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If You’re Thinking About Getting Into NFTs, Ask These Questions First

Businesses looking to capitalize on the latest crypto and Web3 trend need a thoughtful and measured approach.

using NFTs for business
NFTs are everywhere, but is that something you need for your business? [Mark Conlan for Salesforce]

As a founder of the Web3 Studio at Salesforce, which supports our internal Web3 product and strategy as well as guide some of the worlds largest brands along their transition from Web2 into Web3, we spend a lot of time thinking about NFTs, the blockchain, and more things related to the metaverse. Even though much of the general public is still trying to fully grasp what NFTs are, they are everywhere. Just look at the major brands across global industries that are launching and selling them: Taco Bell, Twitter, Campbell Soup, even the Los Angeles Times. 

Could NFTs, or non-fungible tokens, be right for your business? NFTs are a unique, authenticated digital asset, like an original piece of art or an in-game piece of real estate. The value is not necessarily in the asset itself, but in the underlying bit of decentralized code that proves its ownership. But that technology is only part of why NFTs have sparked so much interest. The other part is that they have tapped into the subconscious of young, tech-savvy consumers. 

So before you dive into NFTs for your business, here are three questions we think you should ask before making any commitments. 

Today, no explicit regulatory guidelines for NFTs exist and companies entering the space should prepare to tolerate some legal limbo as the law catches up to the industry. Sure, companies have come up with some best practices for managing and holding assets like NFTs on their balance sheets, but since these digital assets fluctuate in value, accepting them is different than accepting a more stable currency, like the U.S. dollar.

One particularly muddy legal spot is the question of banks. Let’s say Adidas creates an NFT. To make the purchasing experience less cumbersome for the customer, Adidas needs to create a “digital wallet,” or a feature on its website that allows users to securely store their crypto asset. Easy enough, right? Technically, yes. But legally, it’s quite a bit more nebulous. Because Adidas needs a digital wallet to store users’ valuable assets, the brand must therefore be categorized as a bank. And once it becomes a bank, it’s subject to a bevy of more stringent financial regulations. 

Not only do NFTs require a digital wallet for storing, but also they often provide their owners with some specific utility, like voting rights within a particular organization. If your NFT now has governance value in addition to monetary value, it’s more likely the Securities and Exchange Commission will have to become involved. 

In an effort to sidestep the confusion, some brands are establishing noncommercial legal entities to serve as intermediaries between the brand and consumers. Others are devoting full-time staff to work through legal and regulatory questions as the space matures. Ultimately, while the world of NFTs is currently loosely regulated, that may change very soon as guidelines and laws make it on the books. Be prepared to be agile and to navigate the legal uncertainty in these early years.

Do I have the right social credibility to play in the space? 

When Charmin came out with a limited-edition series of NFTs, critics called them “uninspired JPGs and GIFs.” The five original pieces illustrate various animated iterations of a toilet paper roll bopping against a blue background. To date, the NFTs — or the NFTPs, as Charmin calls them — have failed to generate much interest among buyers. 

Why the weak response? Brands must ask themselves if they have the right cultural and social credibility to play in the crypto and metaverse spaces before releasing an NFT. In short: Is there a community of people who believe your brand is relevant enough to invest in, or do you look like a tagalong? 

In the past, brands went to market by targeting their product to a mass audience using widely distributed advertising. But NFTs are only as valuable as your community is strong. If you are going to create an NFT project, we recommend you figure out who to partner with, who your core constituents are, and how to align with their specific needs and values. Taco Bell, which already enjoys a fervent following among some fast-food aficionados, minted 25 NFTs that sold out within the half hour. Proceeds from the NFTs went to the Live Más Scholarship for higher education, and buyers received a $500 electronic Taco Bell gift card as an in-person benefit. It’s important to squash any perception that your NFT foray is simply a money grab or a desperate opportunity to hop on a cultural bandwagon. When brands aren’t thoughtful and don’t define value for users, it can backfire.

Am I creating something with utility?

Part of securing “permission to play” involves carefully defining the utility of your NFT. Although Charmin’s NFTs directed proceeds to charity, they served no practical purpose beyond showing up as a whimsical toilet paper illustration. Don’t fall into the trap that claims NFTs need to be art; they can instead solve very tangible user needs.

Time magazine, for example, issues an NFT that grants token holders the ability to bypass its paywall and access the magazine’s entire content archive. Other NFTs might verify a particular credential or skill, which allows the freelancers or gig workers who own them to automatically snag gigs they are qualified for on a blockchain-powered job board.

In short, NFTs are more than just pretty pictures. They can serve as access keys. The question is: what do you want to unlock? It could be your content, a private club, access to your executives, or an evolved loyalty program. If your company is to find success in the market, you must learn the market itself, understand your own brand, and have a clear sense of purpose.

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