How to analyze and quantify the value of an NFT

How to analyze and quantify the value of an NFT

By HSY | DoctorWho-WorldsApart | 26 Jan 2022


Good Day!

In this article, I want to share a way for you to analyze and quantify the value of "an NFT". It wouldn't be 100% right since it is my personal opinion. The article is here to set an example for all to reference. Further, helping you to have the clue to discover your own way.
這篇文章也有中文的版本:如何分析與量化NFT的價值

I will take the project called Doctor Who: Worlds Apart for the demonstration. Those who don't know what is NFT or Doctor Who can click this article for more: What is the NFT of Doctor Who: Worlds Apart?

The premise of the following discussion is based on the amount of NFT itself is TRUE limited.
P.S. The definition of TRUE LIMITED is also a good topic worth discussing.

So, here we start

1. The value equation of an NFT

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Explanation:

  • x: The target that we want to analyze.
  • Value: The price that you accept to sell/buy.
  • Cost(constant): The original cost you need to spend for getting it from the first-hand market.
  • Application: The "function" of it when we only treat this as a tool. Focusing on what's its function can produce to you.
    P.S. Different people, social statuses, perspectives will have different definitions. You can call it the gap of information also.
  • Premium of Personal Preference: How much you're willing to spend more for getting a similar functional tool that its differences won't affect its function. Such as the different colors outlook of the bag or a particular Serial Number of an NFT matching your birthday.
P.S. Check this article to know what's the example of Premium of Personal Preference:Doctor Who: Worlds Apart. What makes a card Special and Valuable?
  • Premium of Social Consensus: How much the value that a society/group believes in it should be worth more than other similar functions tools. Such as the brand of a luxury bag or an NFT with famous IP.

2. What causes the profit gap between the buyer and seller.

To me, the profit is based on the gap of owning information; further, money is only a unit of the carrier for us to measure which doesn't actually have value.

If we use the concept of differentiation in mathematics to our value equation. Differentiate the equation with the unit of "one trade". We can have this Profit equation.  

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Turn into

4c901275b041777878984a2c14d10aa43beda713b5dda5f05a105a9c33d1457f.png

Explanation:

  • Profit: The accumulated info-gap between the buyer and seller.

  • ΔApplication: The info-gap of knowing its functionality between buyer and seller.
    • Is there any unreleased function of it that will come in the future but only the buyer knows?
    • Are there more functions and values that can be produced when the holder has different social status?
      • Example: The holder of the bored Ape can join the premium club, but if your background is not qualified enough, it still can't provide any benefit to you while joining😥
  • ΔPremofPP: The info-gap of knowing where to find the specific person willing to pay more for his/her personal preference.
    • Is there an individual that the seller didn't know is willing to pay more for his/her preference?
      • Example: Like the weed number of  #42, a nice number of #69, or even the birthday number of a billionaire.
P.S. Simply speaking, if a buyer knows more information than the seller, then this info-gap may make a profit for him. 
  • ΔPremofSC: The info-gap of knowing the potential customer group between the seller and buyer.
    • Just like the definition of ΔPremofPP but macroscopically. Or a simple word can describe it, Famous.
      • Example: When a product belongs to a well-known global brand or a star's peripheral, if the customer sold to it is a fan, there will be a chance to earn more benefits, such as Disney, Doctor Who, Marvel, DC, and so on.
P.S. The true question is how many potential customers don't know about this so far, and how much will they be going to pay for it when they finally know?

3. How to analyze and quantify the value of an NFT

Take this NFT card of Doctor Who: Worlds Apart called "#13 of Sonic Screwdriver in K9 frame" as an example. Let's see how to quantify the potential value of this NFT card.

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In the first equation, we can mark the variable as

  • x: #13 of Sonic Screwdriver in K9 frame
  • Cost(constant): $7.5 dollars per card cost from the CYBERNETICS Pack.
    829cdb590a4b98b6dbbfdae796f711c758284d99afca805a18a90d3ff0d60af0.png
    P.S. Founders Token Holder can have a 20% discount, check this for more: #News, Batch 3 Founders Token Sales of Doctor Who: Worlds Apart
  • Application: An Epic rarity NFT digital asset card.
  • Premium of personal preference: Serial Number is 13 and the K9 frame.
  • Premium of Social Consensus: This is a TCG(trading card game) game with the IP called Doctor Who: Worlds Apart.

After you fill in the description of each variable, we can start our second equation.

