#009 Non-Fungible Fashion
long live NFTs!
“NFTs Are A Scam”
- Bobby Hundreds, NFTs Are A Scam/ NFTs Are The Future
The most significant foundational shift Digital Fashion has undergone is its move to the blockchain.
Two years ago in my essay ‘Changing Consumption’ I ranked 6 different types of Digital Fashion from simple digital tailoring — where you pay for a picture of yourself wearing a virtual garment — to full source file ownership, against their function as a garment (wearability) and as an asset (ownership).
Even then, blockchain-based Digital Fashion came out on top. And, as I’ll argue here, 2 years on, it still holds the crown.
The last 12 months have seen traditional luxury brands generate over $245 million from the sale of NFTs. D&G generated $6M from a single auction, RTKFT was acquired by Nike for its NFT-nativity and newcomers like RSTLSS, Tribute Brand and DRAUP raised considerable capital from the world’s best VCs for blockchain-based businesses.
However, unlike the bright-shiny mornings of 2021, the past 12 months have seen scandals delegitimizing NFTs in the public eye. In the well-worn words of a Hundreds t-shirt, to those outside crypto-twitter’s blue checked bubbles, NFTs are Dead.
This essay will attempt to prove the naysayers wrong. Decoupling NFTs from the wider crypto crises — from toilet paper titans like Sam Bankman-Fried and failed tokens like Terra-Luna (a stellar name for a Gen-Z crystal brand!) — and instead explaining how this technology is so essential for the next era of Digital Fashion. And why, in a world of dubious actors, collapsed banks and (un)stable coins, Digital Fashion NFTs will ultimately prevail.
Are you sitting comfortably? Then I’ll begin.
A brief prelude:
Officially defined as a ‘non-fungible token’ an NFT is simply an asset stored on a digital ledger known as the blockchain.
You can delve deeper into what a blockchain is and how it works here, but what’s important about blockchain for the purpose of this piece, is the impact it unleashes for digital goods by making them ownable, transparent and trustless.
When asked ‘why are NFTs important?’ I usually give one of three arguments. These escalate in optimism and complexity based on the asker’s crypto-nativity and their appetite for futurism. Below you’ll find all three:
1. The case for ‘basic fashion rights’
Digital Fashion has historically been tied to specific platforms.
With the first Digital Fashion pieces emerging in 1970’s video games, the 1990’s saw a rise in games known as free to play*. As the name suggests, rather than making money by charging players to access their platforms, these games generated revenue through users paying to acquire goods: from weapons and powers up to Digital Fashion known as ‘skins’
Over the past 30 years the free to play model has proven incredibly lucrative. Especially in titles where skins have come to play an ancillary, yet integral role, in allowing players to signal status.
Fortnite, an MMO* with over 30 million daily active users (2021) is case in point. The game spawned a phenomenon known as ‘default culture*’ where those sporting a default skin* — the outfit they receive automatically when entering the game — are chastised by their peers for poor fashion choices, even though what they wear has no effect on gameplay, nor does it signpost superior skill.
Across a range of games today, default culture has become so prevalent that entire YouTube genres have cropped up around it, alongside a viral ‘default dance’, and kids spending tens-of-thousands on their parent’s credit cards so as not to get bullied IRL for poor in-game fits.
In light of these clothes-based judgment systems, it's no surprise that Fortnite generated $50 million from a single set of skins in 2021. And with players spending an average of $102 per year on in-game assets (largely skins) in-game fashion spend equates to roughly 1/3rd of the total amount that US-based men spend on physical clothes per year, and 1/5th of what women and girls do.
The key role of clothes, in many a free-to-play business model, means that games like Fortnite, Roblox and Counter Strike, will do everything in their power to preserve their fashion-formed revenue streams. These modes of preservation result in:
Players unable to freely create Digital Fashion - some games like Fortnite restrict skin creation to a centralised entity, while others like Roblox allow consumers to create specific garments based on the amount they pay the platform.
Players unable to freely wear their Digital Fashion - instead of being able to wear their outfits across a range of virtual environments, in-game fashion buyers are restricted to wearing items where they were originally purchased.
Players unable to freely sell their Digital Fashion - in-game fashion buyers are either fully prohibited from trading their Digital Fashion (Fortnite) or only able to trade select items with a hefty game-based commission (Roblox).
Players at constant risk of losing their Digital Fashion - as in-game Digital Fashion is linked to the specific platform it’s bought on, should a buyer choose to stop using that platform, access to their digital clothes is lost.
The dynamics outlined above are similar to buying clothes at a mall, then not being able to wear them outside that mall, plus needing the mall’s permission to sell them.
