How to Spot a Promising NFT Project: Here Are 7 Key Factors to Evaluate

Contents

Last updated on July 11th, 2024 at 11:45 am

Investing in NFTs is not exactly a walk in the park. If you want to invest your money into something, it only makes sense that you spend time learning and understanding it. Many NFT projects are sweeping or have swept the internet and quite dominated trends for a while, but how do you know if they are any good?

The hype surrounding NFTs (non-fungible tokens) often revolves around the mouth watering prices at which some are traded. However, an NFT being listed on a top marketplace doesn’t automatically make it a valuable investment.

Identifying promising projects requires a keen eye for key indicators of success. Proper research ensures that your investment is worthwhile and has the potential to appreciate over time.

This article discusses seven key factors to examine when determining a quality NFT project to invest in. Understanding these factors and how to evaluate them increases your chances of making a worthwhile investment.

What are the signs of a good NFT project?

Based on the precedents, an NFT project has the potential to be successful and get critical and widespread acclaim if it has answers to the questions under more than three of the seven factors listed below:

1. Project Utility

For what it is worth, an NFT is simply a representation of an asset (digital or physical) on the blockchain. Therefore, if all there is to a project is just the utility of holding the NFT, you may want to reconsider. Although many successful projects evolved to have concrete utility over time, even if they weren’t evident initially, it is best to establish a concrete sense of what an NFT project has to offer (or can offer) before you make any investment.

The NFT space is still nascent and very much evolving. Innovations in utility will continue to come in different ways. Watch out for these that interest you.

To help you gauge an NFT project’s utility, here are a couple of questions you should ask:

Is there a real-world application or integration for the NFT?
How does the project differentiate itself from others in the market
What tangible benefits does holding the NFT provide?
How does the project plan to sustain its value over time?
Are there any exclusive access or perks granted to NFT holders?

2. Reputation and Credibility of the Project Team

The success of an NFT project heavily depends on the people behind it, and that’s what attracts investors. When well-known individuals in the NFT space introduce a new platform, it generates immediate interest due to their established reputation.

Creators who have earned trust within the NFT community are more likely to launch successful NFT projects. Conversely, some founders are shunned because they are only known for quickly selling NFTs for profit and abandoning the platform.

These are some questions to ask yourself about the team:

Are team members identifiable on social media platforms like Twitter, LinkedIn, or the project website? Knowing the team isn’t anonymous adds credibility and accountability.
Are they engaging with the community, answering questions, and participating in discussions? Active involvement shows they value and invest time in their community.
Do they have relevant experience? Experienced engineers, artists, project managers, marketers, or community managers bring valuable knowledge and skills, increasing the project’s potential for success.

3. Project Roadmap

Roadmaps are now crucial for the success of NFT projects. In the past, projects could release NFTs without a roadmap and still find buyers. However, now it’s important for teams to outline the goals and strategies of an NFT project in order to show its long-term value to holders and encourage them to hold onto the NFT for longer. Investors now expect to see a roadmap, even a simple one, as it outlines the project’s future and direction. However, when reviewing a roadmap (or whitepaper in some cases), it’s essential not to take it at face value. It’s important to carefully consider the claims and plans, and ask yourself these questions:

Is it plausible? If it sounds too good to be true, it might be. Some items may require a large team, and a small team might struggle to deliver.
Is it detailed and substantial? A detailed roadmap excites and informs the community about future milestones.
Is it scheduled? Look for specific deadlines, such as Q1, early January, or November 27. Clear dates increase confidence and reduce ambiguity.
Is it competitive? Compare it to other projects in size, date, and price. If something is unusual, find out why. A large, eager community might justify a higher mint price.
Is it value-driven? Many roadmaps now focus on the value they plan to give back to holders. Check if the roadmap outlines future benefits for holders.

4. Community Culture

Project communities feel like exclusive clubs, giving a vibe similar to a fashionable party or a supportive family of like-minded people. These interactions, often happening on Discord and sometimes Reddit and Twitter, are another essential parameter to predict a project’s success. Quiet, inactive communities are tantamount to dead projects. So, while researching NFT projects, here are things you need to look out for with regards to their communities:

Activity: Are the main channels consistently active? With this question, however, you need to know that newer or smaller communities may not always be active.
Health: Are discussions genuine and engaging, or are they dominated by spammy contests for rankings?
Community Size: Is the community large enough to support project goals, such as selling out a collection? Ideally, there should be enough members to meet demand. The average standard is a project with a sizable X (formerly Twitter) (5000+) and Discord (5000+) following, but a newer project may not have such a large audience.
Organization: Are there relevant channels and helpful content from staff? Is the team meeting commitments and deadlines?
Accessibility of Information: Can you quickly get answers from the community and team? Lack of transparency could be concerning, although some details may be kept confidential initially.

These questions help assess the strength and potential of the community around an NFT project.

6. Project Story

Compelling narratives are essential for community engagement, fostering relatability and connection. Whether it’s about the team, the project’s inception, or the NFT’s lore, these stories captivate and retain interest. Without them, retention may suffer.

Here are some questions that can help determine what kind of story an NFT project has:

Is it about the team? Does the team have an interesting background, like being artists or well-known in crypto or NFTs?
Is it about the project? Does the project have an exciting origin story or roots in a specific niche?
Is it about the NFTs? Does the project feature intriguing lore about the NFTs, like a graphic novel or creative storyline?
Is it part of the brand? Is the story seamlessly integrated into the project’s brand, seen in marketing and community discussions?
Is it linked to charity? Does the project support a charity that fits its narrative and values?

Knowing what drives a project’s story helps you determine whether you align with it and how strong its appeal would be to other potential investors.

7. Cost and Financial Metrics

Many are primarily interested in NFTs for financial gain, even if other motivations are also present. Thus, you have to understand the lingo used to evaluate this aim.

Creators and artists can discuss the price of an NFT in various terms. They often discuss costs in ETH for simplicity, but you can substitute it with your preferred token ecosystem.

Here are key metrics to consider when evaluating NFTs:

Mint Cost: Know the initial cost of minting an NFT. Compare it with other projects to understand its value and utility.
Current Floor Price: Watch out for NFT projects with lower prices on the secondary market. A low floor price doesn’t always mean a bad project; it could reflect market conditions.
Floor Trends: Track changes in the floor price over time. A stable or rising floor price suggests a healthier project, while drops may indicate issues.
Ceiling Price: The highest-priced NFT in the project, indicating potential value.
Total Volume Traded: Shows trading activity on platforms like OpenSea. Lower volumes in newer projects or over time may indicate slower activity.
Unique Owners: Ratio of owners to NFTs. Higher percentages mean better ownership distribution and lower risk of large sell-offs.
Daily Trades: More daily trades indicate higher liquidity and demand, boosting project success and desirability.

Final Thoughts

Those who claim they intend to build a castle in the sky may leave once the sales are over, and their NFTs have been flipped for a profit. You don’t want to be part of that.

Taking the time to thoroughly evaluate NFT projects before investing can save you from potential losses and disappointment. By understanding the key factors of a successful project, you can make more informed decisions and identify opportunities with real potential.

Remember, the NFT space is still in its infancy. With careful research and due diligence, you can navigate this exciting and evolving market with greater confidence and success.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

If you would like to read more articles (news reports, market analyses) like this, visit DeFi Planet and follow us on Twitter, LinkedIn, Facebook, Instagram, and CoinMarketCap Community.