In the world of NFTs, rare tokens, representing unique traits, are crucial value determinants. These tokens signify the scarcity and uniqueness of an NFT, impacting its market value significantly. We introduce a Premium Model to bring a credible-neutral structure to the valuation process and facilitate informed trading decisions. This model quantifies the value of an NFT's traits, enabling a more precise and standardized approach to pricing with interpretability.
The Premium Model emerges as a vital tool in our approach to demystifying and rationalizing NFT pricing, providing a structure that is inherently aligned with the idiosyncrasies and market particularities of digital assets.
The core formula underpinning the Premium Model is expressed as:
- Estimate Price: The predicted value of the NFT.
- Floor Price: The lowest price at which an NFT is currently listed for sale in a particular collection or category on the market.
- Intercept: This could be considered as a base adjustment to the floor price, accounting for intrinsic factors that might universally adjust prices up or down across a given NFT collection or market.
- Trait Weights: These are the coefficients that are assigned to each trait to determine how much that trait influences the price of an NFT. Each trait contributes proportionally to the estimated price based on how it is valued relative to the floor price.
- Trait Premiums: Additional values attributed to particular, desirable traits or characteristics of the NFT. They are the product of the Floor Price and their corresponding Trait Weights.
- Base Value: This represents the baseline value of an NFT within a collection, derived from the floor price and potentially influenced by an intercept that accounts for general market conditions or other factors not tied to specific traits. Mathematically, it can be represented as:
We exemplify our premium pricing model utilizing rare token #7403 from the Bored Ape Yacht Club collection. Following is the basic information corresponding to this token:
This token possesses a variety of traits, encompassing Trippy Fur, Faux Hawk Hat, Angry Eyes, Aquamarine Background, Silver Hoop Earring, and Phoneme Mouth. Among these, Trippy Fur is identified as the most rare attribute.
According to our Pricing V2 API, #7403 has the following pricing value.
Each trait has a weight. The value of a NFT can be decomposed into base value and the sum of all trait premiums. The most expensive trait of token 7403 is Trippy Fur, which has a value of 3.13 times the floor price.
The estimated price for token 7403 is 104.42672366856866 ETH. Our estimated price is able to be decomposed as:
The Premium Model has five major advantages:
- Transparency: Parameters are transparent and easy to validate.
- Real Time: NFT price changes if and only if floor price changes given a group of weights.
- Linearity: Any NFT price is linear to floor price. Price ratio betweens NFTs/traits are constant given a group of weights.
- Credible Neutrality: Parameters are calculated by linear regression according to transaction history. Only sale prices and floor prices are used for training. No third-party bias(rarity, sentimental text and so on) invovled.
- Every parameter(weights and intercept) in model has a clear meaning(trait importance and base value) in NFT.
- Trait weights are shared between different NFT prices, just like traits are shared between different NFTs.