Let Beauty Lie in the Eye of the Beholder: Evidence from the NFT Market
COM3 Level 1
SR15, COM3 01-25
Abstract:
Non-fungible tokens (NFTs) have surged in popularity, introducing a novel intersection of technology, art, and digital commerce that redefines traditional concepts of ownership and value. As NFTs gain economic significance, understanding the factors that influence their trading dynamics is essential for ensuring market sustainability. A growing trend among NFT platforms is the disclosure of rarity rankings—metrics that signal an NFT's uniqueness within a collection. Given rarity's central role in driving perceived value, we examine how the display of these rankings affects market behavior and sales outcomes. Using empirical data, we find that while rarity information is vital for trading decisions, its disclosure can adversely affect both collection-level revenues and overall market efficiency. Specifically, when rankings are revealed through third-party platforms, they create information asymmetry that leads to adverse selection, disproportionately hurting the rarest NFTs. Alternatively, when rankings are disclosed directly on the marketplace, transparency diminishes the appeal of less rare NFTs. In both scenarios, market performance suffers. Our findings offer strategic insights for NFT collection creators, platforms, and traders regarding the implications of rarity disclosure, with broader relevance for platform design and information governance in digital asset markets.
Bio:
Dr. Vasundhara Sharma is an Assistant Professor of Information Systems at the Indian School of Business (ISB). She earned her PhD in Risk and Operations Management from the McCombs School of Business at the University of Texas at Austin. Her research primarily focuses on platform design and strategies. She uses the context of open and decentralized innovation, cryptocurrencies, and blockchain applications for her research.