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Fashion has gone all in on Web3, but a crypto downturn is dampening the industry’s excitement, curbing stunt-like NFTs, pausing Web3 hiring and forcing a rethink on metaverse strategies.
The price of Bitcoin, the most highly traded cryptocurrency, reached an all-time high of $68,000 in November 2021. Since then, the market has slumped, with Bitcoin losing nearly three-quarters of its value, hovering around $21,000 today.
The ripple effect of the crypto bear market can be seen throughout the entire decentralised finance space. Blockchain protocol and payment platform Terra plummeted from an inflated all-time high of $119 in April to less than a dollar by early May; its native token Luna was then delisted from many major exchanges like Coinbase. Lending protocol Celsius froze user withdrawals earlier this month, and Three Arrows Capital — a prominent crypto lending fund — defaulted on a loan worth $670 million in various cryptocurrencies on Monday.
The world of decentralised finance is no stranger to volatility: a major downturn in 2018 saw prices of Bitcoin plummet from 2017 highs of $20,000 to as low as $3,000. What’s different this time is the involvement of many other industries in the space, including fashion, which has embraced crypto and Web3 over the past year: Gucci, Philipp Plein, Farfetch and Balenciaga announced they would begin accepting crypto payments; others began testing digital fashion via NFTs and virtual real estate on blockchain-based platforms Decentraland and The Sandbox. Values of branded NFTs have climbed: the initial general sale for Adidas’s “Into the Metaverse” sold out in seconds with nearly $23 million in sales, and Burberry’s NFT characters through Blankos Block Party resold for three times the original $299 price. With all of this buy-in, what happens now?
Fashion insiders and people familiar with fashion brand projects told Vogue Business that some brands are starting to pause hiring for Web3 teams or are cautious about introducing new projects. Others are relieved that the excessive hype has quieted down, giving a reprieve from round-the-clock drops and competitive timelines. Still, amid an industry rife with scepticism and confusion, there is a nagging concern among developers that brand executives might frame this drop as proof that cryptocurrencies and blockchain-based projects aren’t viable.
Gaming overall is contracting, and the Web3 ecosystem even faster, acknowledges Matthew Ball, managing partner of EpyllionCo. But, he adds, “There are still billions being spent monthly, from billions of consumers. Only the best projects, plans and designs will thrive now. That's a good thing.”
Investments are more scrutinised and more oriented in building long-term strategies, says Teddy Pahagbia, chief executive druid of Blvck Pixel, a Paris-based consultancy that advises luxury fashion brands on Web3. “I think we will see fewer PR stunts and more meaningful use-cases.”
Industry advisors say that this is the time not only to hold on and wait out the storm but to educate, innovate and build, with many comparing it to the dot-com bust at the turn of the century — which ultimately resulted in more viable companies.
Brands with a long-term strategy in the space are on the right track, says Janine Yorio, CEO of Everyrealm, an NFT investment and advisory firm that is helping build out a Decentraland “MetaMall”. “The smartest brands are incorporating metaverse and NFT into their long-term web3 strategy, rather than as a one-time marketing stunt,” she says. “A market downturn should have little impact on a company's long-term strategy. Crypto is here to stay, and the younger generation who enjoys metaverse and video game-like environments is eager to see their favourite brands bring products into the gaming environments where they spend so much of their time.”
Gucci’s development can act as a template for brands that want to last in the Web3 space, she highlights. “It's critical for a brand to have a long-term metaverse strategy that focuses on creating products with utility, rather than focusing on the short-term stunts that NFT drops can be.”
This relatively quiet time provides a moment to work on developing those strategies, says Amanda Cassatt, co-founder and president of Mojito and co-founder & CEO of Serotonin, which has worked with those including Sotheby’s, Adidas and Prada. “A lot of companies make the mistake of waiting to build when the market is at the very top, and then by the time they launch, the cycle has shifted. If companies begin to build right now, it gives them the ability to go to market without relying on the market trend.”
A community focus
One important consideration for brands during a market lull is community building, both internally and externally. “The bear market allows [brands] to focus more on community than price. You'll probably see more people rally around a brand because they like it, rather than to flip something for a quick buck — which is ultimately what [brands] want,” says Gmoney, a Web3 community figure and investor.
