The rapid rise of non-fungible tokens (NFT) and the metaverse in the past year has given rise to new types of projects and new use cases. One emerging use case in this space is the utility NFT, a type of NFT designed to provide holders with additional value beyond the actual digital asset. Utility NFTs provide access and items for individuals looking to engage with brands and participate in the project’s culture. For crypto-native and Web2 brands in both fashion and entertainment, Web3 presents an opportunity to bring both digital and real-world items and experiences to its audience. The pairing of the physical and digital worlds brought a new concept — phygital.
Collectible projects have also begun to develop in the phygital space. Phygital becomes a solution to the problem the markets face. The majority of products have become customizable, yet the added options are highly duplicable. Phygital sees the solution in giving ownership to customization options, also known as tokenizing. Basically, that allows the creation of a structure to personalize and exchange the products while giving communities the opportunity to co-create the products within the framework of a collection.
To give an example, the first phygitalized product has become a handcrafted luxury motorcycle helmet, which has the potential to become a canvas of collaborative experiences between communities, brands, and artists.
What is Phygital?
Phygital is an opportunity to include technology underlying a physical product to create an experience for the user that goes beyond the physical dimension of the object while addressing the issues such as certification or rapid transfer of ownership.
For instance, it can lie in certification, token-gated loyalty clubs, or services. In the future, it can help to build blockchain-based customization of products and enhance revenue sharing between brands and communities. To tokenize the products means that the attachment of a contract will allow the product to be certified while integrating parameters that can operate in full autonomy and allow the exchange between people just in a few actions.
As we keep watching over the convergence of physical and digital realities, it is clear that we are living in a time of transformation. The rise of Web3 technology enables us to connect and interact with the world in entirely new ways, and businesses to transform as well. It creates new possibilities for art, commerce, education, social connection, and many more. It's truly a revolution incoming.
To illustrate it, one can see a simple example — think of it as simple as buying a car on the second market without the necessary papers. Tomorrow it will become impossible to buy any product without a digital certificate.
This day the majority of products have become customizable and duplicable. That brings up the issue of customers losing interest in them. We see the solution in limiting the number of customizations by further tokenizing the customization options of a collection That can be done by making them liquid as assets. That will create a structure to customize and exchange the products seamlessly, while including the community in the customization and co-creation of a collection. Imagine you buy a pair of Nike sneakers with an artist. Phygital technologies will allow you to customize the pair from this collaboration and become a designer yourself.
Transformation is right around the corner
Web 2.0 is s built on the basis of valuable content, where a creator is a king and the most important thing for further development is the quantity and quality of your followers. Web 3 is all about community. Tokenization allows to include the community to the co-creation and co-ownership of their products or services. Products sold in collaboration with a brand or an artist are usually duplicated in limited quantities. By tokenizing the customization options of a collection in limited quantity you can engage people with the brand or the artist; co-own created designs created while creating their own label and get included in the revenue generated on secondary sales.
On the other side, tokenization helps brands and artists control their products in the secondary market and create new revenue streams. The secondary market on limited edition products is managed by intermediaries who have 4 missions:
certification of the products
logistics management
product storage management
supply and demand aggregation
In return, they get the commission. By tokenizing products that can be physically requested at any time by customers, the market gets lots of benefits. First of all, everyone can certify the product. There is also no need for logistics and storage as only tokens are exchanged. Brands can therefore regain control over the secondary market and in return get captured the commissions that were previously collected by the intermediaries. It is also possible to keep it all or decide to distribute part of it to the community. That will allow the brands to recover the value decreased by the second market by tokenizing their products.
Guillaume believes that in 5 years the majority of the products will be sold in limited quantity and will be tokenized for brands. That will help to regain control over the secondary market which will improve user experience and marketing, remove counterfeits, capture commissions on the secondary sales, and furthermore will offer experiences beyond the physical dimension of the object. The upcoming transformation is raising important philosophical questions about the nature of reality, the meaning of value and ownership, and the role of technology in shaping the future of humanity. We need to make a pause. As we move forward into this new era of connectivity and interdependence, it is essential that we engage in thoughtful and reflective dialogue about the opportunities and challenges ahead.
The transformation of the Web3 landscape will clearly bring new opportunities for innovative commerce experiences. With the proper introduction of privacy, security, and scalability its potential will be realized to the most.