NFT ‘Wild West’ Era Demands New Standards for Crypto Industry
Today’s guest columnist is Todd Cooper, CEO and co-founder of NuArca Labs.
Several weeks ago, Sacramento Kings star De’Aaron Fox nixed his high-profile NFT project, “Swipa The Fox,” leaving 3,000 fans bitter and bewildered, holding the now-worthless NFTs. In January, IQONIQ, a huge fan platform based on cryptocurrency, collapsed, along with its deals with Spain’s LaLiga, the McLaren Formula One team and numerous high profile football leagues. IQONIQ’s millions of tokens issued and sold in crypto are now worth close to nothing. The damage has been reported to be into the millions, but the loss of trust by fans and brands likely has a substantially higher price tag.
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The damage from these debacles isn’t limited to financial and reputational losses. In the art world, some artists are crying for help because of the “mind-blowing” fraud occurring with NFT fakes being issued. Meanwhile, the energy needed to mint and store NFTs on the blockchain raises climate concerns, too. The NHL’s Seattle Kraken, which stakes its brand equity on its commitment to combat climate change, faced blowback for its NFT program.
While these shiny new digital objects have the power to completely change the brand-to-fan relationship for athletes and artists, right now, we’re in the “wild west” stage of so-called Web3. Some rights holders leaped into technology they don’t fully understand, and leaned into partnerships with companies and individuals who aren’t a cultural fit. Many come from industries where the culture rewards those who get there first and ask questions later. The promises of profits dazzle. But, for the sports industry, that’s a rookie mistake.
The first thing for brands to realize is that NFTs are assets of real value, and as such, can be a target for fraud or theft.
Imagine that a sports team is a bank servicing its customers. The bank does its best to make sure it is conducting legitimate business, avoiding fraudsters, money launderers and other types of criminals. Banks use secure privacy tools to protect their customers’ personal information, regularly scan for bad actors, and are subject to laws that protect depositors and the solvency of the bank. Similarly, sports brands offering NFTs must take seriously the protection of their fans and their own reputation. The NFTs should be designed to ensure the customers’ value, as well as their privacy and security. The NFT wild west does have some white hats—responsible, reputable organizations that understand the value of their relationship with the fans. But there are also fly-by-night operations that have crashed and burned.
NFTs offer a unique new promise—a contract between valuable brands and their precious fans. Now is the time to demand a code of conduct for the issuance of NFTs, holding crypto partners to standards that help brands avoid fan disappointment and revenue loss—standards that head off reputational damage and ensure authenticity. But where to start?
This checklist can help rights holders and users “trust and verify” NFT partners who can deliver a sustainable program that drives value over the long term:
Minimized environmental impact: Does the platform deploy a widely accepted low-energy-use technology as the custodial trail, such as the Level 2 Polygon blockchain?
Transparency from the company: Know who you’re in business with. Too many NFT and crypto companies have fake or misleading executive and board profiles.
Meaningful copyright protection and brand integrity: Imitators phishing for crypto can take advantage of gullible fans.
Verified users: Know Your Customer checks, watch-list checks, and Office of Foreign Asset Controls checks ensure you’re not illegally allowing sanction-listed individuals or businesses to transact with your assets.
Financial services level cyber-security and privacy: Comply with GDPR regulations and use regular audits to ensure customer security.
Acceptance of credit cards as well as crypto: Less than 4% of the world’s population has invested in cryptocurrency, and a much smaller percentage are active users. Why would a brand limit its reach to this tiny portion of its fan base?
Ease of ownership: Fans should not need to download, install and configure complicated browser wallet plug-ins for NFTs.
Future readiness: Look for open APIs allowing integration with metaverse, games, augmented reality, and additional near-future tech.
IPFS supported: Leverage distributed standards to ensure NFT artwork and value persists and is recognized as legitimate.
We may not have seen the last of NFT failures, because new technology companies are popping up like mushrooms, making promises to sports brands, and with no real backbone behind them.
In the absence of real regulation, the above DIY checklist will have to do. In the meantime, fans and rights holders will need to realize that NFTs are not pixie dust that will instantly confer value, but a technology that extends the digital marketing tool chest and helps brands establish direct value relationships with fans. NFTs are the next extension of a digital marketing program, a way to build community and value on both sides of the brand/fan aisle. It’s important to treat that sacred relationship with utmost care.
NuArca Labs is an emerging technologies venture studio that delivers marketplace defining solutions utilizing Blockchain, AI, and other emerging technologies.
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