In this guide
- Why evaluate NFT projects
- How to evaluate NFT projects
- Aim of the project
- Community power
- Minting cost
- Percentage royalty
- Floor price
- Holder distribution
- Whale watching
- Project promotions
- Trading volume
- Diamond hand value
- One more question to be answered: Do I like and understand the product?
- Final thoughts
Why evaluate NFT projects
As with all kinds of cryptocurrency investment, researching projects is one of the main skills to acquire. NFTs are no exception. There are a few aspects that are worth looking into in more depth, before deciding to put your crypto asset into a project. Let’s consider them all.
How to evaluate NFT projects
Aim of the project
The first thing to take a close look at is the aim of the NFT project, since it is crucial to understanding its potential value. Evaluating the aim involves assessing the project's goals, objectives, and intended outcomes.
Take a look at the goals: are they realistic, achievable, and aligned with the available resources, technology, and market conditions? Access the project's objectives, gauge whether it addresses a specific problem, provides a unique solution, or offers innovative features that differentiate it from other projects in the market. If the project aims to solve a genuine problem or cater to a specific target audience, it increases the chances of attracting users and generating demand for its NFTs.
Also, determine whether the project has a viable business model, revenue streams, or plans for growth and expansion that can sustain its operations in the future.
Evaluating the utility of the NFT project is important because it helps assess the practical value and usefulness that the project offers to its users, participants, and the broader ecosystem.
Consider the unique value proposition of the NFT project – specific benefits, features, or functionalities that it offers to users, such as increased access to digital content, ownership verification, enhanced rights management, or new opportunities for creators and collectors.
Determine how the project differentiates itself from competitors and offers advantages, which can attract users and drive adoption.
Consider the user experience of the NFT project. It includes factors such as ease of use, accessibility, security, scalability, and interoperability. A project that offers a seamless and intuitive user experience is more likely to attract and retain users.
Examine the project’s potential for integration into real-world applications or industries. This evaluation helps determine whether the project has practical applications beyond the realm of digital collectibles, such as in art, gaming, music, virtual real estate, or supply chain management.
The next important factor to look at when evaluating the NFT project is the team behind it. It is crucial because the team's skills, expertise, experience, and track record play a significant role in the project's success.
Assessing the team includes determination of their competence and expertise in relevant domains such as blockchain technology, NFT development, smart contract programming, token economics, market analysis, or community management. Teams with a diverse skill set and relevant experience are more likely to navigate challenges effectively and deliver a high-quality project bringing it from concept to implementation.
Also, if possible, try to dive into the team’s capacity for innovation and creativity. If the team shows signs of thinking outside the box, proposing novel ideas, and developing unique functionalities, it is more likely to create a differentiated NFT project that stands out in the market.
Evaluating the team involves considering their network and connections within the industry: established relationships with relevant influencers, advisors, or strategic partners.
Finally, consider the team's reputation, integrity, and commitment to transparency. Teams with a strong ethical foundation and a history of fair practices enhance the project's reputation and can attract investors, collaborators, and community members.
Evaluating the roadmap of an NFT project is important because it provides a clear outline of the project's milestones and plans for development. It also helps to understand the timeline, progress, and potential for success.
Meeting key milestones of the roadmap demonstrates the project's execution capabilities and indicates progress towards delivering a functional and valuable NFT platform or ecosystem. A well-designed roadmap should include contingencies or provisions for adjustments, ensuring that the project can adapt to unforeseen challenges or capitalize on new opportunities.
A clear roadmap also promotes transparency and accountability.
The community surrounding the NFT project plays a vital role in its success and adoption. Vibrant and active community indicates that there is interest and enthusiasm for the project among users, collectors, creators, and investors. It suggests that the project has the potential to attract a growing user base and generate demand for its NFTs.
Besides, a well-functioning community governance model, where community members have a voice in decision-making processes, can contribute to transparency, fairness, and long-term sustainability. Assess the community's participation and governance structures to ensure that the project aligns with its decentralized principles.
The minting cost refers to the fee associated with creating and issuing an NFT on the project's platform and is important because it directly affects the economics, accessibility, and attractiveness of the project.
Along with other revenue streams or tokenomics, it determines the project's potential for generating sustainable revenue and maintaining its operations. Striking the right balance between the project's economic sustainability and affordability for creators is crucial since a lower minting cost reduces the entry barrier, allowing a wider range of collectors to participate in the ecosystem.
