NFT Index Methodology

NFT Index Methodology

Nansen has designed six indexes to capture the NFT marketplace activities on the Ethereum blockchain.

Summary 

  • Nansen has designed six indexes to capture the NFT marketplace activities on the Ethereum Blockchain.
  • The group of indexes consist of Nansen NFT-500; Nansen Blue Chip-10; Nansen Social-100 index; Nansen Gaming-50 index; Nansen Art-20 index and the Nansen Metaverse-20. 
  • The indexes are weighted according to the NFT collection’s market capitalization, which we have calculated using an adjusted 7-day mode price method.

I. Index Objective

As the Non-Fungible Token (NFT) market gradually matures, the use cases of emerging NFTs continue to diversify. However, at the time of writing, there is no standardised metric to track the broad activity of the NFT market and trends in the varying categories of NFTs. Nansen Identified this gap and developed several versatile indexes that tracke NFT market activities. 

Previously, Nansen had designed the Nansen Blue chip index; where it followed a basket of reliable, quality NFT collections. Building upon the initial success of this index, Nansen designed an index consisting of 500 constituents to track the broad NFT market activity (i.e., the Nansen NFT-500). Nansen modified the Blue Chip index, with the improved Blue Chip-10 index tracking ten notable NFT collections. Additionally, four other indexes are introduced: Social-100 index, Gaming-50 index, Art-20 index, and the Metaverse-20 index. Together, these indexes track the performances of the different categories of NFT collections trading on the Ethereum network. Specifically, the NFT indexes track NFT collections using ERC-721 and ERC-1155 standards.  

II. Indexing Approach

The Nansen NFT indexes were developed to provide investors with rule-based approaches that inform investors on how to behave when investing in the NFT sector. The designed indexes are methodological and transparent. Research and review by Nansen led to the identification of several NFT categories and, thus, the development of the Nansen NFT indexes.

Defining NFT categories

Since many NFT collections have multiple use-cases, they can often be classified into more than one NFT category. Thus, the categorization of NFT collections presents a significant challenge during the indexing process. To effectively categorize NFT collections, Nansen conducted an initial literature review to compile a list of popular and common categorization of NFTs. The research team then filtered these categorizations and condensed them into simplified, broad categories. After a few rounds of iteration, the concluded NFT categories are Social, Game, Art, and Metaverse. 

More than 500 NFT collections were reviewed and categorized for the index design. Through the NFT collections’ description of their purpose and roadmap, the collection is assigned to a NFT category depending on its dominant use case or purpose. Nansen then  assigns the NFT collection to its applicable sub-category (endnote 1.) Nansen reviews the categorization of NFT collections monthly and updates the categorization quarterly. Figure 1 illustrates the developed NFT categories and sub-categories. Using these categorizations, Nansen designed the market indexes to track the different segments of the NFT markets. 

Figure 1. NFT categories and sub-categories depending on their use case

Social NFTs

The social aspect of NFT is not limited to just profile picture NFTs. These NFTs enable users to network, interact and socialise. Similar social drivers are also observed in other sub-categories of Social NFTs such as ‘Access & Membership’ NFTs and ‘Utility’ NFTs like Decentralised Autonomous Organization (DAOs). Social NFT collections occupy the largest market share with the NFT market.

Sub-category Definition Example
Profile picture (PFP) Collectible icons used for profile pictures on social media platforms. Supducks
Access and Membership Digital access to events and rewards (e.g. Mint pass, Proof-of-Attendance protocols) 888 Inner Circle
Utility Includes digital identity, entertainment, databases, and DAOs. ENS
Other Miscellaneous. PunkScape (banner and landscapes digital collectables)


Gaming NFTs

The Gaming NFTs index consists of sub-categories such as Role-playing games (RPG), DeFi-related games (GameFi), Play-to-Earn (P2E) games, and Other gaming NFTs. A key difference between Gaming NFTs and Metaverse NFTs is that gaming NFTs involve the act of gameplay that is governed by a set of rules, whereas such rules are not compulsory for participation in the Metaverse. 

