NFTs have had all the hype in the crypto space lately – and from the $69m beeple NFT that sold through Christie’s to the countless pictures of apes everywhere – I’m sure you’ve heard of them. But what are they and why are they a big deal?
A good way to think of an NFT is as digital artwork. Like paintings, they have no intrinsic value and are pretty subjective in their worth, but while paintings can be difficult to sell, NFTs make the markets more efficient. Forget auction fees, certificates of authenticity, and illiquid markets. NFTs do all that work for you automatically with “smart contracts” that are essentially a unique proof of ownership that can be transferred from buyer to seller on exchanges like Opensea.
This exchange allows you to list your NFT for a fixed “transaction fee” price (usually between $30 and $100 depending on how crowded the eth network is or you can utilize the lazy minting feature which only costs the lister a fee when the NFT is sold) instead of a 10-30% commission that auction houses like christies charge. They are also a way for more people to get into the art scene – many more people are now investing in art than were a few years ago. This article focuses more on the art/collectible space (versus something like gaming or digital metaverse land) which has some built in subjectivity.
Where do you even begin to look?
Finding something desirable without overpaying for the hype around a project is not easy. The main platforms I use to stay up to date on big NFT projects are the Twitter accounts Fanny and Creigh, and my favorite Discord for talking about collections Block Party Labs. I’ll stress that just by talking about NFTs with people across the internet you will learn about them faster than you think, and actively checking those Twitter pages a few times a week will give you a good idea of the current big picture of the NFT space. Using both these tools in conjunction with each other will set you up to learn about the market and specific projects, which is all you really need.
Once I find a project that looks interesting and original, I start to ask myself if it has the qualities I look for:
Is the demand legitimate?
Check out their socials (specifically Twitter and Discord). Are their followers real? A good way to measure this is to pick 10 random followers on Twitter and see how many followers they have. Real people tend to have > 20 followers and > 20 following. If a majority of the 10 accounts you pick have less engagement than this, they are likely bots. The ratio of followers to following also matters here – it should be around 1:1 to 2:1 for most real people.
Look at how many tweets the official account has sent out. A common red flag I see is accounts with under a hundred tweets having four digits of followers. Chances are, they are botting. The reason this is a red flag is that means the project is “simulating” demand when in reality they may have a lot less than you might think. An NFT project with little demand is not one you want to be invested in, especially for the long term.
Is the art original?
This one is more subjective, but the important feature here is style. Although I only buy NFTs that I think are aesthetically pleasing, a distinct yet universal style is key. A good example of this is Doodles, which uses a creative contemporary style to create unique yet simple designs.
Some important questions to ask yourself when you are evaluating the art are:
Have you seen the style before? We do not want to buy art that doesn’t have an original concept and/or original style. The reason NFT investing is difficult long term is because 90% of projects go to zero, and by far the largest reason for this is because they are not original enough to retain interest from the community.
Is the roadmap promising and is this reflected in the community?
Every roadmap is different, so it would be difficult for me to qualitatively describe specifically what you should be looking for in one.
However, the criteria of a good roadmap can be broken down into two quantitative aspects:
Do the founders show long-term interest in the project? The last thing we want to invest in is money-hungry founders who will go radio silent after the mint. We want to see plans for an expansion, a secondary collection (Space Doodles), or a game Stickman Saga). This is important because although it isn’t binding, a promise from the creators to continue investing in the collection long after mint and a detailed explanation of how they will do so will help the collection retain value long term. The space doodles concept is particularly interesting because it shows that the project is being implemented as part of a unique metaverse. All Doodle owners can claim a Space Doodle NFT for free, each of which has its own distinct appearance and stats like “piloting ability” define a Space Doodle’s capability in Space. Doodles have recently gained “blue chip” status in my book (there isn’t an objective definition for NFTs but mine is that it’s in the top 15 collections for 30-day volume) and I plan on holding mine long term as I see their roadmap continuing to play out in the future, which would mean I get many other perks as a holder.
However, when looking at a project for the first time we want to ask ourselves if the roadmap seems too good to be true? A project that is undersold and over delivered is infinitely better than one that is oversold and under-delivered.
Announcements like the one in this picture are generally not a good sign, because free money does not exist. Promising discounts on thousands of things either means that mint price was too expensive for a collection (bearish sign), or that the developers are openly overselling a project.
Written By: Benjamin Goroshnik – MSW Contributor