Comparing the minting costs with other NFT platforms or projects will allow you to assess whether the project offers a cost advantage or is aligned with industry standards.
The percentage royalty is the portion of future sales or secondary market transactions that the creator receives as compensation for their original work. It reflects the project's commitment to recognizing the value and intellectual property rights of creators.
A higher royalty percentage can motivate creators to join the platform and mint their NFTs, as it offers the potential for ongoing income and a share of the value generated by their work. It encourages more high-quality content and attracts established artists or creators to the project.
The floor price provides insights into the minimum price at which NFTs from the project are being traded or sold on the secondary market.
Assessing the floor price helps gauge the market demand for NFTs from the project. The higher the floor price the stronger the demand, as collectors are willing to pay a premium to acquire the NFTs. It suggests that the project's NFTs are perceived as valuable and desirable within the market.
Also, if the floor price remains relatively consistent or shows gradual growth over time, it proves a more stable market for the project's NFTs. This stability can provide reassurance, mitigating concerns about significant price volatility.
Comparing the floor price with other projects or similar NFTs allows for an assessment of the project's value proposition, and market positioning.
Another factor to watch is holder distribution which refers to analyzing the concentration of ownership among the project's token holders or NFT collectors. It involves assessing the number of unique holders, the distribution of tokens or NFTs among them, and the potential impact on market dynamics.
By considering this factor you can receive insights on decentralization, market stability, market depth, investor confidence, and long-term sustainability. A well-distributed ownership structure enhances the project's resilience.
Whale watching involves monitoring and analyzing the activities of large holders or "whales" within the project's ecosystem. Whales typically refer to individuals or entities that hold a significant amount of tokens or NFTs, often having the ability to influence market dynamics due to their substantial holdings.
Whale watching helps identify potential instances of market manipulation, since large holders with significant influence can impact the market by buying or selling large amounts of NFTs, potentially causing price volatility or artificial market movements.
Promotion of an NFT project plays a significant role in raising awareness.
Take a look at the effectiveness of marketing strategies in acquiring new users, reach and engagement of promotional campaigns, such as social media marketing, influencer collaborations, content creation, and advertising, evaluate promotional activities, eg. public relations, events, partnerships, etc.
Effective promotion helps drive adoption, build a strong community, differentiate the project from competitors, and attract users, creators, and investors to participate in the project's ecosystem.
Evaluating the trading volume of an NFT project is important because it provides insights into the level of market activity and liquidity within the project's marketplace. Higher trading volumes indicate a vibrant marketplace with frequent buying and selling activity. It suggests greater interest and engagement and a healthy ecosystem.
Also, trading volume is closely tied to liquidity, allowing participants to enter and exit positions more easily without significant price slippage.
Liquidity is a key factor for the market, since a highly liquid market allows for smoother and faster transactions, ensuring that buyers and sellers can easily enter or exit positions at fair prices. Evaluating liquidity helps gauge the efficiency of the market and the ease with which participants can trade tokens or NFTs.
Diamond hand value
The term "diamond hand" refers to a concept often associated with long-term investors who hold onto their investments through market fluctuations and remain committed to their positions. While "diamond hand" is more commonly used in the context of cryptocurrencies and stocks, evaluating the concept in the NFT project can provide insights into the level of conviction and commitment of NFT holders. Note that the process may not provide definitive data or metrics but rather serves as an observational assessment of the prevailing sentiment within the project.
Rarity is a key factor that contributes to the desirability of NFTs. It refers to the uniqueness and scarcity of a particular NFT within a collection or the entire NFT project. Evaluating the rarity of an NFT project is important to assess collectibility, scarcity and exclusivity, market demand, and investor considerations.
Related reading: NFT rarity 2023 | News Blog | Choise.com
One more question to be answered
Do I like and understand the product?
After considering a great number of factors, it is time to just ask yourself: "Do I like and understand the product?" Answering this simple question will help you assess your personal interest, comprehension, and alignment with the NFT project.
Also, understanding the product is essential for evaluating its user experience. If you have a deep understanding, you are better equipped to identify potential challenges or limitations. This enables you to make more informed decisions regarding your involvement.
The NFT space is evolving rapidly, with new projects emerging constantly. By carefully evaluating those you like most, you can assess their potential for generating returns on your investment and the risks involved, and therefore make educated decisions based on your interests and goals.