Sub-category Definition Example
Role-playing Game (RPG) A game in which players assume the roles of characters in a fictional setting. It also includes Massively Multiplayer Online Role-Playing Games (MMORPG). Northern Guilds - Guild of Thor
GameFi GameFi is a hybrid term from “game” and “finance”. It involves decentralised applications (DApps) with economic incentives. Cold Blooded Creepz
Play-to-Earn (P2E) Such games typically involve tokens granted as rewards for performing a game-related task such as winning battles, mining precious resources or growing digital resources. The difference between P2E and GameFi is that P2E requires active play or the completion of specific tasks in-game, whereas GameFi may only require the staking of the NFT. MekaApes Game by OogaVerse
Other Card games and other miscellaneous game NFTs. Parallel


Art NFTs

Art is the expression or application of human creativity and imagination, which can exist in many forms (e.g. visual or audio). NFT art revolves around the idea of digital scarcity. Art NFTs typically have fewer pieces within a collection. Art NFTs also consist of unique pieces that can be on-offs. With this in mind, Art NFTs, like traditional art, can be transacted. In some cases, buyers can purchase the rights to partial royalties and reproduction of the NFT artwork. There are many forms of Art NFTs, and the predominant sub-categories are Generative Art, Digital Art, Physical Art and Music. 

Sub-category Definition Example
Digital Art Sometimes known as new media art where the artist utilizes computers or electronic devices to create the piece. It also includes digital photography. XCOPY’s ‘TRAITORS’
Generative Art A derivative form of digital art. This art form involves programming where the art has been created using an autonomous system in whole or in part. Autoglyphs by Larva Labs
Physical Art This art may take a physical form, and the NFT documents the ownership of the art piece. The EverLasting Beautiful by FEWOCiOUS
Music Vocal or instrumental sound (or both) combined to produce beauty of form, harmony and expression of emotions. Death of the Old by Grimes x Mac


Metaverse NFTs

Metaverse-related NFTs include ‘Avatars,’ ‘Assets,” ‘Land & Real-estate,’ and ‘Utility’. The Metaverse is a network of immersive virtual worlds that blend various gaming, entertainment, commerce, and communities, enabling users to engage with one another. Metaverse NFTs allow participants to prove their ownership and authenticity of assets within the virtual worlds, thereby fuelling a Metaverse economy.

Sub-category Definition Example
Land and Real-estate Virtual land or real-estate exists in the metaverse. Sandbox
Avatar An icon or figure representing a character in a virtual space. Meebits
Asset Virtual game objects in a virtual space. Virtual game objects in a virtual space. Sandbox’s Assets
Utility Provides use-case within the metaverse Multiverse VM


While there may be other NFT categories, the prominence of these categories may be nascent at this stage, and there is insufficient data to support the confirmation of these categories and their subsequent market sectors. These NFT sectors could also overlap with one of the identified four dominant sectors. 

III. Interpreting the Nansen NFT Indexes

The Nansen NFT indexes are designed to measure the performance of the NFT markets. Each NFT index tracks a category of NFT, or a specific market segment. Alternatively, the indexes serve as a mechanism to measure the performance of the NFT market over time and can be referenced as a benchmark for NFT investors.

With both retail and institutional investors in mind, the indexes are designed to capture the unique characteristics and practices of the NFT market. Additionally, the indexes also deal with challenges specific to NFTs, such as liquidity and the reliability of price data by filtering for wash trades. 

A functional market index needs to be reliable and easily understood. As such, Nansen designed NFT indexes that are semantically sound and replicable. Furthermore, the decision-making process of which collections are included and eligible in the index is clear and transparent. Lastly, the indexes are designed to be investable where the constituent NFT collections need to demonstrate sufficient liquidity. The following section describes the Nansen NFT indexes. 