As well as going against the wishes of consumers, as 81% of those aware of in-game skins would like to trade them for real money, put simply, if these restrictions existed for physical clothes no-one would want them.
Now for NFTs
Digital Fashion NFTs surpass these restrictions. Due to their blockchain-based nature they are fully ownable by buyers.
Blockchain-backed goods are lauded for being decoupled from one specific platform or company. Much like a physical good, the platform which sells you the NFT does not hold control over the item once money changes hands. At time of sale the ownership of a piece of NFT fashion is fully transferred to its consumer, with the item stored in a self-custodied* virtual wallet (or virtual wardrobe, depending on what you collect!).
De-linked from its original seller, NFT based Digital Fashion can theoretically** be used however you choose. Worn across various virtual environments (Decentraland, Sandbox, Secondlife), bought and sold with negligible commission, and a buyer can rest easy in the knowledge that if the platform of purchase goes down their garment will still be safe and secure.
Breaking this down to a most basic level NFTs provide digital clothes with the same basic rights as their physical counterparts.
** we require improvements in interoperability standards, and popular platforms to allow NFT-based fashion in, to make this concept a compelling reality
2. Fashion +
If you accept that NFTs are important for providing digital garments with the rights you’d expect from their physical counterparts then the question is, what now?
Looking deeper into NFTs, there are clear ways that two other characteristics — transparency and of trustlessness — can come into play to counter issues faced by fashion.
The problem of provenance: vintage clothes are big business. At the lower end you have Depop generating $300 million in gross merchandise per year (2021), and at the higher end platform Vestiaire Collective holds a gross merchandise value exceeding $1 billion (2021).
With yearly sales of counterfeit goods amounting to a staggering $461 billion (2016) the ability to accurately determine whether a good is real is of the utmost importance to the resale platforms that attract buyers by selling high end goods at low prices. Vestiaire Collective knows this all too well.
In its 2021 ‘trust report’ Vestiaire’s C-suite admitted to employing an army of 120 authenticators, undergoing some 750 hours of initial training at its Vestiaire Academy, followed up by 180 additional hours annually as new brands come to market.
Vestiaire’s authentication army gets through an estimated 2000 items per day, assessing authenticity by analysing measurements, packaging, leather grain, serial number, colourways and even smell. With some $360 million of items rejected by the platform since 2020 (around 8% of items received) this is no small task.
Here is where blockchain’s transparency comes in. The idea of transparency relates back to the fact that blockchains are, at a base level, untamperable digital ledgers, where each transaction is automatically recorded on a public database impossible for one person to alter.
Take a look at Etherscan, the public database for goods on the Ethereum blockchain. On this site you can see when anything built on ethereum was bought, by who, plus the price it was sold for, all the way back to time of creation.
The benefits for businesses where provenance drives price is obvious. NFTs have the ability to be instantly authenticated without the need for a highly trained team of specialists. And with advancements in NFT integrations, the benefits of transparency are not just restricted to digital goods.
Companies like IYK create NFC* chips which can be sewn into garments, then scanned for authentication. Companies like Weareaware take this one step further with scannable threads which could come to be accompanied NFT-based trustless identifiers in time.The problem of attribution - stories of large brands ripping off their smaller counterparts run rife in the fashion press. Look to Diet Prada and you’ll see countless cases of everyone from high street heads to luxury leaders called out for stealing young designers' work.
From a credit perspective, the same transparency elements used to prove provenance can be deployed here. By referring back to blockchain’s untamperable ledger — where records of creation and consumption are automatically tracked — designers can show they were indeed first movers.
A few true crypto evangelists even see a future where more traditional IP law is rendered redundant with blockchain nullifying the need for trademarks.The problem of compensation - fashion has long suffered from an equity issue, where CEOs make millions while all that trickles down to those hands-on in the process is pennies.
Blockchain-backed goods hold exciting abilities to counteract this due to their trustlessness.
Trustlessness in the context of the blockchain, refers to its automated nature. Each transaction automatically recorded in a blockchain’s digital record book, is validated by an army of computers. This means the information stored on chain* is void of human error and largely untamperable. It’s trustless therefore, because rather than having to rely on people to do the right thing (put the transactions through correctly, record the results etc.) you have an automated ledger conducting the process; with results programmed and published for the world to see.
Brought to the blockchain over 20 years after their invention in 1994, automated trustlessness is well leveraged by a group of computer programs known as smart contracts*.
Smart contracts are agreements automated and recorded on blockchain. Like their physical (less smart) counterparts, they are built on the principle that ‘If you do X then Y happens’. The key element here is that instead of the contract being enforced by men, it's enforced by machines.
