One of the most interesting developments in the NFT space has been a major divergence. Even mainstream brands such as Nike and Starbucks previously expressed enthusiasm for digital collectibles. In reality, they have in the past month or so reversed course or outright shut down their NFT programs. At the same time, crypto-native companies keep innovating and reinforcing their commitment to the technology. This article discusses the factors prompting the exodus. From documenting the inclusive and exclusive experiences of different players, the report gives us a unique perspective and preview into the fast-changing space around NFTs.

The Mainstream Retreat: Nike and Starbucks Step Back

Last year, Nike took a daring step in this direction when it purchased RTFKT Studios. This acquisition was the start of Nike’s deeper dive into virtual sneakers and digital collectibles. The journey wasn't without its bumps. When RTFKT’s platform shut down, NFT buyers were understandably upset. They sued because they felt like the value of their digital property had gone down. Nike NFTs are down over 90% from their original listing price. Such a substantial decline has prompted the company to rethink its long-term commitment to the RTFKT platform.

Starbucks has shuttered its NFT initiative, Odyssey. Odyssey launched in 2022 as an experimental way to combine NFTs with the company’s loyalty rewards program. The program officially completed its beta phase on March 31, 2024. In a few days, Starbucks will be closing down its Odyssey Discord community. The coffee behemoth is testing experiential marketing concepts that can deliver more value to its brand and rewards program. In 2024, it aims to build out its loyalty program to lure even more customers.

While Starbucks hasn't explicitly stated the reasons for its exit, it's worth noting their partnership with Polygon, chosen for its low transaction fees and scalability. This at a minimum implies that technical considerations may have influenced their decision making process. Starbucks is taking a fresh look at its digital engagement with customers. We are far from that vision now, and today, NFTs do not support that vision.

Crypto-Native Innovation: Pudgy Penguins and Doodles Lead the Way

Unlike the broader NFT retreat, crypto-native companies are still moving forward with creative NFT initiatives. In light of the above, Pudgy Penguins has embraced an aggressive growth strategy. They magnify their IP beyond the NFT ecosystem. Their aim, of course, is to establish a sustainable brand that rewards residents for engaging with their community. Pudgy Penguins rules social media with a staggering 1.4 million Instagram followers. They’re followed by 432,000 on TikTok, which highlights their ability to engage a large community — something they’ve proven to be masters of on Web2 channels.

It’s clear to us that Pudgy Penguins is all in on connecting the physical with the virtual. They've introduced a licensing platform called "Overpass" and launched a successful toy line, selling 1 million toys in the past year. Their commercialization strategy is centered on three pillars. One of these pillars includes opening up their licensing platform to third parties — a move that pays dividends to their core community. Pudgy Penguins is preparing to release their own game “Pudgy World.” With the help of NFTs, this thrilling free-to-play 3D multiplayer game will connect real-life Pudgy Penguin toys to the virtual realm.

Doodles is a successful NFT project that is still growing. These projects are proof that NFTs can be successful when they offer deeper value beyond digital ownership. They build affectionate communities, create tangible value, and in so many cases they develop iconic brands.

The Evolving NFT Landscape: PFP vs. Gaming

The NFT market is equally witnessing a changing of the guard from Profile Picture (PFP) projects to gaming NFTs supremacy. PFP projects previously took the limelight by enhancing community and digital persona. Today, gaming NFTs are taking center stage and clearly taking off. Here's a look at some of the key differences and challenges:

  • Utility in Gameplay: NFTs in gaming need to provide tangible benefits to players, such as exclusive in-game content or enhanced gameplay experiences.
  • Adoption and Engagement: The gaming industry has a massive user base, but NFTs need to be integrated in a way that appeals to a broader audience beyond just crypto enthusiasts.
  • Scalability and Interoperability: Gaming NFTs require scalable and interoperable solutions to enable seamless interactions between different games and platforms.
  • Value Proposition: NFTs in gaming must offer a clear value proposition to players, such as early access or unique cosmetic items.
  • Regulation and Standardization: The gaming industry is heavily regulated, and NFTs need to comply with existing regulations.

The Key Differences

Here's a summary of the key differences between PFP and Gaming NFTs:

  • PFP NFTs
    • Focus on Community and Digital Identity
    • Value Driven by Scarcity and Hype
    • Often Isolated to a Single Platform
  • Gaming NFTs
    • Require Scalable and Interoperable Solutions
    • Must Provide Utility and Value to Players
    • Need to Comply with Existing Regulations

The Future of NFTs: Interoperability and New Use Cases

So indeed, despite these challenges, the future of NFTs is indeed very bright. Looking ahead, crypto-native innovation is increasingly developing more and more ways to make NFTs truly interoperable. This major development enables native NFTs from one platform to function easily on another. This extends the utility and value of NFTs.

Artists are the ones taking the boldest leaps forward right now with NFTs. Other platforms allow them to set a resale royalty, usually 5-10%, which they receive each time their work is resold. Recent improvements in blockchain technology, most notably Ethereum’s ERC-721 token standard, are laying the groundwork for even more creativity and innovation. High-value projects, such as CryptoKitties and CryptoPunks are changing the game for NFTs. They open up possibilities such as fractional ownership of high-value assets, illustrating the unbounded possibilities of digital art ecosystems. The NFT space is a rapidly changing landscape. This means that while mainstream adoption might be years away, the underlying technology has the potential to drastically change multiple industries.

  • Creating digital or crypto-collectibles
  • Managing ownership of digital items within blockchain-integrated games
  • Proving the authenticity of digital art

Artists are also increasingly engaging with NFTs, with some platforms allowing them to set up a resale fee (typically around 5-10%) that they collect each time the work is resold. Advancements in blockchain technology, particularly Ethereum's ERC-721 token standard, are providing a foundation for further innovation. Projects like CryptoKitties, CryptoPunks, and digital art platforms are pushing the boundaries of what NFTs can do, including enabling fractional ownership of high-value items. The NFT space is constantly evolving, and while mainstream adoption may take time, the underlying technology has the potential to revolutionize various industries.