Nansen NFT-500 Index

The NFT-500 is a broad market index tracking the market activity of NFTs issued on the Ethereum blockchain (ERC-721 and ERC-1155). The benchmark index consists of no more than 500 NFT collections, weighted by market capitalisation and represents an average of 85.14% of the daily market volume since 1 January 2022. This index aims to track the activity and movement of the NFT market. The benchmark index is calculated daily and rebalanced every 30 days, where the index constituents are re-assessed and re-balanced accordingly.

Nansen Blue Chip-10 Index

The Blue Chip-10 index is a re-modification of the first index constructed by Nansen (i.e., the original Blue chip index). It consists of ten notable and classic NFTs organised by its market capitalization. The constituents of this index are well-established within the NFT sector and have attained recognition as top-tier NFT collections among market participants. The Blue Chip-10 index is calculated daily and rebalanced every 90 days, where the index constituents are re-assessed and re-balanced accordingly.

Nansen Social-100 Index

Social NFTs focus on social connection. These NFTs may carry privileges, access, or utility. Social NFT collections occupy the largest market share within the NFT market. The Social-100 tracks the top 100 Social NFT collections by market capitalization. The index is calculated daily and rebalanced every 30 days, where the index constituents are re-assessed and re-balanced accordingly.

Nansen Gaming-50 Index

Gaming NFTs are in-game digital assets. Gaming NFT collections are gaining momentum within the NFT market, where its applications are increasingly diverse. To accurately track the activities of Gaming NFTs, the Gaming-50 index tracks 50 Gaming NFT collections ranked by market capitalization. The Gaming NFTs index is calculated daily and rebalanced every 30 days, where the index constituents are re-assessed and re-balanced accordingly.

Nansen Art-20 Index

Art-20 tracks the top 20 art collections by market capitalization. Art NFT collections typically have a lower circulating supply. There are instances where NFT Art collections exist as unique, one-off prices. The Art NFTs index attempts to capture the broad range of NFT Art collections transacted on the market. The index is calculated daily and rebalanced every 90 days, where the index constituents are re-assessed and re-balanced accordingly.

Nansen Metaverse-20 Index

Metaverse NFTs are digital assets integrated into networks of 3D virtual worlds. Similar to Gaming-NFTs, Metaverse related NFTs have varying applications. The Metaverse-20 index tracks the top 20 Metaverse NFT collections by market capitalization. The index is calculated daily and rebalanced every 30 days, where the index constituents are re-assessed and re-balanced accordingly.

IV. NFT Collection Eligibility Requirements

The following are the eligibility requirements for an NFT collection to be qualified for the index inclusion. To be included in the Nansen NFT indexes, the collection needs to:

  1. be secured on a platform based blockchain using a smart-contract (at this stage, the Nansen index only tracks NFTs issued on Ethereum);
  2. had completed at least 100 transactions in the last 90 days where half of the wallet addresses are unique, and
  3. achieved a minimum of 1000 ETH of transacted volume in the last 90 days where the collection was freely traded, and the collection has no to low undue risk of foreseeable illiquidity shocks (endnote 2.)

When an NFT collection meets the above criteria, it is categorized and labelled by Nansen, where the collections are considered for potential inclusion in the NFT indexes. 

V. NFT Collection Pricing Methodology

This section outlines how Nansen NFT indexes estimate the relative market capitalization of NFT collections traded on Ethereum. 

  1. Adjusted Mode Price
    The Nansen NFT indexes utilize an adjusted (7-day) (endnote 3) mode price in a given collection when establishing the relative market capitalization of an NFT collection (endnote 4.) The adjusted (7-day) mode price estimation is designed to capture the price at which a participant can buy or sell an NFT piece at a price that has been frequently transacted within the relevant NFT collection. The adjusted (7-day) mode price, backed by historical transactions, demonstrated that these prices have significant liquidity within a specific NFT collection. Analyses of NFT collections’ pricing data reveal overlaps between an NFT collection’s adjusted (7-day) mode price and their listed floor prices. Furthermore, evidence reveals that a mode price, like a collection’s floor price, retains a relatively predictable pricing relation to rarer pieces within the specific NFT collection. As such, we argue that the adjusted (7-day) mode price of a collection is a legitimate proxy for the pricing trend of an NFT collection. 

