Image credit: RTFKT x Nike Cryptokicks
Here’s an explainer on Redeemable NFTs, today’s most helpful use cases and build considerations based on a number of active projects and exciting conversations with brand leaders at Mojito.
What are Redeemables?
Redeemable NFTs are a digital token that can be exchanged for a physical good or service in the future (e.g. physical items, pre-sales, tickets, merch, physical artwork, special offers, access). Along with RWAs (real-world assets) and asset-backed NFTs, these terms are all used interchangeably, so for the purposes of this explainer, we’ll call them Redeemables.
Redeemables are gaining significant traction as a way for brands to seamlessly tie together physical goods and digital twins, giving the brand enhanced engagement/loyalty opportunities as well as net new revenue streams.
What are the brand benefits of offering Redeemables?
- 🛍️ Offers consumers tangible value | This makes a digital NFT more attractive to potential primary and secondary buyers because they can at least peg the value of the NFT to something tangible in the real world.
- 🖼️ Better liquidity and optionality for consumers | Especially for traditionally illiquid and siloed markets like art, handbags, sneakers, watches, or wine & spirits, NFTs offer brands and buyers more transparency and optionality when buying and reselling.
- 💹 Secondary market revenue for brands | Every time the Redeemable NFT (which represents the physical good or service onchain) trades hands, the brand can receive a piece of that sale through a royalty enforced on-platform and possibly beyond.
- 💰New revenue streams for brands | Tap royalties from the secondary market. Generate incremental revenue from preorder trading. Incentivize stockpiling with future rewards and benefits.
- 🧐 Authentication to ensure a premium product experience on the secondary market | Redeemables can also offer authentication assurances to ensure an excellent Brand experience in the primary and secondary. Examples include a Certificate of Authenticity (e.g. Nike Air Force 1s or Ticketmaster tickets), or storage assurance (e.g. temperature, packaging, light for Wine) or insurance certificates (luxury products).
- 👀 Open-source visibility of redemption events | When a redemption occurs onchain, one NFT is submitted to the brand and another NFT from a 'redeemed' collection' is received in its place. This method enables distinct clarity between Redeemed and Unredeemed NFTs onchain while retaining the ability to market to users based upon onchain data and assets.
What are some notable use cases?
Nike’s Cryptokicks are digital collectibles that can be redeemed for their physical counterpart sneakers in a process RTFKT calls ‘Forging.’ During Nike x RTFKT’s Forging events, "holders of eligible digital collectibles can redeem for limited made-to-order physical products. Forging events last for a limited time, so always check for dates and set reminders."
Cristóbal Balenciaga’s ‘To the Moon’ drop came with redeemables such as Balenciaga gear, gift cards to designer Brands and even the 70-year-old drawings by Cristóbal.
Every Australian Open tennis AO ArtBall NFT was redeemable for 2 tickets to the Australian Open tennis grand-slam in 2023.
Glenfiddich single malt Scotch whisky launched 200 limited-edition ‘Chinese Lunar New Year NFTs’. Each NFT is linked to a physical bottle of Glenfiddich 21 Year Old Gran Reserva single malt and serves as a digital receipt verifying ownership and authenticity. NFT collectors can hold it, resell on an NFT marketplace, or redeem it for the physical bottle.
Considerations for creating Redeemables
What happens to the NFT when someone redeems the real-world asset? In short, it depends on how the brand builds it.
A number of options are possible with differing pros and cons, with one winning approach emerging.
1. 🔥 ‘Burn it’
The NFT is burned when the consumer redeems the physical good or experience. The NFT is no longer functional or ‘owned’ by anyone.
Pros: simplest to execute. campaign is over.
Cons: ‘Burning NFTs’ removes people from your token-holding community, which brands very typically shouldn't want to do.
2. 🛍️ ‘Trade it in’
Consumer sends the NFT to the brand’s treasury wallet, and once received, the brand ships them the physical item. The NFT is now owned by the brand.
Pros: the brand owns the NFT supply and could choose to resell to other holders at a later date.
Cons: the brand loses a valuable customer, the consumer is no-longer invested in the success of the NFT project, only enjoying the lifetime value of the physical item. It signals that the brand sees more value from owning it than the customer does.
3. 📭 'Stamp it’
When the consumer redeems the physical good, the NFT metadata is updated to distinguish [REDEEMED] v [UNREDEEMED].
Pros: Consumers are still invested in the success of the NFT project. Maintaining ongoing onchain continuity is a priority for both the brand and holders.
Brands get access to a secondary market, authentication assurances, new revenue streams and opportunities to create imaginative loyalty tiers that build LTV.
Consumers get to choose whether they claim the physical item. Secondary buyers get access to a liquid open marketplace with assurances the NFT will come with the right to claim the physical item.
Cons: Depending on the secondary marketplace experience, consumers may not be able to decipher between the REDEEMED and UNREDEEMED markets and offerings with this technical method, which can result in buyer regret and negative sentiment from purchases of NFTs where the physical item was already redeemed. This is easily managed by issuing a second token. How? Read on:
Serving up a ‘Stamp it’ example from tennis
To crystallize the ‘Stamp it' concept, we’ll unpack a live brand case study where physical items were linked to the NFT, in this example as ‘tickets’ to a live event.
For any brand leader in another vertical, the ‘tickets’ could easily be interchanged with any physical POS item like premium handbags, sneakers etc.
NFT Collection 1
The tennis grand slam event Australian Open launched an NFT project with 6776 NFTs in Collection 1 uniquely numbered #0001 - #6776. The artwork from Collection 1 are tennis balls wrapped with art hence AO ArtBall.
Every Australian Open NFT from Collection 1 gets to claim 2 tickets to the Australian Open 2023 finals week starting 20th January 2023, for free, redeemed via a simple token-gated experience.
NFT Metadata on Collection 1 was updated
When consumers redeemed their tickets, the NFT metadata was updated to show REDEEMED. The metadata makes up the NFT and is traceable on the blockchain.
Additional NFTs from Collection 2 are issued to holders
At the same time, for consumers who redeemed the tickets, the Australian Open issued them a new NFT from Collection 2 [CLAIMED], directly to their wallet. Collection 2 NFTsfor example could have different artwork, a Certificate of Authenticity (COA) that provides extra validation that the Ticketmaster tickets are genuine.
Why? This is two-fold
- The Brand, Australian Open can isolate which NFTs are associated with [CLAIMED] tickets, distribute tickets to holders via Ticketmaster, track trading data, the floor price of Collection 1 [UNCLAIMED] vs Collection 2 [CLAIMED], reward this new tier of engaged customer i.e. the first claimers of Redeemable tickets, proof of attendance etc; and
- Potential secondary NFT buyers on the secondary market can see which NFTs have tickets [UNCLAIMED] from collection 1, make a bid with confidence they have the right to receive the 2 tickets. The COA can travel with the tickets.
Australian Open can forecast token holder attendance at the stadium gates and revenue holders may spend in the precinct; and has enriched data as to which NFT holders are most likely to attend their live experience.
Our 0.02 ETH 🍃
We recommend Brands considering adding Redeemables to their loyalty stack issue a second NFT when the physical item is claimed so potential customers can easily distinguish between which NFTs on the secondary have had their physical item claimed. Brands get to track trading data between claimed and unclaimed redeemables and reward a new tier of engaged customers to grow LTV.
The future of Redeemables with Mojito
We’re weeks away from launching a live example of Redeemables, we can’t wait to share with you. If you’re interested in building Redeemables into your loyalty stack? Get in touch
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