NFTs, Investing, Analysis

2022: Year of the High-$$$ NFT Mints— Looking at the Math on a Few High-Profile Upcoming Drops

There’s going to be a LOT of ETH floating around in 2022, and for good reason.

In mid-2021, I was discussing pricing for a planned NFT drop with a potential generative art and smart contract client. We got to talking about all sorts of pricing strategies, and about market dynamics in general. At the time, we’d all seen a number of projects that minted out around 0.05 ETH to maybe 0.1 ETH, but soon after minting (usually before the reveal) ballooned up to like 0.5 or even 1 ETH+ floor prices.

The idea proposed was something like: If the price is going to hit 1 ETH on the floor of a 10k generative set, then why mint it out for like 0.06? Where is the difference — that 0.94 ETH each lying between those two figures — going?

Well, clearly, it’s going to the investors and flippers. The math looks like this:

Looking at a Typical Mint Scenario

Let’s assume ETH at $3,000 for this:

  • Set size: 10,000, of which 9,500 mint out and 500 are reserved.
  • Revenue: 9,500 times 0.05 ETH equals 475 ETH or $1.425 million USD.
  • Assume Floor Climbs To: 0.5 ETH
  • Minimum Value of Set: 10,000 NFTs times 0.05 equals 5,000 ETH or $15 million USD.
  • Difference between settled floor and initial creator revenue: $15 million minus $1.662 million equals $13.575 million.

And so the client wondered: If the set is going to settle in value at $15 million, but the creators are “only” receiving $1.4 million for it, doesn’t it seem like the creators could capture some of that revenue by some means (e.g., by raising the price, most obviously)? (This was not the only client to ask me that question, btw, as many clients are certainly doing the math here.)

And my answer to that was: Maybe?

I get the math, of course. But, there’s also a special dynamic to the market itself. Quite a lot of people are in it in the first place for the flipping opportunities and, although their intentions are primarily financial in nature, they’re…