Investment Guide: Tell you whether an NFT project is worth long-term investment from 6 dimensions

Original Author: Shier @ NFTSCAN

According to the real-time data of the NFTSCAN browser, as of January 14, 2022, a total of 39.43 million NFT assets have been minted on Ethereum, 29,570 NFT asset contracts have been deployed, and there are as many as 64.73 million NFT asset-related transaction records on the chain. The number of wallet addresses involved is 37.97 million. Moreover, the number of NFT assets minted on Ethereum is increasing at an average rate of 100,000 per day. Undoubtedly, the NFT field we are concerned about is an emerging market full of innovation and creativity.

In the past 2021, the NFT field has opened a violent road. Every day we open our eyes, we see new faces. From Cryptopunks to BAYC (Bored Ape Yacht Club), from JPG avatars to Loot programmable assets, from Land to Metaverse, the NFT field has never stopped innovating. Whether it is short-lived or out of reach, the NFT field that is constantly being joined by fresh blood can always surprise you. After the ups and downs of the market, there are only a handful of NFT projects that can be precipitated and developed. The picture below includes the best in the NFT field.

According to the current data, the 29,570 smart contracts deployed on Ethereum correspond to about 30 high-quality NFT asset projects that you can name in the current market, so the success rate of NFT projects is only 0.1%. If you think about it carefully, this number is terrible. Only one blue-chip NFT project worth investing in can be born out of 1,000 NFT asset projects. For ordinary investors, this number means that there are countless investment traps waiting for us behind the prosperity of the NFT field. Therefore, based on this, I will share some experiences that I think are valuable from the perspective of front-line practitioners and NFT investors in the NFT field, for your reference only.

How to judge whether an NFT project has the potential to develop into a top blue chip, I think it can be analyzed from the following aspects:

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1. Protocol standards for NFT assets

At present, the common NFT asset protocol standards are mainly ERC-721 and ERC-1155 protocols. NFT assets with strong investment attributes generally use the ERC-721 protocol standard, while the ERC-1155 protocol is more inclined to NFT business scenarios with strong functional attributes.

When it comes to the NFT asset protocol standard, it is mainly analyzed from the NFT asset contract code level to examine whether it complies with the ERC-721 protocol standard for code writing. Here is a negative material: Cryptopunks, because its asset contract code was deployed earlier, so the developers at that time did not follow the protocol standards to develop, and the result can be described as four different. Cryptopunks are neither ERC-20 Token assets nor standard ERC-721 NFT assets, but also have built-in trading functions. This leads to the subsequent NFT infrastructure including Opensea and NFTSCAN, all of which need to be compatible with it actively, which creates a lot of trouble for developers.

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2. The storage method of NFT asset metadata

If an NFT is just a bill or certificate, it doesn’t matter whether the metadata is accessible or not; but most of the NFT assets we come into contact with at present have investment value, and we pay more attention to their financial attributes, so the security of metadata will change at this time. It is very important, it is one of the core elements that constitute the NFT can become an investment asset.

According to the data analysis of NFTSCAN, there are currently four main ways of storing NFT asset metadata:

1) Stored in blocks of the blockchain network.Usually in Base64 format: data:image/svg+xml;base64,PHN2ZyB3aWR0aD0iMjkwIiBoZ…

For example: CryptoPunks and Uniswap V3 version of LP NFT are all stored in blocks, which is the storage method with the highest security level.

2) Stored in the node server based on IPFS protocol.The format is: QmYBYWMwGcyn1GoettFnn4yzpzRUwtaYrt3XscsxcyN6hD

For example, leading projects such as Doodles and BAYC use the IPFS protocol for storage, and the security level is relatively high.

3) Stored on centralized servers and various cloud servers.A common format is: https://lh3.googleusercontent.com/oLO3z8c7Mxiu5PfIeSn6lPzWfhxr1gzZ1CcawJ3HK2bK0S7E6sv0yfuV-s1YCDKAV1JcA0vhU6xypYbPDixnMWMocd8eF4crksKU

This is the most common storage method and the least secure storage method.

4) In addition, there are a small number of projects that use the Arweave network for storage.

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3. The openness of the copyright of NFT asset creators

The degree of copyright openness is very important to an NFT project community, because it represents the development direction and scale of the subsequent NFT community. If the copyright is fully preserved, it will be difficult for the community to expand based on the NFT asset, whether it is at the level of secondary creation or commercialization.

There are roughly 3 types of common copyright notices:

1) Copyright is completely open.That is, the copyright follows the NFT holder. Whoever holds the NFT assets owns the copyright of the NFT material and can be commercialized. A typical case is: BAYC NFT.

2) The creator team fully reserves the copyright.NFT holders cannot enjoy any copyright of any element carried by the NFT asset, a typical case is: CryptoPunks.

3) The creator team has limited open copyright. allowNFT holders make small-scale commercialization attempts. A typical case is: Doodles, which allows commercialization attempts below $100,000.

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4. The scalability of the elements of NFT assets themselves

I put Doodles and PhantaBear together, and everyone will understand what it means.

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5. The operational capabilities of the NFT project team

We all know that the Token of homogeneous assets is more dependent on liquidity; when it comes to NFT, because NFT is a non-homogeneous asset, it is very dependent on Web2 traffic. Yes, you read that right, Internet traffic. Because only with enough traffic and brand exposure, it is possible to convert more purchasing power. In point 4, it is mentioned that Jay Chow is used as a negative teaching material. At this point, Jay Cub is a successful case. Because Jay Bear captured Jay's influence and traffic, there is the so-called success we have seen.

The operational capability of the NFT project team represents its ability to capture traffic. In such a huge and complex NFT market, how to stand out among 1,000 NFT projects depends on the team's operational capabilities in addition to the quality of the NFT itself.

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6. The financial attributes of NFT assets

The financial attributes mentioned here are directly related to the benefits of holding the NFT assets of this project.

There are generally 2 types of benefits:Right to use and profit (dividend right)

The right to use refers to the right to use certain scenarios or PASS that can be obtained by holding NFT assets. The income right refers to how much investment income or dividends I can get by holding NFT assets.

Here we take Doodles as an example, which has a DoodleBank for value capture and revenue distribution.

The copyright income obtained by the Doodles project in the market and the income voluntarily submitted by the derivatives project will enter the DoodleBank. Of course, there can actually be many sources of income, which I won’t describe here.

Therefore, the last key step in examining an NFT project is to analyze the financial attributes of its NFT assets to see whether it can capture value and whether it is sustainable. In addition, the strength of financial attributes is very direct for the valuation of NFT itself. The stronger the financial attribute, the more popular the NFT asset is in the market and the stronger the ability to resist risks.

Most NFT assets are assets in a bull market and air in a bear market; or in other words, they are assets when there is flow, and air when there is no flow. So how can we change this situation? Then vigorously develop its financial attributes. When NFT assets have strong financial attributes, they will still be assets in a bear market, and at the same time, they will not lack traffic.

To sum up, the above 6 points are the basic points of investigation to investigate whether an NFT project is worth long-term investment.

In addition, since NFT assets are long-tail assets, their liquidity is particularly poor, so they must be treated with greater patience and perseverance. When the traffic comes, you must know how to retreat bravely. Only by realizing it efficiently can the essence of investment be reflected.