The Nansen adjusted (7-day) mode price is assessed in Ether (ETH). The methodology for calculating the Nansen adjusted (7-day) mode price is as follows:

  1. Identify the active marketplace where the NFT collection is primarily traded.

At the time of the index construction, the dominant market for the trading of NFT collections was the OpenSea platform. Where Nansen does not cover at least 80% of a marketplace contract, the marketplace data is excluded. However, this requirement is reviewed by Nansen at the start of each calendar quarter using on-chain data available through the Nansen platform. 

  1. Measure and determine the mode price based on the last 7-day transactions of a specific collection on the identified primary market. 

Using the transaction data available on the Nansen platform, the 7-day mode price for each NFT collection is measured and determined. The price identified will be priced in Ether (ETH). Nansen reviews for any significant price anomalies or differences. The Nansen Wash Trading Filter is applied to the data collected to remove any wash-trades and thus ensure the quality of the data collected. 

  1. Nansen adjusted (7-day) mode price market capitalization
    To calculate the NFT collection market capitalization, the index multiplies the collection’s adjusted (7-day) mode price by the total number of existing NFT pieces in each collection: 

Market Capitalization = Adjusted (7-day) mode price x Circulating Supply5

  1. Treatment of Air Drops
    Airdrops are an important occurrence within the NFT market (Endnote 6). Where there is an NFT airdrop, the airdropped collection will not automatically be included in the index. Instead, its eligibility will need to be verified per the eligibility requirement stated above (see ‘Indexing Approach’). Since the intent of the Nansen NFT indexes is for the indexes to be readily investable, it is anticipated that the claiming of such airdrops may be deemed valuable for some investors or funds should the claims be made securely and seamlessly.  

1 For example, Coolman’s Universe NFT, although providing its collectors access to exclusive merchandise, its main attribute is its art as profile pictures. On the contrary, the JRNY NFT collection’s sole intention is to provide users with access to future NFT collections and other member content.

2 Nansen periodically reviews these criteria. For future reference, where the index considers the inclusion of NFTs issued on other blockchains,  the criteria on the minimum transaction volume will be reflected in the relevant base currency. 

3 The mode or modal value is the data value that appears most often in a set of data, which in the case of NFT price, is the most frequently transacted price within a collection within the last 7 days.

4 Nansen has attempted the estimation of market capitalization with other intervals for a mode-price methodology such as a 3-day, 14-day and 30-day interval. However, the 7-day mode-price methodology best reflected market activity in a sample analysis conducted.

5 ERC1155 contracts are used for batch mint, which has led to some NFT projects issued on ERC1155 having an inflated supply (see, for example, Townstar). To mitigate a skewed market capitalization for such projects, Nansen applies a heuristic to exclude non-circulating NFTs when estimating their market capitalization. 

6 An airdrop involves delivering cryptocurrencies or crypto-tokens  to the digital wallets of current cryptocurrency holders, either for free or in exchange for a service (e.g. promotion). 

Disclaimer

These materials have been prepared solely for informational purposes based upon information generally available to the public and from sources believed to be reliable. No content contained in these materials (including index data, research, valuations, model, or other application or output therefrom) or any part thereof (“Content”) may be modified, reverse-engineered, reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of Nansen. The Content shall not be used for any unlawful or unauthorised purposes. Nansen does not guarantee the accuracy, completeness, timeliness or availability of the Content. Nansen is not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content. The content is provided on an “as is” basis. Nansen disclaims any and all express or implied warranties, including, but not limited to any warranties of merchantability or fitness for a particular purpose or use, that the content’s functioning will be uninterrupted. In no event shall Nansen be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.

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