Emerging consumer use cases in crypto: driving adoption for the next bull run?
Summary: There are emerging consumer use cases of blockchain in both the physical and virtual worlds, beyond trading and decentralized finance. In the physical world, blockchain enables incentivization and coordination of users via a token, allowing projects to bootstrap growth, save CAPEX and reward early adopters for their physical work. In the digital world, blockchain enables direct distribution of content to users, allowing them to be rewarded for their work on the story or on the intellectual property. By allowing the users to take ownership and monetary benefits of their participation in the application, we think new emerging consumer use cases of blockchain are likely to drive further adoption of crypto.
Traditional investors think that there are no use cases for blockchain, beyond trading and decentralized finance. However, new consumer use cases emerge in what we call the ownership economy of Web3: the internet where participants can own the assets and participate in the open economy. We categorize these use cases into two categories depending on which part of our lives they affect:
i) Physical world
ii) Virtual world
The physical world use cases are opening new experiences and business models that were previously not possible.
1. Fan tokens allow sports clubs to enhance engagement and lifetime value of super fans.
2. Fashion brands are bridging physical items with digital twins, allowing for an expression of our digital identity online and new possibilities of personalization in the virtual everyday experience.
3. Coordination networks and activity gamification applications allow for the creation of new gig economy business models and incentivizes human coordination to solve large-scale problems.
4. Event-management applications facilitate the usage of NFTs in real-world event ticketing and to subsequently reach and monetize customers post-event.
Use cases within the virtual world are transforming existing Web 2 closed-economy business models through the lens of open economy leverage (enabled by blockchain).
1. In gaming and comics, blockchain-enabled digital ownership allows new experiences to be created in which fans and creators contribute to the content, collaboratively build intellectual property, and contribute to earn. An example is Ev.io, a game in which advertising revenue is shared with NFT holders, or PUNK!, a comics series that provides backstories about the NFT collection.
2. In social networks, users’ social graphs are stored on blockchain instead of needing to be established separately across multiple centralized content platforms, such as YouTube and Twitch, which allows for the easy migration of fans and creators between platforms. Since ownership of the user data is being transferred to users, there is no room for predatory rent-seeking terms of service, as is currently happening in Web 2 monopolies (e.g., YouTube takes 45% of the revenue generated by the creator).
3. Loyalty programs using blockchain allow communities to be supercharged around brands and reward contributions from members. As an example, Reddit enables the sub-reddits to create custom tokens that can be used within the community to reward participation or meaningful contributions. For example, the MOONs token can be earned within the sub-reddit based on contributions or through tips and it can be sold or utilized for the governance of the forum.
4. Advertising is enhanced with on-chain events as the data available on the blockchain is improving ad targeting based on referral attribution and previous spending. The holy grail of advertising.
Let’s dive deeper into the most impactful use cases to understand them in more depth.
Physical world use cases
For many people, sports are an indispensable part of life and the experience of being a sports fan is enhanced with fan tokens. Trading volume of fan tokens in September reached over $6bn. Comparing it to overall NFT trading volumes, it is already 11x larger. Issuance of fan tokens through Socios generated $200m for the sports industry, which is still small compared to the $22bn market of licensed sports merchandise.
Fan tokens provide different types of utility to their holders and already span the fan base of F1, ultimate fighting, and soccer. Inter Milan, AC Milan, and Paris Saint – Germain all launched their fan tokens. Fan tokens are issued and managed on technology platforms such Socios and Binance Fan Token Platform.
Socios is the emerging market leader, which has onboarded more than 40 clubs on its platform and 1.5M users from 167 countries have downloaded the mobile app. It started with soccer but has recently branched out to other sports and e-sports as well. The benefit for the club is upfront revenue from a token sale, increased fan engagement, and royalties from secondary sales of the tokens. A club can generate a significant amount of cash up front, as demonstrated by Barcelona earning $1.3m from its primary sale. For fans, the benefits are designed by the club to complement the overall fan engagement strategy. For example, experiences can include:
• Cashback from the purchase of merchandise. The amount of cashback can be tiered based on the number of tokens owned and further incentivize fans to purchase merchandise from the club.
• Experiences. Fans have a possibility to win or purchase experiences with the club. These experiences can be defined by the team and even include meeting the team.
