10 Key Factors For NFT Evaluation & Analysis | Metrics & Valuation Criteria 2022

4 min read

Over the last year, the NFT sector has experienced explosive growth and recorded success, setting the stage for countless new and exciting projects. It is vital to have some basic metric knowledge in order to measure the potential value of an NFT as the interest in owning and flipping NFTs keeps soaring day by day.
In this article we will cover 10 Key Metrics for NFT Evaluation that every NFT enthusiast should consider prior to investing.  

1. Floor Price

The floor price, also known as “entry price”, simply means the price of the least expensive NFT in a collection of NFTs. The floor price is the smallest amount of money one can purchase or pay to join or own an NFT project.

Purchasing an NFT at the floor price is regarded as a strong entry strategy since it provides an accessible entry point for new members of an NFT initiative. The floor price is an excellent statistic for gauging how well-received an NFT project is by the community. As demand grows, the floor price will rise as well. This means that if you purchase the least expensive NFT in a collection hoping, that it will become more popular, you can resell the NFT at a higher floor price.

To help visualize the meaning of floor price, consider the Doodles NFT. According to OpenSea, Doodles NFTs come in a joyful range of colours, traits, and sizes with a collection of 10,000. The floor price of the Doodles NFT is at the time of writing 15.98 ETH. This means that the most affordable Doodle NFT out of the 10k Doodles collection costs 15.48 ETH.

2. Market Cap

Another metric aside from the floor price to analyze an NFT is its estimated market cap. A great tool for measuring the estimated market cap of an NFT is rarity.tools.

Market cap is computed by multiplying its seven-day average price by its total supply. NFT marketplaces are often illiquid, which means you’d need to find a buyer that is willing to purchase your NFT when you are ready to flip it.

This means that a high estimated market cap suggests that there are more interested parties ready to pay a greater price to purchase an NFT. In a nutshell, NFTs with a high estimated market cap is a good sign. To get the estimated market cap, log on to rarity.tools, scroll down the page and type in your favourite NFT project to have a look at the market cap.

3. Diamond Hand Value

An excellent tool for checking the diamond hand value of an NFT is Nansen’s analytical tool.

This third metric used to quantify an NFT collection is the percentage of owners who have not sold their initial NFT collection and are ready to hold their assets for a very long time, no matter the volatility or losses. Knowing the diamond hand value gives a pointer to knowing long-term believers in a project.

According to Nansen’s website, diamond hands balance refers to the total balance of NFTs belonging to addresses that have not sold any NFTs from a particular collection.  In short, diamond hands balance refers to the number of holders who plan to hold an NFT with long-term foresight (opposite of paper hands which is the regular case for collections which is evidently used for short-term flipping).

4. Unique Holders

The fourth parameter used to determine an NFT’s worth is the number of unique holders. A useful tool for checking the number of unique holders of an NFT is dune.xyz.

This metric is used to determine the size and how big the community surrounding a project is. The larger the community, the more the support, which helps sell the project to a larger pool of potential purchasers.

5. Volume Traded

The fifth metric you can utilize is the NFT collection’s volume traded. You can use OpenSea to check the trading volume of NFT collections.

This metric illustrates the collection’s overall demand. The volume exchanged provides insight into the popularity of an NFT collection; the higher the volume, the better the indication that people must be willing to buy and sell. The volume traded is also an indicator to assess whether an NFT project is in demand at the moment or not, and the higher the volume also shows how liquid the market is.

To check the volume traded, check out the OpenSea Rankings page.

6. Rarity Score

The last and the most relevant metric on this list is the rarity score, used to quantify the collection’s potential value. You can use rarity.tools for this.

NFTs with a higher rarity score are often more valuable than those with a lower rarity score. With a rarity score, NFT collectors can assess and evaluate the value of a single NFT.

Each trait of an individual NFT is assigned a rarity score, and the rarity scores for all of the NFT’s traits are put together to generate an overall rating. The following is an illustration:

7. Utility

For figuring out how to evaluate NFT projects, utility emerges as a key parameter. To carry value, an NFT needs to have a utility in a real application. For instance, NFTs could be used for tokenizing real estate, precious metal and even securities; to represent virtual land or game assets and in many more ways. The NFT world is still at a nascent stage and as it matures, new innovative use cases are sure to emerge.

Right after minting, an NFT draws value from its inherent characteristics. Over time, the value accrues depending on the utility and community strength of the underlying project. Decentraland NFTs, which refer to virtual land plots in the project, are an excellent example of such tokens.

8. Tangibility

NFTs associated with real-world objects draw an element of tangibility. Clubbed with ownership immutability on blockchains, it creates an immediate value in tangibility. NFTs can be effectively used to underline ownership rights and eliminate instances of fraudulent activities. The practical use of NFTs in the projects in which they are involved has a bearing on their value.

NFTs holding tangible value are the perfect fit for short-term as well as long-term trading. Some NFTs, like tickets, might have expiry dates, while others, such as those representing real estate, can cultivate more value over time.

9. Interoperability

A key factor in the NFT value proposition is interoperability, i.e., the ability to use the tokens in different applications. For instance, if the same weapon can be used in different games, there are more chances of the token accruing value. How the nonfungible tokens work on different blockchains is always going to make transactions simpler.

It is hard to realize interoperability, however, as developers have to build a vast network of applications on which the tokens can be used. A set of attractive use cases help infuse interoperability of the NFT. Another strategy developers could follow is to develop partnerships with other projects to bring benefits to people who own their tokens.

10. Social proof

The social proof associated with the project behind an NFT is one of the decisive factors that determine the NFT’s value. Checking their profiles on social media platforms like Twitter and Instagram can help one gauge their acceptability. If the numbers lie low, it indicates they haven’t yet been able to create a solid ground for themselves.

Make sure to always do your own research, and check the factors listed above, before buying an NFT!

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