How to Value Virtual Assets?
Comparable Analysis Valuation on Cryptovoxels Non-Fungible Tokens (NFTs)
|Andrew Steinwold||Oct 15, 2019||12|
Note: This is not investment advice.
In my search for the best methodology to value non-fungible tokens (NFTs), I have essentially concluded that no two projects are the same and that each project, game, or ecosystem needs its own valuation method. In this article, I will explore specific projects and use a valuation methodology which I believe will find a relatively fair value of Cryptovoxels parcels. Please note that I am not attempting to value the project as a whole: I am simply valuing the parcels of land within Cryptovoxels.
What is Cryptovoxels?
Cryptovoxels is a virtual world that is owned by its users. The users within Cryptovoxels can buy and sell plots of land (parcels) to build whatever they’d like. All structures are built using simple blocks, similar to Minecraft. Determining the fair value of these parcels depends on a multitude of factors that we will explore.
As an example, let’s appraise the property “15 Robotis Route”. Located in the “Le Marais” neighborhood, the rectangular property can be seen below outlined by a black dashed line.
Zooming out shows its location relative to the rest of Cryptovoxels..
The map shows that 15 Robotis Route is located just northwest of “The Center”, the first neighborhood created in Cryptovoxels and where new users enter the world. In theory, The Center neighborhood has the most foot traffic and activity, which means there is a higher demand for land in this area. In general, the closer the parcel is to The Center, the higher the value. While this statement currently holds true, this may change in the future when people begin building games and experiences on their parcels. Once this happens, the type of activity on a parcel will likely be more important than its location.
The above is a 3D image of 15 Robotis Route and adjacent builds. Note that 15 Robotis Route is connected to 4 Mezzanine Gateway. If a user can purchase adjacent parcels then they can dramatically expand their potential build area which likely will lead to an increase in value.
The Cryptovoxels website contains searchable details on every existing parcel. Typing “15 Robotis Route” into the search bar opens this page:
Cryptovoxels shares important metrics which are useful in valuation such as:
Traffic shows the total number of visitors to a parcel. The above page indicates that 15 Robotis Route has had 2358 visits, which is the highest for the week of October 4, 2019.
Token refers to the token ID. This token ID is #429, which means it is the 429th parcel to be created in Cryptovoxels. The Origin City (the entire map in Cryptovoxels) will have a total of 3,028 parcels. In theory, the lower the token ID the greater the value.
Color refers to the COLR token. When building in Cryptovoxels, all building blocks are black and white. You can add color to your blocks by purchasing COLR tokens and staking them onto your parcel. To do this you have must purchase COLR tokens from the decentralized exchange Uniswap. Directions for doing so can be found here. A black and white parcel is not as attractive as a colorful one, which means colorless parcels will likely receive fewer visitors and be less valuable. Because COLR is not free, the more colorful a parcel of land the more it should be worth. 15 Robotis Route has 149 COLR, which ranks it more valuable than a similar parcel without any COLR.
A valuable neighborhood has high activity and high quality (colorful and interesting) builds. 15 Robotis Route is located in the neighborhood of Le Marais. Le Marais is an older neighborhood with many builds, however, most of them are black and white. Luckily, the neighborhood is quite close to The Center which is a sought after location.
The location metric shows the exact distance from The Center. The lower the location metric number, the more valuable the property.
Build height is an important factor in valuation because the higher the build height, the more visible the structure is and the more space available to build. We can see that 15 Robotis Route’s build height is 13 meters. There are currently 1543 parcels in Cryptovoxels and only 193 of them have a height 13 meters or greater, so 15 Robotis Route’s height is relatively rare which means it is more valuable.
The area metric indicates the total space you have to build a structure. The larger the area, the bigger the build, which means more potential value. 15 Robotis Route has an area of 294 square meters which is larger than 27.94% of other parcels.
After exploring these quantitative factors, we can now examine qualitative factors. Even a small parcel in an empty neighborhood, far from The Center, will attract people if it has an interesting build or functionality.
The above image shows a parcel with a barn house build, complete with chickens, pigs, sheep, and even a tractor. While there is no functional use for this property, it is still interesting to explore, especially since the surrounding builds are black and white. There is a debate on whether or not a parcel increases value the more interesting it is, however, I personally believe that a parcel like this would sell for a considerably higher price than a similar parcel with nothing on it. The parcel does contain COLR so of course that ads some slight monetary value to the property but even after taking that into account I believe this property could sell for considerably higher simply because it has an interesting build. Obviously “being interesting” is very subjective, but what about when a parcel has actual functionality?
