Serial Numbers 1: Exceptions to the Rule

A quick *primer* to catch beginners up:

What is a serial number? For many NFTs including high-volume platforms like TopShot and Sorare, each NFT is issued a unique identification number (serial) corresponding to the order in which the mint of what your NFT represents took place. So for example, you might have a Series 2 LeBron James 3 Pointer 1269/15000 on TopShot or a Street Fighter Ryu NFT 1/330+. The numerator is your serial number, and the denominator is the total number of the collectible out in the world now. A + afterwards indicates there will likely/definitely be more of the collectible minted, reducing scarcity. Always understand whether the collectible you are considering purchasing is truly a limited edition. Specifically: has the creator committed not to make any more of that specific collectible? Will they make something so similar as to reduce the scarcity implicitly?

Are serial numbers important? I wouldn’t be writing this if they weren’t. They are extremely important. The best serial (almost always #1) typically trades for anywhere from 10-100 times where the lowest-value serial numbers do. And, value declines from #1 to the total number of collectibles in the mint.

*end of primer*

OK, but how important are serial numbers? (Warning: there’s math.) One simple way to model out fair value is as a logarithmic curve from serial number #1 to about the 5-10% mark (so #500/10000 for example). So for example, if #1 is worth $100,000 and #2 is worth $50,000, you might expect #4 to cost $25,000, #8 to cost $12,500 and so on down to #512 worth a relatively measly $195. This example is of course simplified, but gives you a sense of the type of analysis that’d need to be done, specifically to find a batch of recent sales for one collectible and perform a logistic regression.

The logical next step here is to buy NFTs below the serial number curve and post them at prices above it. And if the platform has transaction costs, only buy the ones far enough below the curve to allow for future transaction costs. Easy, right?

Not quite, even leaving aside how volatile and illiquid NFT markets can be, and therefore how tough building reliable curves is. (Undoubtedly the subject of a future post…) Today, we’ll start to talk about one issue, namely serial numbers that are outliers not because someone mis-entered their offer price, but because they are special to collectors. The focus today will be on TopShot for simplicity’s sake, but many of the concepts and specifics are easily applied elsewhere:

High numbers:

  • The highest serial number in a set (so #10000/10000). It can go for upwards of 100 times the base price, but beware: if the set is not limited-edition, your “high” serial number may one day not be anymore.
  • Similarly, the second-highest serial number in a set (so #14599/15000). Not as valuable as the last one, but often seen for 10-20 times the base price.
  • The rest of the highest 10 or so will also trade at a significant premium but that premium itself is volatile.

Special numbers with serious resonance to collectors:

  • On TopShot, the card with serial number matching a player’s jersey is typically the second-most valuable behind #1. As of this writing, there aren’t examples of players switching jersey numbers since the moment on their card, but we assume the valuable one will be the jersey number at the time of the moment. So for example if TopShot decides unwisely to issue a Jordan moment from his stint on the Birmingham Barons, the valuable one would be #45, not #23.
  • While Chinese customers are not currently able to buy moments, if they do they will create massive demand for serial numbers considered lucky in Chinese culture, such as 8,88,888 and 8888. The premium for these is also volatile, but we have seen trades take place at 5-10 times the base price and we expect holders to be rewarded with outsized returns.

Numbers that command a premium for LOLZ: #69, #420, #6969, and such. Don’t roll your eyes. The premiums are so volatile that we hesitate to make any systematic recommendation. If you can snap one up below the curve or even on it, give it some serious consideration, and not just for the LOLZ.

What did we miss? What do you want us to dig deeper on? Drop us a comment.

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