Those who were looking to get rich quickly have largely already left, says Yorio. “Those who remain are those who genuinely care about the brands they're building and have a much more positive and uplifting impact on the community.”
The value of fostering an NFT community for brands is not singularly about maintaining a stable price in any type of market but rather about creating a brand community culture. Cassatt says community responsiveness — rather than simply the monetary value of individual NFT assets — is critical to understanding the effectiveness of a Web3 strategy. “The litmus test for a good Web3 strategy is whether it strengthens the existing community, and brands should focus on building and growing their community in this current market cycle,” she advises.
Sensitivity to market sentiment is still key. “Consumers will have a higher bar of what they're going to spend their money on. You don't want to be tone-deaf, obviously — you don't want to sell something for $20,000 in the middle of a bear market,” Gmoney cautions.
Building from the inside
This culture extends to internal teams; experts advise company-wide education and development of Web3 teams, which require legal, financial and technical experts in addition to marketing and creative teams.
Although one of the leading crypto exchanges, Coinbase, said it would lay off 18 per cent of its employees amid the bear market, Pahagbia says that some brands are still building small cross-functional dedicated teams to lead Web3 initiatives, starting by looking internally to find the right profiles, then looking outside the company to hire talent.
Kering has provided an educational game to all its employees, while LVMH has appointed Nelly Mensah as head of Web3 and metaverse to work with all the brands in the group. Because valuations are so much lower during this bear market, “It's going to cost you less to build something than it would have six or 12 months ago,” Gmoney says.
Untouched areas
Though there’s some worry about the market contracting, certain areas are less affected than others, including virtual real estate, gaming, digital fashion and digital twins, data privacy and loyalty tokens. “It’s important to note that metaverse, Web3 and gaming are three key areas of the crypto market that have not seen a significant backlash or reduction in investments,” Cassatt highlights. “Users are only continuing to grow in these three sectors.”
According to a report this month from McKinsey & Co. on value creation in the metaverse (which increasingly leans on Web3 elements such as cryptocurrencies and NFTs), the longer-term opportunity for fashion brands is “engaging consumers with NFTs for more pragmatic purposes, such as loyalty tokens or digital twins, [which] can host information about a physical or digital product’s history, authenticity and ownership — especially beneficial to luxury retailers battling counterfeiting”.
And fashion investments and projects don’t seem to be slowing. Last week, Endstate, which links physical products to digital twins via NFTs, announced it had raised $5.5 million, with other digital fashion startups set to announce funding soon.
Cassatt related the success of these industry niches to their utility rather than their inherent monetary value. “Consumers buy a digital asset in the form of a token, membership or virtual object or wearable to use in the digital world because they are a fan, not because of the market trends,” she says. “We can expect to see these use-cases continue to grow throughout market conditions.”
Now is a smart time for new designers to think of how they will enter the space, connect with people to collaborate, test new tools and explore the possibilities for creators, says Marjorie Hernandez, founder of fashion-focused blockchain Lukso and co-founder of fashion NFT marketplace The Dematerialised. “Bear markets tend to shake off speculators or short-term projects built without long-term strategies and foundations. Many companies are still hiring in Web3.”
A November report from Morgan Stanley estimates that by 2030, the “base case” market for luxury NFTs, meaning conservative estimates, will range from $3 billion to $11 billion by 2030. Its “blue sky” analysis is $25 billion, with estimates that metaverse gaming and NFTs could constitute 10 per cent of the luxury goods market by 2030.
What happens now
While the current slump might have spirits down, technologists are still planning for a Web3 that is as influential as the e-commerce and social media eras before it.
As Puma chief brand officer Adam Petrick recently told Vogue Business, “We kept e-commerce sitting within marketing for a bit too long, and that put us behind the eight-ball for a long time [and] when you think about the step-change that mobile computing and social media brought … I don't know if we had embraced that change from an operational standpoint, maybe we’d be in a different place now. It’s not that frequent when there are really technological step changes.”
Gmoney points to some of the dot com success stories. “Amazon was built in 2000, Google didn't even exist till 2001 — these are companies that define the Internet. These are companies born out of that recession or a tech bear market. When you look at the underlying tech, the tech is incredible. And to me, that's the real story here. So people saying, ‘Oh, the hype died down,’ you would have been shorting the Internet in 2001, and that would have played out very terribly. And I think this is very much like the same type of scenario.”
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