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NFT Projects: How To Analyze Them Like A VC Pro

There are 1000s of NFT projects on Solana, but how can you assess their potential? This guide covers exactly that.
NFT Projects: How To Analyze Them Like A VC Pro

The NFT space can be tough to navigate. One minute, your NFTs are smashing through floor prices like Odin’s hammer. You start to believe your own hype, that you're the best NFT trader the world will ever know. The next phase? Your non-fungible tokens are in the dumpster. (Hey, it happens to the best of us.)

In this article, we answer the million (potentially billion) dollar question: How do you value these digital assets? 

Get ready to take some notes because what you’re about to read might change your life. As they say in the swimming business, "Let's dive right in."

The Different Types of NFT Projects and How to Value Them

It's hard to find the gems from the thousands of different NFT projects, because they literally come in all shapes and sizes. For the purpose of this article, we’ve simplified them into seven distinct categories. 

Let’s look at them below.

1. Digital Collectibles as NFTs

The broader collectibles market has grown a ton over the last few years. In 2021, a LeBron James rookie card sold for more than $5.2 million, showcasing the huge surge in demand for sports collectibles. 

It’s no different in the NFT world. Digital NFT pieces like Turtles have surpassed more than 69k SOL in total sales volume, so there's a clear demand for digital collectibles on Solana. 

So what makes collectible NFTs so valuable? If looking at their real-world counterpart can tell us anything, it’s that rarity is king. 

The LeBron James rookie card is valuable, first because collectible sports cards are valuable and LeBron is recognized as one of the best ever. Second, there are only 23 cards like it in the world. Apply the same logic here. If you find the right collection, the rarer your digital asset, the greater its value.

2. Art NFTs

Most NFT artworks you see on the secondary market are what we call "generative art”. Generative NFTs combine two powerful elements: technology and human creativity. So by definition, any NFT that’s created using a computer is generative.

More established SOL NFT projects like Solana Monkey Business (SMB) and Thugbirdz can be called generative works of art. And they’ve spawned countless derivative projects.

So what makes these original projects valuable compared to their spinoff cousins? Most art NFTs offer a little more utility than simply acting as a sweet profile pic. 

For example, an SMB NFT gives you access to a community of SOL NFT pros. And if you own a Thugbirdz, you get to join their DAO. So if you’re looking to become an NFT art collector, you have to dig a bit deeper to discover what else the art NFT is offering (yanno, besides the art).

3. Access Pass NFTs

NFTs are a novel technology that will disrupt traditional spaces like the ticketing industry, since they can be used to authenticate proof of ownership over pretty much anything. 

After all, the value of a ticket depends on what type of access it grants, right? For example, a ticket to a high-level networking event is understandably more expensive than an event hosted at your bookstore for a local author.

And the same is true for access pass NFTs. An example of an access pass NFT collection on Magic Eden is Portals. These NFTs won't give you access to a specific event; instead, they are your key to an entire Solana-based Metaverse, thus giving them value. One Portal NFT has a market price of 55 SOL (at the time of writing).

To become a successful ticket NFT trader, you have to understand what access they grant and how valuable that access is compared to other ticket NFTs.

4. Music NFTs 

One of the biggest problems in the music industry is how record labels treat their artists. Musicians are forced to sign multi-year contracts that pay out peanuts for the amazing creative work they put out. It matters little if their album is the next Thriller. The label will always make more than the artists do. 

Music NFTs change this dynamic.

Artists don’t need to sign with a record label. With Music NFTs, artists become their own label. They can publish their album as an NFT collection. And the best part? 

They get to set their own royalty rates so they receive royalties on every single secondary sale of every music NFT they’ve ever created. In other words, music NFTs allow artists to get paid by their fans directly, without requiring an intermediary. 

It’s early days, but it seems to be working wonders already. 

Daramola, a digital artist, has launched The Supply Chain Project on Magic Eden. It’s an NFT project for the 4th solo studio album of the same artist. It’s a relatively new project but it has already done over 2400 SOL, which at the time of writing this piece are worth more than $200k,  in total sales volume. These are solid numbers for a 4th studio album.

5. Gaming NFTs 

For years, gamers have been complaining that newer games are blatant cash grabs that are designed to squeeze every last penny from their lint-filled pockets. The games might be “free to play”, but to make any meaningful progress in the game, you better get ready to pay up. This is a major problem because gamers are putting their money into games without getting any ROI whatsoever.

Gaming NFTs can help fix this issue. They grant gamers actual ownership of their in-game assets, which gamers are free to sell and trade. Adding this mechanism to a video game changes the entire in-game economy, so that playing games becomes a profitable experience.

There are a few attributes that make in-game items valuable. The first is the number of active players (i.e., Metcalfe’s Law). The more players a game has, the more digital items it needs, and in turn, the more value they accrue. 

6. Virtual Land NFTs

If you went back to the 2010s and told someone that people will be spending millions of buckaroos buying and selling virtual real estate, you’d probably end up staring at padded walls.  Yet, today, land NFTs can help you become a virtual real estate mogul. (We’re working on a guide on virtual real estate, but for now, a few interesting projects worth keeping an eye on are Portals, Chillchat, and Sovana.) 

Real estate NFTs have various use cases. You can rent out your space or use it to build something on top of it. Maybe a digital office space or a blockchain video game that you can charge your visitors to play, perhaps? Whatever the idea, it's up to you and your imagination. 

