Would you spend $449,000 on a pair of sneakers? Let me rephrase that: Would you drop $449,000 on a pair of virtual sneakers you can’t wear? You may or may not ‘just do it’ but someone did. Nike sold a pair of virtual sneakers from the Dunk Genesis CryptoKicks range – a line of non-violable tokens (NFTs) worth between $2,500 and $449,000.
That’s not all. The popular shoe brand has earned $185 million in NFT drops. Dolce & Gabbana (D&G), Tiffany, Gucci and Adidas join Nike in earning $240 million in NFTs so far as they try to turn digital assets into a serious additional source of revenue.
Indian fashion brands jumped on the bandwagon at the height of NFT mania last year, taking cues from their global counterparts. Ace designer Manish Malhotra has launched a five-piece NFT collection—three hand-drawn sketches of clothes, an old portrait of ex-model Lisa Ray by the designer, and a video from one of his shows. Designers Anamika Khanna for luxury brand AK-OK, Raghavendra Rathore and Pankaj & Nidhi were also among the famous names that launched their digital artworks. Most of them sold in minutes and for huge sums of money. Malhotra’s custom clothing design for Kareena Kapoor called “Illuminus Shopstopper” was sold for Rs 2.8 lakh.
But what is a fashionable NFT anyway, you ask? NFTs or non-fungible tokens are blockchain-based digital assets that cannot be replaced or exchanged for tokens of the same value due to their unique properties. Of course, they can work for abstract categories like art or music or games. But how does an intangible digital asset translate to tangible things like clothes and shoes? Do they have a purpose?
Designer Malhotra, one of the first designers to launch NFTs in fashion in the country, says, “The concept of spending real money on a non-physical garment is a bit confusing, but virtual assets generate real sales.” Fashionable NFTs can, for example, be virtual clothes worn in a virtual world.
Of course, it is an additional source of income for designers. But what’s in it for buyers? Not much, it turns out. A year after joining the NFT craze, fashion hasn’t progressed beyond offering expensive collections. Without significant use cases for buyers, it has yet to become an extremely niche category even in the NFT market. “The sad reality is that at this point, most NFTs are used for marketing communication only to ride on the hip. I can think of seven to eight use cases. But people are just using the word NFT and giving images of something,” said Web 3.0 firm Reflexical. Co-founder, crypto expert Ajeet Khurana said.
But why should NFTs have use cases at all? It is an asset class that works on demand supply principles. Every time an NFT is resold, it generates a royalty for the original creator. For that to happen, the NFT holder must be given an incentive to continue trading in them. “You cannot come, leave and disappear. That won’t work. It is the buyer’s responsibility to make sure they can resell. But brands (in India) have so far used it as a marketing gimmick,” said Sandesh B Suvarna, vice-president of WazirX, an NFT marketplace. Any prominent NFT conglomerate has made millions only by consistently offering value to NFT holders, he added, citing Nike as an example. The giant upped its metaverse game by acquiring Web 3 company RTFKT in December 2021. Half of its $185 million in revenue came from royalty revenue through shareholder transactions. In addition, it generated more than $1.3 billion in second volumes.
But the entire NFT market has fallen into a tailspin, as trading volumes have fallen 97 percent since the start of the year, according to data hosted on crypto-related data platform Dune Analytics. Additionally, the Indian government has imposed a 30 percent tax on profits or income gains from virtual digital assets such as cryptocurrencies and NFTs. The NFT boom appears to have lost its initial euphoria, but some believe the risk is a necessary jolt from an overheated market before it finds its footing.
Already, Nike has established ‘Nikeland’ in the Metaverse and Adidas has bought virtual land in the Sandbox virtual world powered by blockchain. Another virtual world, Decentraland, also hosts Metaverse Fashion Week, a who’s who of the luxury fashion world. Meanwhile, brands are also working on physical-digital bridges. D&G, for example, used NFT as a digital twin. Five NFTs from the range come with custom-assembled physical pieces designed by Domenico Dolce and Stefano Gabbana themselves. Others are looking for ways to offer unique benefits in the physical world, such as access to content or custom styles, to build relationships and loyalty with their users. Gucci’s 4-minute film NFT ‘Aria’ gave shoppers a unique insight into the design and production process, allowing shoppers to experience the items in virtual reality.
While brands are working globally to come up with truly innovative accessories to tap into the new class of buyers, that’s not the case among Indian designers experimenting with NFTs. “Perhaps due to complexities surrounding blockchain technology, barriers to implementation and lack of legal framework. The whole concept of NFT is being understood, tried and tested, considering all the economics involved in it,” says Malhotra.
