The floor is the minimum permissible price, which is determined by controlling parties and is typically engaged as a core market mechanism in trading. When it comes to NFTs, we're talking about the lowest possible entry point in the market. It is the base price, at which NFTs are being traded in a particular exchange.
The floor acts as a "guide" for buyers when it comes to trading, allowing them to know when an item isn't worth buying at all or when they're getting a good deal. It's also beneficial for traders because they have the ability to measure the value of their portfolios.
A low price can mean new buyers will find it easier to get their foot in. But a low price can also suggest a stagnating market. This leads to conflicting strategies; do we want the floor price to rise, or do we want the volume to rise?
The price of tokens is determined by different factors; just like any other asset, prices are driven by supply, demand, and public perception.
The supply for an individual token is often constant regardless of how much the public wants to buy that token. Tokens are minted in a limited amount, and they will only ever be available in that number. If there's more demand than there is supply, then prices go up. If supply outstrips demand, then prices go down. This is a basic rule of economics and it obviously applies to NFTs.
But the token's supply isn't fixed. It can be changed through actions taken by the community or even by its developers. This leads to frequent calls from the communities to spend property funds and DAO ETH on sweeping the floor of their own project to artificially raise the floor price. Which is...dumb. Sorry, it just is.
There are panicked, inexperienced, and impatient traders in every discord right now who are whining about their Devs not sweeping the floor, thinking they’re some form of tokenomic geniuses. But tokenomics is a lot more complex than just "buy tokens floor go up." You have to know the market you’re in. This is a bear market. It's a bear market because ETH and BTC are spiking, and folks want to exit NFT props to gain crypto liquidity. Pretty much every project is down.
So here's a PSA: When a project artificially sweeps their own floor, showing a lot of activity at the floor price all at once, in a market where ETH is up and NFTs are down you run the risk of encouraging other folks to undercut the new floor for quick liquidity to get back into ETH. It's artificial market manipulation.
It only works if there is another use case that creates demand for the NFT token. If there is no such use case then the network risks creating a large volume of NFTs that can never be traded and therefore will just rot on the blockchain eternally. A floor sweep is, in effect, a stunt. It creates an artificial floor price for the token by buying back the coins at their own price and then dumping them all at once to stabilize the market at a higher value than it was before.
I can already hear someone whining that it's the equivalent of a stock buyback. Well, yeah. That might be the case. But here's the tea - stock buybacks suck too.
Stock buybacks made as open-market repurchases make no contribution to the productive capabilities of the firm. Indeed, these distributions to shareholders, which generally come on top of dividends, disrupt the growth dynamic that links the productivity and pay of the labor force. The results are increased income inequity, employment instability, and anemic productivity.
The floor price serves another important function in the NFT ecosystem. It guarantees that there will be a minimum number of trades happening on the network every day, allowing for an active marketplace to exist even when users are not buying or selling tokens. This ensures that tokens are always available for trade, removing the need for token reserves and encouraging a vibrant pool of owners.
The idea of these projects is to create demand for your token, through real utility, real community, and good 👏 f***ing 👏 art 👏, where your token isn't subject to the whims of green traders chasing short-term profit.
As NFTs become increasingly popular - Coinbase anyone? - it is to be expected that many users will enter the market with a warped or immature tokenomic paradigm. But we can't let that drive good projects off a cliff.
I need y’all to understand. In this market, right now, if your floor price is holding steady at .1, YGMI. Breathe. Chill. Read a book or something. Play DOOM. Bake a cake. And stop whining about the fucking floor.