Be generative? Generative art also has uniqueness, but its uniqueness comes from the way it is generated. Generative art is composed of features that combine based on the design of basic elements. These features have varying degrees of rarity and usually look different from one another. This ensures you won't see many NFTs that look alike. In collections created this way, each NFT has a certain degree of similarity, belonging to a common theme.
Be timeless? This is closely related to the "trend" dimension mentioned later, as current popular styles can affect whether a project is well-received (apes, pixels, etc.). However, this can also be a double-edged sword. Trends are often temporary, so a collection that is popular today may become outdated in the future. Perhaps pixel art will lose its market appeal soon.

2. Community

This is one of the most critical factors in determining whether a project will succeed. Community culture can influence a project’s success or failure, and there are many examples of this. Currently, most communities communicate daily through Discord, sometimes relying on Twitter for interaction. The project community feels like an exclusive club, making you feel like you’re part of a trend or have found a group of like-minded family members.

Ask yourself, does this community:

Have activity? Can they communicate and interact regularly on mainstream platforms? Remember, newly established and small communities may not be very active at the beginning or throughout their operation, while larger communities tend to be much more active.
Feel genuine? Genuine and effective conversations are rare in Discord. Some projects hold contests where members repeatedly send spam messages to boost their rankings and get whitelisted. This can deter some people.
Create a sense of atmosphere? A community atmosphere is beneficial. This atmosphere can be reflected in the tone and energy of conversations. Whether it’s cool and calm, noisy and chaotic, or brotherly camaraderie, ensure it’s something you’re interested in and willing to participate in long-term.
Be organized? You want to see relevant channels and check if there are staff or senior members willing to answer questions about minting dates and costs, and observe whether the team fulfills their promises within a reasonable timeframe.
Have a brand? You want to see the project’s brand closely intertwined with its various components. You also hope the project brand can even transcend the mint itself.
Have more than 5,000 Twitter followers? Twitter provides a quality platform for NFTs. The more followers, the greater the exposure. New projects may have limited followers, but are they growing consistently?
Have more than 5,000 Discord members? Discord servers are helpful for promoting project discussions and facilitating conversations among community members about topics of interest. Smaller servers may seem quieter because members are spread across the globe, making real-time conversations difficult. You also expect it to provide you with the latest news. New projects may have fewer Discord members, but are they growing consistently?
Be large enough? You want to join a sizable community to facilitate the sale of collectibles. Ideally, the community should support each member owning about 2 NFTs. Therefore, for a collection of 10,000 NFTs, its Discord should have at least 5,000 members.
Answer members' questions? You should be able to find answers to many topics and questions raised in this article from the community and the team. If you don’t get any answers, try to dig into the reasons. Some projects may wish to hide certain details for later disclosure. However, if you receive no response at all and there are no signs that the team will answer questions, this is likely a bad sign.

3. Team

This is another key factor for a project's success. Currently, about 30 projects are minting daily, and incidents of backstabbing and cash grabs in the circle are common. Therefore, having confidence in the team is crucial.

Ask yourself, does this team:

Be transparent? Can you find team members on Twitter, LinkedIn, the project’s official website, or other social media? Knowing that the team is not just made up of anonymous individuals is undoubtedly reassuring, as those willing to share their real lives are often hard to hide when things take a turn for the worse.
Be active? If they participate in community affairs, answer questions, guide people in responding, or interact with other community members, it indicates their willingness to be part of the process and shows they value their community and are willing to invest time in it.
Have experience? In a brand new field, having experience can be a significant help, as experienced individuals often have a clearer direction for their actions or at least know what not to do. Additionally, experienced engineers, artists, project managers, marketers, community managers, and other key roles can bring a wealth of experience to the project itself. This experience can deepen trust in the project to some extent. The more experienced people there are in the team, the more likely the project is to succeed.

4. Roadmap

The importance of a roadmap for project success is increasing. A few months ago, launching an NFT project didn’t require a roadmap. The team just needed to throw out a bunch of NFTs, and people would spontaneously pick them up. But the situation has changed. Teams have realized that if they have phased products (a roadmap), they can drive the continuous appreciation of NFTs, allowing holders to retain their NFTs long-term. Investors have also changed; they expect to see a roadmap, no matter how simple. This roadmap can inform investors and holders about the future direction of the project.

