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The idea of culture is very prevalent in the web3 space. After all, you can argue that it’s this idea of a common tribe that gave outsized mindshare to various tokens & PFP projects that ultimately helped form the broader backbone community of Web3.
“Apes Strong Together”, “LINK Marines”, “Never been comfier in the Huddle”, “XRP Army”, “Dev died? Bullish” and countless other catchphrases throughout the years. At some point, these digital communities (specifically NFT projects) wanted to embody this culture which brought them together in a digital setting and extend that in a physical capacity. That’s where the name “Phygital” arises from; a concept that combines physical objects with digital ownership through NFTs.
BAYC (Bored Ape Yacht Club) were one of the first projects to have a token-gated merch drop. For their initial mint & roadmap, the BAYC founders stated that if 60% of the BAYC supply was sold (each BAYC minted for 0.08 ETH or $240 at the time), they’d unlock the “member exclusive BAYC merch store”. While the original “roadmap” has since become less important, BAYC laid out one of the first roadmaps that conceivably contained Phygital goods. Since then, almost every other NFT project has followed along similar lines in outlining a project roadmap.
Of course, BAYC’s roadmap was released back in April of 2021. Now, almost 3 years later, the landscape for phygital goods has grown exponentially. Not only do we have PFP projects with their own unique physical clothing offerings such as Creature by Danny Cole, Igloo.shop, & Cets to Haus but we also have more “brand only” focussed initiatives like 9dcc by Gmoney, BAD* ENVIRONMENT CLUB by Lite and mmERCH by Colby Mugrabi which reverse the script by bringing IRL culture on-chain. In addition, we certainly can’t omit Nike’s acquisition of RTFKT which remains one of the biggest named acquisitions in the space.
If you want to become a full digital native, there are services like DressX which markets themselves as “the largest metacloset of digital-only clothes”. After purchase, DressX will fit these avant-styled clothes on any photo of yours allowing you to post it on the various social media sites.
After the connection was made between Fashion & Blockchain, which has subsequently been proven, it wasn’t just Nike that wanted to be involved. Apart from luxury houses entering the foray like Gucci, Burberry & LV, we’ve also seen backend efforts being worked on such as the Aura Blockchain Consortium. Startups around this niche are thriving too with IYK raising nearly $17m to expand their core mission which they state as “IYK provides tailored building blocks to build your digi-physical wwworld”.
Before we progress further, a key distinction needs to be made. Projects offering merch or items behind a token-gated setting wouldn’t necessarily count as a “phygital good”. A phygital good only applies IF the item you physically have also has an NFT counterpart.
Tokengated Drops =/= Phygital Goods
Without a shadow of a doubt, both the appetite & demand for a phygital future are clear and the sector is primed for growth moving forward. However, we need to take a step back. For the keen-eyed reader, you will have noticed that most of the projects I’ve discussed sell their items to customers in a B2C (Business-to-Customer) setting. That’s not the issue. The issue arises on who the intended target audience is.
Phygital goods on the surface seem like a great idea. You can keep track of ownership and authenticity from the point of origin til the end of its life without the risk of “contamination”. This is the key argument used in favour of blockchain art, which notably eliminates centuries-long problems in the art world such as verifiable past ownership, future appraisal value, transportation and artist royalties.
With the same logic and benefits now being applied to phygital goods, unless you’re planning on selling these items, what purpose is being achieved for the end user that is buying these items directly from the brand except that of a marketing tool? What would you say is the purpose of such a piece of tech in fashion?
You could make an argument that this tech allows for the authentication of goods which helps the end customer because a lot of these goods are of a limited nature and thus going to be more valuable in the future. This would be a key tool in the “fashion-flipping” industry and it would help the customer who buys in the secondary market to know that the product is genuine.
After all, that is how the sneaker reselling industry operates and if you were around for the last cycle, there was an abundance of such “sneakerheads” who evolved from flipping sneakers with the use of custom bots to creating & using NFT-centered bots.
If you didn’t already know, the first & best NFT minting bots were created by the same people who create/update sneaker reselling bots. These are the same bot devs who bypass the security measures put in place by multi-billion dollar corporations who are actively trying to kill this endeavour yet continue to have difficulties with it. NFT flippers who didn’t adopt to this never stood a chance against the bots. This reason, botting, is essentially solely responsible for the creation/growth of “white-listing” NFT mints which are almost a given in today’s landscape.
