3 types of NFTs & how to value them

The NFT market has taken most of us by storm in 2021. I remember pitching my startup-Only1 to investors when simply uttering those three magical alphabets would have them leaning forward into their webcams. Now it seems NFT collections are being dropped every other hour with copy-and-paste artwork and roadmaps (I’d be lying to say I haven’t had enough pixel animals with laser eyes or rainbow teeth). So what is the future of NFTs, and how does one trade them? Turn off discord for now, grab a coffee, let’s talk about NFTs.

Since closing our $3M round led by Alameda Research, we’ve built our NFT launchpad on Solana, sold $2M worth of our own NFTs, generated $500k for DuckDAO’s NFTs. And recently pooled and flipped Bored Ape Yacht Club #9648 from 77.77E to 119.69E, now holding #7490 at the time of writing. Whilst I am a big proponent of building instead of trading in the space, here are some of my thoughts on the types of NFTs there is, and some strategies:

NFTs represent true decentralized digital ownership for all creators, gamers, and collectors. It is a paradigm-shifting technology that revolutionizes the way we interact with, and own virtual goods… So they say. What they really meant was “when wl? I wanna mint and flip for 10x”.

Money is pouring into the NFT space as celebrities are starting to use monkeys or pixel art as PFPS (profile pictures), big brands like Adidas are coming in, and metaverse projects are taking off. Now your friend minted an NFT and sold it as 10x. Naturally, you open your Metamask wallet, loaded in some ETH, and started aping.

This is just a reincarnation of meme cryptocurrency flipping. When the music stops, someone will be left holding bags that have no real utility (except rare cases where it could buy cybertrucks) and you no longer have exit liquidity to recoup principal.

Let’s not sugar coat it, they are cash grabs. It could cost as little as $10,000 to start your own collection. Get a Fiverr artist, couple discord admins, outsource the tech to a launchpad, whitelist a few local micro-influencers, sell a casual 2,000 NFTs at $100 each, in a few weeks you made $200,000. (Disclaimer: If you are now motivated to start a collection, that was never my intention) So what are some characteristics of a short-term NFT hype project?

• Art style that copies successful collections, Pixel art and monkey sells. Unfortunately, we live in a world where originality is a rare sight. Since the advent of CryptoPunk, we have seen a massive surge of pixel art NFTs, mostly in the form of PFPS with generative traits such as gold skins, astronaut clothing, Pit Viper sunglasses, and so on.
• Long impressive roadmaps with no evidence to suggest it would be implemented.Technology is now easily outsourced, at least for the art generation, website, and minting smart contract. If the team outsourced the simple items above, how do you expect them to make a P2E (Play-to-earn) game, a functioning DAO, or a metaverse virtual world?
• Undoxxed team. I do not work with undoxxed projects, period. If you are building a legitimate project, I do not see a reason for the team to remain anonymous unless they are (1) scared to fail, or (2) avoiding repercussions. Wen rug ser?

So what are some strategies to trade these types of NFTs?

• Only purchase at (or close to) mint price, with money you can afford to lose 100%
• Check if they have a large organic community
• Take profit early, don’t be the team’s exit liquidity

I’m just gonna say it. Bored Ape Yacht Club could be the next Supreme.

People are vastly underestimating BAYC as a brand. BAYC is one of the earliest NFT projects that have made it to mainstream markets. We are already seeing massive collaborations, not only on the tech side with giants such as Animoca Brands, but also with the mainstream giants like Adidas. There will ever only be 10,000 original BAYCs, and there are going to be way more individuals who want one. This is like collecting ancient antiques, except it’s verifiably scarce, cooler, innovative, and you don’t have to wait centuries for demand to rise.

Along with other OG collections like CryptoPunks, they have set trends for the industry which gave rise to the aforementioned legion of copy-cat projects. If the current astronomical floor prices are not a testament to their status in the NFT community, then their adoption within the mainstream market certainly is.

Adidas has partnered with Bored Ape Yacht Club for the ‘Adidas Originals Into the Metaverse’ collection of 30,000 Ethereum based NFTs. Nike acquired RTFKT NFT studio behind the Clone X — X Takashi Murakami collection. The possibilities are endless, imagine this; KAWS crossover BAYC figurines, Supreme crossover CryptoPunks windbreakers, or HYPEBEAST crossover SandBox sunglasses. Fuck it, I don’t need crossovers, I am still waiting to buy any BAYC merch the second it drops.

I am sure there are more collaborations between NFT projects and multinational companies, let’s wait and see. So what are some defining characteristics of such NFT brands?

