Chapter 7: The Institutions are Coming …just not the ones we expected
7.5 The Tokenization of RWA is Really… Twinning!
We’ve been waiting for the tokenization of TradFi real world assets (RWA) since about 2014, but, yet again, culture and NFTs lead while TradFi lags. Instead of tokenization of real estate, stocks, bonds, we have digital twins/phygitals! Again, I’m being a bit tongue-in-cheek436, but I would have expected the bulk of
tokenization of RWA to be in financial assets rather than sneakers, hoodies, and hats. Providing NFTs to consumers that accompany purchases of physical items allows brands to start building out their own on-chain, first party data social graphs, which they can then query, segment, and reward based on who's engaging with their brand and products most. This is the first step in bringing real world items on-chain. Objects can now exist in the digital world and IRL, linked through NFTs, which are the bridge, functioning as an immutable representation of
authenticity and ownership in both realms. NFTs empower physical items with new utilities, such as unlocking token-gated benefits and unique AR experiences.437
Prada438 now adds NFC/RFID chips to all its physical goods and has been linking its physical Timecapsule pieces with NFTs439, which provide exclusive
436 Tokenization of TradFi RWA is most definitely happening: Franklin Templeton has tokenized money market funds and other large TradFi firms like J.P. Morgan and Goldman Sachs are working on tokenization initiatives.
437 For example, RTFKT released a Nike AR hoodie that CloneX avatars can wear and entitles CloneX owners to claim the same physical hoodie.
438 Prada isn’t the only luxury brand creating phygitals: In June 2023, Louis Vuitton launched phygital “Treasure Trunks” called VIA, which consist of physical luggage and a soul-bound NFT that will sell for $39,000 each with a supply of “several hundred.” The NFT will offer traceability and serve as a "Key" to other products and experiences - both physical and digital. Louis Vuitton says the NFTs are "soul-bound collectibles" and cannot be sold or given to another person. Holders will be able to periodically buy bespoke "Keys" that unlock access to additional products and future items acquired through "Keys" can be sold. Louis Vuitton’s strategy is like Tiffany's, which is also under the LVMH umbrella, and which sold 250 owners of cryptopunks the option to purchase custom-made cryptopunk pendants for $52,000 (at the time). Also, under the LVMH umbrella is Rimowa, which partnered with RTFKT for a custom luggage collection. Louis Vuitton's previous NFT experience was
"Louis the Game" a F2P experience introduced in August 2021. The game educated players on Louis Vuitton's history and rewarded players with the opportunity to win one of 30 free digital NFT based postcards. Louis Vuitton is taking a markedly different approach than Nike - which sold its Our Force Ones for $19.72. LVMH CEO Bernard Arnault has said that high-value items may be the best approach to applying web3 to LVMH brands, specifically saying "it's not our objective to see virtual sneakers at Euro 10. We're not interested in that." Also in June 2023, Dior launched its first web3 initiative – a physical version of Kim Jones’s B33 sneaker paired with an NFC chip and
authentication NFT. Says a Dior spokesperson: “We want to guarantee authenticity throughout the product lifecycle with more than just a physical card in a shoebox.” Like the Treasure Trunks, the NFT associated with the shoes is “soulbound” and can’t be transferred from the wallet that mints it.
Further, there is a “digital twin” that can be worn in Snapchat and allows early, exclusive perks starting with Dior’s Spring 2024 collection.
439 https://www.voguebusiness.com/technology/prada-expands-web3-offer-with-product-linked-nft- drop-and-discord-launchcollection.
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benefits and experiences and are tradeable on secondary marketplaces.440 But, RFID technology has been around since at least the early 1980s — so why is Prada adding chips to its goods now? Simply, because linking an embedded programmable chip in a physical good to a blockchain was not possible before. Through tethering physical goods to blockchains and/or creating phygitals (e.g., sneakers, jackets, purses, etc.), brands like Prada create:
o Connectivity with consumers throughout the entire lifecycle of the product, which allows brands to push infinite ongoing digital and physical experiences to the customer and stay connected to the consumer after they buy
something, which builds ongoing loyalty to the brand.
o A permanent immutable certificate of the physical good’s authenticity.
Counterfeit products are an issue in the fashion industry and plague the resale market. Through web3 technology, the origin of an item, its history, and previous owners can all be tracked, which allows a product’s ownership to be easily transferred and products to be traced and resold.
Adding an NFT component to luxury / streetwear physical goods provides each item with an identity akin to a passport or drivers license, where through the NFT, purchasers can see what materials were used in a product, where those
materials were sourced, and what factory the item was assembled in. In many ways, we have privacy backwards: humans should have more of it and physical goods should have less of it when it comes to accountability and sustainability. This type of transparency has become more and more important for Gen Z and Gen Alpha. I believe we will look back at this essay in a few years and find it strange that there was ever a time when luxury / lifestyle goods weren’t linked to blockchains and/or paired with NFT based counterparts.
One more point that needs to be made is that Gen Z and Gen Alpha really care about sustainability. It matters for the younger generation that Ethereum’s switch to proof-of-stake cut its energy use by 99.988% and carbon-dioxide emissions by 99.992%, which means the network now uses less carbon dioxide than a few hundred US households do during a full year of electricity use.441 In fact, Ethereum now consumes .001% of the energy that YouTube consumes annually. According to Deloitte & Touche’s 2022 Gen Z & Millennial Survey442, 90% of Gen Zs and
millennials are making some effort to reduce their own impact on the environment and 64% of Gen Zs would pay more to purchase an environmentally sustainable product. In fact, many brands are held accountable by their customers to
“sustainability scores” and certain brands and businesses have come together to
440 https://www.voguebusiness.com/technology/episode-1-pradas-rfid-investment
441https://www.coindesk.com/business/2022/09/15/vitalik-buterin-says-ethereum-merge-cut-global- energy-usage-by-02-one-of-biggest-decarbonization-events-ever/
442 https://www.deloitte.com/global/en/issues/work/genzmillennialsurvey.html
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create “Impact Labels”.443 Initiatives are already underway to use blockchain technology to track and verify a product’s sustainability metrics (e.g., materials, origin, manufacturing process.444 On a more practical level, the Ethereum
changeover to proof-of-stake also allows brands to issue NFTs on Ethereum or other EVM compatible chains, where most crypto liquidity, users, and infrastructure reside as well as battle-tested security, versus being forced to choose other chains, which are lacking in all those areas, solely to appease environmental concerns. The brands are likely to have more success on liquid and secure chains like Ethereum, which means success for all of us in the crypto ecosystem.
443https://www.voguebusiness.com/sustainability/fashion-has-a-new-product-label-to-mark- sustainability-metrics
444 https://www.todsgroup.com/en/news/tods-passport
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