Their success was so large, even the founders of prominent “flipping” groups like A Hidden Society launched their own PFP projects such as Sneaky Vampire Syndicate. To date the project has achieved a cool 22,800 ETH ($63m if we use Today’s ETH price) in trading volume.
For the most part, the participants in the sneaker reselling industry are on the younger side. With an abundance of free time combined with being adept with the relevant technology & software, & a lack of money with the potential of “earning money from your computer”, you can start to empathize with a lot of these participants behavior and understand why they’d enter the NFT/Phygital space. While a lot of these shoes retail for somewhat reasonable prices, the secondary markets have no such cap.
The allure of making money from your PC through shoes or any “hyped items” aside, the same people are engrossed in this industry and often want to own these same items. Factor in that 99% of the population will not secure these for the retail price and these items quickly achieve the status of Veblen Goods and become status symbols in their own right.
If you were to wear either these off-whites, Red-Octobers, Self-Lacing Mags or even something as relatively simple as the Dior Jordan Highs in any urban city or a high-density area you are bound to get a lot of attention, period.
With the existence of these grails, especially if you’re into reselling or just in a place where sneaker culture is popular (such as high school, university or a convention) “legit checks” (LCs) become an everyday occurrence. As the name implies, it is where your shoes are checked and seen if they are real or not so you can get judged on whether you’ll be praised for securing some rare kicks or you’re going to get clowned on for wearing fakes. Mind you, there isn’t a “fool-proof process” to determine whether your shoes are real or not because manufacturing defects & quality checks are known to be hit-and-miss, but it doesn’t stop this from happening.
For me (and I imagine this is true for most adults), most would not even begin to engage with these LCs because why would you wear something that you don’t like or isn’t your style? Does it matter if the items you wear aren’t authentic but you liked the style of it enough to get a replica (reps) for yourself?
Evidently, yes. It’s a conundrum within the younger demographic.
It’s a big enough problem that the producers of these reps are putting in extra effort to make these products as close to the real deal. Then, they work with the overarching rep community to better pass using community-sourced “Quality Checks”. In fact, they’ve gotten so good that you won’t get “called out” on them (which again, only matters to a very small subset of people).
The retail price of this shoe was $150. On the secondary market, these shoes sell on average for $1000. The replicas on the other hand cost $67 (w/o shipping, with shipping they’re $90-125).
Since the replica manufacturers have also been around for more than a decade, they’ve essentially nailed the anatomy of the “perfect shoe”; materials used, the feel, embroidery and even the sole down to a T.
For most people, $1000 vs $67 is a no-brainer deal. Both of these pairs look identical while having a difference of nearly $900. If you simply care for the design and look of the shoe, who is on the losing side of this trade?
Nike (nor Travis Scott in this instance) will never see a penny from the sale of this shoe on the secondary market. They’ve already recouped their costs and even profited from the retail pair selling out. The replicas look almost identical with some “differences” that can only be seen from a microscopic level, which is impossible to do if you’re wearing them and don’t take your shoes off for random strangers to LC you. The only person that would lose in this deal is the flippers themselves who are charging the exorbitant markup and will now have to sell these for less than the “secondary market fair value” but still multiples of the retail price they paid.
Again, this is a trade that most rational people will make but we’re not talking about most rational people and that’s the crux of this issue.
For the most part, the people who would care about the “authenticity of the products” are the ones who are selling these for a higher price than they bought or the person buying it from these secondary exchanges for elevated prices. After all, getting scammed is never a fun experience. But if you know the pair you are buying is fake and it’s cheaper, who ultimately loses?
btw, the shoe on the right was the retail (real) pair.
Having grown up in both the UK and Asia throughout my schooling years, it was almost an unwritten law that every kid would wear a school uniform until they attend college/sixth-form (the American equivalent would roughly be Junior High).
The reasoning behind this is also relatively sound. If every kid is dressed in the same clothes, then you would not be able to differentiate between which students come from struggling households and which are from wealthy. Not only would this help with the integration of kids from a younger age but it would be one less worry to combat bullying (wealth related at least). Again, if a kid is adamant about bullying, as the age-old adage goes, “where there is a will, there is a way” uniform or not.
