How to evaluate NFT projects before investing?
NFT projects have been in the news from 2021
You must have heard about a bunch of rags to riches stories of teenagers investing in NFT Projects at Mint for almost nothing and selling for millions, after some months.
First let’s separate the facts from myths.
Has it ever happened that a person minted an NFT and later sold it for millions. Yes. Although there were very specific instances in which that happened, to deny that it never happened will be a lie.
Most notable rags to riches NFT Projects included Crypto punks, Bored Ape Yacht Club, Moonbirds, Otherdeeds, DeGods, etc.
Now that we have cleared that fact that it is in fact possible for that to happen, although it is debatable how much of it is possible now with the NFT projects that are launching now, but it is not an outright wrong assumption that you can land into another one of those projects that can do that for you.
Let’s talk about the more important thing now. Although by following this guide you may or may not land on the right project, it’s fair to say that it will help you pave your way across the ocean of NFTs and decide what’s best for you.
Things to consider when evaluating NFT projects before investing
There are essentially 3 things that you need to consider when investing in an NFT project launching:
- Team
- Roadmap
- Sentiment
I will break each of these down so you can have a better idea of what they mean.
Team
This is by far the most important factor that you need to consider when evaluating an NFT project.
Team is going to determine the direction of the project, their experience is going to tell what they can do with the project and without a good team to back it up, an NFT project at the end of the day is just an Ape or Tiger picture on the blockchain.
Strong teams make Strong projects
There’s no question about it.
A strong team will include those who really understand the Web3 space, not necessarily the Web2 space. It is a common misconception that Successful Web2 Entrepreneurs make great Project leaders, it cannot be further from the truth. Although it might be a good trait to have and experience of running a successful company in the real world might have the same fundamentals in Web3 too but it’s not the ultimate factor.
A more definitive factor can be their Experience in the Web3, how long they have been in the space and what capacity have they worked for other projects before this, how successful were they and if not, how did they cope with it and now prepared to launch a new project.
Roadmap
This is quite similar to how you would choose to invest in a company in the Real world, what is the company really trying to achieve and what’s the vision that it holds. Although a good majority thinks that when investing into NFT Projects you need to look at some weird numbers or make some deductions based on an indeterminable number of facts about the project.
It’s not true, like any business a roadmap will tell you what the project intends to do and how it intends to run as a business in future, earning for both the project and the holders of the project.
However, with this being said there are many other ways of making a project earn money without having a legitimate business in real world terms. An NFT project that is solely based on Art/Community might only be relying on Royalties as their sole income source and this is fine, and accepted by the space. The problem with such a project will be the 3rd point that we will mention, as the level of subjectivity involved will greatly influence the market.
Legitimate business backed NFT projects will have clear plans with regards to how they plan to make a stable income from the funds they will be able to generate from the Mint. The plan must be realistic and optimistic, any normal copy-cat business idea from Web2 will struggle equally as a Real world business and the chances of its success will be highly dependent on the team’s ability to pull it off.
If you like the uniqueness in the Project’s Roadmap and are confident in the team to be able to pull it off then you have gotten yourself a project to invest in.
Last point is inarguably one of the most important factors that is non-existent for a normal business determinability of success.
Sentiment
Although we have put it up as a clear 3rd factor, the level of subjectivity involved in determining how a project with high sentiment can be distinguished from a project with low sentiment.
NFT Projects mint are like IPOs in the real world, although to get to an IPO stage in real life a company has to go through a lot and need already have an established Business just not publicly available shareholdings.
This is why it’s a belief that all IPOs have a positive ROI. Since we can launch an NFT Project tomorrow in the Web3 space without any prior existence of a Business with said stable income channels, it becomes difficult to determine whether the IPO (Mint in this case) will be successful or not.
IPOs in the real world never go unsubscribed but in the NFT space, the amount of Mints that go unsuccessful is easily above 99%, and an unsuccessful Mint will pretty much mean the end of the project because to fulfil the roadmap, said amount of Mint funds was needed.
Coming to sentiment, it is the sheer willingness of people to Mint the project alongside you, how you or anyone determines it is up to them.
Some gauge this on the basis of an active community, some on the basis of social media presence, some on influencers interest and some on the absolute obnoxiousness of the project that it actually becomes successful.
Once the right sentiment is there, the project does mint out in this space and if you have confirmed the previous factors to be legitimate and achievable, you very well would have landed on the right project and hopefully give you a decent ROI.
Whether it gives you 1.1X or 10X will again be determined on the basis of how strong the magnitude of these above factors is, also the financial returns can be achieved in a matter of hours or it can take months to realize.
At the end of the day, even evaluated NFTs are risky investments and we would advise being extremely cautious with investing in NFTs with your hard-earned money.