The Economics of the Ethereum platform is very tightly coupled with NFTs, and that coupling has a lot of implications for participants in the NFT space, whether you are an artist, a collector, a speculator, or even just a casual looking to hop in.
Pricing NFTs in USD
Ethereum is a slowly inflating currency (soon to be mildly deflationary), whereas USD is an inflationary currency. As a NFT consumer, inflation motivates you to spend, while deflation motivates you to save. However, as a creator, inflation can work against you if you. For example, if you price a piece at $1000 instead of .5ETH, and the value of USD decreases by 10% due to inflation, then the same $1000 would only be able to purchase .45ETH. Inflation acts as if its a force raising the buyers up to your asking price, to use a metaphor. In theory, pricing in USD will make your pieces sell faster.
Pricing NFTs in ETH
So what happens if you do the opposite, and chose to price your piece in ETH? For this thought experiment, lets assume that ETH has moved into its mild deflationary phase (see this article for more info). When you set a price with ETH, you run the risk of the currency becoming more valuable and pricing people out of the market. Suppose you set a price of .5 ETH. On April 2nd, 2021, that translates into a USD amount of $2000. The piece sits on the market a bit, maybe because its a niche piece or maybe its just that you are still trying to find your client base. You check analytics on it on May 2nd, 2021, only a month later, and not only has it not sold, but the piece is showing up in fewer and fewer searches. .5 ETH now translates into a USD amount of $3000. Where you were hoping to attract an affluent but still moderate income buyer at approximately $2000 (think $1999), you are now asking for 50% more, multiple thousands of dollars. To continue the analogy above, the deflationary effect of pricing with ETH acts like a force pushing the piece up out of reach of the buyers, which is exactly what you don’t want to happen.
What are my options?
If you’ve made it this far, you can see that we clearly have reached a conundrum. We are currently in an inflationary environment, and most likely will remain there for the next several years. So, in a perfect world you would want to price in USD (to help buyers make the sale) but you want to receive ETH in payment. And you would want the sale to happen as quickly as possible, in order to avoid the depreciation of value of your artwork. So what can we do?
- Price in USD, but pad your number a bit, as you should expect it to take some time to find a buyer and want to insure that you are properly compensated for the sale. OR
- Price in ETH, but get aggressive with the price. You don’t want to risk the increase in ETH/USD ratio to cause your piece to move out of reach of your buyers. Additionally, as you are compensated in ETH here, the future value increase of ETH should partially compensate for the upfront reduction in earnings.
While both approaches are valid, our recommendation is to use approach #2. Be sure to be very aggressive with your ETH pricing, while being cognizant of the expensive gas pricing. Remember that .5 ETH collected today at $3000 ETH:USD ratio could easily balloon to $5000 or $10000 USD in the space of a year. Ideally, you are in a position where you have some savings and can afford to hold off on converting the ETH. But in any case, be sure to follow one of the approaches above. Good Luck!