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NFTs, or non-fungible tokens, have come to nearly every corner of the internet and every company willing to throw money at what has been dubbed “Web3” – a hypothetical future version of the net based on blockchain technology. .
As they do, Hang, a new B2B startup in the nascent space, is looking to help some of the world’s biggest brands replace their existing membership and loyalty programs with NFTs using the technology.
The rise of the Internet meant that anyone could view images, videos and songs online for free. People buy NFTs thinking they will be able to prove ownership of a virtual item through blockchain technology, which serves as a digital record of transaction history.
Last week, the company announced that it had raised a $16 million Series A funding round led by venture capital firm Paradigm, which has stakes in some of the biggest players in crypto, including FTX, BlockFi and Coinbase. Other investors in Hang include Tiger Global, eyewear company Warby Parker, shoe retailer Allbirds and Kevin Durant’s Thirty Five Ventures, among others. Early clients include Budweiser, Bleacher Report, Pinkberry, and music festival bands Bonnaroo and Superfly.
“For most brands at a certain scale, it’s pretty hard to offset the increased cost of customer acquisition,” Hang co-founder and CEO Matt Smolin told CNBC. “The best way to do this is to increase the lifetime value of their user base and harness loyalty,” which he adds is often done through a tiered rewards system. : The more a customer buys something or interacts with a given brand, the more benefits they get, and in some cases they can “level up” to a certain type of customer status.
“Through blockchain technology, NFTs create a way for brands to incentivize their users to not only rank to a new level in their program, but also appreciate the value of the asset they own and can then be resold. [NFT] markets,” Smolin said.[Brands] may also take a royalty or percentage from each resale transaction as users continue to accelerate their loyalty status, which will inevitably make them more aligned with that brand.”
But it is not without risks.
NFTs are unique digital assets, often collectibles like artwork and sports trading cards, that are also verified and stored using blockchain technology, but critics see them as overstated and potentially harmful to the environment given the energy-intensive nature of cryptocurrencies. Many NFTs are built on the network behind Ethereum, the second most important token.
CNBC’s Eamon Javers recently reported that, since May, criminals have stolen up to $22 million in NFTs using Discord – a social platform that has become a hotbed for crypto traders to communicate in recent years. Analytics firm TRM Labs discovered that there were at least 10 compromised accounts in NFT channels on the Discord platform last month. These hackers used what the company calls “social engineering” techniques to create a false sense of urgency around a given digital asset, sending impostor messages that would instill “FOMO,” or fear of passing. next to users who were looking to buy or sell their NFTs.
Matt Smolin, co-founder and CEO of Hang
“A lot of what we do is not really aimed at your typical crypto audience,” Smolin said. “We try to work with some of the biggest brands in the world and help them solve real problems for their business. Yes: if [the brand] wants, they can charge their customer with ethereum or any crypto token, but for the most part, many of these brands actually opt for their customers and users to sign up with email and a credit card.
Of course, this would involve the brand converting a customer’s payment into cryptocurrency to complete the NFT transaction that underlies a given reward redemption. But Smolin says Hang’s long-term success and wider adoption of NFTs beyond artists and collectors will be based on integrating some of the transaction technologies consumers were already familiar with, “like email and credit cards”.
Investors were quick to assert that the long-term value of digital assets would come from their utility. It’s a message that has been difficult for institutional investors to digest, as collectible works of art, such as the prominent Bored Ape Yacht Club and equally high-profile Crypto Punks, continue to experience spectacular price volatility. alongside the recent “crypto winter” downturn.
“The Bored Ape Yacht Club model is all about exclusive, limited supply and that works really well for them. But for most brands, it’s much more effective to capture millions of people who spend 10% more a year than getting 10,000 people to spend $400 once or twice,” he said. “A big part of the future we’re building is for these NFTs to be free and users actually get them in a store, on a website, or in an app. And it’s no longer the scarcity of the number of NFTs sold, but just the leveling system.”
This is a new prospect within the struggling crypto industry. Amid the “crypto winter”, big names like Three Arrows Capital and lenders like Celsius and Voyager Digital all filed for bankruptcy, which has shaken confidence in the sector.
Still, ethereum and other coins rallied this week, with ethereum hitting its highest level in nearly a year, after a long slide that saw it drop nearly 70% from its peak in last November.