Just like the information recorded on the blockchain itself, once a smart contract has been created it’s near impossible to change. So if I write a smart contract that says ‘If I buy a red dress then $100 will go out of my wallet’ this will likely stay in place, forever.
A major advancement for creators in the NFT space relates to the enforcement of royalties, achieved with smart contracts. Renowned for their place in the music industry, royalties allow creators to be reimbursed every time their work is used.
The ability to embed smart contracts into NFTs means you can allow a Digital Fashion creator to be paid each time their work is re-sold. Whilst disputes over creator royalties have run rife in the past few months, the theory is that by hard coding (aka. unchangeably programmed) compensation into a blockchain based fashion piece, it becomes a part of the clothing’s DNA. So each time the clothing changes hands, money should be sent into the designer's wallet.
3. The case for futurists
Once you’ve come to terms with the three qualities of ownership, trustlessness and transparency you can begin to understand what makes futurists so excited by Digital Fashion.
As the most far-flung case for digital ownership, rather than solving problems that exist in fashion today, NFTs can level-up what fashion offers its consumers and creators.
Digital Fashion DAOs - DAO stands for decentralised autonomous organisation, and refers to a collective coming together and using NFTs ownability, trustlessness and transparency to enhance the way they work.
DAO membership is often marked by a membership token, which validates the individual as a member of that community. On top of signalling belonging, this token opens the door for holders to make group decisions, build their own sub-projects, or even spend group funds.
Take RED DAO as an example. Made up of ~50 members the DAO focuses on supporting the Digital Fashion ecosystem by investing in compelling companies and sweeping the floor* on promising projects.
In order to make a collective investment, RED DAO members use their token to cast a vote recorded on the blockchain. Only if the requisite number of votes is met, will the smart contract allow members to deploy capital.
The idea of transparent and trustless decision making is crucial here. As the results of each vote and purchase RED DAO makes is recorded on a public ledger, it's impossible for back-door decisions to take place. And with the deployment of trustless smart contracts (if X votes are reached then Y capital can be deployed), there’s reduced risks of bad actors exploiting funds for personal gain.
The name of Tribute Labs’ (RED DAO’s parent company) newsletter says it all. Titled ‘Hive Mind’ it refers to the ways that DAOs capitalise on the concept that multiple heads (with the same vested interest) are better than one. And in the cases of fashion DAOs, these multiple heads do not only come together for investment: Deep Objects is a sneaker startup where consumers vote on which shoe should be produced, Alterrage is a fashion label which compensates contributors using DAO mechanics. In creating a diversified industry with cross-country collaborations, DAOs present a promising future with optimized ways of working.Loyalty programs - as explored in my last newsletter, one interesting implementation of NFTs is around rewarding customer loyalty.
At the most basic level, companies like Prada are using NFTs to reward buyers by offering them exclusive chances to attend shows and receive future drops. But looking to the wider potentials of NFT technology, these improvements on traditional loyalty schemes are just the tip of the iceberg…
Two of the most interesting NFT use cases reward buyers for a) keeping and b) promoting their purchases.
a. Rewarding keepers: from a simple economic perspective people keeping their clothes means supply is low so price stays high. From a wider sociological standpoint this is important because holding leads to wearing, and as goods are on blockchain, the contents of a holder's virtual wallet (or in this case virtual closet) are a signalling device: visible for the world to see.
Projects like Moonbirds have caught on to these dynamics and rolled-out innovative models incentivising owners to keep their collections close. Those who hold the project's artwork (which looks like birds, as the name suggests) have the ability to ‘nest’ them by placing them in a state where they are untradable. To encourage nesting, owners receive unique rewards based on the time they nest, as well as level-ups to the digital DNA of the project itself.
Imagine this in a fashion native context, and you see a world where buyers receive rewards based on the amount of time they’ve kept a particular brand in their closet. In the digital world this level of commitment could be compensated through the fashion itself ‘upgrading’ in appearance the longer it's owned.
b. Rewarding promoters: the fashion industry is no stranger to the $16.4 billion business of influencer marketing. With the rise of social media, a product’s success is not made by one brand-led advertising campaign, but rather the shares it receives, the comments it gets, and of course the mass of wearers forming photo-flywheels on social media.
NFT mechanics of trustlessness and transparency are useful here as, on blockchain-based social media networks like Lens, creators have the ability to track who’s shared a post — who’s interacted with it, and whether these interactions result in conversion.
This derives from the fact that Lens accounts are not linked to names and emails, but rather the unique digital identifiers known as wallet addresses*.