• Consistency. Like any startup, Only1 included, there will be highs and lows. Being able to consistently deliver and be fast to adapt is key.
• Originality. “Pixel art NFTs with a P2E game” probably applies to hundreds if not thousands of projects. Projects building something unique that works are now a rare breed.
• Mainstream brands/artist collaborations. While not always the case, having recognized brands or artists partnerships is good validation that the collection will be around for the long haul and will accumulate more community members that want a piece of it.

So what are some strategies to trade these types of NFTs?

• Spot them early and HODL. It is difficult to time the market unless you know something the majority don’t. And if you are getting in late (I am aware of the ambiguity), remember to only invest with money you can afford to lose.
• Buy 2 or more if you can, so when it ‘moons’, you can always take profit while staying in the market.

“Right-click, save image. I now have your NFT”, Said the nocoiners that has no understanding of the technology.

Most NFTs have (self-proclaimed) utilities ranging from club memberships, avatars, and so on. When I say utility NFTs, I mean NFTs that have their use-case as the spotlight, instead of the artwork. NFTs are essentially on-chain verifiable unique identifiers, they can serve more purpose than allowing one to own a jpg. I believe the future of NFTs is going to become more utility-driven where it serves as a feature in a product, rather than being the entire product.

Some examples include The Ones NFT under Only1. The NFT holders becomes part of a special group dedicated for product development in Only1. Essentially, a focus group with pre-release access to the Only1 platform. As the platform grows, the demand for such NFT would grow as well.

Another is DuckDAO’s Ducksquad NFTs, which is essentially a decentralised venture capital DAO where holders get access to primary market dealflow which would otherwise not be accessible to a typical retail investor. As number of profitable investment grows from this DAO, the higher the demand for this collection is.

What are some key characteristics of these NFTs?

• Profound focus on utility. You buy a computer to use it, and you buy a toy figurine to collect (or flip). These NFTs focus more on the use case rather than the looks.
• Reliable team. When the focus is on the utility, the team needs to be able to deliver the technology associated with it even if its just a DAO with access to some not-so-technical utilities.
• (Occasionally) Not generative art. While cash grab projects put more efforts on how it looks, some projects focus more on how it works. So they might as well make the NFT a card or something.

So what are some strategies to trade these types of NFTs?

• Unlike pure collectibles, utility-driven NFTs’ value increases as its utility increases. So ignore rarity (unless its tied to the utility) and aesthetics, focus on its utility and the project team’s delivery.

So far we have discussed how to value a collection, but how does one price a particular NFT in a collection? BAYC has got many things going for them, for those of you looking to buy a BAYC and would like to know how to price one. Here is a simple guide:

(Note: this may or may not apply to other collections)

1. Rarity score. Head to Rarity Tool and look at price vs rarity. There usually is a correlation between how rare a BAYC is and its price tag. If a BAYC has rarity rank #1000 and is priced at 100E, look at the price of the apes of similar rarity. If the rank #901 ape is priced at 90E, then you got to think if #1000 is overpriced or if it has something else going for it. Note: Rarity rank and BAYC number are not the same!
2. Floor price of rarest properties. Some properties/traits are not like the other, some premium property is the reason why the price is much higher than others with similar rarity score. For example, solid gold and trippy fur are a whole class of their own. When valuing a BAYC, go to Rarity Tool and check if it has a property with a particularly high floor price.
3. Does it look good? You could have a rare ape with decent properties, but if it looks bad, some people just don’t want it. Simple.
4. The floor & pricing in upcoming events. Up until now, none of the factors take timing into account. Much like trading any cryptocurrency, you want to buy low, and sell high (or buy high, sell higher if you’re the risky type). So look at the floor price and the average price trend.
5. Bid & Ask. In trading, a tight bid-ask spread implies higher liquidity, in NFT marketplaces it means the same thing. The ‘ask’ is the price of the Buy-now price set by the seller, and the bids, well, are the bids from potential buyers. What you will usually find, is an NFT with a buy-now price and a bid way below it, which means at the moment no buyer is willing to purchase the NFT at the asking price, and the seller will not sell at the bid price. Be patient and place bids you are willing to pay. When I was bidding for #9648, I entered a bidding war with another user (granted, it might be the seller himself) and the price got close to the Buy-now price, fearing I will miss out, I clicked buy-now for 77.77E. One more tip is if the buy-now price has been set for a while and the floor price has been stable or even increasing, then it’s probably overpriced.

Thank you for reading to the end and dope you had learn a thing or two from it. Remember always DYOR before ape into any projects!

Written by Leon Lee — founder and CEO of only1

Leon was trained as a genetic engineer at Imperial College London and his first start up was a college funded biotech project. He later joined multiple startups, self taught programming and also participated in ICOs earlier in 2017 which sparked his interest in the world of cryptocurrencies.