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Nightmare is currently at the 7-B tier by scalling from other characters like Griffon and Echidna. This also applies to the "familiar version" that we see in DMC5.
DMC1 Nightmare
However, chapter 8 of the manga Visions of V gives us more details about Nightmare's origin. According to it, Nightmare was created by Mundus in an attempt to create an overpowered demon, which he succeeded in doing, but ended up going too far.
"Its power could lay waste to the Demon World. The Demon Emperor feared it. So much that he bound and restrained that very power he supposedly sought."
Right here, we have two evidences for an upgrade: he has the power to "lay waste to the Demon World" (which this wiki accepts as being an entire universe) and be feared by Mundus, a 3-A / Low 2-C being. So Nightmare should have 2 keys, the 7-B version that has his full power restrained and the 3-A, possibly Low 2-C with his full power.
DMC5 Nightmare
But that's not only it, the Nightmare that we see in DMC5 should also be upgraded, as he's basically the same demon. It would also be very consistent, as he casually one-shots both Shadow and Griffo and is said by V to be his only chance against Urize. Of course, later we find out that Urizen is much more powerful than V could have know and Nightmare didn't stand a chance against him, but V didn't know that yet.
Finally, after defeating V's familiars in Mission 18, Dante talks to Griffon, who says this:
"But if you had even a little bit of trouble defeating us, imagine what Vergil can do to you"
Now, Dante (a tier 3 / 2 character) fighting 7-B is now a common thing in DMC. It has happened many, many times since DMC2. The canon explanation for this is that Dante is just messing around while being absurdly stronger than his enemy, that's why we don't give a tier 3 to every single boss fought by Dante in DMC2, DMC4 and DMC5. However, according to Griffon, Dante did have a little bit of trouble in this particular fight; of course he seems completely fine and even seems 100% ok to fight Vergil just minutes after that, but still, he did have just a little bit of difficulty. We can assume that this "little bit of trouble" is a reference to Nightmare.
If we consider Nightmare as an actual threat to Mundus, this would be pretty consistent, as DMC5 Dante is much stronger than Mundus and would probably have no trouble in beating him. It makes more sense than assuming that Dante had a bit of trouble in a fight with a bunch of 7-B demons.
DMC1 Nightmare
However, chapter 8 of the manga Visions of V gives us more details about Nightmare's origin. According to it, Nightmare was created by Mundus in an attempt to create an overpowered demon, which he succeeded in doing, but ended up going too far.
"Its power could lay waste to the Demon World. The Demon Emperor feared it. So much that he bound and restrained that very power he supposedly sought."
Right here, we have two evidences for an upgrade: he has the power to "lay waste to the Demon World" (which this wiki accepts as being an entire universe) and be feared by Mundus, a 3-A / Low 2-C being. So Nightmare should have 2 keys, the 7-B version that has his full power restrained and the 3-A, possibly Low 2-C with his full power.
DMC5 Nightmare
But that's not only it, the Nightmare that we see in DMC5 should also be upgraded, as he's basically the same demon. It would also be very consistent, as he casually one-shots both Shadow and Griffo and is said by V to be his only chance against Urize. Of course, later we find out that Urizen is much more powerful than V could have know and Nightmare didn't stand a chance against him, but V didn't know that yet.
Finally, after defeating V's familiars in Mission 18, Dante talks to Griffon, who says this:
"But if you had even a little bit of trouble defeating us, imagine what Vergil can do to you"
Now, Dante (a tier 3 / 2 character) fighting 7-B is now a common thing in DMC. It has happened many, many times since DMC2. The canon explanation for this is that Dante is just messing around while being absurdly stronger than his enemy, that's why we don't give a tier 3 to every single boss fought by Dante in DMC2, DMC4 and DMC5. However, according to Griffon, Dante did have a little bit of trouble in this particular fight; of course he seems completely fine and even seems 100% ok to fight Vergil just minutes after that, but still, he did have just a little bit of difficulty. We can assume that this "little bit of trouble" is a reference to Nightmare.
If we consider Nightmare as an actual threat to Mundus, this would be pretty consistent, as DMC5 Dante is much stronger than Mundus and would probably have no trouble in beating him. It makes more sense than assuming that Dante had a bit of trouble in a fight with a bunch of 7-B demons.