Watch this clip that shows a build with functionality.
The creator of this build, Conlan Rios, added functionality to his parcel by enabling users to purchase COLR directly from vending machines. While this seems simple, it shows how people can create and monetize experiences directly on their land. Over the coming months, I expect the majority of Cryptovoxels parcels will have various types of functions and games. It will be a waterfall effect: as more people join Cryptovoxels, the more interesting structures will be created, which will, in turn, attract more people, and so on.
Let’s examine one specific parcel in three different Cryptovoxels neighborhoods by comparing it to its surroundings.
Valuation of 6 Smart Estate, Little Tokyo
The first parcel we will investigate is 6 Smart Estate located in Little Tokyo, a relatively average neighborhood which makes it a nice reference point for the other properties. Its quantitative metrics are average or slightly below average.
The only metrics that stick out on this parcel are the number of visits and the COLR staked on the property. With 434 visits, it is higher than average and there are 325 COLR staked on this parcel. Little Tokyo is likely not very popular since it has mostly default structures rather than built up structures. There are a total of 53 parcels in Little Tokyo and they have an average sale price of 0.33 ETH. 6 Smart Estate was last sold for 0.2931 ETH in April 2019, so this parcel is below Little Tokyo market price by 0.0369 ETH or 11.18%.
Additionally, the average market price per parcel has risen dramatically over the past 6 months. When this parcel last sold in April 2019, the average price per parcel was 0.35 ETH. The average price per parcel is now 0.48 ETH, which is a 37.17% increase in a 6 month period.
When we look at the actual build itself, we see that it is an art gallery. Judging from the parcels name, “Blockchain Art EX”, we can assume that this is an art gallery for the Blockchain Art Exchange, a platform where you can buy, sell and manage your digital art portfolio.
(Clicking on a piece of art brings up the NFT details.)
The art on the walls are non-fungible tokens which can be viewed and purchased via OpenSea. The functionality of this parcel increases its value because users will likely come visit and interact.
After factoring in these quantitative and qualitative metrics, I estimate that 6 Smart Estate is worth 0.45 ETH on the low-end and 0.70 ETH on the high-end. The low-end estimate considers that the property’s only above average quantitative metric is the number of visits. The Little Tokyo neighborhood itself is not extremely sought after, but it is closer to The Center neighborhood than most others. The high-end valuation considers that since the build is an art gallery it will attract users. Having 434 visits to a parcel is significant considering the total number of parcel owners in Cryptovoxels amounts to 331 different wallets: there is generally one wallet per person.
6 Smart Estate Final Valuation
Low-end: 0.45 ETH which represents an increase of 53.53% over purchase price.
High-end: 0.70 ETH which represents an increase of 138.83% over purchase price.
Valuation of 76 Block Fork, The Center
Next, we will appraise 76 Block Fork in the Center neighborhood. The Center is the most desirable neighborhood in Cryptovoxels because this is where users first enter Origin City and access the entire world. The quantitative metrics that stand out on this parcel include the number of visits and the token ID number.
76 Block Fork is not a very large or tall parcel, however, the traffic and token ID do provide value. The 3,084 visits is an exceptionally high number considering the total number of owners in Cryptovoxels is 331. This is likely due to its close proximity to The Center. The token ID number, referring to when the token was created, also adds significant value to this parcel. The token ID of 5 means that this was the fifth parcel ever minted within Cryptovoxels. This early creation date will significantly increase its value.
The property last sold in July 2018 for 0.38 ETH. Considering the average price per parcel in Cryptovoxels is now 0.48 ETH, one can quickly determine that this property increased in value. 76 Block Fork is looking promising based on this data, but on the qualitative front, it loses some steam.
If the owner decides to build something more interesting or functional to attract visitors, the parcel would be worth considerably more. Regardless, not only was this property was bought below the market average of all parcels in The Center neighborhood, but also all Cryptovoxels parcels in general. The Center has a total of 63 parcels with an average previous sale price of 0.65 ETH. However, considering the majority of parcel holders in The Center are inactive, it’s more accurate to obtain the average of the last 15 parcels sold. The average sale price of the last 15 sales in The Center neighborhood is 2.19 ETH per parcel on average. This is a 467% increase from 76 Block Forks’s original purchase price of just 0.38 ETH.
