What is an NFT Floor Price?

If you're already aware of what NFTs are from browsing online, you may have read about an NFT floor price. What does floor price mean for NFTs? An NFT floor price is the lowest sale price that an NFT will sell for from the collection it's in. This floor price is updated in real time depending on what NFTs are being sold in the collection or that have been added as a listing.

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NFT floor prices are important because NFTs can often be challenging to value. They're not like other traditional assets and due to the nature of them being relatively new to the market, there's no definitive guidebook on how much you should be charging. To give some basis to understand popular NFT art collections and NFT floor prices, It's important to remember the foundation on which these art collections lie.

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Unlike fungible tokens such as Bitcoin, which can be divided into smaller parts of the whole called Satoshis (Sats, for short), an NFT, or non-fungible token, is a digital asset that cannot be split or shared from its whole. They are unique or of limited quantity, a factor for NFT floor pricing referred to as NFT rarity.

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Elements of the NFT world that have gained widespread notoriety and media attention are rare art collections. While well-known collections like Hashmasks and Bored Ape Yacht Club were not the first movers and shakers in the NFT art space, they’ve rapidly become the most famous through their crazy floor and sale prices.

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Now that you’ve got a better understanding of what NFT floor prices are, let's take a look at them in more detail and see how NFTs are valued for the market.

How is Floor Price Calculated?

Floor price is a term that's typically used by economists to determine how low the price can go for certain goods, commodities, and more. However, as the NFT market grows, so too does the general consensus around how these tokens are calculated. The NFT floor price is a sale price that's cheaper than all the other sellers within the same NFT project. This means the floor price is calculated as the lowest price an owner wants to sell for.

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Numerous factors contribute to the NFT floor price including which NFT collection it’s part of as well the overall NFT market, in general. For example, let’s examine how a floor price for a collection like the popular Bored Ape Yacht Club is calculated. With every NFT in the collection being unique, each has different attributes that may make it more rare and valuable than others. This means some will inevitably be worth more than others when it comes to a sale price, thereby setting your NFT floor price. The floor price can fluctuate, but it should be a guide for sellers and buyers on how much the NFT could sell for on the market.

How Are NFTs Valued?

If there’s no real guide and they’re pretty new to the investment world, how are NFTs valued? There are a number of factors that contribute to what makes an NFT valuable and each can have an effect on the NFT floor price. A few of the most common factors that affect an asset’s value and, ultimately, the NFT floor price include:

• Utility
• Ownership history
• Liquidity
• Future value of an NFT
• Social proof
• Additional uses and applications
• Extra perks and bonuses
• NFT Rarity

Utility

Utility refers to what the NFT provides in the real world. Some NFTs may provide physical goods, membership, and services as well as access to events that are exclusive to those who buy the NFT. For example, LinksDAO is a blockchain-based country club. When someone buys a LinksDAO NFT, they get membership access to the country club and governance rights allowing them to vote on decisions they want the organization to make.

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The volume of utility offered can end up influencing the NFT floor price. This is especially true when potential buyers and investors compare NFTs with real-world perks to those without. It's up to the NFT creator to determine any perks they want to give to the consumer as well as whether it's just for a single, unique NFT or part of an NFT collection.

Ownership History

NFT ownership history can often be important information that contributes to how valuable an asset is. Every NFT has an owner and a creator that is permanently recorded on the blockchain. 

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Each token in an NFT collection will have details on the item's page which provide all the relevant information about its creation and ownership history. The number of previous owners and the notoriety of a particular owner can contribute to the value of the NFT and affect the NFT floor price. This means assets with notable previous owners may fetch higher NFT floor prices than those without a storied past.

High Liquidity

Liquidity refers to how easily an NFT can be bought or sold for cash within the network itself. Because NFTs are not converted as easily as fungible tokens like bitcoin, the ability to easily sell an NFT makes it higher in value due to demand. High liquidity boosts the value of the floor prices that NFTs have because they're more sought after.

