Introduction:

In recent news, Starbucks announced its foray into the Web3 realm with plans to create a blockchain-based customer loyalty platform. Similarly, the prominent NFT project Doodles revealed a significant funding round of $54 million, aiming to establish itself as a top-tier entertainment brand native to the Web3 world. These developments signify a pivotal moment in the evolution of Web3 branding, marked by the transition of leading Web2 brands to Web3 and the rapid growth of native Web3 brands.

In my interactions with Web2 professionals, the biggest confusion often lies at the conceptual level — understanding the ‘why’ of Web3 branding. What does a Web3 brand signify, and how does it differ from Web2 brands? Gaining clarity on these questions enables traditional brands to better understand and prepare for their transition into the Web3 space. This article adopts the “Three Key Questions” format from the podcast I admire, “文理两开花” (Art and Science Blossom), to explore these aspects - Why, What, How, from theory to practice.

Why: Why is Web3 essential for brands?

What: What types of products are suitable for Web3 branding?

How: How to build a Web3 brand, including mindset shifts, skill trees, and case studies.

Additionally, the article provides three practical Q&As:

1. What’s the most crucial aspect of establishing a Web3 brand initially?

2. Why I strongly recommend transforming membership cards into NFTs.

3. Final advice for traditional brands venturing into Web3.

After reading this article, you should gain the following insights:

• For traditional brands, this article aims to strengthen your resolve to transition to Web3 and understand how to better meet the new needs of the Gen Z demographic, with applicable examples and advice.

• If you’re planning to create a Web3 native brand, this piece should guide you in selecting the right product category, designing your product, and initiating community engagement.

• For Web3 users, great! This article’s methods should help you find better community-driven brands to co-create and thrive in a mutually beneficial ecosystem.

Why is Web3 Indispensable for Brands?

We can further divide this into 2 sub-questions:

What are the current problems with Web2 brands?

Which consumer needs must be met by Web3 brands?

1. What are the current problems with Web2 brands?

The problems with Web2 brands are similar to those of centralized platforms. It’s a question of whether brands can maintain an alignment of interests with users over different time scales.

In the long-term, the interests of brands and users are aligned, as otherwise, the brand cannot sustain itself.

However, in the short-term, Web2 brands often sacrifice user interests for their benefit, and even become competitors; in Web3, because users themselves are also brand owners, this situation is essentially eliminated, unless the brand chooses self-destruction.

This issue was brilliantly discussed in Chris Dixon’s classic article “Why Decentralization Matters” four years ago, which I have excerpted here:

“When centralized platforms reach the top of the S-curve, their relationship with network participants shifts from positive-sum to zero-sum. The simplest way to continue growing is to extract data from users and compete in audience and profits with complementary products.

For third parties, this shift from cooperation to competition feels like a bait and switch. Over time, the best entrepreneurs, developers, and investors become cautious about building on centralized platforms. We now have decades of evidence showing that doing so often ends in disappointment. Furthermore, users give up privacy and control over their data, becoming vulnerable to security breaches. These problems of centralized platforms may become even more evident in the future.”

(Why decentralization matters)

2. What needs of consumers must be met by web3 brands?

By considering NFTs or ERC-20 Tokens, let’s explore the changes in consumers/communities/brands.

Consumers:

Their needs have evolved from “consumption” to a triad of “consumption + assets + digital identity.” Consumers have become “sovereign individuals,” where brands are not just consumer goods but also personal assets of the consumers (Token holders). Consumers will invest more emotions and efforts in these brands, aiding in the growth of the brand/personal assets. Simultaneously, consumers will have healthier creative incentives, ensuring the continuity of this investment process.

For Generation Z consumers, there’s a greater desire to establish a unique digital identity to showcase their individuality and serve as a passport in the metaverse. This requires corresponding brands to fulfill these needs.

Community:

Compared to web2 communities, which are like loose interest groups, web3 consumers, due to their more tangible investments and rights, form communities with deeper consensus and greater energy, gradually establishing an equal relationship with brands. A powerful community can both accelerate brand growth and spread FUD (Fear, Uncertainty, and Doubt). Brands must recognize and embrace this.

Brands:

Based on the above analysis, brands must meet the new needs of new users, or they will be phased out by the times.

As the proportion of virtual consumption by users increases, traditional physical brands must be prepared to adapt, having the capability to offer virtual products or a combination of virtual and physical products, and securing their place in revenue streams. Nike, for instance, has already generated over 185 million USD in revenue, leading the big brand NFT projects in income.