After exploring the various value drivers of 76 Block Fork, we can safely assume that the minimum value of the parcel is 2 ETH and the maximum is potentially much higher if a buyer cares about token ID. I assume that the top 10 parcels by token ID will trade at premiums, the 10-99 parcels will trade at a slight premium, and so on. Taking this into account along with its extremely high number of visitors, this parcel has a potential high-end value of 6 ETH. The 6 ETH valuation can be reached by building an interesting and/or functional structure.
76 Block Fork Final Valuation
Low-end: 2 ETH which represents an increase of 426.32% over purchase price.
High-end: 6 ETH which represents an increase of 1478.95% over purchase price.
Valuation of 1 Degauss Fort - Frankfurt
Lastly, we will evaluate 1 Degauss Fort which is located in the Frankfurt neighborhood. The Frankfurt neighborhood is highly valued because it has the tallest build height in Cryptovoxels. This specific parcel does not appear to be high value since it has no build, however, this changes once we assess two key quantitative metrics: building height and number of visits.
The 584 number of visits is impressive, especially for having no build on the property. We can likely attribute this high number to the parcel location in Frankfurt, an extremely popular neighborhood where people are constantly exploring. The distinct outlier with 1 Degauss Fort is its build height of 32 meters: there are only 8 other parcels in Cryptovoxels that have build heights greater than or equal to 32 meters. This means that 1 Degauss Fort has a build height greater than 99% of the current 1543 parcels. If we examine the 8 other parcels with equal or greater build height, we can better estimate its value.
40 Hook Street - Last sold for 2.1 ETH
2 Cash Road - Last sold for 7 ETH
2 Mellow Gardens - Last sold for 6 ETH
1 Gamma Freeway - Last sold for 1.5 ETH
1 Cash Road - Last sold for 2 ETH
42 Hook Street - Last sold for 2.1 ETH
38 Hook Street - Last sold for 2.1 ETH
39 Hook Street - Last sold for 1.65 ETH
The average sale price for a parcel with a build height of 32 meters or greater is 3.05 ETH. 1 Degauss Fort sold in March 2019 for 0.75 ETH. If we take the average price per parcel in the Frankfurt neighborhood that has similar build heights, we can assume that the current value is at least 3 ETH. That 3 ETH value would represent an increase of 300% from its original purchase price of 0.75 ETH. In addition to the build height and number of visits, this property is in the Frankfurt neighborhood which competes with the Center neighborhood in terms of desirability. With currently 100 total parcels, the average price per parcel in Frankfurt goes for 1.01 ETH, making it the most expensive neighborhood in Cryptovoxels. Since nothing is yet built on this parcel we cannot examine many qualitative metrics.
The sale price of 0.75 ETH seems like a steal because the average parcel price in Frankfurt is 1.01 ETH, which represent an increase of 34.67% in a 6 month timespan. The price looks even better when you compare parcels with equal or greater build height: the average for those are 3.05 ETH. Taking that number into account, we see a massive increase of 306.67% from the purchase price. Even without any build on this property, I would put the low-end estimate around 2.5 ETH and the high-end estimate around 6 ETH.
The low-end estimate is ascertained from looking at the other small +32m properties with a sale price of roughly 2 ETH. The high-end estimate is obtained from the fact that there are so few of +32m properties, similar properties rarely go on sale, and the most recent sale price of +32m parcels has been 6-7 ETH. These recently sold +32m parcels were taller and larger, but since there has not been another +32m parcel for sale in quite some time I think if 1 Degauss Fort went on the market, the bidding would reach the 6 ETH level.
1 Degauss Fort Final Valuation
Low-end: 2.5 ETH which represents an increase of 233.33% over purchase price.
High-end: 6 ETH which represents an increase of 700% over purchase price.
There you have it - an attempt at valuing Cryptovoxels NFT assets via comparable analysis. Stay tuned as I intend to do more valuations on different NFT projects. Also, a big shout out to Cryptovoxels, OpenSea and Non-Fungible for being amazing data resources.
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Zima Red will explore all things digital assets, non-fungible tokens and virtual worlds. I am diving into these topics specificly because the convergence of these technologies will unlock digital economies that create entirely new forms of value.