Ask yourself, does this roadmap:

Feel credible? If the content sounds too good to be true, it probably is. Typically, completing a roadmap requires a large team of developers, designers, project members, etc. If the team isn’t that large, they are unlikely to achieve the roadmap’s plans.
Be vague or substantive? A detailed roadmap can not only be inspiring but also give those concerned about the project’s future a clear understanding. The roadmap can help the community know what phased achievements they can expect.
Have a timeline? You want to find business details or specific deadlines, such as Q1, early January, or November 27. These dates or timelines provide more details to the roadmap, instilling more confidence in members and reducing confusion and ambiguity.
Be competitive? The details of the roadmap can help you compare it with other projects, including project size, minting dates, minting prices, etc. By comparing, you can see the project’s competitiveness. If one of the elements far exceeds the standard level, try to find out why. Perhaps the project has a very large community, and due to fierce competition within the community, the minting price has risen.
Be value-driven? Nowadays, many roadmaps discuss their plans to provide value back to holders, which will soon become the norm. The next keyword, "use cases," will elaborate on this. Investors are looking for innovations that enhance the value they can gain from purchasing NFTs. Many roadmaps outline the rewards holders can expect from the project in the future.

5. Use Cases

Rich use cases mean that in addition to hoarding NFTs, the team also provides some additional uses for NFTs. As the NFT space matures, we will continue to see innovations in exploring NFT utility. Note that over time, many successful projects will gradually enhance or develop new use cases. When you first encounter this project, you may not be able to learn about this aspect. If you have doubts, you can ask the community and the team.

Ask yourself, do these use cases:

Be easy to understand? You want to easily grasp the project’s use cases. If the use cases are vague or obscure, perhaps the team wants them to be more mysterious. Does this align with their community atmosphere? If not, you may need to do further research on the project to gain more details. No matter how cleverly the team hides details, if people are confused about the use cases, they won’t be encouraged.
Incorporate gaming? If holders can use their NFTs to play games, it will increase their likelihood of holding them, as this can establish a sense of belonging to the NFTs. Some games also support Play-to-Earn (P2E) mechanisms, allowing players to earn in-game currency. Some games even innovate around renting NFTs, allowing other players to join by obtaining a share of the game tokens.
Provide access? Some use cases include access to exclusive projects like large events or gatherings, or granting you access to exclusive communities where you can gain detailed information about other popular projects.
Bring greater value over time? Holders may sometimes receive NFT airdrops in the future. They often only need to pay gas fees to mint those new NFTs that have high value. In terms of gaming use cases, these future airdrops can also provide unique advantages in the game.
Have a DAO? A DAO (Decentralized Autonomous Organization) symbolizes that holders have representation in DAO activities. This may manifest as voting rights, earning project tokens, sharing profits related to the project, ownership after subdividing high-value NFTs, and other rewards the project provides to the DAO through other creative means. Some of these "rewards" are legitimate, but it’s best to do your own research (DYOR).
Be scarce? As projects become more popular, the value of virtual land will gradually increase, such as in Decentraland and Sandbox. Axie Infinity and Nifty League will soon release similar land concepts in their games.
Be a status symbol? Owning trendy NFTs like Crypto Punks or Bored Ape Yacht Club (BAYC) can sometimes feel like gaining a badge of honor. In the NFT space, this can be seen as a mark of prestige.
Provide ownership? In the BAYC project, holders gain the right to use the visual image. Therefore, they can use this image in advertisements or merchandise.

6. Story

Stories are a way to attract the community and can sometimes establish a certain relevance. It may be a story about the founding team or the origins of the project, or it could be a story about the meaning of the NFT itself. Without an interesting story, people are unlikely to stay engaged with the project for long.

