The NFT craze is dying down, but global fashion brands are still minting millions from tokens; here’s why – BusinessToday
Want to spend $449,000 on a pair of sneakers? Let’s rephrase that: Would you spend $449,000 on a pair of virtual sneakers you can’t wear? You may or may not “just do it”, but someone did. Nike sold a pair of virtual sneakers from its Dunk Genesis Cryptokicks series – a series of non-fungible tokens (NFT) priced between $2,500 and $449,000 for a pair.
That’s not all. The iconic footwear brand has already earned $185 million in revenue through NFT drops. Dolce & Gabbana (D&G), Tiffany, Gucci and Adidas have also joined Nike in raising $240 million through NFTs so far, as they look to turn the digital asset into a serious source of additional revenue.
But what is a fashion NFT, you ask? Sure, they can work for abstract categories like art or music or games. But how does an intangible digital asset make sense of tangible items like clothes and shoes? Do they have a purpose?
“While the concept of spending real money on clothes that don’t physically exist is a bit confusing, virtual assets are generating real sales,” says fashion designer Manish Malhotra – one of the first designers to launch a fashion NFT in the country. “When people buy NFTs, it’s with a collector’s mindset – much like buying couture for exclusivity. It could become an asset class as the market grows,” says Viraj Khanna, director of luxury brand Anamika Khanna (AK-OK), which also launched a three-part NFT collection last year.
But to answer the question – no, at least not yet in the Indian context. Also yes, looking at what some of the iconic global fashion brands are experimenting with.
The mainstream popularity of NFTs exploded in 2021, with art and gaming taking the lead as NFT collectives like Bored Ape Yacht Club and CryptoPunks made billions of dollars. Soon, major fashion brands began experimenting with the technology to engage with their customers.
Taking a cue from their global peers, Indian fashion brands also jumped on the bandwagon at the peak of the NFT craze last year. Malhotra launched a five-piece NFT collection – three hand-drawn sketches of garments, an old photo of former model Lisa Ray taken by the designer and a video from one of his shows. Designers Anamika Khanna from the luxury brand AK-OK, Raghavendra Rathore and Pankaj & Nidhi were also among the famous names who launched their digital artworks. Most of them were sold within minutes and for hefty sums. Malhotra’s sketch of a custom outfit designed for Kareena Kapoor called “Illuminous Showstopper” was sold for Rs 2.8 lakh.
– It has given us a completely different clientele. Previously, only those who were interested in our clothes talked about the brand. A wider audience can become our future buyers, says Viraj Khanna. Malhotra also agrees. “In the past, the markets have struggled to attract the most discerning buyers and luxury collectors. NFTs can change the rules of this luxury game forever.”
Sure, it’s an additional source of income for designers. But what’s in it for the buyers? Not much, it turns out. A year after fashion joined the NFT craze, it has gone no further than offering expensive collectibles. Without valuable use cases for buyers, it has remained an ultra-niche category even within the nascent NFT market. “The unfortunate fact is that at this point most NFTs are only used for market communication to drive the hype. I can think of seven to eight uses. But people just use the word NFT and give away images of something,” says crypto expert Ajeet Khurana, founder of Web 3.0 firm Reflexical. “It has a monetary value, but not a utility value. And that monetary value comes from the fact that it’s provided by a brand,” says Ramkumar Subramaniam, CEO and co-founder of NFT marketplace GuardianLink .
Says 31-year-old Rishi Kanoi, one of the buyers of an AK-OK NFT and a fashion enthusiast: “There will be fashion shows in the future in the digital world and my avatar can wear it and it will be exclusive only to me. It’s exciting for me. It is also an investment for the future.” But as of now, he plans to have the NFT printed and hang it in his new home. He paid around Rs 65,000 for the digital artwork.
But why do NFTs need to have use-cases at all? It is an asset class that works according to supply and demand principles. Every time an NFT is resold, it generates a royalty for the original creator. For that to happen, it must provide impetus to the NFT holder to continue trading with them. “You can’t come, drop it and disappear. It doesn’t work. It is a responsibility to ensure that the person who bought it can sell it again. But brands (in India) have so far used it only as a marketing gimmick,” said Sandesh B. Suvarna, vice president of WazirX, which has an NFT marketplace. Any popular NFT collection has only made its millions by constantly providing value to its NFT holders, he adds, giving the example of Nike. The footwear giant acquired Web 3 company RTFKT in December 2021 to up its metaverse game. Half of the NFT revenues of $185 million are royalties earned through subsequent trading by holders. In addition, it generated over $1.3 billion in secondary volume.
But the overall NFT market is down in the dumps as trading volumes have crashed 97 percent since the start of the year, based on data hosted on crypto-related data platform Dune Analytics. Also, the Indian government has imposed a flat 30 percent tax on profits or income gains from virtual digital assets such as cryptocurrencies and NFTs. The NFT hype seems to have lost its initial euphoria, but some believe the crash is a necessary jolt out of an overheated market before it can find its footing. “During the bull market in 2021, people who knew nothing about NFTs also came and bought them. Now it’s mostly traders who know exactly what an NFT does. Little kids who used to invest have disappeared,” says WazirX’s Sandesh. “Honestly , that [government measures] clearing out people who are not serious about it and making room for serious collectors and traders. But for now it has really slowed things down, says Viraj Khanna.
Morgan Stanley also pegs NFTs to grow to a $240 billion market by 2030, with luxury-brand NFTs becoming a $56 billion market by then. The “dramatically” increased demand will be thanks to the metaverse, the bank said in a November 2021 note. “The metaverse will likely take many years to develop; However, NFTs and social gaming present two near-term opportunities for luxury brands.”
Nike has already created a store “Nikeland” in the metaverse, and Adidas has purchased virtual land in the blockchain-backed virtual world of The Sandbox. Another virtual world, Decentraland, has also hosted Metaverse Fashion Week which had the who’s who of the luxury fashion world in attendance. Meanwhile, brands are also working on physical-digital bridges. D&G, for example, has used its NFT as a digital twin. Five NFTs from the series came with custom physical parts designed by Domenico Dolce and Stefano Gabbana themselves. Others are finding ways to offer exclusive benefits in the physical world, such as access to content or custom styles to build connection and loyalty engagement with users. Gucci’s 4-minute film NFT ‘Aria’ gave buyers an exclusive insight into the design and production process by allowing them to experience the goods through virtual reality.
While brands globally are working to discover truly innovative tools to tap into the new class of buyers, that is not the case among Indian designers who are experimenting with NFTs. “It’s probably because of the complexity around blockchain technology, obstacles in interoperability, lack of legal framework. The overall concept of NFT is being understood, tried and tested, considering all the economics involved in it,” says Malhotra. “It The Indian market, unlike the US, is still nascent with few collectors. The space will take time to grow, says Viraj Khanna.
But between the naysayers who call NFTs just a fad and the optimists who see the crash as par for the course, there is one agreement: The opportunities are huge for fashion – an industry that sells highly tangible goods but is also high on the intangible brand factor, especially given NFTs’ authentication and lifetime royalty generation features. “It is reasonable to assume that they are without [utility] value at the moment, but it is unreasonable to assume that it is just a hype. It’s mostly early days, says Reflexical’s Khurana.
@SierVidya
