More brands are launching NFTs. But what are they really selling?
Several direct-to-consumer brands are selling NFTs to their customers, and promising big things in return. What does it mean for the future of their businesses?
A small handful of direct-to-consumer brands are positioning themselves as early proponents of NFTs — "non-fungible tokens," which are used to prove ownership of assets such as digital artworks or memberships — and they’re hoping their customers will buy into the plan, too.
Leisure Project, a beverage brand founded in 2020, is in the process of launching a collection of 4,567 NFTs featuring its brand mascot, a walking soda can, in various iterations. So far it has sold just over 400 via a pre-sale, for 0.08 ETH each (or $205.83 at the time of writing).
Golf ball brand Odin is gearing up to launch its collection of 150 “founding membership NFTs” at the end of this month, at 0.2 ETH ($514.82) apiece. Finally, irreverent canned water brand Liquid Death announced that it has opened the waitlist for its NFT project, which is has called the "Murder Head Death Club" (each NFT artwork features a severed head). It plans to sell 6,600 of them at 0.0666 ETH ($172.11) each, meaning it could raise as much as 440 ETH, or $1.13 million, from the sale.
These announcements come just two months after Thingtesting reported on how brands are tentatively dipping their toes into NFTs and the world of “Web3” (a term that refers to a decentralized, blockchain-based internet). All promise to give holders the opportunity to give their input on the brand’s future products and growth, as well as providing access to exclusive merchandise, events and other community perks.
While the earliest movers such as Poolsuite — and its sister company, direct-to-consumer sunscreen brand Vacation — were able to tap into the excitement and intrigue surrounding NFT launches by brands, as more have thrown their hats into the ring, reactions among consumers are becoming increasingly mixed.
In response to a tweet announcing its NFT project, Liquid Death received comments from social media users such as “Infinitely recyclable cans doesn't really matter if you're backing this bullshit. Really disappointed. Huge LD fan with merch and a fully stocked fridge,” and “Wasn't LD founded on the idea that corporate greed and pollution were bad? What happened?” Liquid Death did not respond to Thingtesting’s request for comment.
The backlash was similar to what MeUndies experienced when it announced that it had purchased a Bored Ape Yacht Club NFT.
“Too many brands simply make an NFT and expect it to go viral,” the head of marketing at a direct-to-consumer food brand which has raised over $50 million in venture capital funding, who asked to remain anonymous, told Thingtesting. “Brands who have been accused of just following trends [and] not putting a lot of thought into their NFT release have served as helpful insights when considering the space. Potential backlash definitely plays a factor in our decision making.”
Skepticism and distrust of NFTs among consumers has been fueled by news reports outside of the world of brands, as reports of stolen artworks and rug pulls (where projects are abruptly shut down, with the money disappearing) have spread.
For brands, however, the story is slightly different. It is vanishingly unlikely that a legitimate company which is already selling physical products could cut and run after its NFT sale, but the promises of what a customer will get in return for their purchase can still be fuzzy.
This circumstance is partly due to the nature of these projects — the funds raised through the sale of the NFTs are what’s used to fund the perks promised, such as free products, discounts or access to events.
Poolsuite, which raised an estimated $2.4 million through sales of its membership NFTs last year, says the pressure is now on to deliver. “There’s so much to get up to speed, that months have passed and externally it won’t look like we’ve done that much,” founder Marty Bell says. “But we’ve been doing so much behind the scenes to get the company structure and team in place so we can deliver rapidly.”
Since the sale, Poolsuite has hired six full-time members of staff and six more part-time. Bell says that in April, Poolsuite membership holders will have the opportunity to utilize their pass as the brand hosts its first event in New York. “That will be the first use case, but we’re also using it with partners, so we might have a bar where, if you go and show the NFT, you’ll be given a free, exclusive cocktail.”
The vision is for its "wallet" to give access to a variety of perks, both from Poolsuite and partner brands, a bit like an American Express card (only without the continued need to spend). “That’s the dream, but it’s taking us far longer than I wanted to get up to speed, because we’re building things.”
Steve Michaelsen, the cofounder of Leisure Project, says the brand set the price of its NFTs at around $200 after weighing up the perks it hopes to deliver alongside the inherent risk that comes with asking people to invest in something that hasn’t quite materialized yet. “We did the calculations, and we wanted it to be something where you’re getting that value back from a transactional standpoint,” he says, pointing out that Leisure Project will provide free products plus ongoing discounts for NFT holders.
Even more confusing can be brand’s claims that buying an NFT can make you part of the company. In its prospectus, Odin states that its NFTs give buyers the opportunity to “own a piece of Odin as a founding member,” although the NFT does not represent an equity stake in the business, nor is the company in any way an underlying asset of the NFT. Asked to clarify, cofounder Jordan Lunetta explained that he sees the value of the NFT as being “tied to the value of the company.”
“We’re a real business, generating real revenue, we have real products,” he says, adding that as the company grows, the attractiveness of its community offering is expected to grow, too. He also says that one plan for the membership offering is to give people the opportunity to “monetize their own golf experiences,” by creating their own digital leaderboards and tournaments, as well as selling their NFTs on secondary marketplaces.
Selling NFTs not only ups the stakes in terms of what a brand’s customers and fans now expect from it, but it also requires founders to grapple with what it means for the business and its future.
An NFT sale which raises a huge sum of money is also likely to come with a huge tax bill, as well as accountants arguing over how this money should be acknowledged on the books. Testament to how new this area is, Poolsuite’s Bell says he has decided to simply pay full capital gains tax on the sum raised in the UK, his country of residence, in order to play it safe.
The one-off nature of the money raised also poses a cash flow question. Once these funds have been spent on delivering the first lot of perks, how can companies continue to fund their generous membership programs?
Odin says it has plans to release a second, larger, set of NFTs for customers to purchase in the coming weeks, which would provide another revenue boost, and it plans to launch its own digital currency, meaning people could purchase additional tokens.
Leisure Project says it is in the process of raising money outside of NFTs. Sales of physical products — golf balls for Odin, and in Leisure Project’s case drinks, which are due to launch later this year — will also generate revenues.
Australian sunscreen brand Sunny Skin, meanwhile, is hoping that in the future holders of its NFTs — most of which it has given away to customers for free — might purchase brand merchandise personalized with their NFTs.
Bored Breakfast Club, a collaboration between Yes Plz Coffee and design studio Kley, lets people claim an ongoing coffee subscription through the one-off purchase of an NFT. In the future, it plans to generate revenues by selling more subscriptions along with limited-edition releases.
“If the token on offer has a tangible benefit, the incentive to buy, hold or sell that token changes, which helps flip some of the legitimate concerns people have about NFTs,” says Sumi Ali, cofounder of Yes Plz Coffee.