In many cases, people are willing to pay a premium for rare items or unique experiences. As the old saying goes, things are rare and expensive, but in the world of NFT, how do we quantify the rarity and equivalent value of this digital asset?
From a purely commercial point of view, many assets do not require any form of supply restriction, but the value of rarity will affect the sum of consumer demand and market-level demand, and artificial rarity and quantity design will produce different effects. The value of scarcity is economically rooted in the concept that resources are finite, demand is infinite, and price is a signal of resource scarcity.
The rarity value of blue-chip NFT can be measured from the following four points, one is the scarcity of the project itself where NFT is located - each Collection issues a specific number, mostly 10,000.
The second is rarity value compared to other NFTs in the total collection. Rarity is closely related to the concept of conspicuous exclusive consumption - the similarity and aesthetic perception of NFT and owner, and in some cases also represents an attitude and emotional value of identity. For example, the homogeneity of Azuki held by Jay Chou and its own characteristics.
The third is the use value brought by the scarcity effect of NFT, or the premium, including the fun of buying and selling NFT, multiple applications and extensions in the new field GameFi and Metaverse.
The fourth is to capture difficulty or time value. The scarcity value also reflects the community maintenance cost. For example, the increase in the operation and maintenance cost of some community PASS will be reflected in the price, forming a closed-loop flywheel.
So, is rarity the dominant influencing factor of price? Since January, although the overall transaction volume of NFT in the market has declined, the blue-chip projects under the previous market consensus still have their prices rising due to their scarcity, reflecting consumers positive expectations for top assets.
Holders of rare NFTs have pricing power that is more than 10 times higher than ordinary NFT holders.
TL; DR
Holders of rare NFTs have pricing power that is more than 10 times higher than ordinary NFT holders.
The influence of rarity sometimes gives the degree to other factors that are more recessive than rarity, such as aesthetic value and community consensus.
The influence of rarity sometimes gives the degree to other factors that are more recessive than rarity, such as aesthetic value and community consensus.
Among the 6 items listed, the rarity of Doodles has the strongest correlation with the price, and BAYC obviously has other variables that affect the price.
Among the 6 items listed, the rarity of Doodles has the strongest correlation with the price, and BAYC obviously has other variables that affect the price.
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90 ≤ x ≤ 100: Legendary
70 ≤ x < 90: Rare
40 ≤ x < 70: Classic
0 ≤ x < 40: Normal
Is the NFT with the highest price the most rare?
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The rarity distribution of the top ten NFTs in each blue-chip Collection, source: NFTGo.io
In most scenarios, many people will use various tools to find the rarity. However, in addition to collection value, other values of NFT will greatly dilute the impact of rarity on price. The influence of rarity sometimes gives the degree to other more hidden factors such as aesthetic value and community consensus.
The market positioning of CryptoPunks is more inclined to the OG NFT project. As the first NFT project, its collection value is self-evident, and the rarity is undoubtedly an extremely important flavor enhancer in the collection experience. As far as BAYC is concerned, although it is also a very classic and relatively early blue-chip NFT, the community and business system behind its project support some of the other values of NFT, thereby dispersing the influence of rarity on its price. Compared with CryptoPunks, the proportion of legendary rarity in the top ten NFTs has decreased significantly.
Therefore, from the perspective of different project positioning factors, the NFT with the highest price is not necessarily the most rare.
Does rarity affect price tiering?
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Average NFT selling price in USD based on rarity ranking; Source: NFTGo.io
head and tail effects
After comparing the gap between the highest and lowest rarity price tiers, there is another problem that users often encounter. If you can’t afford the high-priced NFTs with the first 10% rarity, what should you do with the NFTs in the last 90% rarity range? choose? We remove the top 10% of high-rarity NFTs and further analyze in relatively lower-rarity NFTs.
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Average selling price (USD) of NFTs ranked by rarity; source: NFTGo.io
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Source: NFTGo.io
It is not difficult to find that even though Medium NFT has a higher position in the market than Bottom NFT, the market price stratification effect of the two is not obvious. On the other hand, although Medium NFT is relatively rare in the market, the value of Top NFT is still far higher than that of Medium NFT. Obviously, a head effect affects the price of NFT.
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Which group of NFTs is most relevant?
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Pearson Correlation
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Rarity and price distribution of NFT collectibles; source: NFTGo.io
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QQ-plot of NFT price; source: NFTGo.io
We observed that a portion of the dataset was normally distributed, but we had to take into account any outliers in the collection when we chose our analysis method. Generally speaking, NFT prices tend to be non-normally distributed, and some studies have confirmed that it is this tendency that leads to errors in the estimated value of the Pearson Correlation Coefficient.
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Spearman Correlation
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The difference between Pearson correlation and Spearman correlation; source: NFTGo.io
The results of the study show that the Spearman algorithm produces less error, while when using the Pearson correlation, due to the existence of non-normal distribution, the estimation results of all collections appear to be too large or too small.
The final statistical results show that among the 6 projects listed in the research, the correlation between the rarity of Doodles and the price is the strongest, and BAYC obviously has other variables that affect the price. Perhaps this is why BAYC has become one of the most successful NFT projects in history. The reason is that in addition to a rare monkey, people also value other more valuable things brought by BAYC.
Is the price defined by the community or by rarity?
Just like Panini NBA star cards, rare game cards, when the number of players of a class of collectibles is large enough, price stratification will occur. The same is true for NFT, but NFT price stratification has not only a single impact factor of rarity. More perhaps defined by the community. For example mfer, such as StartCatchers, there are different Dynamic Traits, the community will define 3 dynamic traits > 2 > 1 > all static. Furthermore, the value of the mfers project lies in the cultural consensus behind it. The NFT image makes many holders seem to see themselves and resonate. The influence of rarity on price has been greatly diluted, replaced by aesthetic resonance and community consensus. In addition, NFT prices are also related to celebrity effects, and some Trait NFTs associated with celebrities will be sold at higher prices than the average. For example, many people will choose to buy NFTs that hold the same trait as Jay Chou’s Azuki, thereby pushing up the price of such NFTs.
in conclusion
in conclusion
By building a data analysis mechanism, we explored the correlation between NFT rarity and price, quantitatively analyzed NFT pricing power, and re-evaluated the impact of rarity on price. At the same time, it should be noted that due to the difference in holding time and buying time of buyers, there are also certain deviations and variables in the analysis of price and rarity. In addition, based on dynamic factors such as secondary market circulation time, project activities and differences, we further analyzed the characteristics of different collection series to help investors better plan their investment strategies and income expectations in the NFT market.
