Nowadays, it has become really easy to mint an NFT but the traps are numerous and not always easy to identify.
How to analyze an NFT project before making the decision to mint?
it is essential to ask yourself the right questions before minting an NFT from any new project and to have the correct reflexes to protect yourself! Several key indicators should be taken into account: the team and roadmap, the community (Discord and Twitter), the scarcity and price, the technology and of course the underlying project (art and utility).
The analysis of the team is an important point to consider. The first question to ask is: is the team anonymous, partially anonymous or completely known (doxxed)?
It is preferable that the team does not remain anonymous, i.e. that we know their names, ages, professional experiences, etc. as you are less likely to be confronted with certain risks (rug, soft rug, project dropouts, etc.) That being said, if the team is anonymous, as some successful projects have been, it’s not so surprising to find this in the web3.0 ecosystem.
If the team is doxxed, what do you need to know about their history? If you are able to assess their relevant past experience, questions worth asking are: is it related to the field of NFTs? Do they have any previous reputation in the field? The founders do not have to be famous, nevertheless , they should have some valid and relevant experience.
Finally, can we also assess the reputation of the team? For instance if a member has already been involved in a dubious project then this would be a serious red flag. On the contrary, if one of the founders has already been involved in a successful project, then that would be considered to be a very positive point.
It is important to look at the roadmap even if it is often simply a future vision for the project. The best policy is to favor original projects with a realistic vision. Also, you must be aware that the roadmap is rarely adheaded to in reality, as its content is based on a project’s future intentions rather than on a rigid structure.
On the other hand, you can evaluate the projected realistic approach of the roadmap in relation to the financial resources of the project. Another question, is the team competent enough to execute the plan and does the whole plan sound coherent to you?
The analysis of the project’s social networks is a crucial element. The community aspect is very important in most NFT projects. However, we can cite as an exception purely artistic collections like generative art where this methodology is not always so accurate.
NFT projects use two main social media platforms: Twitter and Discord.
It is important to look at the number of followers on Twitter, less than 10,000? More than 100 000? Be careful, the number of followers means absolutely nothing at first glance, you have to check if they are real, projects can easily buy fake followers.
An easy method is to look to see if the number of followers corresponds to the engagement on the account (likes, comments, retweets etc). So if the engagement rate looks strange then this should alert you. Ideally, the project shouldn’t have too many farmed followers with giveaways and whitelist contests (WL).
Another valuable point to consider on Twitter, is to look if recognized collectors are following the projects account. (for example Zeneca, Punk6529, Takoa, etc). Indeed, if whales have an eye on the project then it is often a positive point. However, that doesn’t necessarily mean that they approve of the project. They just have an interest.
In the NFT ecosystem, Discord is a must. Indeed, the majority of the projects open this type of social network to gather their community. Therefore, the number of members must be analyzed just like on Twitter. It is necessary to check if they are real or fake. The engagement on the posts and the activity of the members can be a good indicator..
It is also interesting to cross reference the number of followers on Twitter with the number of members on Discord to see if the two are consistent.
For both networks, it is important to pay attention to how these followers were obtained, is it really organic? For example, if you see invitation contests to get a WL then this can be a negative point. Indeed, there are more chances that the Discord is full of bots or multi-accounts.
The number of NFTs and the price of the mint are two essential elements in an analysis. These two pieces of information cannot be bypassed by a project.
So, it is logical to ask how many NFTs will be offered. Less than 1000? Between 1000 and 5000? Between 5000 and 10,000? More than 10,000?
The lower the supply, the more likely it is that a supply shock can occur. But to correctly analyze this criterion, it is essential to put it in perspective with the interest of the project and the activity of the community. If a project offers 10,000 NFTs and has only 20 likes on Twitter the day of the NFT sale, the supply was probably too high to sell everything.
The price is an unavoidable metric to take into account. Does it correspond to the usefulness or the hype of the collection? Is the price in line with market conditions?
At the end of 2021, price was not such an important criteria. On the contrary, it can become so in less euphoric market phases.
Which blockchains are NFTs based on Ethereum (ETH), Solana (SOL, Tezos (XTZ)? The largest and most established ecosystem for NFTs is obviously Ethereum (ETH). We can also mention Tezos (XTZ) for generative art and even Solana (SOL).
You can also find NFTs on Polygon (Layer 2), Flow, Wax and other blockchains. However, 80% of the NFT market volume is concentrated on Ethereum through several marketplaces (OpenSea, LooksRare, etc). When you consider that volume largely defines price, this is something to take into account.
The storage and the way your NFT is generated can affect its value and success. Indeed, your NFT can be on a decentralized blockchain, but if its metadata is stored off-chain then that part of the NFT will not benefit from the security of the blockchain.
The actual generation of the NFT and storage can be centralized, which means you are relying on a third party to hold the file. This can create a centralized point of failure. If the server does not maintain your files, the Universal Resource Identifier (URI) of your NFT will simply be a dead link.
Solutions such as InterPlanetary File System (IPFS) or Arweave offer a decentralized (and more secure) approach to data storage, which increases the security of your NFT image. Thus, it is recommended to take this aspect into account before minting. The more decentralized the storage and generation process is, the more valuable the NFT will be.
There are many different use cases for NFTs, and you need to be clear about the nature of the project. Is it a purely artistic NFT? What exactly is the purpose of the NFT?
If the NFT is a purely artistic project (via a curator like Art Blocks or Quantum for example), the usefulness of the NFT is irrelevant. You need to evaluate the reputation of the artist, the style and originality of the works.
Do you appreciate art? This is subjective of course, but try to identify current trends and investor preferences in NFTs.
It is of course important to understand the purpose of the NFT you are about to purchase. Indeed, Utility NFTs are much more than just digital collectibles. They offer their holders privileges, rights and rewards. You can find several types of utilities (non-exhaustive list):
Analyzing NFTs before minting is not an exact science. However, you can improve your chances by studying the key indicators above. It is important to think in terms of the number of red flags, if there are too many then probably best to skip it.
Obviously, research and thorough analysis can help you make the right decision. But experience may be your best bet.
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