4c901275b041777878984a2c14d10aa43beda713b5dda5f05a105a9c33d1457f.png
  • Profit: How can I know more detail about this card than the seller?
  • ΔApplication: Since we don't have a game to play yet (2022/01/26), we can only be sure the Epic rarity and the Aliens Frame should be worth much more than the common card. We also believe when the game is released, the previously unrealized functional value will be added which will cause the price to rise, so if this card appears in the second-hand market, but the game has not been released, we think the seller's price should be undervalued.
    • Depending on whether the circulation of NFT is limited or not, there are two situations:
      • If the supply of NFTs is unlimited: there is no functional info gap between each other, so if based on past case analysis, the final market price at different rarities will completely match the probability of drawing cards. Those who are interested can see This article, but only in the Chinese version:500天後,區塊鏈版《爐石戰記》遊戲 Gods Unchained 上的第二次「豪賭」
      • If the supply of NFT is limited: although there is no functional info gap between them, with the increase in demand, even if the functional value does not increase, due to the uneven balance between supply and demand, the value will raised as a whole.
      • Example: 100 people and 1,000,000 people designate the same amount of NFT, the value of "social consensus premium" will be affected.
P.S. If someone knows that an NFT will have new functions in the future and starts to prepare in advance, then after the new function has been applied his future profit will come from the info-gap of the market's delay reaction.
  • ΔPremofPP: Number #13 of this Sonic Screwdriver card matches its owner doctor called 13th doctor, Jodie Whittaker, in Doctor Who serial. So there's a hypothesis that it can be worth more when the holder sells it to the fans of the 13th Doctor. Also, the K9 is the pet of the Doctor, so this combo is actually the full accessories for the Doctor, her tool, and her pet, which may mean something of additional value to Doctor Who fans.
    c92f57a30481fd43fc8a422fc339ecfb9c3b498e29ca31fd06fdf102643155ff.jpg
  • ΔPremofSC: This TCG card game called Doctor Who: World Divided is a world-renowned album. Although this project has not been officially announced to the public, we can still calculate the user amount of Doctor Who fans and gamers who like TCG.
    We can forecast the potential market of this card by analyzing two goals.
    • The fan amount of Doctor Who, not just the WEST but concluding the other nations in Asia.
      • Are there any future plans for this IP brand from its owner, the BBC?
      • What can be the original thought of the policy or planning that lets the BBC allow this project?
      • Will there be any change to the BBC in the future?
    • The gamer amount of TCG games, such as hearthstone, God Unchain, Magic Storm.
      • How many players around the world will love the TCG game and which game are they playing now?
      • What's the current status of these competitive games?
P.S. The total circulation of a limited NFT can also be included in the variable of the "social consensus premium", because an NFT with a fixed number of circulations, from an overall point of view, actually represents the concept of "brand", its additional value will depend on the society's preference for the brand.

When you've completed the research steps above, put this information together! The info-gap between you and other traders may be the potential profit you can make in the future.

To know more info than your opponent, to earn more profit from your trading!

4. How to evaluate the value of premium price

You may find the premium price has too many factors to quantify, here is the way to get the value of the premium price for you. 

The left-hand side of the first equation can be equivalent to the market bottom value which is the average price of all sold NFT in a unit time range since the variable of Cost and Application will be eliminated when it compares to the same kind of them.

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So, you can calculate the premium price by observing the market activity.

Those who want to know more about how to calculate the bottom value of the market sold NFT card and how to use the variable of "circulation" for deciding the value can click this article: Doctor Who: Worlds Apart. How do I decide the price of a card? Just a personal opinion.

5. Conclusion

At the end of this article, I believe that after reading this article you now have a clearer way of analyzing the target for you to calculate the value of each NFT, rather than listening to the words from others who keep telling you the cliché, “This NFT project is valuable” but without giving you any scientific explanation.

"Hold still, it's about to fly!🚀🚀🚀 "-----Does it sound familiar? 🙄

Although I understand that some people may say they are able to make a profit by just flipping with people's FOMO emotion without researching anything, I had mentioned above that it is just the way I look at the world.

Also, different people will have different calculation results, so these info-gaps will be combined and turned into the motive power of pushing the market.

Different people have different values calculation results and they all pursue their personal ideal trading status balance. Eventually, the place they are gathering has been called the Market, the behavior they are interacting with has been called the commercial.

The above content is my personal opinion, I do not provide any financial advice.

Thank Toby Liao for helping with this article.

Thank you for reading~🙌

This is my referral link.

https://doctorwho-worldsapart.com/r/3684/

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