As NFT Sales Slump, Brands Refocus on Utility and Security

After a year in which it seemed like practically every brand scrambled to release a nonfungible token (NFT), sales of the digital ownership assets have slumped in the past few months. Amid volatility in cryptocurrency markets and high-profile, headline-grabbing scams, overall sales of NFTs dropped 67% month over month on the largest marketplace, OpenSea, in the past 30 days. Meanwhile, incidents in which bad actors have scammed investors out of millions of dollars worth of the tokens have grown more common, making casual consumers wary of wading into NFTs. In that environment, experts say, brands that continue to test the NFT space need to be more intentional about the value they provide while remaining mindful of security risks as hackers become increasingly sophisticated. “Utility is the key word," said Jack Cameron, co-founder of NFT startup Luna Market. "Brands have to be asking themselves, ‘How do I actually create utility for my users?’" Web3 tie-ins and loyalty Luna Market worked with Under Armour late last year to create an NFT shoe to commemorate NBA star Stephen Curry’s all-time three-point record. Cameron said the drop stood out from a crowded market of sports NFTs by adding gamification in which the shoes could be worn by buyers' avatars across four major metaverse platforms and used in virtual basketball games. This type of gaming tie-in in the metaverse has proven to be a popular model for brands looking to issue NFTs that better connect with younger consumers who are already spending time on these platforms, according to Gartner analyst Avivah Litan. Rather than simply boosting brand awareness, these NFTs allow brands to establish a presence in platforms that Web3 proponents have positioned as the next social networks. Signs of a Slowdown NFT sales declined by 67% on OpenSea as of late April.Google search interest in the term “NFT” has taken a nosedive since January to about one-third of its peak. While overall NFT sales have recovered slightly from their lowest point in March, they still remain at about half of January levels, when weekly sales volume reached around 486,000 ether, according to research firm Nansen. Brands are also attempting to make NFTs more valuable in the real world by tying them to ongoing rewards programs, which provide members with discounts on real-world products and access to giveaways and promotions, and pricing them reasonably, according to Max Brody, founder and CEO of NFT startup Ink. “Purchasing NFTs gives consumers a vested interest in the success of the brands they bought the NFT from,” Brody said, adding that affordable pricing can minimize expensive risks. Litan said most brands shouldn't be looking to raise money directly from NFTs and therefore don’t need to worry as much about the current volatility in cryptocurrency prices that have roiled those markets for the past several months. Rates for major currencies plummeted from last fall's record highs earlier this year and have fluctuated since. Instead, brands should be using NFTs to further other goals like increasing brand awareness or keeping consumers engaged, with relatively low stakes attached to the NFT transaction itself. Kai Tier, vp of technology at R/GA, said clients have gone from minting NFTs for novelty's sake to using them to connect with new audiences. "There's been a shift where brands are no longer necessarily looking for an NFT headline or a metaverse headline," Tier said. Security concerns A bigger concern for brands than volatility is the security of the assets they sell and the intellectual property they integrate into them, as NFT scams grow increasingly common. MintNFT CEO and co-founder James Sun said MintNFT went through months of security due diligence when working with Mattel recently on a set of Barbie-themed NFTs. The brand and startup opted for a so-called “custodial model” in which a third party, such as an established marketplace, oversees transactions and provides the ability to reverse them if, say, a customer were to mistakenly purchase a scam version of an NFT. But a few days after the launch, someone copied one of the images and began selling the fraudulent version on the OpenSea exchange. The companies had to send a message to potential buyers via email and Mattel's customer service center warning them to check for a technical mark of authenticity the startup had built into it before the launch. “I think you're going to start seeing very, very good technology for authenticating if the IP of that NFT truly was from the IP owner,” Sun said. “What's going to happen is brands are going to have audits. They are going to not work with just 'fly by the seat of your pants' NFT companies.”

Metaverse

As NFT Sales Slump, Brands Refocus on Utility and Security

Experts say companies selling nonfungible tokens need a game plan for providing value

Patrick Kulp

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Patrick Kulp