• Participation in a variety of decisions. This can include voting on various topics, ranging from simple surveys, to selecting the next song to play at the start of a match or the selection of new jerseys or banners for the team.
All these experiences might sound small, but they create new touchpoints and further engagement with the club’s fan base. For some clubs, the token valuation has reached a significant level of market capitalization: for example Santos FC at $54m and Alpine F1 at $34m.
Digital world use cases
Fashion brands have generated more than $260m from selling virtual fashion online. The global opportunity is still in its infancy, as the global fashion market accounted for $1.7tn and according to McKinsey, the e-commerce opportunity within the metaverse will account for $2tn of value. Fashion plays a significant role in expressing ourselves physically and is similarly important online.
There are two approaches we observe brands taking in Web3:
• Revenue-focused: Maximize the value of NFTs sold in a primary offering. Examples of these include Adidas generating $10m from NFT drops and collaboration with gMoney, Bored Ape Yacht Club and PUNKS comic, or Tiffany, which sold 250 NFTs redeemable by CryptoPunk holders for a necklace, netting the company $12.5m.
• Engagement-focused: The sale of NFTs is free and targets revenue generated from secondary market royalties. The company optimizes the breadth of the customer base and continuously builds post-launch utility to maximize demand driven by utility and speculation. An example would be Pepsi, which launched a free-to-mint NFT platform that has generated $11m secondary sales volume.
The most successful company that engaged with NFTs is Nike and its acquisition of RTFKT, a digital fashion brand, first starting with premium digital shoes, then expanding to other product lines, such as apparel. Nike has now generated more than $180m revenue of which is ~50% from primary sales and 50% from royalties on secondary sales. The recipe that was used by RTFKT and Nike relied on four elements:
• Collaborations with artists. Some of the collections have been created by popular artists such as FEWOCiOUS (the collection has generated $3m) or Takashi Murakami.
• Gamification of digital shoe collecting. The sneakers can be forged/upgraded to create new unique designs with the usage of vials, thereby creating new sneakers.
• Connecting with real-world fashion. The NFT holders might be eligible to receive a real-world fashion item, such as shoes or a jacket.
• Utilizing AR technology. The digital items can be experienced in the real-world using Snapchat filters. The user can point his camera at his feet and through augmented reality (AR) the digital shoes will appear with digital effects.
By utilizing digital ownership, brands can provide new experiences and possibilities to express digital identity online. With the wider adoption of AR technology, digital fashion may be complementing physical items.
Incentivization via tokens enable the coordination and reward of early contributors, while allowing companies to transfer CAPEX and OPEX costs to a large group of early contributors. An example of this is IoT and 5G networks provided through Helium protocol. Helium is an operator that does not own any physical infrastructure; instead, it crowdsources connectivity from independent providers and individuals. Today it has more than 968,000 hotspots, covering 75,000 cities and 184 countries in the network. Participants in the network can purchase the physical hardware and provide connectivity to the network and receive part of the network tokens for their contribution.
Another example is Hivemapper, which focuses on the creation of street view maps. The current street maps from Google or Apple are often outdated, sometimes for several years (e.g., Vienna has a combination of pictures from 2022 to 2018 and some images from locations outside of Portugal are still from 2010), and other areas might never be covered. Hivemapper creates a permissionless network where individuals can contribute street images, removing the need for coordination and creating a global marketplace for street view images. The images are collected through a custom-built camera that contributors buy from the Hivemapper company and install into their cars. The crowdsourcing model is again transferring CAPEX and OPEX intensive tasks to contributors in exchange for protocol equity. There are two primary benefits:
• More locations are mapped out
• The frequency of updated images increases significantly, based on demand
Already now, 48% of unique active wallets (out of 1.1m unique active wallets in total) on the blockchain are tied to activity within games. The traditional gaming market is significant at $178bn and expected to grow to $225bn (by 2025). Blockchain brings several major improvements to traditional gaming business models:
1. Persistent game state that can last forever. Digital ownership allows for the preservation of the game state on the blockchain, allowing game designers to build economies that can in theory last forever (at least for the lifetime of the blockchain). In such a game, there is only one start event and no further re-start mechanics. This means that all new participants join an existing ecosystem in-progress and adopt its state of play. An example of this is tycoon game Angry Dynomites Lab.