Ask yourself, does this story:

Relate to the team? Some projects revolve around the team. Perhaps this team has an interesting background, such as having an artist or being well-known in the NFT circle.
Relate to the project? It could be an interesting anecdote about the NFT project, such as the origins of the project or how it is rooted in a niche market.
Relate to the NFT? There may also be interesting stories surrounding the NFT itself. This could stem from a comic book, an epic drama, or a creative story about or around the NFT.
Integrate into the brand? If this story is cleverly woven into the overall brand of the project, it becomes even more captivating. You can infer this from the project's marketing approach, marketing language, and community dialogue.
Involve charity? Some projects aim to give back to charity in some way. If the charitable choice aligns closely with the project’s story, it can also provide assistance.

7. Costs and Metrics

Generally speaking, despite various purposes, making money is undoubtedly a significant reason most of us join the NFT space. Evaluating the price of an NFT project can be approached from multiple angles. Taking E as an example, E can refer to any ecosystem you prefer.

Ask yourself, what costs should be considered:

Minting. Understanding the minting price before the project mints will help you know the cost of purchasing one or more NFTs. You can also compare the minting costs of this project with others. If the cost is too high, can you earn more value or utility from it?
Individual NFT. Most NFTs are priced below 1E, but some are priced above or far exceed 1E. Can you afford enough E to purchase the NFT?
Current floor price. The floor price refers to the cheapest NFT on the secondary market. This can be seen as the lowest cost to enter a project you desire. A low floor price doesn’t necessarily mean the project itself is bad; it may fluctuate due to market changes or because paper hands can’t withstand worsening conditions and sell off early.
Trend of floor price changes. This figure is more important and may take time to find truly worthwhile projects. If the floor price drops significantly and remains low, it likely indicates that the project is unsuccessful or that market conditions are poor. Buying when the floor price peaks or shows a sudden increase can be risky. Some people prefer to buy during slight dips. You can also check the percentage change in daily trading volume to better understand the project’s progress.
Ceiling price. The ceiling price refers to the most expensive NFT in the project, which can help you grasp the potential value of the entire project.
Total trading volume. The total trading volume of the project is displayed on NFTGO.io. New projects generally have low trading volumes. If a project still has very low trading volume a few months after launch, it likely indicates weak growth or nearing failure.
Number of holders. The ratio of holders to NFTs can reflect the overall ownership situation of the project. Ideally, the ownership ratio should be above 50%, meaning each person owns about 2 NFTs; the ownership ratio should not be below 30% (3:1). As the ownership ratio increases, the potential selling risk of large holders (whales) decreases, and data such as whale concentration can also be found on the NFTGO.io data platform.
Daily trading volume. The more trades within a day, the greater the liquidity, making the project more popular and successful.

8. Rarity

Rarity is a core quality of NFTs, with some NFTs created by renowned artists. Of course, all NFTs are unique, and anyone can verify the authenticity of an NFT. The laws of supply and demand and scarcity dictate that rare and highly sought-after NFTs typically attract more buyers and sell at higher prices. Third-party platforms like NFTGO.io can help users gain a more objective understanding of the true rarity of NFTs by estimating their rarity through on-chain data and other sources, considering factors such as the NFT's popularity, trading volume, and number of owners.

9. Liquidity

After experiencing the png summer, many are now going through the png winter. They have accumulated a bunch of NFTs. Some love them and want to hold them long-term, but others face situations where NFTs cannot be sold.

NFT collectible categories. Items like profile pictures and artworks are generally considered to have low liquidity. If the owners of these items encounter suitable buyers, they can trade at market value. However, if they want to get cash quickly, they may have to sell at a discount, clearly reducing the liquidity of such assets. However, when demand for a particular item suddenly increases (for example, when the market shows enthusiasm for a certain collection), liquidity will be reassessed.
Relative liquidity. This refers to past transaction data, but a thorough buyer will consider many other factors, such as liquidity compared to other similar products, referred to as relative liquidity. The reasoning is simple: higher trading volumes somewhat represent higher liquidity. This figure is not proven from a monetary perspective but from a productivity perspective to demonstrate the market scale of the product. However, some markets with low trading volumes (like collections launched by well-known artists) can also be considered very unique and attractive liquidity markets, so they should be discussed separately.

10. Trends

Popular and successful projects often follow NFT market trends. If your project does not align with current trends, is it because the project has just launched and is still working out the details? If the project has been ongoing for a while but still fails to follow trends, it likely means that the project is losing momentum.