As a wallet address not only shows a users’ interactions across platforms, but also what digital assets they own, there are whole new ways to track the impacts of interactions. Used effectively this could bring about new marketing schemes, where brands reward influencers who have actually generated results as opposed to making follower-focused guesses.
Fashion-fi - finally for the degens* among you, comes the idea of fashion finance.
Unless you sell a pristine Birkin at Christies, or were first in line for that Supreme drop, right now it's unlikely you’ll make copious quantities of cash from your clothes. This is due to two factors:
1. Size and fit - clothes are not only taste, but body specific, limiting the number of interested buyers per piece
2. Wear and tear - fashion depreciates with use: it gets torn, it smells and as such becomes less valuable with wear
Digital Fashion, in whatever form, is subject to none of these constraints. It’s size agnostic, does not experience deterioration from use and has the benefits of provenance.
But add on additional blockchain-based enablers and Digital Fashion can prove even more lucrative.
a. NFT enhanced-rental: in the US, the annual value of clothing rental came to $1.9bn in 2021, led by companies like Rent the Runway and HURR.
The biggest concerns customers face when renting out their clothes are that they’ll be damaged, that they’ll be stolen and that they won’t get paid. With Digital Fashion NFTs all of these concerns are nullified.
As previously explored, the URL nature of Digital Fashion means that clothes won’t experience wear and tear when being rented out. Better yet, smart contracts can be programmed to ensure both compensation and returns occur automatically (after Y days this red dress is returned to Dani’s virtual closet). As default culture shows, fashion-formed signalling in virtual environments is on the rise. If it follows in the footsteps of the IRL counterparts, in a few years the URL-rental market could be colossal.
b. Wear to earn - as discussed in relation to loyalty programs, consumers making money from the clothes they choose could be a source of ecosystem expansion in fashion’s future.
As the name suggests, wear-to-earn rewards consumers for wearing items: both in real life and digitally.
Previously explored, GMoney’s 9dcc shirts demonstrate what wear-to-earn IRL could look like. Those owning a 9dcc shirt can distribute NFTs to those they interact with, by asking others to tap the patch on the bottom of their tee.
GMoney has previously rolled out competitions to see who can distribute the most of these personalised NFTs (called POAPs) at events like Miami Art Basel and NFT Paris, with winners published on a leaderboard and in line for a variety of prizes. It’s just a small leap to imagine a world where this technology is used to pay influencers for where they wear and who they interact with, verified by who holds their NFT.
3. Staking - fixing fashion firmly as an asset, staking refers to the process of NFT collateralisation. Used for centuries by individuals and financial institutions, collateral refers to the use of a valuable asset to secure a loan.
Traditionally limited to houses and cars, in his piece ‘Storing Value in Digital Objects’, Derek Edwards references how you can now lend against high-priced digital artworks such as CryptoPunks, Autoglyphs, and Chromie Squiggle. As Digital Fashion NFTs can retain perfect condition and publicly prove value, a similar future for digital clothes is already on the horizon.
Take GMoney’s 9dcc once more. When a consumer first purchases a 9dcc shirt they have the option to claim it (to wear) or vault it (to hold as an asset). The idea of holding a fashion item ‘in vault’ itself is revolutionary: preserving the clothing as appreciating asset, in the way one would an expensive wine. But 4 months ago, Gmoney build on this further, announcing that owners of vaulted 9dcc shirts (currently trading at a minimum price of 0.25ETH) could borrow against them: for a loan of $125 with 20% APY.
Whilst $125 may seem negligible, GMoney has taken a colossal step in re-writing the narrative around fashion. Using NFT technology to transform physical fits into finance and changing the perception of clothes from wearable items into financial products.
Looking back to the stats originally referenced, where 81% of those aware of digital clothes want to use them to make physical cash, it's easy to imagine a future where financial mechanics bring a whole new genre of consumers into fashion, expanding our ecosystem exponentially.
So NFTs aren't a scam?
Well, no, not entirely…
As with most technologies, it's not the tools themselves but how you use them that matters. So whilst it's likely that the PFP you bought on OpenSea will go to zero, when used by thoughtful teams with clear goals, NFT’s can take fashion to new heights.
#IOTW
“While the digital asset ecosystem is still only a decade old, I believe we’re in the midst of a fundamental, once-in-human-history transition from physical stores of value to digital stores of value”
Storing Value in Digital Objects by Derek Edwards
This Outfit Does Not Exist is a bi-weekly newsletter on the future of imaginary clothing. Love it? hate it? don’t understand it?
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