The Fungibility of Non-Fungible Tokens: A Quantitative Analysis of ERC-721 Metadata

TL;DR

This paper investigates the properties that determine NFT value, focusing on permanence, and finds that nearly half of ERC-721 tokens may lack this key attribute, impacting market perceptions and valuation.

Contribution

It introduces a quantitative measure of NFT permanence and applies it to Ethereum data, revealing significant variability in NFT quality.

Findings

45% of ERC-721 tokens lack permanence

Proposes a measure to assess NFT permanence

Highlights potential overvaluation in NFT market

Abstract

Non-Fungible Tokens (NFTs), digital certificates of ownership for virtual art, have until recently been traded on a highly lucrative and speculative market. Yet, an emergence of misconceptions, along with a sustained market downtime, are calling the value of NFTs into question. This project (1) describes three properties that any valuable NFT should possess (permanence, immutability and uniqueness), (2) creates a quantitative summary of permanence as an initial criteria, and (3) tests our measures on 6 months of NFTs on the Ethereum blockchain, finding 45% of ERC721 tokens in our corpus do not satisfy this initial criteria. Our work could help buyers and marketplaces identify and warn users against purchasing NFTs that may be overvalued.