Building on the popularity of the Blue Chip Index, Nansen introduces a wider range of indexes that give all users a fundamental insight into the fast-emerging sectors of the NFT market.
- Nansen introduces six NFT indexes that track the market activity on the Ethereum blockchain.
- The Nansen indexes define NFT categories and subcategories based on NFT use cases.
- Using these indexes, all Nansen users can now explore and diversify into different NFT market sectors.
NFTs are a fast emerging asset class. It is challenging to keep track of the innovation within the market. There is no standard definition to categorize NFT use cases, yet such a framework is vital for surfacing investment signals. Identifying this gap, Nansen designed six indexes that track the NFT market activity on the Ethereum blockchain using both ERC-721 and ERC-1155 standards. The indexes are:
- Nansen NFT-500,
- Nansen Blue Chip-10,
- Nansen Social-100,
- Nansen Gaming-50,
- Nansen Art-20,
- Nansen Metaverse-20.
Each index is designed to track the activity of a major category of NFT, depending on its use cases or applications. Over 500 NFT collections were reviewed and analysed for the design of the indexes. To learn more about Nansen’s index methodology, you can read our Methodology paper here.
New Investment Signals
Nansen’s NFT indexes allow investors to identify how a market segment is moving against other segments and the broader market. The performance of the Nansen NFT indexes in the last 30 days suggest three general trends.
Social and Metaverse NFTs are less volatile.
Daily Marketcap per Social NFT Sub-category
Daily Marketcap per Metaverse NFT Sub-category
One possible reason for such a phenomenon is that Social NFTs experience greater competition in the NFT market. There is, therefore, a reduction in price information asymmetry. Year-to-date, Social NFTs represent a minimum average of 50% of the daily NFTs market volume. Market participants have more information on how to evaluate the prices of Social NFTs. Network effects are also particularly strong with these NFTs due to their community-based characteristics. Social NFTs have been around longer when compared to the other NFT sectors. Adoption of Social NFTs started as early as 2017 (see, for example, Crypto Punks); arguably, this sector is relatively more mature.
Similarly, although the integration of NFTs into the Metaverse is a new introduction, the Metaverse concept itself is not new (e.g., Second life started in 2003). We hypothesize that the familiarity of Metaverse as a concept, along with other major companies endorsing this sector (e.g. Facebook’s rebrand to Meta and Grayscale offering of a Decentraland (MANA) trust), are some possible factors why Metaverse NFTs are less volatile. The Social-100 index indicates that Social NFTs lead the NFT market with a 30-day return of 24% as of 21 February 2022. At the same time, the Metaverse-20 shows a -3.9% return in the last 30 days.
Gaming NFTs are underperforming in the last 30 days when compared to other NFT categories.
The Gaming-50 index indicates that Gaming NFTs have been underperforming since the start of 2022. The Gaming-50 index reflects a 30-day return of -9.1% as of 21 February 2022. There is often a gap from when a Gaming NFT is released to the delivery of the actual game; hence retaining participants’ engagement is a challenge in this sector. To situate the performance of Gaming NFTs within the broader Gaming Cryptocurrency market; Axie Infinity experienced a decline of -8.49%; Illuvium saw a drop of 8.0%, and Enjin is 10.5% in the last 30 days. Comparatively, the Gaming-50 index is in line with three of the larger Gaming cryptocurrencies by market capitalization.
Art NFTs are relatively more volatile.
The Art-20 index reveals the volatile nature of Art NFTs. Given that art pieces are often smaller in supply with slower transaction activity, investors may find it challenging to obtain information about Art NFTs when investing. When you trade stocks, bonds, commodities, and currencies, you have access to a wealth of information that can help lead you in the right direction. While there is still information on Art collectibles, the amount of detail you can learn about an Art collectible is limited compared to trading anything in public markets. We hypothesize that the asymmetric price information becomes a driver for speculative behavior among market participants, thereby resulting in the Art NFTs’ price volatility.
What are the six NFT indexes?
The NFT market moves rapidly, and there is no readily available metric to track the broad NFT market activity. Having identified this gap, Nansen designed the NFT-500 index as a benchmark index to track the NFT market activity. NFT-500 consists of the top 500 NFT collections, weighted by market capitalization. It represents an average of 85.4% of the daily market volume since 1 January 2022.
Building on the success of the original Nansen Blue chip index, the Blue chip-10 index now tracks a collection of ten notable NFTs. These NFT collections have been widely recognised as well-established, and the index weighs these collections by their market capitalization.
We observe that part of the motivation behind the ownership of a profile picture NFT is users connecting and interacting with others from a community. This social aspect of NFT is not limited to just profile picture NFTs. We recognised similar social drivers in other sub-categories of Social NFTs such as ‘Access & Membership’ NFTs and ‘Utility’ NFTs function as Decentralized Autonomous Organization (DAOs).
The Social-100 index dashboard showcases the different types of Social NFTs, with Profile Picture NFTs dominating the market capitalization for this sector.
The Gaming-50 NFTs index includes the top-50 Gaming NFTs by market capitalization. It includes Gaming NFT collections such as Play-to-Earn games NFTs, Game-Fi (gaming with Decentralized Finance elements) NFTs, and Role-Playing Game NFTs.
In traditional gameplay, the game developer has complete control over how that downloadable content works - this ranges from how they authenticate your ownership, the server you download it from, and how the item can be implemented in the game. However, Gaming NFTs introduce a different element where the value acquired within the gameplay can be realized off-chain. For example, in Wizard & Dragons, you can use NFTs to acquire the in-game’s currency (i.e., Gold Pieces).
According to the Gaming-50 index, trending Gaming NFT projects include Vox Series, ASMAIFAAllStarsBoxSet and CyberKongz.
There are different forms of NFT art. For example, XCOPY’s ‘TRAITORS’ collection is a form of digital art, or what some might recognise as new media art, where the artist utilizes computers or electronic devices to create the piece. On the other hand, we have generative art, a derivative form of digital art. This artform typically involves the use of programming in its creation. One such example is the Autoglyphs collection. Then, there are physical art pieces, such as the works of FEWOCiOUS. Finally, Music can also be categorized as part of NFT art.
The Art-20 index intends to showcase the diversity of Aft NFTs on the market. It encapsulates the many types of Art NFTs - Digital Art, Generative Art, Physical Art, and Music. The YTD performance of the Art-20 index highlights the dominance of Generative Art NFTs within the Art NFT sector.
The Metaverse-20 NFTs tracks Metaverse related NFTs such as ‘Avatars’, ‘Assets’, ‘Land & Real-estate’ and ‘Utility’. It consists of the top 20 Metaverse NFT collections weighted by market capitalization. The Metaverse, a network of immersive virtual worlds that blend various gaming, entertainment, commerce, and communities, enables users to engage with one another. Millions of people spend hours a day in virtual social spaces, and NFTs is a piece of network that fits perfectly. Furthermore, Metaverse NFTs allow participants to prove their ownership and authenticity of assets within the virtual worlds, thereby fuelling a Metaverse economy.
The Metaverse-20 index reveals that Land and Real-estate related NFTs have gained prominence within this sector.
NFT investing using an index approach
Within traditional finance, there is extant literature demonstrating that index investing can outperform active management of funds over time. Additionally, a market index provides investors with historical data that may help investors to make sound investment decisions. The Nansen NFT indexes present a reliable way of navigating the NFT markets. This update raises the bar for quality financial infrastructure that supports the growing depth of the NFT industry. The depth and breadth of categorization will enable all Nansen users access to a wide range of new market signals.