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Why NFTs will gain adoption through commerce
018. A case for branded NFTs and utility through loyalty/rewards
Hey, friends—welcome back to online/offline, a weekly newsletter about technology, culture, and the future. Please forgive my recent absence. I promise I have a good reason, which I’ll share soon. With that said, welcome to the hundreds of new subscribers! I’m happy you’re here. Today, I want to share thoughts about NFTs that I’ve been refining over the last two months. This newsletter is meant to be a conversation, so do reply with your thoughts/questions. And if you haven’t already, make sure to subscribe below.
I wrote my first essay for CoinDesk in early March. The process was foreign to me—waxing poetic about opinion about the state of crypto and consumer, and letting an editor refine my work (which I consider an art tyvm). As part of the process, we replaced my example of how I think web3 builders should rethink custody (we went with a Poolsuite example instead, read here). I’ve published the original example below as it’s lingered in my mind since. There’s a lot to say about the state of web3 and why we should remain optimistic about a future beyond financial speculation …
Web3 should rethink custody
“Starbucks is a bank” – not legally, but theoretically. Starbucks has a reward card that you can preload using cash/card and use for in-app purchases to earn 2x rewards. This money cannot be withdrawn for cash, since Starbucks isn’t a bank, resulting in a balance of over $1.5 billion. What if Starbucks had a custodial wallet? The company could leverage its payment onramp to bring consumers into Web 3, incentivizing loyalty by rewarding purchases with $STAR tokens or stablecoins. Starbucks could create its own economy for customers around the world.
— “What Web 3 Can Learn From Steve Jobs” Draft, March 2022
With the fall of the $UST stablecoin this week and the falling floor prices of NFTs ... it’s no wonder the general population is skeptical about crypto (or, web3 as we call it). Yet, my conviction that NFTs will gain wide adoption—primarily through commerce—continues to strengthen.
This week, Instagram launched a beta test for NFTs for select creators and collectors. The announcement focused on creator ownership, which I’ve been a staunch advocate of for many years now. There wasn’t a lot of hype about it, but I consider it a quiet leap in a seemingly uphill battle for consumer adoption. One that I hope Starbucks helps us win with the launch of their brand NFTs later this year—this isn't speculation or a leak, Starbucks finally announced the project in late April. Can I see into the future? Yes, we’re already in it. Let’s break it down ...
Starbucks already has a strong reward/loyalty program as stated above, but it’s simply transactional. By leveraging NFTs, Starbucks can cultivate its community, resulting in more sales and brand equity. Starbucks also elevates itself from the 90s coffee shop of yore to the “metaverse” ... a balance of offline/online existence if you will. Consumers will purchase a branded NFT to gain access to exclusive events, experiences, and other rewards. There are three key benefits of loyalty/reward NFTs for brands and consumers alike:
Brand custody. Most web3 maxis will argue that everything should be truly decentralized and non-custody, but that’s a burden that most consumers would rather not carry. Brands, on the other hand, benefit from token custody since they can monetize using esoteric instruments. Most people don’t remember their passwords. We should ease them into remembering a 100-word seed phrase. By then, maybe Apple will let you hold all of your NFTs in your wallet. Better yet, the general public may be ready to embrace non-custody wallets. The north star should always be decentralization.
Partnerships. Today, brands are struggling to reach customers as advertising costs soar and their results crater. The solution is brand building to convert and keep customers; community is one way to increase value and partnerships are another. Brands can open their ecosystem to complementary partners. Imagine being able to purchase a fancy espresso machine at a discount because you hold a Starbucks NFT. Token-gated products are already out in the wild on Shopify.
On-chain data. I haven’t stopped hearing about personalization since some tech guys discovered just how valuable internet data is. Once brands launch NFTs, they will combine their off- and on-chain data to provide exceptional consumer experiences. With privacy laws like GDPR and browsers moving to block third-party cookies, on-chain data will become increasingly valuable. The more that consumers use their NFTs across the web, the more brands can learn about them. NFTs are the one way to understand and build for consumers while allowing them to retain ownership over what they share and when. Zero-knowledge proofs (ZKPs), which “let someone prove that they know or have something without giving up any information about what they know or have,” will be a web3 game changer. Here’s a great explainer on ZKPs by Packy & Jill.
Now, imagine having this superpower in all apps. I hold my NFTs in my web3 wallet (or Apple Wallet): Delta, Bebop, and others. I use my Delta NFT to rack up points for all my flights, my hotel stays, and even for my Lyft rides. If I have enough, maybe they’ll let me in the Sky Club for free or upgrade me to Lyft Lux Black. Does Lyft have helicopter service to the airport yet? I want that as one of my future perks.
What’s Bebop? A fictional second-hand marketplace with a rewards program; one $BOP earned for each dollar spent on the app. I can use my $BOP to subsidize future purchases, which are tracked within the Bebop app and the balance is held within my Bebop NFT sitting pretty in my Apple Wallet. Who doesn’t love a two-token model! After shopping till I drop, I go outside and touch grass. The data will be on-chain when I’m back online but at least this time I own it.
Going back to Instagram—today it’s all about creator NFTs, tomorrow it’ll be branded NFTs. IG is basically a mall now and adding an NFT layer where users are encouraged to make more transactions is a huge win for the company and Mr. Mark. And we cannot forget that IG is powered by Shopify, which is already experimenting with NFTs and commerce. I hope all the dots are connecting for you now as they did for me!
It’s easy to look at the rise of Bored Apes and think that NFTs are about media, money, and (ugly) art. Or to look at new projects like Moonbirds and think NFTs are about exclusivity, community utility, and (pixelated) art. I could go on and on, but the point is that NFTs have utility beyond monetizing art and community. In fact, everything will be an NFT: concert tickets, apartment keys, work badges, digital media, loyalty cards … The web3 world is in shambles right now as the markets crash, but those with vision will build through the chaos. I can't wait for the moment we no longer call an umbrella of things “NFTs” and the technology disappears into our everyday lives.
Thank you for reading and special thanks to Seyi Taylor for influencing my thinking. If you’re new to online/offline, make sure to subscribe to join the conversation.
+ The Future of Commerce in 2022 by Shopify