Risk and values of NFTs : a VaR Study

Abstract

This paper uses Value at Risk (VaR) and extreme value theory to compute risk metrics in the bitcoin market, specifically for nine selected NFTs. To carry out this testing, the nine NFTs tested were Tezos, Axie, Decentraland, Theta, Digibyte, Sandbox, Chainlink, Maker, and CryptoPunks. This theoretical framework emphasizes the occurrence of rare and extreme events to construct metrics such as Value at Risk and Expected Shortfall. This paradigm was effectively applied to the logarithmic returns of the nine Non-Fungible Tokens (NFTs) between March 2020 and March 2023 in the study. However, there were variations in the dates due to the more recent launches of some of the chosen NFTs. According to the results, Decentraland had the highest VaR at 1% probability, whereas Sandbox has the lowest Expected Shortfall (ES). Decentraland had the highest VaR at 5% likelihood, whereas Sandbox has the lowest ES. Finally, with a 10% likelihood, Theta had the highest VaR, whereas Axie has the lowest.