In the dynamic realm of Web3 and the exciting emergence of Non-Fungible Tokens (NFTs), brands are exploring new avenues for leveraging their intellectual property (IP) and transforming their licensing deals. Unlike the traditional Web2 landscape where resellers paid fixed yearly costs and modest royalties to use IP for merchandising, the introduction of NFTs has revolutionized the way brands interact with distributors. In this article, we'll delve into the five major challenges that arise as brands launch NFTs and navigate this evolving landscape.
1. Bridging the Gap: Allowing NFT Buyers to Pay in Fiat
While NFTs have gained significant traction, many brand enthusiasts are not well-versed in cryptocurrencies. To ensure the success of your NFT drop, you must find a way to onboard and engage the brand community, which often prefers fiat payment methods, particularly credit cards. Overcoming this challenge involves leveraging on-ramp services like Paper & MoonPay or utilizing Payment Service Providers (PSPs) like Stripe, which facilitate the seamless conversion of fiat into crypto.
2. Riding the Volatility Wave: Hedging Revenues
Revenue generation through on-chain sales implies receiving payments in cryptocurrency. However, licensing deals may necessitate redistributing a portion in fiat. Cryptocurrency markets are known for their price volatility, which can pose challenges when reconciling crypto earnings with fiat obligations. Solutions include building on Flow Chain, swapping revenues manually into stablecoins, or exploring options like put options in derivatives markets to sell crypto at predetermined prices.
3. The Art of Automation: Payouts Based on Revenue-Sharing Agreements
Automating revenue distribution is a complex task, especially when dealing with diverse stakeholders who may prefer fiat payouts. Furthermore, if licensing agreements encompass secondary market transactions, the complexity multiplies. To streamline this process, integration with Over-The-Counter (OTC) services, banking systems, and Know Your Customer (KYC) providers is essential. Additionally, ensuring that partner banks are crypto-friendly, ideally in countries like Luxembourg, Portugal, or Switzerland, becomes imperative.
4. Keeping the Books Straight: Financial Reporting and Accounting
Maintaining transparency and trust with brand partners necessitates the generation of comprehensive financial reports. Tracking income from NFT sales and secondary market activities can be a Herculean task. One approach is to use blockchain explorers like Etherscan to monitor income flows and generate relevant reports to facilitate smooth financial management and reporting for brands.
5. Seeking Crypto-Friendly Banking Solutions
One of the persisting challenges in the Web3 landscape is finding banks willing to collaborate with crypto-based businesses. Anti-Money Laundering (AML) regulations have made many traditional banks apprehensive about dealing with cryptocurrencies. While some crypto-friendly banks are emerging, particularly in jurisdictions like Luxembourg, Portugal, or Switzerland, the ideal banking environment is still evolving.
What's particularly frustrating for Web3 founders is the disproportionate amount of time spent dealing with payment infrastructure challenges compared to building the core value proposition of their projects. Nevertheless, the Web3 community continues to persevere, seeking innovative solutions and collaborative partnerships to overcome these obstacles.
In conclusion, the intersection of brands and NFTs presents exciting opportunities but also demands creative solutions to address the unique challenges posed by the Web3 landscape. Brands and Web3 innovators must work together to ensure a smooth transition, leveraging technology and partnerships to unlock the full potential of NFTs and the decentralized future of commerce. As we navigate this dynamic landscape, the growth of the Web3 ecosystem relies on the determination and ingenuity of its pioneers.
