The Gap Between Assets and Infrastructure
If we distinguish web3 assets from web3 infrastructure, we see two different rates of adoption. Crypto assets — fungible and non-fungible tokens — have undergone a considerable rate of adoption, particularly in the last year with the popularity of NFTs. At the end of 2021, 16% of Americans had owned or used cryptocurrency in some form.
Web3 infrastructure, however, is still a fractured and nascent space, especially when it comes to popular adoption. The “web3 stack” — ranging from decentralized storage all the way to front-end user wallets — is not a cohesive one yet. As a result, it is extremely difficult for the average person to take their web3 assets and successfully navigate a completely decentralized internet. Centralized exchanges, marketplace front-ends, custodian wallets, and more bridge that gap between infrastructure and assets. These solutions epitomize web2.5, allowing for existing brand consumers to more easily adopt web3 assets within familiar web2 infrastructure.
This gap will not be closed anytime soon. So far, web2.5 has included a set of reactionary compromises that (sometimes messily) shoehorn blockchain-based assets into web2 infrastructure. Web3 assets will undergo faster adoption than web3 infrastructure for the time being. In the months and years to come, the need for more web2.5 products will grow. Already, companies such as Mojito are intentionally building solutions to enable companies to create, launch, and manage web3 assets like NFTs within their existing web2 stack.
Beyond the Drop: Additional NFT Utility
A considerable amount of brand NFT adoption and web2.5 success since early 2021 can be attributed to NFTs with relatively little utility. Setting aside aspirational roadmaps, many projects have launched as just collections of tokenized digital art, without immediate additional utility.
Dropping a collection loosely associated with your brand and expecting it to succeed is no longer possible. Brands will need to go to market with accelerated roadmaps and NFTs that immediately provide more utility than just ownership. Experienced NFT collectors will look for nuanced capabilities of a brand’s NFTs to judge the strength of the collection. Brands’ pre-existing consumers will want to see more utility from an NFT before they ‘ape in’ to what likely feels like an oversaturated market. What this additional utility will be is dependent on the goals of the brand and their industry, but we anticipate IRL events, gated or early access, GameFi, physical rewards, and additional earning opportunities to dominate.
What we’ll see in the months and years to come are more highly-integrated, ongoing NFT activations. We’ll likely see some of the one-off NFT drops from the last 18 months experience a resurgence in popularity as the brand behind it decides to apply more utility to the original project. And we’ll see new brand activations that, from the beginning, make clear the ongoing utility and roadmap of the project.
Continued Criticism and Controversy
Criticism of NFTs and crypto generally has only increased alongside adoption. For NFTs in particular, the leading criticisms are environmental impact, scams and money-grabs, artist exploitation, and “right-click and save.”
These criticisms will not go away anytime soon. Any brand with an existing non-crypto customer base will need to proactively take steps to address concerns and effectively communicate those solutions. In the previous “Web2.5 Trends” section, we discussed how brands have been donating portions of the drop proceeds to charitable and environmental organizations. Education will also be critical to this effort, helping familiarize newcomers with on- and off-chain environmental solutions and the rights-preserving reality of NFTs for artists.
“X-to-Earn”
Within the blockchain ecosystem, we’ve seen a rise in terms like “Play to Earn” (P2E). The term describes a way for an individual to earn tokens from a protocol through a particular action (in P2E, playing a game). This model of “X to Earn” can be applied to almost any action that a brand wants a consumer to take. “Listen to Earn” can reward individuals in tokens for listening to songs or discovering new artists. “Learn to Earn” can reward students for completing courses or achieving milestones. “Attend to Earn” can reward fans for going to their favorite artists’ performances.
This “X2E” model allows brands a way to get their existing consumer base involved in their NFT strategy without requiring heavy upfront purchases. Undoubtedly, the “price for entry” to some NFT ecosystems is too high. Allowing alternative pathways to earning through actions that individuals would otherwise do for their own edification or enjoyment is one of the clearest ways brands have to bring along their existing consumer base as they explore new innovations around crypto and NFTs.
The Web2.5 Compliance Layer
As discussed in the introduction, the web2.5 frameworks that have dominated the way in which large brands have adopted NFTs in the past 18 months are not particularly new. Centralized exchanges have been the market leaders in how to introduce web3 assets to brand new audiences with more familiar web2 user experience and onboarding. NFTs have been the largest drivers of web2.5 frameworks, and we anticipate other web3 ecosystems needing to adopt similar models. Financial services — particularly where web3 assets and compliance intersect — will undergo an explosion of web2.5 in the months and years to come. Institutions eager for exposure to decentralized assets will need to find compliant solutions to being involved in DAOs, NFTs, DEXes, and more. Identity solutions such as Parallel Markets are building compliance infrastructure to bridge on-chain identity with off-chain KYC and AML. Novel financial protocols like Goldfinch are bringing lending services for crypto assets into real-world finance. Fireblocks provides a single platform for institutions to effectively manage their digital assets, treasury, and DeFi activities. As more and more institutional money turns its eye towards web3, only web2.5 frameworks can successfully bridge the gap between compliance requirements and novel decentralized assets.