Talk of NFTs may be filling board rooms and news feeds, but their complex and new nature makes it hard for investors to determine which projects show promise. In fact, only a small portion of investors are reaping the most profits from NFTs, according to a study by Chainalysis.
I’ve been involved in more than 50 NFT and cryptocurrency deals, and am committed to scaling the DAO (decentralized autonomous organizations) ecosystem. However, the unfamiliarity of the NFT space is why many investors fear dipping their toes.
NFTs are more than famous artworks, songs and tweets — they serve as part of the broader decentralization movement. From copyright enforcement to buying real estate and identity verification, NFTs play a big role in the remote,= digital world. In the first half of 2021, the NFT market cap grew 2,100%, reaching $2.5 billion in sales volume. Meanwhile, the creator economy boom has opened more doors for NFTs, as people don’t have to go through aggregators or intermediaries to create a token.
If you’re speaking with a founder who doesn’t delve into the details of the business model, the tech and competitors, consider it a red flag.
Investors need to know the basics of NFTs and their potential, but they don’t need deep technical knowledge. That’s because the real value of any NFT project lies with the people building it. They are the ones who will sustain promising NFT projects as they face inevitable moments of volatility.
Here’s how to conduct the ultimate litmus test on an NFT project through its creators:
Check if both the founder and tech are open
The first NFT was created in 2014 and was sold only last year. The NFT marketplace is still in its infancy, and investors shouldn’t expect NFT projects to undergo the same vetting process as other tech initiatives. There aren’t sufficient data points available, nor the tools to track NFT performance. Instead, investors should be looking for transparency in a project’s leadership and tech infrastructure. It’s less about assessing the destination, and more about trusting that there’s a window to observe the journey.