Nike and Adidas enter the NFT market, the sneakerheads are into it. Non-fungible tokens, also known as NFTs, are similar to sneaker drops. In that they are not fungible. Their availability is limited, their resale value is dependent on sky-high demand. And they cause speculative frenzy in the resale market. Given this context, it should come as no surprise that major athletic brands. Such as Nike, Adidas, and Under Armour have waded into the sector. Will they be able to get off to a fast start?
NFTs are digital assets—art, films, or anything else that can exist digitally. That are marketable but not “fungible,”. Which means they are unique and cannot be exchanged for an identical asset. NFTs are a type of cryptocurrency.
While a dollar or a barrel of oil can be exchanged, a work of art or a home cannot. A collectible digital sneaker from a brand such as Nike or Adidas. Or one that a user might really wear in the virtual realm. Such as within a videogame or in the metaverse. Could be created by a company like Nike or Adidas. Sometimes, an NFT includes both the digital shoe and the right. To receive a physical shoe in the future. Thereby serving as a form of tradeable ticket for the actual object in the first place.
With the acquisition of RTFKT (pronounced “artifact”). A firm that manufactures non-functional replicas of shoes and other artifacts. Nike took a significant step in that direction last month. Both Under Armour and Adidas’ debut NFTs last month were a huge success. With Adidas selling $23 million worth of merchandise in only a few hours. The future looks bright for NFTs.
Adidas “Into the Metaverse” NFT owners
Owners of Adidas’ “Into the Metaverse” NFTs, which were sold. For roughly $765 when they were first produced. Are now able to sell them for more than $2,000 on the NFT marketplace OpenSea. For the first time last month, Under Armour’s virtual sneaker series. Genesis Curry Flow NFTs was available for purchase for a starting price of $333. They are now available for purchase for anywhere from $551 to more than $15,000.
It goes without saying that the shoe industry. Is no stranger to out-of-this-world return rates. Although they were only $65 each when they were first released in 1985. Authentic Air Jordans from that year went for more than $20,000. On the online resale marketplace StockX in 2017.
But when it comes to a highly sought-after and precious item. Digital copies stored on the blockchain are far more uncomplicated. Than real copies such as shoes or paintings to authenticate, transfer. And sell than physical copies such as these. Perhaps more importantly, whereas manufacturers. Do not receive a share of each resale of a shoe with NFTs. They can do so with cryptocurrencies because royalties can be included. In a blockchain and tracked in real time.
In exchange for every sale (and resale) of an avatar. A 5 percent cut is taken from the sale of all other products. Which include virtual footwear developed by RTFKT, which Nike recently acquired.
Just the royalty structure alone makes NFTs appealing to Nike
For companies like Nike, who could use NFTs to presell real things. The royalty structure alone is worth investigating. Adidas’ first NFTs already offer virtual wearables that can be redeemed. For free exclusive physical products: a sweatshirt, a tracksuit, and a beanie.
Using NFTs would also allow corporations to directly tap. Into the booming sneaker resale industry. Which is expected to hit $6 billion by 2020. Or almost the same as Nike’s revenue in China in 2019. Cowen predicts a $30 billion resale market by 2030. Of course. The NFT market is exploding: in 2020, over $100 million worth of NFTs will be traded. Chainalysis puts it at $44.2 billion last year.
There appears to be a demographic overlap between youthful sneakerheads and NFT enthusiasts. In an April CivicScience study, people aged 18 to 24 were the most familiar with NFTs. With 14% having invested and 18% considering it.
But funds are tight in the real world, and the virtual world. May simply cannibalize sneaker demand.