From the Mintable blog.
The value of individual NFTs can vary drastically within a collection, depending on their rarity. This article will explain why NFT rarity matters, how it is calculated, and introduce some tools to help you make more informed decisions about your NFT investments.
How Much Does An NFT’s Rarity Affect Its Value?
To answer this question, let’s compare the value of the rarest, and least rare NFTs in 3 different PFP collections. Because NFT prices can fluctuate quite quickly, I’ve picked collections where the 2 NFTs in question were sold on the same day.
Rarity Study 1: Crash Test Joyride
On 23 Jan 2022, the most rare NFT sold for Ξ2.24, and the least rare sold for Ξ0.41. This means that the person who sold the rarest NFT made Ξ1.83, or 446%, more.
Rarity Study 2: World Of Women
On 28 Jul 2021, the most rare NFT sold for Ξ0.7, and the least rare sold for Ξ0.1. This means that the person who sold the rarest NFT made Ξ0.6, or 600%, more.
Rarity Study 3: Invisible Friends
On 27 Feb 2022, the most rare NFT sold for Ξ110, and the least rare sold for Ξ7.6. This means that the person who sold the rarest NFT made Ξ102.4, or 1347%, more.
How Much Does The Rarity of An NFT Really Matter?
While the rarest NFTs will sell for a much higher price than common ones, there are other factors that can affect market prices.
Not everyone who buys NFTs is in it to flip it – some people buy based on the visual appeal of the NFT, especially if they intend to use it as their profile picture. This is why sometimes, NFTs with prettier or more popular traits may be awarded a higher value by the market than NFTs with rarer traits.
As a general rule though, the rarer an NFT, the more you’ll be able to sell it for. If you’re in it to flip it, read on for some useful tips on leveraging rarity to maximize profits.
How to Check the Rarity of an NFT
There are a few different tools available online to help you check the rarity of NFTs:
To find the rare NFTs in the three collections I compared above, I had to use a combination of tools as not all collections appear on each. If you’re having trouble finding a collection on one of these tools, try searching for them on one of the others. In addition to Ethereum, Rarity Sniper also shows rarity rankings of NFTs on 10 other blockchains including Solana, Polygon, Binance, Cronos, IMX and many more.
Here’s how to use rarity.tools to find the rarity of a specific NFT (all three tools have a similar interface, so this guide will be useful no matter which tool you use):
Go to rarity.tools
Click on ‘All Collections’ in the navigation bar, and enter the name of the project in the search bar.
This will bring you to the collection’s page where you can search for a specific NFT by its ID. Now you can see the ranking and rarity score of that NFT. The ranking represents its position within the collection, with rank 1 being the most rare. The higher the rarity score, the more rare it is.
In the gif below, I’m searching for Joyrider #1030. It has a rarity rank of #1, which means it has the highest rarity score within the collection.
Sometimes, you may have several NFTs with the same rank, as shown in the image below. All the NFTs ranked #1 in this case are 1/1s, meaning that they are entirely unique from the rest of the collection. As none of them share any traits with other NFTs in the collection, they are all equally rare.
How is NFT Rarity Calculated?
The best way to calculate rarity is to find its Rarity Score, using this formula:
[Rarity Score for a Trait Value] = 1 / ([Number of Items with that Trait Value] / [Total Number of Items in Collection])
The total Rarity Score for an NFT is the sum of the Rarity Score of all of its trait values.
This method to calculate rarity was developed by the founder of rarity.tools, and is more accurate than using the rarity ranking of individual traits, average trait rarity, or statistical rarity. To learn more about calculating rarity, read this article by rarity.tools explaining how they came up with the formula for Rarity Score.
Leveraging Rarity in NFT Trading
You should always check the rarity of an NFT before buying it on the secondary market. This will help you avoid overpaying for an NFT.
Not everyone checks the rarity of their NFT before selling it, so you may also be able to find NFTs that are underpriced. On rarity.tools, you can filter by price. Use this to find the rarest NFT that is within your budget.
For a more detailed instructions on how to use search filters to find underpriced NFTs, read this useful guide.
Limits of NFT Rarity Rankings
In the Crash Test Joyride NFT collection, there are some #1 ranked NFTs that have the same design, just in different colors, while the other #1 ranked NFTs are entirely unique. Does this mean that they are less valuable? Let’s find out:
The three Joyriders above are all ranked #1 and are entirely unique.
In contrast, these 3 Joyriders have similar designs in different colors. While they are still ranked #1, their all time average prices are much lower. It’s obvious why: they are not completely unique.
However, they are still ranked #1 because they each only have one unique trait. The red one has only 1 trait called “Red Waverider”, the black one has only one trait called “Checkered Waverider”, and the green one has only one trait called “Green Waverider”. The rarity tools formula can’t tell that these NFTs have the same pattern. All it knows is that they have only one trait that is not shared by any other NFT in the collection, so they must be the most rare.
However, we can tell that they are not as unique, and therefore not as valuable.
When using rarity to determine the value of an NFT, it is important to exercise your own judgement as rarity scores and rankings have their limits. There are many other factors that can affect an NFTs value, but if you know what to look for, you’ll be able to make better investments.
This article came directly from the Mintable blog, found on https://editorial.mintable.app/2022/04/01/how-to-check-nft-rarity/