The world of decentralized finance has its fair share of crypto slang, and one of the most common terms is “the floor is lava”. While they share the same name, however, this has nothing to do with the classic kids’ game. Instead, it refers to a call-to-action (or inaction) centered around an NFT’s current lowest price.
But what exactly does “the floor is lava” mean in the context of trading on a blockchain network? Keep reading to find out.
What Is “Floor Is Lava?”
“Floor is lava” is one of the most common terms used within the crypto community. It references the kids game of the same name and applies it to the wider context of cryptocurrency. Specifically, this phrase is used in the crypto community to describe the quickly rising floor price of an NFT collection or project. The term “floor price” refers to the lowest-priced piece within a collection.
Why It Matters
The popular term “floor is lava” matters because the floor price is one of the only concrete metrics buyers have when trading NFTs on a marketplace or other centralized server-based platform. As a result, a rapidly rising floor price is one of the biggest value indicators of a project. But how does this translate to real-world transactions?
Let’s say you’re holding onto a low-rarity NFT that’s suddenly selling every minute (a.k.a. the floor is lava), the smartest thing to do is list it for quick profits. But what if you want to buy from this in-demand collection? The most intelligent move is to either get in early or wait until the wave has passed.
Why Does The Floor Price Rise?
There are two reasons a floor price might rise when trading on a blockchain network: regular transactions and floor price manipulation. Here’s a brief explanation of both scenarios.
Let’s say you have three NFTs in your collection: A, B, and C; priced at 1 ETH, 2 ETH, and 3 ETH respectively. Initially, your floor price will be 1 ETH, as that is the cost of your lowest-priced item (NFT A). If NFT A gets resold for 4 ETH, your lowest-priced asset will now be NFT B at 2 ETH, increasing your floor price to 2 ETH.
In this scenario, you have multiple NFTs in your collection, but your floor price can still rise even if you only have one NFT. The floor price will increase every time it is resold for a higher value.
Floor Price Manipulation
Floor prices tend to ebb and flow naturally as users buy and sell NFTs, but there are some scenarios when a third party may inflate a floor price to make more money – this is where most of the negative news about cryptocurrency stems from. But how does this happen?
The answer is simple: a user or group with deep pockets can either buy low-priced NFTs and relist them for more money, or list exorbitantly-priced NFTs from a low-volume collection. Either way, the result is that an NFT collection’s floor price ends up being much higher than its “actual” value.
What Causes The Floor To Become Lava?
When NFTs at floor price are bought and sold at higher prices, the floor price will rise.
In the online NFT and crypto community, you don’t want to be known as the owner of the lowest-priced NFT in a collection, so you might sell it for more than you bought it. When this keeps occurring within an NFT collection, buyers and sellers will repeat the cycle to avoid owning the cheapest asset, increasing the floor price consistently.
This concept can play a major role in the marketing strategy for an NFT collection. When the floor price of a collection increases, it may gain more attention from NFT and crypto enthusiasts in online forums, chatrooms, and social media platforms. The increased (perceived) demand suggests that the collection is “hot”, encouraging more people to buy in and more holders to sell.
A “floor is lava” scenario can also occur naturally when a highly sought-after NFT goes back on the secondary market.
Floor Is Lava vs Paper Hands
Investors with “paper hands” are more likely to participate in this game of “the floor is lava”. “Paper hands” is a popular term in crypto that refers to someone who sells their assets at the first sign of trouble or a dip in price. This is in contrast to having “diamond hands”, which is when you hold onto your assets for long-term gains.
The cryptocurrency market is volatile, and the popular term “floor is lava” encapsulates that perfectly. So, if you’re thinking about buying or selling an NFT from a high-value collection, do your research and see what other investors are saying about it. If you see the term “the floor is lava”, then you’ll know what to do.