Scoring model for NFT evaluation

Abstract

The non-fungible token (NFT) market has experienced significant growth in recent years. Similar to real estate and artwork, NFT is illiquid and it does not have a market price. Thus, there arises a need for a comprehensive scoring system to analyze the value of NFTs. Using a single score is often inadequate, as NFT value is influenced by numerous factors and is assessed based on personal objectives. Addressing the issue, this study explores critical factors influencing NFT value and develops three scores to rank NFTs including rarity, return on investment (ROI), and reputation score. The scores serve to evaluate both NFTs and NFT collections. (i) The rarity score evaluates the level of scarcity, and it applies to NFTs within a collection. (ii) The reputation score evaluates the interest of communities in NFT projects, considering the number of followers and the interaction rate; the score is for NFT collections. (iii) The ROI score assesses the profit generated by NFTs; it applies to both NFTs and NFT collections. Our empirical results show that a well-distributed rarity score of NFTs enhances their demand and profit; high-rarity NFTs are typically associated with a low number of sale transactions. NFT collections with high ROI and high reputation generally draw more attention and yield a positive return. In addition to the three scores, this paper presents a system to collect and process a huge amount of blockchain and social network data for NFT evaluation.