But how do we value these digital plots of land? The real estate industry has a popular phrase: “Location, location, location.” And the same is true for land NFTs. A digital land NFT near popular fashion brands will cost more than land that doesn’t have those.

I mean, if one Lux real estate NFT costs $300, but the real treat is that you could be  next-door neighbors with Snoop Dogg, how much is that NFT really worth? (It’s also worth thinking about the maintenance costs (there are none) and the noisy tenants who complain all the time (again, none!). 

7. Profile Picture NFTs 

Profile pictures (PFPs), also called pixelated avatars, have blown up over the past year. They are all, in a sense, based on status: the more exclusive your NFT, the harder your clout.

So when evaluating PFP NFTs, we have to look at the size of the community, the rarity of the NFT, as well as its historical price movements. It would be prudent to look at how trendy they are as well. If you see a lot of people using the NFT as a profile picture, that’s a sure bullish signal.

What makes a promising NFT project? What are some potential red flags?

Finding the answers to NFT valuation questions will separate the normies from the pros. And we’re here to help turn you into a seasoned valuation pro.

Having said that, here are the five most important factors that determine the long-term potential of an NFT project.

Utility in relation to price

Valuing NFT projects is all about the relationship between the project's price and its utility. When looking at different NFT projects, ask yourself, "If I invest, will I get utility from this NFT, more utility than the price I paid for it?" If the answer is "No", stay away from the project.

NFT utility comes in many different forms. For example, the Magic Ticket gives you access to the MagicDAO, so you can contribute to Magic Eden. Other projects like Stoned Ape Crew are more focused on generating passive income for their holders via staking.

🚩 Red flag alert

  • A project is minting at an unreasonably high price (ex: 10 SOL) for the utility it provides. 
  • The team thinks roadmaps are “silly”.
  • The project is being promoted by an influencer with a shady track record.

The quality of the community

It's relatively easy to figure out whether an NFT community is healthy. A quick look at their Discord chat should give off a vibe. If you see tons of people who are excited and contributing to the project, that's a bullish signal. Another thing: Check if the founders are active on their Discord.

And check out if any high-profile names hold the NFT. Quick example: Just look at Degenerate Ape Academy. NFT lovers want a piece of this project because they’ll gain access to like-minded people in the community. 

🚩 Red flag alert 

  • Watch out for people chatting about sweeping the floor price in the project's Discord. That's a form of market manipulation due to the artificial increase in price. A high-quality project doesn't have to "sweep the floor price".

The uniqueness of the project

To know how unique a project is, you have to follow the NFT space closely. In general, as soon as a certain format succeeds, people try to copy it. And that’s fine. But that's why it's so hard to find unique NFT projects that are worth a damn. For every Degen Ape Academy, there are hundreds of derivative projects in the woodworks.

🚩 Red flag alert 

  • If a project is talking about being the new or the next “Insert Successful NFT collection name”, that's a brow raiser. Projects that do this are rarely as successful as the original.

How realistic is the roadmap?

The roadmap is crucial to a project's success. And while not all successful projects have a roadmap, a good one sets the tone for what you can expect from the project. 

However, it can easily be used as a tool for manipulation. One thing that gets everyone excited is an ambitious roadmap. Who doesn't love investing in the promise of a financially prosperous future? 

(Give me $10 today, and I’ll return $1000 tomorrow. Simple math, right? Except the $1000, in this case, is the roadmap that will never be delivered.)

And that’s the problem. Experienced NFT scammers prey on normies who get excited over a roadmap that promises the world. So, as a rule of thumb, look for projects with a realistic or even conservative roadmap. You want a project that delivers on its promises, not one that promotes hype it can’t deliver.

🚩 Red flag alert 

  • The project's team is overly optimistic over the roadmap they set out.
  • They constantly revise their roadmap and move the goalposts.
  • The project’s team starts falling behind, and messages on social media become increasingly infrequent.

Who’s the team behind the project?

The most critical part of your NFT research is to study the project's team. You need to familiarize yourself with them because you're investing your money in their ability to execute their roadmap. So look those founders up! 

Find their LinkedIn profiles, and check their past work experience and how successful they were. Are they experienced in the crypto space? Is this their first NFT project? These questions matter a lot when you’re on the lookout for promising projects.

Keep in mind that there are exceptions to this rule. Not all successful NFT projects have doxxed founders. In fact, some of the most successful projects are anonymous. Still, knowing who is behind a project and getting familiar with their track record makes it that much easier to trust someone with your money.

🚩 Red flag alert 

  • You don’t see the team interacting much with the community on Discord or Twitter.
  • The team might be connected to some shady influencers. 
  • They might “casually” chat about sweeping the floor.
  • The project's team is 100% anonymous, and no amount of digging reveals any hint of successful past projects.

It’s time to evaluate your favorite NFT projects

You’re now a crypto investor. Do you feel prepared to navigate the complex world of NFTs? You’re familiar with the different types, understand what makes them valuable, and know what to look for in a project. 

Now, it’s time to put it all into practice. 

Start researching and working on your NFT collection. You've got thousands of NFTs to browse through on Magic Eden, the NFT marketplace with the most liquidity on Solana. And remember to focus on the real-world value of these NFT projects.

Here’s to your next blue-chip valuation! 🥂

The information provided on this website is provided for general educational purposes only and is in no way financial or investment advice. Certain information may have also been provided to us or prepared by third parties; these materials are provided for convenience and are not an endorsement by Magic Eden. Magic Eden is not liable for any errors, changes or amendments to such information, including any actions taken in reliance on such information.

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