Opening of the NFT Factory: what impact on the sector?

What are NFTs? What are the links with Web3?

NFTs, or non-fungible tokens, are tokens similar to those used in cryptocurrencies, and allow for the digitization of various information, partly stored in a blockchain. Their non-fungible character allows for a multitude of uses in various industries such as luxury, video games, real estate or even the art world. NFTs were born on the Ethereum blockchain, following the implementation of a new standard token: ERC721. Therefore, the vast majority of NFTs are ERC721 tokens distributed on the Ethereum blockchain (65% of NFT exchanges as of the end of Q3 2022), such as ERC20 tokens, such as LINK or the stablecoin USDT. However, NFTs are now present on other blockchains such as Solana, Avalanche or Polygon. Regardless of the distribution blockchain, NFTs are traded on marketplaces, the best known of which is OpenSea.

The unique and tamper-proof nature of each NFT makes it a key element in the decentralization revolution and transition from Web2 to Web3. The Web3, in fact, characterizes the new evolution of the web based on decentralization and blockchains. After Web2, characterized by social networks and which allows users to become “content creators”, Web3 promises them to regain control of their personal data by reducing centralization as much as possible and, therefore, ultimately, massive data collection of users by tech giants like Meta or Google. In this new decentralized web, cryptocurrencies and tokens ensure the transfer of value, while NFTs facilitate the transfer of digital objects (digital art, avatar accessories, etc.) and property (virtual land or title deed to a property in the world real). It should be noted that NFTs today have multiple applications across many industries and are becoming an essential tool for brands to manage communities and reach out to new generations.

What are the challenges of this opening?

The challenges of NFTs are diverse and varied and depend on the industry in which they are established. In the music world, NFTs are a new source of income for artists and allow musicians to regain control over all aspects of their music, from royalty rates to royalties, while driving fan engagement. In the art industry, NFTs are essentially sought after as a store of value and are attracting more and more collectors and artists. NFTs are also attracting some big names in the luxury watch industry, particularly to ensure authenticity and facilitate the resale of luxury watches on the secondary market. In this case, the unalterable and inviolable nature of NFTs makes it possible to guarantee traceability and authenticity. The world of culture is also opening up to this technology and some cities do not hesitate to use it to promote their heritage. This is particularly the case for the city of Cannes, which recently auctioned ten Cannes heritage sites in the form of NFTs.

As we have seen from the various uses of non-fungible tokens, they can represent a real-world object or place, a full-fledged digital artwork, or a fraction of a traditional artwork. NFTs can also represent an intangible element of Web2, such as the NFT representing the first page of Wikipedia, which sold at auction for more than €660,000, or even a Web3 object in the form of an avatar accessory that evolves into a metaverse . However, an NFT can not only represent objects or places, but also act as an entrance ticket to an event or a discount coupon in a store.

Why are more and more brands entering NFTs?

It is clear that many brands quickly realized that NFTs could be used as a formidable marketing tool with multiple benefits. Some sports brands such as Nike or Adidas, immediately distinguished themselves by offering accessories for metaverse avatars, at a time when virtual worlds were in the spotlight following the announcement of the strategic change of Meta, ex Facebook, eager to take a place dominant in the decentralized worlds, in order to bring its touch of centralization and keep control of the personal data that is so dear to it. Luxury brands have also been able to seize the business opportunities hidden behind the link between the metaverse, NFTs, and real-world products, as evidenced by Fashion Week taking place in the Decentraland metaverse. During this event, we could notably find DKNY, Tommy Hilfiger, Paco Rabanne, Dolce & Gabbana or even Etro. Major luxury brands use NFTs to give an atypical touch to their collections. This is especially the case with Prada, which is launching Timecapsule collections in limited quantities for 24 hours, where each item comes with an NFT, bringing an extra touch of exclusivity to the brand’s customers. The luxury brand is no stranger to Web3, having previously partnered with Adidas on a community NFT project.

Indeed, if luxury brands are launching into NFTs, it is also with the aim of developing a certain community around these non-fungible tokens, bringing a breath of fresh air by attracting the X and Y generations more sensitive to digital assets compared to previous generations. The Lacoste brand perfectly combines the marketing aspect with the community aspect by actively involving its community in the development of its Web3-based projects. The crocodile brand recently allowed owners of its “Genesis” NFT to define certain traits of its upcoming collection of NFTs.

This participatory approach implemented by luxury brands is unprecedented in an industry that is more conservative than other brands such as those focused on sports. But another practice aimed at building community loyalty complements this participatory aspect by rewarding community engagement through NFTs. This is the case of Yves Saint Laurent Beauté, who offered his very first NFT to subscribers to his Twitter and Instagram accounts. NFTs which will therefore act as a loyalty card and will give access to many exclusive events.

The possibilities offered by NFTs are therefore numerous for brands, and few are still hesitating to take the plunge. Luxury brands appear to be the most advanced in this area, giving rise to new companies specializing in supporting brands towards the Web3. Indeed, faced with the economic slowdown in China and the expansion of online commerce, largely favored by repeated confinements, luxury brands are ready to do anything to conquer the new generations, while renewing their brand image by adopting new methods management of their community.

Why did France decide to support this market with public money?

Jean-Noël Barrot, minister delegate in charge of the digital transition, recently announced the government’s intention to support the NFT ecosystem with public money. The latter underlined France’s willingness “to go around the Web3 which will profoundly change the Internet and its uses”. This announcement came just days after Economy Minister Bruno Lemaire said he wants France to become a European hub for crypto-assets. This desire to position France as a major player in the NFT sector is not unjustified and is explained by France’s dominant position in certain sectors such as culture, video games or the luxury industry. . Jean-Noël Barrot also underlined the need to “build a regulatory framework for NFTs, objects that have not yet been identified, especially in terms of legal certainty”. At a time when 2% of French people have already invested in NFTs (according to a study carried out by KPMG for the Association for the Development of Digital Assets), the government’s priorities are to attract global players and mobilize private funds, establish a digital euro ruler, while exploring the potential of NFTs and decentralized finance (DeFi). These goals should facilitate the creation of a European metaverse, as mentioned by Emmanuel Macron, while accelerating the creation of a regulatory framework for NFTs.

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