Brands need to form a symbiotic relationship with consumers/communities, sharing benefits rather than the one-sided consumption relationship of web2.

In summary, as users and their needs change, brands and products (combining virtual and physical elements) capable of satisfying the “sovereign individual” are needed. Web3 fundamentally rebuilds the relationship between brands and consumers and even changes the ownership of “brand sovereignty,” giving consumers the right to become brand owners. This aligns with the philosophy of crypto and the principle of asset verification, embodying a true “user-first” ethos.

Expanding on this “symbiotic relationship”:

For Generation Z, consumers need web3 brands to help establish their digital identity and own brand assets, gaining more rights from the brand. From the user’s perspective, it’s no longer just about being consumed or objectified by brands, but becoming owners of the brands, building and sharing benefits. This process is powered by a community with strong consensus.

For brands, this lowers various costs, including customer acquisition, product definition, testing, and promotion. With a community that has a strong consensus, brands can grow and spread more quickly.

This mutually beneficial relationship will nurture highly competitive web3 native brands. In a highly competitive market, traditional brands will actively transform into web3, because if they don’t revolutionize themselves, they will be revolutionized by others.

So, to answer the initial question:

Q: Why is web3 important for brands, or why is the web3 transformation of brands inevitable?

A: Only web3 brands can meet the “sovereign individual’s” triad needs of “consumption + assets + digital identity.” Web3 branding is not just about changing marketing methods or revenue structures, but fundamentally about meeting new user needs and a mindset shift, starting from the users to build or reconstruct the brand.

What Kinds of Categories are Suitable for Web3 Brands?

What kinds of categories are suitable for Web3 brands? My answer is that any category that can be driven by a community is worth trying. Users participate in defining, producing, testing, and promoting the product. A portion of the profits from the product are returned to the community. In this process, users and the brand achieve a win-win situation, supported by tokens that facilitate user participation and profit distribution.

Since it’s community-driven and at the same time can form a brand, the category needs to meet the following conditions:

1. Low production cost

2. Short testing cycle

3. High category richness, easy to form a brand

Theoretically, categories that require a large number of tests meet these three conditions. To be more specific, clothing, food (beverages), and drama are categories that perfectly fit these criteria. In the examples below, you can also see that many Web3 brand entrepreneurs have chosen these three categories.

How to Build a Web3 Brand

“How to build a Web3 brand” itself is a very broad topic, and currently, there is no so-called “best practice.” Competitors in the field are also exploring. This section attempts to answer this question in two parts, hoping to provide inspiration and help to the readers.

1. The key differences between Web3 and Web2 brands, as well as the core skills that brand creators need to develop.

2. Through four case studies, we will conduct a more concrete study on how to build a Web3 brand, including different categories and methods of creation.

The key differences between Web3 and Web2 brands, as well as the core skills that brand creators need to develop.

(Web2 and Web3 Brand Key Differences)

I’ve created a diagram to clearly describe the 2 key differences between Web3 and Web2 brands, which are also 2 win-win strategies.

Win-Win Strategy 1: Community First, “Brand-Community” Bidirectional Relationship

Compared to the Web2 brand’s “Brand First” or “Product First,” and the “Brand-Consumer” unidirectional relationship; Web3 brands need to prioritize “Community First,” and have a bidirectional “Brand-Community” relationship. Why is community first necessary?

In terms of chronological order, community precedes the brand: As previously explained, a brand is not just a consumer product. It also becomes an asset for the consumers (Token holders), making them simultaneously investors. Users are first investors, then consumers, because it takes time to develop consumer products (3 months to 1 year), and startup funds are needed before this development, necessitating the formation of a “(potential) investor community.” Therefore, in terms of chronological order, the community comes before the brand.

In terms of ownership, community precedes the brand: Since users have dual roles as investors/consumers, they, as the brand’s owners, have the right to participate in defining and building the brand. Therefore, in terms of ownership, it’s first the owner (community), then the brand.

In terms of importance, community precedes the brand: The “Brand-Community” forms a bidirectional relationship. The brand not only grows and spreads with the help of the community, but community members also invest more emotion and effort, aiding the growth of the brand/personal assets. This process solidifies a strong community consensus, and the brand vision relies on this consensus. Hence, the order of importance is “Community → Consensus → Brand.” The community is the foundation of the brand; a brand without a community is like a tree without roots or a river without a source.

