(Image from Foundation website)
The only thing I like more than people building cool new crypto products is watching the crypto market expand into new or different verticals. There’s currently an explosion of crypto startups that are focused on limited-edition goods. Taking a page directly from the Supreme playbook, these startups are releasing their newest edition limited goods as “drops.” The difference between these startups and traditional brands, like Supreme, is the use of inventive crypto-economic protocols, which provide clear advantages over existing physical goods.
Traditional Culture Market Friction Points
When Supreme drops new clothing, shoes, or goods, they are quickly purchased and listed for sale on secondary marketplaces, like StockX. Buyers and sellers are responsible for shipping the physical goods and must use the traditional banking system, which has a 3% credit card fee and can involve further issues, like credit card fraud. The authenticity of the goods must also be verified by experts because most people are unable to tell the difference between an authentic good and a well made fake.
Creators, designers, and producers of goods also need startup capital in order to actually produce them. For example, many creators do not have enough capital on hand to pay for a large number of goods, like 500 printed T-shirts. To cover these costs a creator usually needs to get a loan or find a partner with the capital, which means they will likely lose equity.
Lastly, there is also an issue with creators being able to effectively capture maximum value from their work. When Supreme launches a product they often sell out immediately and the items are listed on the secondary market for double, or even triple, the original price. In these situations, Supreme is leaving money on the table by not capturing that extra demand. A system that dynamically adjusts the price of goods based on demand would enable Supreme to capture more value for themselves.
To sum it up, traditional culture market friction points include:
Physical transportation of goods
High payment credit card fees
Authentication requires professionals
Upfront capital is needed for production
Product price can not adjust based on demand
By utilizing crypto-enhanced technology we can enable new user and creator behavior that captures more value for both participants. Companies like Zora and Foundation are already using the innovative method of pre-selling a limited number of tradeable tokens that are redeemable for limited edition goods. So if there are 100 limited edition T-shirts to sell, then Zora and Foundation will release 100 tradeable tokens that fluctuate in price based on demand. Below is a great explainer from Zora on how this type of market works:
To sum up the process:
Every asset launches with a corresponding token. You can trade the token or redeem it for the good when it is available.
The token’s value fluctuates based on demand.
Once the product has been produced, you can redeem the token and be sent the item.
This process minimizes or eliminates some of the creator pain points mentioned earlier. The creator can now essentially raise money to produce the goods while simultaneously predicting product demand and capturing more value - all very important factors.
High credit card processing fees can be eliminated for both users and creators because the majority of goods are bought and sold with crypto (although Zora does have a credit card option). Costs associated with shipping and authentication of physical goods can’t be avoided, however, if the goods were digital assets, like NFTs, then shipping and authentication costs would be eliminated because blockchains provide both authentication and easy transferability.
Lastly, the product price can vary based on demand, which allows the creator to capture more value. Instead of selling all goods immediately for a fixed price, the price fluctuates and the gains go to the creator. This is essentially like building a secondary market directly into the primary market. Speculators can still speculate on the redeemable token and the creator can capture more value: win-win for everyone.
Culture Market Startups
There are a number of startups that are entering the culture market space, but the three most prominent are Zora, Foundation, and MetaFactory.
Founded by Coinbase alum, Zora uses the same model as explained above: they issue ERC20 tokens that are tradeable and redeemable for a product. Zora outsources the token trading component of its platform to the decentralized exchange Uniswap. This allows Zora to focus on creating an easy user interface for its platform. Zora has already launched a few drops and has active trading activity. The first products to launch on Zora were T-shirts created by a brand called Saint Fame. The T-shirts fluctuated wildly in price during the “pre-redeem” (“pre-redeem” because tokens are eventually redeemed for the physical good) phase and then activity settled down once people started to redeem the tokens for the physical product.
Foundation also has already launched multiple products on its platform, the first being neuegoods, a clothing brand designed by Foundation co-founder Matthew Vernon. The biggest difference between Foundation and Zora is that Foundation opted to construct their own token trading infrastructure instead of outsourcing to Uniswap. I believe both approaches are totally valid, but we will have to wait and see if one has specific advantages.
Metafactory is also involved with the culture market ecosystem, but instead of using the innovative sales model that Zora and Foundation use they employ a quasi-decentralized brand governance approach. Metafactory calls this unique approach to allow members to govern the brand Brand Factories. This means members can vote on which items and styles will be created, and even vote on things like marketing strategy. The idea of a community-owned brand is extremely exciting, and I expect to see more iterations of this in the future.
Future Of Culture Markets
Culture market projects have opened an entirely new cryptosphere sub-section. I foresee huge physical and digital good trading markets that will utilize various trading and governance mechanisms powered by crypto protocols. There will even be people who specialize in trading these types of assets.
Aside from speculators, there will also be culture market “curators,” aka true fans that purchase the goods to display them. Allowing users to display their purchased goods is extremely important, and I could see it transforming into a form of social media. Social media today mainly consists of curated pictures from which viewers can discern personality. Imagine being able to look inside someone’s room to see what types of clothing, art, music, etc., they own. This information would probably provide a more clear indication of someone's personality than just Facebook photos. Culture markets could become the new social media.
Lastly, because these goods have an internet-based asset associated with them (blockchain tokens), the assets can be used in a multitude of ways. Creators could implement a membership structure to give certain people access to drops before the public, or perhaps buyers could receive discounts if they are repeat customers. There is also a possibility that the token itself could be programmed to add additional functionality. What that would look like is unclear for now, but it is an interesting possibility!
The future of culture markets is just starting. Not only will it be an extremely unique space to watch, but also I believe it will grow immensely in the coming years.