What is a NFT floor price?
Understanding NFT Floor Value
The NFT floor value is the lowest value at which an NFT in a specific collection can be acquired. It serves as a benchmark for market participants to understand the fair market value of an NFT project at the collection level. This helps to streamline the decision-making process for NFT acquirers by eliminating in-collection factors such as rarity and traits.
The most straightforward method to determine an NFT floor value is to identify the NFT with the lowest value in a collection. For instance, if the lowest value for an NFT in a collection is $20, this becomes the de-facto floor value. If someone acquires this NFT, the next lowest-valued NFT becomes the new floor value.
Factors Influencing NFT Floor Values
Several factors can influence the floor value of an NFT. One of these is marketplace fragmentation. Different NFT marketplaces often have varying floor values for the NFTs listed on their platforms. Therefore, to calculate a more accurate NFT floor value, it's necessary to consider multiple platforms to account for these differences.
Liquidity, or how easily an NFT can be sold and exchanged for a token, is another factor that can impact the floor value. A robust NFT floor value model should consider varying levels of liquidity. This can be achieved by factoring in recent NFT sales, which provide insight into both the real value and frequency of NFT sales in a collection.
Outliers can also manipulate basic NFT floor valuing. For example, if 99% of an NFT collection is trading at 10 ETH, but there is an influx of multiple NFTs listed at 3 ETH, the NFT floor value immediately drops to 3 ETH.
The Role of Floor Value in NFT Trading
The floor value plays a role in NFT trading. It provides a starting point for understanding the popularity of an NFT collection and its perceived value over time. Collections with a high floor value might attract more attention, and dips in floor value might signal that interest in that project is waning.
However, it's important to note that the floor value simply determines the lowest asking value for a given NFT collection. It doesn't necessarily mean that collectors are willing to acquire at that value, or that an NFT is really worth the floor value if you acquire it.
Beyond Basic NFT Floor Valuing
While the floor value might initially seem like a straightforward and effective indicator of the lowest possible value any given NFT holds, there are additional factors to consider when attempting to truly gauge an NFT collection’s floor value. These include the uniqueness and rarity of the NFT, demand for a particular NFT project or artist, past and current market trends, and the ability to generate hype over the NFT project.
