Rug Pull or To The Moon? Evaluating NFT Community Health
Key metrics to determine if a project is legit
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Across the NFT space, it’s hard to cut through the noise. Misinformation, unrealistic roadmaps, misleading influencer posts, and inflated Twitter follower counts make it difficult to determine which communities are well-positioned to create long-term value for their members.
The challenge of evaluating community health has led countless first-time and experienced Web3 users to make mistakes. In many cases, individuals buy-in to NFT projects expecting to maintain long-term relationships, engage actively in community governance, and extract value as promised by the core team. In reality, many of these projects have delayed or altered their roadmaps, suspended their engagement efforts, raised the stakes of membership, or even abandoned their community full-stop (the “rug pull”). According to Nansen, approximately one-third of NFT collections have “expired” (little to no trading activity), while another third are trading below mint price.
Several standardized metrics have emerged that can help determine which communities have real staying power. Growth, Engagement, Retention & Contributor Quality stand out as relevant indicators of legitimacy and long-term success.
Growth
Many NFT projects experience similar phases of growth at the outset (Mint, Reveal, and Airdrop). It’s important to understand what contributes to these phases, how to spot them, and what they mean for the long-term trajectory of Web3 communities.
Mint
The success of a project's initial mint indicates its ability to generate grassroots engagement. Initial mint metrics rarely predict the underlying community’s long-term viability; rather, they showcase the core team’s ability to market their value proposition on social media before raising capital. If a project “mints out” immediately, it’s clear that the core team can effectively generate hype. If a project doesn’t mint out immediately, it can still find success long-term. Here are examples of both:
OnChain Monkey (OCM) minted out within 24 hours in early September 2021 and grew its membership in the months that followed. OCM’s free mint, experienced team, and unique value proposition (the first collection to be minted on-chain with a single transaction) earned significant hype.
Graycraft 2 (GC2), the second edition of Graycraft’s metaverse-ready airplane NFTs, took much longer to mint out last summer. While the team originally planned to sell ~8,000 GC2 NFTs, they capped the mint at 5,200 due to lack of interest. The collection has since steadily increased its membership and enjoyed floor price growth, as the team continues to present clear incentives for engagement and maintains an active presence on Twitter and Discord.
Reveal
Many NFT projects sell their pieces in a state of “pre-reveal” – minters get an identical NFT (often reflecting the project’s logo) that eventually transforms into a unique piece. In many cases, projects experience a sharp and immediate dip in floor price post-reveal. Here’s why:
Collectors gamble on rarity. Unique traits (<1%) are valued higher than floor traits. Pre-reveal, it’s impossible to know which traits each NFT will pull. Collectors are willing to pay a premium to play this game. This isn’t a hard-and-fast rule, but it often holds true. Collectors must pay attention to how quickly (and how low) the floor price settles, as that can indicate long-term stability. Here are some examples:
WoW Galaxy: Pre-reveal, WoW Galaxy NFTs were trading at a high of 2.4 ETH; immediately post-reveal, the floor price dropped to 1.26 ETH.WoW Galaxy has yet to recover to its pre-reveal price and has since dipped to a ~0.5 ETH floor.
BEANZ: Pre-reveal, BEANZ traded at a high of 6.78 ETH; post-reveal, BEANZ slid to a 1.26 ETH floor over the course of just one week.
Airdrop
Projects will create additional NFT collections or airdrop rewards to their community members in hopes of generating engagement and giving holders something to look forward to. Airdrops can represent:
Community Expansion: Projects will create a second collection with cheaper entry points to attract more members.
VeeFriends Series 2 : An evolution of Vee Friends Series 1 NFTs that offered cheaper entry points into Gary Vee’s established Web3 community.
Deadfrenz: An expansion of the Deadfellaz community.
Metaverse and/or Game Development: Projects will launch additional collections in attempt to deliver on their roadmap promises, such as “the development of a metaverse” or “the creation of a blockchain game.”
Otherdeeds, NFT plots of land in the Otherside metaverse being developed by Yuga Labs and Animoca Brands.
Cool Pets (Cool Cats), yield-generating avatars in Cooltopia, a gamified metaverse ecosystem being developed by Cool Cats.
Cash Grab: In some unfortunate cases, project founders will launch additional collections to extract revenue from their community – by building hype around an NFT drop while promising overly-ambitious benefits or without indicating the purpose of raised funds.
Pudgy Penguins is a prime example. The founders launched two additional collections, Lil Pudgys and Pudgy Presents, while promising the development of a children’s book, token, and game. In reality, many believe that the founders drained the project’s treasury. While Pudgy Penguins now has new leadership after a successful sale mediated by the community, this remains a cautionary tale.
Retention
Retention metrics can be a strong indicator of community viability.
% of Unique Holders: A community’s unique holder percentage represents both its total size of financially-committed members and the number of wallets that hold only one of the collection’s NFTs. A 50%+ unique holder ratio is a strong indication of community health, as it demonstrates that the community is composed of more unique individuals rather than a few whales with outsized shares. This metric can be particularly telling, as NFT holders serve as the most active flag bearers of a project’s brand.
DeadFellaz steadily grew its community over time.
Doodles experienced more volatile community consolidation phases but stabilized at a solid level.
CyberBrokers has yet to be able to grow its membership beyond ~3,400 holders.
Hype-Sustaining Incentives (Utility): Projects that are able to give their communities something to look forward to are best-positioned to retain members. This often takes the form of “utility offerings,” or benefits (as outlined in a roadmap) that come to those who stick around. Oftentimes, projects experience their most significant floor price growth when they build grassroots excitement ahead of a promised event or announcement.