Future Value of an NFT

The floor price can go up if holders think that the future price will rise. This future speculation could relate to a project releasing news soon about updates or new project features. This can cause NFT owners to list for a higher price or to take their NFT off the market entirely. When fewer NFTs in a collection are for sale on the market it creates a supply squeeze and demand increases. Thus, driving up the floor price. 

Social Proof

Humans are creatures of habit, often looking to the actions of the general population when making decisions about what the right move or behavior is in a given situation. This psychological tendency is what gives us what’s known as social proof. Social proof is the perceived value of something based on the actions of others involved.

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For some NFTs, the social proof might be more apparent than others. For example, Bored Apes Yacht Club is widely known and immensely popular, meaning there are more likely to be higher numbers of people interested in buying NFTs from that collection.

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Most NFT holders will look at floor price with social proof in mind. Social proof may also rise depending on other metrics that determine the value of NFTs.

Ability to Use Tokens in Various Applications

The token's ability to be used in various applications will also influence NFT floor prices. A lot of NFT creators will look at new ways of how tokens can be used in other applications for further benefits. For example, to improve the floor price of an NFT, some creators will consider creating 3D art pieces, playable music, games, and even cards that you can trade digitally.

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These different uses and applications provide value and may contribute to elevating the floor price.

Tangible NFT Bonus Perks

While NFTs themselves aren’t tangible, it doesn’t mean they can’t be connected to a tangible object as a bonus perk of ownership. For example, a physical piece of artwork may have a collectible NFT attached to it. The combination of tangible and intangible forms that make up the NFT will often directly influence the floor price accordingly.

NFT Rarity

Scarcity drives up the value of goods in any kind of market. NFT rarity rankings measure how rare an NFT is in a particular collection. The NFT itself might be completely and totally unique to the market, so the floor price will be a lot higher as a result. This means that unique or rare NFTs could raise the value for popular NFT collections drastically.

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Many investors love the idea of having something no one else does, so marketing some NFTs as “limited edition” collections is one way that can increase that particular token's value. Conversely, if the NFT project consists of NFTs that are already available on the market, that actor might reduce the NFT floor price.

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These NFT metrics are useful to consider for both the seller evaluating their sale price and the buyer considering how much they’re willing to pay. When it comes to the floor price, it’s important to pay attention to all of these metrics during your research.

NFT Floor Price Vs. Mint Price

It's easy to get some of the terms in the NFT world mixed up. Oftentimes, floor price vs. mint price get confused with one another. Each one refers to the type of approach you take when it comes to having an NFT strategy.

NFT Floor Price

The NFT floor price is the lowest sale price available to purchase an NFT on the market. The floor price changes based on factors such as market capitalization, rarity, usage, and bonus perks that directly affect its perceived value. 

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The floor price is a real-time price which means if there's been an increase, the seller may not want to sell their NFT as cheaply.

NFT Mint Price

The NFT mint price is different from the floor price. The mint price is what you pay to buy an NFT when it launches. Minting is the process of taking the digital asset and converting it into a file that results in it being stored on the blockchain. This makes it ready for purchase.

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The mint price is often presented to those in a certain position. The owner may open up the sale of the NFT earlier for whitelisted community members or to a small presale group at a certain price point.

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However, the risk with mint price is that there's no guarantee that the token will rise in value. This means that a buyer purchasing at floor price could end up getting a better deal compared to the cost to mint it if the floor price drops below mint price.

Does Floor Price Matter?

It's apparent that as more investors enter the NFT space, there's a need for more data to accurately assess costs, risks, and potential payoffs in this new investment field. The floor price represents an accurate current value of a particular token, meaning buyers and sellers are given an equal opportunity to do their research and find a fair price. This makes having an NFT floor price essential to help this new form of investment continue to thrive.

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Now that you’ve learned the answer to the question, “what is an NFT floor price?” and seen how different factors can directly affect it, you’re more prepared when doing your own NFT research. The world of NFTs is a great new venture for collectors, investors, and hobbyists alike. Make sure you’re prepared and dive into a popular NFT marketplace like UCOLLEX to get started!

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