Gauging the Quality of Collectibles
How Skry is building a quality standard for NFT Collectibles.
The NFT market turmoil is palpable. Rampant speculation, a slew of bad actors, and technical knowledge barriers form a perfect storm of confusion. But at the eye of this storm is the question: are NFTs the latest Ponzi scheme or a new asset? We believe NFTs represent the latter: a new form of digital-native asset. While confusion and skepticism exist, the idea of a digital collectible will be commonplace. Skry looks to examples like the Reddit CryptoSnoos NFT launch as indicators of where NFTs are heading. A series of NFTs termed “digital collectibles” took off among a decidedly anti-crypto audience. When you peel back misinformation and layers of techno-babble, it’s obvious there is demand for natively digital asset ownership.
As with any asset class, a lack of quality standards creates ambiguity. We contend this is the central issue affecting NFTs today. Getting scammed is easy if there are no objective criteria for what you are buying. Apart from intentional scams, creators need more technical know-how to launch an NFT with staying power. We need people-friendly metrics to gauge quality before NFTs become accessible.
Creating a Collectibles Quality Standard
Creating a standard that can be applied across a wide variety of assets is no simple task. To account for the complexity and nuance across various NFT collectibles, we derived four applicable categories of qualification–Mint Conditions, community engagement, market performance, and tokenomics.
Mint Conditions - Our original NFT quality standard and a term we coined in 2021. Mint Conditions are a measurement of the NFT’s intrinsic technical qualities at the time of mint. Factors include smart contract code quality & efficiency, metadata data storage practices, and security.
Tokenomics - A measurement of the NFT collections economics by considering all aspects of the NFTs creation and management. Factors include token utility, supply, provenance, and distribution.
Community - A measurement of the NFT collections social community. Factors include the size of the community, the level of engagement, and if the community is composed of real humans or bots.
Market - A measurement of the NFT collections market fundamentals. Factors include relative floor prices, wash trading, available liquidity, and the value of wallets that are trading the tokens.
These categories help us to determine which assets should be classified as an NFT collectible. If an NFT can not be reliably evaluated across these four categories, it is excluded from our analyses. We have found that applying this methodology captures nearly 90% of the current NFT market by count and 71% by total market volume.
To derive a rating based on the data within our categories, we aggregate all data and normalize it across 35 objective data points, then output those factors as a final “insights grade.”
The grade rates collections from A (high quality) to D (low quality) with the goal of A-rated collections being less volatile over the long run. The rating system represents percentile rank buckets of an NFT collection’s total score. A percentile rank-based system is used to account for the change in quality as new NFT collections are introduced over time. This allows us to use an overall cumulative score comparison across all data points.
Success Metrics and Continuous Training
We understand that creating standards takes years of proven data and market endurance to decide what “quality” looks like. Because of this, the Skry Insights Grade improves as the market evolves through the use of machine learning.
We accomplish this by comparing our ratings against a primary success metric (Floor Price Volatility) on a weekly basis. Using continuous training and a weighting system for each of the data points that comprise our rating, our ML model improves over time with an end target of the best collection floor price stability.
For a more in-depth look at our metrics and insights grade, view the full analytics dashboard.
Skry is an NFT ratings & research platform. Our Insights Grade uses an automated algorithm to determine the technology, tokenomics, market, and community quality of an NFT collection.
Learn more at https://www.skry.xyz/about
Seeking more information about a particular topic, project, or technology? Submit a research request!
Thanks for Reading!