What is NFT Floor Price?

There are various metrics that an investor or trader considers before buying an NFT to determine its real value and decide if it’s worth their money. It can include the total supply of the collection, volume, market cap, floor price, etc. Here floor price can be a bit tricky to understand as it’s not necessarily the same on every exchange. Let’s understand what it is and how it’s determined.

The floor price is the lowest price that you can buy an NFT for on any given exchange. The minimum amount that a seller is willing to sell at a buyer can buy at. Note that it is the lowest price of an asset and not the average price. Initially, it is determined by the owners of the NFT project at the time of launch and then it depends on the NFT holders who list it on a secondary marketplace.

An NFT holder can list their assets at a higher cost than the floor price to gain more profits; whereas listing it at a lower price would free up liquidity.

As per the market standards, the higher the floor price of a project, the more valuable it is, and vice versa.

Determining the floor price of a collection is pretty simple. Just look at the price of the cheapest NFT of a collection, say 0.1 ETH, and that’s the floor of the collection. Now if someone buys this 0.1 ETH NFT, the price of the next cheapest NFT would be considered the floor price. So, we can say that the floor price on a platform is determined by the activities of its traders rather than the platform itself. And that’s the reason behind variations in floor prices on different platforms.

Seeing the floor price increasing abruptly could mean that either the demand for the NFT project shot up for some reason, like a huge collaboration, or there’s some sort of floor price manipulation going on. Two of the most common ways to manipulate floor prices are the following:

1. Sweep the floor: ‘Sweeping the floor’ is essentially an act of buying all the assets available in a collection to create an artificial demand. It can be done by either the creators of the project or some wealthy buyers. It’s usually done when a project has just been minted and they plan to make it look more valuable than it is. They buy it all, thus increasing the price, and then sell at a much higher price.
2. Wash trading: Wash trading involves an individual or a group of traders listing NFTs at a high price and buying them themselves. This too creates a fake demand in the market and temporarily inflates the floor price. The FOMO (fear of missing out) it creates in traders leads them to inflate it further and it goes on until the hype is over.

An investor needs to do their research and review previous transactions of the collection to understand the actual value of a project and invest smartly. Also, the floor price only shows the lowest a seller is willing to sell at. The buyers may not necessarily be willing to buy at that price either. So it only projects one side of the trade.

Hence, solely relying on the floor price to assess the value of a project is never a good idea and other metrics should be given an equal amount of consideration as well.