From what I understand, this is not the case in other Western countries (though I’ll stick with the US for the sake of the example). Atlanta (the TV show) had an entire episode dedicated to this topic in Season 2 titled “FUBU”.
In a world where Social Media is neither new tech nor scarcely populated as it has been for the generation prior, this also fundamentally changes how people who have grown up with this as the norm interact with each other.
The power to blast anyone on a global scale, which previously was only local, changes the dynamic as well. Previously, if someone was “called out” for their shoes or clothes in a school setting, it would be contained in the local environment. Now, however, the risk lies in spreading throughout other communities beyond geographical borders to other similar communities where LCs are the norm.
Cat wrote about this topic back in 2021 in his article titled “ONLINE IDENTITY, NFTS, HUMAN REASONING, MARKETS” in which he very aptly states that:
“the real delusion are people thinking that entire generations growing up talking to other people thru virtual 2d social medias such as discord and twitter hiding behind a virtual cartoon character, will continue to purchase assets based on their own pre-internet constructed construct of value (eg. gold, physical collectibles).”
Web3 is in a bit of a precarious state where the pendulum swings between “we’re going to be powering new and innovative experiences” to “we’re going to use Web2 principles for maximum extraction”. I’m personally a fan of the earlier statement but as I’ve highlighted so far, phygital goods are overwhelmingly swinging more towards the latter.
I’ve tried to identify a clear use case for Phygital goods which benefits the end user and aside from the luxury fashion space, I’m failing to come up with a clear “one line” thesis for them. Especially not at scale (which is the ultimate goal of web3 or purports to be).
The only case I came up with for phygital goods in the capacity of retail clothing is nothing short of a 1984 dystopian future where your identity is linked to the clothes you wear in a surveillance state with zero privacy. Yikes.
This issue gets compounded further when you ask the question “If I’m never selling my items, what’s the point of this?”. Aside from authentication, there isn’t anything that is being done or planned to fully utilise the medium.
This is an excerpt from a Decrypt article which was covering the ”10KTF x Gucci” collaboration mentioned earlier. In the 4 separate instances of “luxury drops” that have been listed here, aside from the utility of “spending more money on even more exclusive items”, what other value is being unlocked besides “on-chain Flexing”?
Even if we account for this lack of utility to being early in the adoption curve, how can we be sure that this technology isn’t developed in the future and doesn’t restrict users?
Can we be sure that a brand won’t blacklist certain “phygital” goods from people they don’t want to be associated with the brand after a sale has been made? While the NFT can’t be moved (it technically can if you program it that way), the image or “content” of it can be changed. This also isn’t something which is out of the question. Ferrari famously maintains a blacklist of celebrities who can not own a Ferrari because it “doesn’t fit their brand image”.
Coming back to more Crypto Centric brands that are doing their own thing, as mentioned earlier, 9DCC is creating a network of holders who not only use the chips for provenance but also in games that only other holders can play and engage with.
They’re very upfront about what they want, and how they want it and you as a consumer have a choice to take part in this. This is unique, achieves a very strong USP for the brand as a whole and more importantly is for users who understand the tech & how it can be used for novel experiences.
For a space that is obsessed with the idea of fostering a community, is the premise of building a community solely based on the value of their assets or their net worth a good foundation? To delve deeper, is developing tools, goods or services to alienate people not part of the community worth it?
For some, that’s going to be a resounding yes and that’s fine because you know what kind of deal or contract of sorts you’re entering into.
That being said, we have to be careful with the type of foundation being laid. The beginning of social media had humble roots too. The same sites are now getting questioned on their overreach and deliberate design choices to retain and extract maximum profit, even after knowing that these are going to negative impact on kids.
“Web3” finds itself in a similar state. The adoption curve is still very much in the early stages and this means that if we let a bad or harmful foundation evolve, we’re going to see the ramifications of it in the worst way possible in the not-so-distant future.
Thanks to Tolks & Tervo for their help with editing and cleaning up this article.
If you’ve made it this far, thank you for reading and I hope this has been a useful read. You can follow me on Twitter (and now Farcaster) to let me know what you think about this post & don’t forget to subscribe to Page One for your essential crypto readings!