Non-fungible tokens (NFTs) are the hot new thing in the cryptocurrency space. Even if you know your Bored Ape Yacht Club from your CryptoPunks, there are certain key words and phrases that you need to learn before getting really serious with NFTs. In this episode of "The Crypto Show" on Motley Fool Live, recorded on Feb. 9, Fool.com contributors Jon Quast and Travis Hoium discuss everything from minting to secondary sales.
Jon Quast: So this is the big player or the big project in the space at the moment. Launched in April 2021. Around 250 bucks if you were the first buyer of a Bored Ape. Now the floor price, 300,000. Travis, what is a floor price?
Travis Hoium: Floor price is the lowest price that you can buy on the secondary market, so typically, that signifies where the value, at least the minimum value, of project is. Now, with something like the Bored Ape Yacht Club, we are seeing transactions that are elevated a lot higher than that into the millions of dollars depending on what the NFT is. About $300,000 is what it will take to get you in the door today.
Quast: Yeah, so just to reiterate what Travis just said, when you go to buy these things, when they first come out, that is typically called the drop. And the creator, they have this launchpad. And you go to the launchpad, and that's where you're able to be the first buyer of the NFT, so that is minting. I believe minting more accurately refers to that first transaction. There's a buyer and a seller on both sides of the minting transaction. Yeah?
Hoium: So the seller would be the developer. I have a couple of slides, if you want to let me show that. Then we'll just walk through this real quickly. The mint is really, I think of it a little bit like the IPO. Here's our NFT terms, we'll start with, "we're all going to make it." [laughs] The mint, I think of it like the IPO, so this is the initial sale. Typically, there is a sort of exclusive sale to early buyers. They call that often the whitelist. These can be projects that are associated who are given this early access, or people who have been active in the community as they're building up their community. Typically, there's a list that forms in one way or another that is given preferred access and sometimes preferred pricing, followed by a public sale. The price of all these items are set ahead of time, so you might not actually know until the day before, but with something like the Bored Ape Yacht Club, that community built on Discord. If you were active in Discord, you found out where you could buy these, and it was I believe 0.08 [Ethereum], like Jon said, so pretty low costs and that has typically been that way that a lot of those projects have started. The thing was minting is you get a random NFT. There is often what's called a reveal, too. Even when you mint the NFT, depending on where you are minting it and what the process is from the team, you might not actually know what you've got for a few days or weeks because they hold that, let the market settle itself out. You might be buying or selling an unknown asset, if you will. The reveal is typically hyped up to be a big deal. Because you might get something that's really rare, you might get something that's common. But that is typically a part of bigger projects. That's when you find out exactly what you've got. Then you go to the secondary sales, that's what we're talking about with the Bored Ape Yacht Club, these are secondary sales. The analogy would be sales of a stock on a stock market. You and I as common investors may not have access to an IPO, just like we might not have access to a whitelist for an NFT sale. Just like an IPO, the NFT sale is priced ahead of time by the players in the market there. They might price it well, they might price it poorly. The best way to think about that is you're getting an IPO and then a secondary sales, anybody can buy or sell so you find where that natural balance is in the market.
Quast: Yeah, Travis, I really like how you explain that and likened it to an IPO because that is a very good point. For those who are familiar with the IPO process, they do have that IPO price that is fixed and it's very hard for somebody like you or me to get in on that IPO price. It might price at $20 and you can buy that at $20. Then you and me, we see it all of a sudden list on the stock exchange and it's 40. It's like, well, wait a minute, why can't I get it for 20? Well, the market is already demanding a higher price than what those insiders were able to get. It goes both ways. Same thing happens in NFTs.