Yuga Labs’ Bored Ape Yacht Club has mastered the art of generating and publicizing hype-sustaining incentives. Since April 2021, Yuga has consistently delivered on their roadmap in strategic increments that leave holders excited for what’s to come. Here is what they’ve done so far:
Second NFT collection: Bored Ape Kennel Club
Third NFT collection: Mutant Ape Yacht Club
Token Airdrop: Ape Coin
DAO Launch: Ape Coin DAO
Strategic celebrity endorsement rollout
Exclusive merchandise sales
Collaborations with esteemed partners, such Rolling Stone.
Ape Fest in NYC (2021 and 2022)
Fourth NFT collection: Otherside “Otherdeed” Metavase Plots
Otherside Metaverse Beta Announcement
Other examples of utility that NFT collections have provided:
Whitelist access to other NFT projects’ drops
Invitations to exclusive token-gated events surrounding Web3 conferences, such as NFT NYC and ETH Denver
Invitations to independent, token-gated live events to foster member-member and member-core team relationships.
Opportunities to access new games and platforms during beta stages
Exclusive investment advice, or “alpha,” often distributed through a token-gated Discord channel or Telegram chat.
Engagement
Engagement metrics are the easiest to standardize across communities and can be particularly helpful for determining strength of community at a single point in time.
Profile Pictures (PFPs): NFT profile pictures can be an important signal, as they represent spot endorsements that strengthen the brand.
NFT PFP Follower Count: Influencer NFT PFPs are one of the strongest engagement generators that often lead to a bump in interest from prospective members.
Jimmy Fallon (51.3m followers on Twitter) changed his PFP to a Bored Ape.
Eva Longoria (6.8m followers) changed her PFP to a World of Women.
Serena Williams (10.6m followers) changed her PFP to a CryptoPunk.
Twitter Follower Count: This metric can be misleading (due to bot accounts) but can provide a directional indication of project reach and community size.
Discord Membership & Engagement: A vibrant Discord can be a critical indicator of community health. Here are some metrics to look out for:
Total Server Size
Number of Active Moderators
Channel Specialization, Sophistication & Usage
Ratio of Members to Messages (Diversity of Engagement)
Poll or Vote Response Rate
Contributor Quality
Project and contributor quality is subjective as different aspects of NFT collections and their offerings appeal to some but not all. However, there are some legitimate trackable metrics that can be used to determine community legitimacy.
Project Team: A project’s team is arguably the most relevant metric to carefully review ahead of joining a Web3 community. Here are some important questions to ask:
Is the team doxxed, or have they chosen to remain anonymous?
Do their past experiences lend themselves to running an NFT collection?
Do you trust their ability to execute on the roadmap?
Do they have substantial networks and significant reach on social media?
If the answer to the questions above is a resounding yes, community legitimacy often follows.
Proof Collective (creators of Moonbirds) is a great example of a doxxed team with credible backgrounds. Its founders are:
Kevin Rose, a partner at True Ventures, former GP at Google Ventures, and a serial entrepreneur.
Justin Mezzel, an experienced product designer with stints at Pluralsight, Maven Creative, and Metawork, among others.
Roadmap: Most projects’ roadmaps are highly ambitious and pledge to achieve multiple milestones on different fronts in a short period of time. Here are some important questions to ask:
Does the roadmap offer a unique value proposition?
Did the project’s initial mint generate enough revenue to achieve that roadmap?
Evolved Apes, an NFT collection that launched in September 2021, had a successful mint that generated millions of dollars for the anonymous core team. Many credit that to their roadmap – which promised an ape vs. ape fighting game with an enticing trailer. Ultimately, the project’s founder decided they either didn’t want to or couldn’t build the game and abandoned the project altogether, deleting their Twitter account and website.
This project’s anonymous team, coupled with its overly-ambitious roadmap represented red flags for legitimacy.
Early Adopters: Quality influencers and whale investors associated with a project in its early stage can help indicate legitimacy. Notable Web3 stakeholders engaging with a project online reflects its standing within the Web3 community. However, it’s harder to verify the veracity of an influencer’s wallet holdings, since notable individuals and holders of top projects (Ex: BAYC) often get airdropped random NFTs to create the illusion that they are aligned with a certain project.
Wallet visualizers like Debank and Kazm’s Explorer help verify who is actually interacting and involved with a collection on-chain.
Partnerships: Legitimate partnerships (not just endorsements) can generate value for the project’s brand and increase community engagement.
Doodles: At NFT NYC, Doodles announced that Pharell will serve as Chief Brand Officer. Given Pharell’s connections in the music world and Doodles’ plan to experiment with music NFTs, this partnership can generate genuine value.
World of Women: In January of this year, Guy Oseary announced that he would represent World of Women, in addition to BAYC. Oseary has a decades-long background in music and tech – representing Madonna, U2, and the Red Hot Chili Peppers. His connections and expertise in talent management positions WoW well to explore additional opportunities to enhance its brand.
These metrics aren’t perfect – anonymous teams have fulfilled their ambitious roadmaps, and established creators have abandoned their active communities. These metrics will continue to evolve over time, just as the NFT industry and technology itself transforms in the years to come.
On the other side of things, Web3 projects across the industry will need a digestible and comprehensive community analytics platform that helps them gauge the health and attitude of its membership.
At Kazm, we're working on unified community management and analytics to help projects grow, engage, and reward their members. We just launched a limited private beta. Interested in using Kazm for your project? Apply here.