GM frens,

It’s been a week marked by highs & lows in the Web3 World.

Last Tuesday, over 8,000 wallets had their entire NFT holdings drained in the Solana ecosystem, however, on Monday Tiffany & Co — one of the most successful luxury brands in the world marked their entrance into the Web3 world with a unique offering.

In today’s edition of The Ground Floor we will be breaking down why luxury brands are perfectly positioned to succeed in Web3.

Luxury Brands In Web3

Breaking down why luxury goods brands are perfectly positioned to win in Web3…

Economics 101: The price of any good is determined by supply and demand.

While many NFT projects are struggling to understand supply vs demand dynamics, luxury brands have long mastered this art of balancing these two forces. 

Demand > Supply

Tiffany & CO’s entrance into the Web3 world is a perfect example of this. 

While brands such as Adidas marked their entrance into the Web3 world with the issuance of large NFTs collections to capture meaningful amounts of revenue — Tiffany & Co are releasing a mere 250 NFTs for 30 ETH ~$50,000.

What makes these NFTs worth $50,000?

Each of these 250 NFTs comes with the opportunity to receive a 1/1 Tiffany & Co CryptoPunk diamond pendant per the request of the CryptoPunks community.

To make this drop even more exclusive, the only way to redeem a Tiffany & Co NFT for a physical pendant is to own a CryptoPunk — currently valued at 75 ETH ~ $120,000.

(An example of the physical pendant)

Why This Model Works?

Undoubtedly, the cost of creating these pendants is far less than $50,000 which led to many NFT collectors criticizing this drop on Twitter.

That said, there’s likely very little overlap between the people who are expressing their criticism of the price of these pendants & the people who will be purchasing them.

Additionally, with 100 high profile collectors pre-selected to purchase this drop, less than 150 units remain for the public — making this collection certain to sell out.

Proving Provenance

Tiffany & Co will net $12.5 million from this sale, however, this specific move is by no means the most impactful example of luxury brands leveraging blockchain technology.

At best, 250 people will own one of these NFTs — many of which will be active participants in Web3, however, the use case that has much wider implications is luxury brands using blockchains to prove the provenance of physical assets.

Provenance = a record of ownership.

In the Web3 world, we can now take for granted how easy it is to prove the provenance of digital assets such as BAYCs, however, in the physical world luxury brands are in a constant battle to combat counterfeit goods.

A Valuable Solution

Why are counterfeit goods so problematic?

Counterfeit goods undermine luxury brands' ability to play matchmaker with the supply and demand of the products they produce — which is the foundation upon which the second richest man in the world has built his entire empire.

While many consumers willingly purchase counterfeit goods to avoid paying the prohibitively high price points these luxury goods command — the value of being able to prove the provenance of physical goods cannot be overstated.

Building This Solution

While all of this sounds sensible in theory, adding unique identifiers to physical products linked to a blockchain is no easy undertaking.

The good news, however, is that there’s a growing list of companies with virtually unlimited access to capital who are working to solve this problem:

PwC, which posted $45+ billion in revenue in 2021 launched Virgo, a platform specifically for luxury brand retail certification in 2020.

LVMH (owners of Tiffany & Co), Mercedes Benz, Prada and others launched the Aura blockchain consortium with the goal of uniting the most successful luxury brands under a single standard of traceability for the physical goods they produce.

Additionally, there’s a growing list of well funded startups such Arx, IYK & Digital Twin who are all working on solving this same problem.

Looking Forward

We often think of NFTs as digital goods with digital receipts, however, luxury brands are perfectly positioned to expand the utility of these "digital receipts" to include physical goods where consumers can easily prove the provenance of physical assets.

While this use case on its own may only marginally move the needle in terms of the adoption of blockchain technology...

In a world where it becomes increasingly common for these billion dollar brands to issue accompanying NFTs that represent digital versions of the physical goods they produce (such as Tiffany & Co is doing) we would be willing to wager that established premium brands will play a pivotal role in driving the consumer adoption of NFTs.

3 Things You Need to Know

1) What's The Meta?

Mark Zuckerburg announced this week that Meta are rolling out digital collectibles to 100 more countries, with Meta simultaneously announcing integrations for Coinbase wallet & as well as Dapper Labs FLOW blockchain.

2) Starbucks Wants In On Web3

Starbucks will unveil its We3 initiative, which includes coffee-themed NFTs, next month.

Today, the Starbucks loyalty app processes more payments than many major credit card companies with nearly 25 million members globally. 

It remains to be seen how extensive Starbucks will seek to leverage the Web3 rails to improve their app, however, what we do know is that the individual responsible for creating the Starbucks loyalty app has been brought back to lead this effort.

3) Another NFT Marketplace?

This week, the domain NFTs.com was purchased for a cool $15,000,000. 

The domain, which was acquired last year for $300,000 – has now become the second highest domain sale of all time.

To add an extra element of suspense, the buyer remains unknown.

Food For Thought 💭

What's the best way to build a successful brand in the Web3 World?

In the past, successful brands would have been strictly opposed to 3rd parties using their intellectual property for commercial purposes.

That said, the past is not the present and the growing consensus is that embracing CC0 (creative commons) best positions brands to win in the Web3 World. 

Creative Commons = Legal document dedicating a copyrighted work to the public domain.

The latest project to adopt this standard? Moonbirds by PROOF Collective.

Overall, the NFT community is celebrating this move, however, it's worth noting that not every Moonbirds holder / NFT thought leader are overjoyed with this development.

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See you next time! — OB1 & Pet & Corwin