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Background:

For fashion, one of the most alluring prospects for NFTs is how they could help brands collect royalties — forever — on secondary sales of physical goods. Though the mechanics of doing so are not ironed out yet, brands could ideally code NFTs tied to physical products with smart contracts triggered by certain conditions and benefit every time an item is sold, not just at the initial sale. But, technical loopholes used to circumvent loyalties and finicky marketplaces leave brands and creators without ways to enforce rules.

“One of the big principles of Web3 is these royalties are the idea that it’s a creator-led economy, it wouldn’t necessarily be controlled by a big centralised organisation… Except that’s not really playing out,” said BoF technology correspondent Marc Bain.

Key Insights:

• Marketplaces are responding to controversy over enforcing royalties. Opensea, one of the biggest Web3 marketplaces, wants to attract creators, so it has an incentive to honour creator royalties. Newer marketplaces just looking for sales are willing to cut fees for buyers.
• This has led to an existential crisis for the NFT community, showcasing that creators are not entirely in charge in a space that was touted as having enormous potential to empower them.
• Marketplaces and infrastructure for fashion brands that would want to get royalties for secondary sales don’t exist right now. It also remains to be seen how brands would scale such a system.
• A number of start-ups including EON and Aurora Blockchain Consortium are working on linking digital identities to physical goods, but doing so is complicated.

Additional resources:

• Is Fashion’s NFT Dream Over Before It Started? NFTs could give brands a way to collect royalties on secondary sales of physical items, but a shift in how NFT marketplaces treat royalties threatens to undermine the idea’s future.
• How Fashion Is Using NFTs to Sell Exclusive Physical Products: Brands like Tiffany, Prada and Nike-owned RTFKT are among those using the digital tokens to offer exclusive access to tangible goods.
• The Secrets to a Successful NFT Drop: The reasons some fashion NFTs are successes and others fall flat goes beyond having big, recognisable brands involved and comes down to factors like their creativity, audience and value for the price.