2. Contribute-to-earn business model. Creators contribute to the desired game ecosystem, supercharge the content creation and earn money (e.g., in Shrapnel a player can create a map or item, mint it as NFT and earn rewards based on its popularity).
3. Financialization of in-game assets. Through a combination of immutable ownership, in-game utility and permissionless trading, the assets have by default a financial value, which, for example, can then be further utilized in Decentralized Finance, or DeFi.
4. Capital formation. Blockchain enables gaming studios to pre-sell in-game assets and other NFTs (e.g., access passes) as a form of crowdfunding to finance the game development. More than 21 million items have been logged and gaming NFTs trading volume reached $5+bn in 2021 (assuming 2-5% royalties could generate up to $100m-$250m in revenue).
In the first three quarters of 2022, more than $3.4bn of capital was raised for blockchain gaming according to Drake Star Partners, putting the industry on track to surpass a total of $3.6bn raised in 2021. Assuming it takes 2-4 years to build a good game, we can expect a wave of new releases starting in 2023. From the most popular games we see so far, Gods Unchained is introducing a collective card game where the cards are represented by the NFTs, Illuvium is building a AAA title, and Angry Dynomites Lab is building a tycoon game that can continue forever.
Comics as a vertical is smaller than gaming ($11.8bn vs. $178bn, respectively) however, the open creator economy has a similar effect as we are seeing the emergence of several new media types that combine traditional comic books with the benefits of NFTs (e.g., adjusting the storyline based on a character represented as an on-chain NFT). The current market for comic books is expected to grow at 7.1% CAGR. and the blockchain is bringing several benefits to this market:
• Fan participation. Fans communicate directly with creators and influence the story. This might have a fundamental impact on the development of the story or the format in which it is delivered. Fans can vote on the decisions that impact the overall story development, e.g., the outcome of a war; or only a selected group of fans (based on the NFT character or allegiance) can participate in a decision. An example of a decision impacting the format would be voting on the frequency of the release cycle.
• Permissionless contribution by creators. Models will emerge in which contributors can collaborate on the expansion of the intellectual property in a way that is mutually beneficial. Traditionally, fan fiction would be a separate online community that congregates around new stories created by fans. With interactive comics, creators can permissionlessly use the assets and contribute to the overall storyline.
• Participate in the financial upside. All participants can earn rewards from the experience. Participation in the economy early is rewarded with equity-like upside. For example, building a mini-game or experiences utilizing the in-comics NFTs.
To name just a few examples that are innovating in this space:
3 Worlds, 3 Moons
The web 2 social network market stands at $192bn, and is expected to grow more than 20% per year. In the Web 2 models, data generated by users is owned by the social platforms, which leads to platform-centric silos and an inability to utilize one digital identity across different platforms. Blockchain disrupts the Web 2 business model in two ways:
• User data owned by the users. Each social media profile (inc. social interaction graphs, followers, subscribers and other data) is stored on the blockchain and owned by its user. Even though platforms are temporarily accessing user data when connected, the user retains ownership of that data.
• Identity composability. The social profile, or digital identity, is composable across content-specific platforms because users are free to switch between platforms while keeping their followers, historical messages, and posts.
The two most prominent examples of decentralized social networks are Farcaster and Lens. Farcaster is focused on a mobile, Twitter-like experience that is enhanced for NFT functionality. Additionally, if a user wants to migrate to a different platform or front end, their data is retained with their identity making it possible to transfer into another social network. Lens is a protocol for social identity, and at this point it has rolled out multiple front-ends from different teams allowing seamless usage across each.
There are clearly many current use cases for blockchain that are successful in both the physical and virtual worlds, and we believe there are many more yet to come. We are already seeing improvements in the physical world, as coordination networks have managed to bootstrap through changes from centralized, CAPEX intensive business models, to ones that are decentralized and community funded and operated, especially in the cases of telecommunication services and street view mapping. Fashion brands are enabling us to express our physical identity in digital worlds. And sports clubs are generating additional revenue while increasing engagement with their fan base through fan tokens. In the virtual world, we think gaming and comics will have the most imminent impact. And together, the monetary opportunity of these use cases is significant.
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