Win-Win Strategy 2: Derivative Community and Brand Self-Growth, Expanding the Original Brand’s Ecosystem

This is also a point where Web3 brands differ significantly from Web2. By leveraging the power of community members, a larger derivative community and brand ecosystem are created, nourishing the original brand. In the diagram, I’ve marked this in pink.

Unlike Web2 brands, which control their IP and profit from it, most Web3 brands have granted IP rights to NFT holders (Holders), and CC0 brands have opened their IP to everyone. Community members can use the held IP or CC0 IP, based on the original brand community, to initiate derivative product communities. On one hand, they establish their own derivative brand business, and on the other hand, they expand the influence and lifespan of the original brand, creating a win-win situation.

Above is the mindset shift in building Web3 brands. Below, let’s compare the different core skills required to build Web2 and Web3 brands. It’s evident that, although the types of tasks remain the same, unlike Web2 where everything is controlled internally by the brand, the foundation of all operations for Web3 brands is the community. How to integrate all tasks with “community operations” is the biggest challenge in the actual work of Web3 brand management. In short, establishing a Web3 brand is fundamentally about building a community.

(The difference between web2 and web3 skill trees)

Case Study

1. Web3 Community Incubated Brand: FWB x Taika

Taika, a coffee startup, is launching a new sub-brand and product category - Mate Tea. For this, they are collaborating with FWB (Friends with Benefits) for incubation.

FWB is recognized as one of the most creative DAOs (Decentralized Autonomous Organizations) in the web3 space.

FWB has a strict membership mechanism: one must hold a certain amount of $FWB tokens and pass an application review to join. Members are thus creatively inclined and collectively hold FWB Token assets.

Collaboration approach:

Scope: Encompasses brand investment, flavor definition, testing, promotion, and profit sharing, covering the entire brand-building chain.

Brand Investment: FWB invests in the new Mate Tea brand using its tokens.

Flavor Definition, Testing, Promotion: FWB members can join a paid working group to collaborate with Taika’s team on defining the product concept, designing flavors and packaging, and creating marketing materials.

After finalizing the product, two flavors are created - a red can and a blue can. An NFT set of 500 is issued by the FWB community, allowing purchasers to exchange for a box of the drink and vote on which flavor to launch. Note that this NFT set is not limited to FWB members only, effectively starting a derivative community for the new brand.

Profit Sharing: Profits from the new product sales are shared between Taika and FWB, with FWB receiving 18%.

The product is currently in the phase of finalizing which flavor to launch. The benefits of the FWB community driving this new brand include:

The test NFTs issued by the FWB community effectively solved the brand’s initial launch challenge and ensured member quality.

Through $FWB token investment and profit sharing, FWB members become owners of the new brand, more actively engaged in defining, designing, and promoting it, helping Taika create and sell better products. It’s prestigious for members to say they participated in the drink’s design.

Additionally, many beverage brands (e.g., Yuanqi Forest) also conduct extensive flavor and packaging A/B testing, often with internal employee testing. What sets FWB x Taika apart?

The key difference lies in the brand-customer relationship. In web2 brands, the relationship between brand designers and testers/consumers is separated and unidirectional, leading to a lack of strong identification and initiative. Even internal employees often view testing as a mere task (think about testing a neighboring team’s product in a large company). However, in web3 brands, the real owners are the community users, leading to a different level of identification and initiative, which accelerates brand growth.

Repeat with me three times the core difference between web3 and web2 brands: Community, Community, Community :)

BTW, after establishing the collaboration model with Taika, FWB has confirmed partnerships with Hennessy and Reebok, expanding from startups to international first- and second-tier brands.

This case study is thanks to Chao’s sharing at web101.

2. NFT Holders Establishing Derivative Brands: Yuga Labs/BAYC Derivative Brands

Though the public’s first impression of BAYC (Bored Ape Yacht Club) may be celebrities changing their profile pictures, it introduced a significant innovation to the entire NFT ecosystem - IP commercial licensing.

Upon purchasing a BAYC, the corresponding NFT IP is automatically licensed for commercial use by the holder.

Before being acquired, CrytoPunks, a representative NFT project, did not open IP licensing, leading to controversy about what users were buying.

BAYC pioneered IP commercial licensing, adding IP empowerment rights for holders, where they get more than just a small image, but also significant IP value.

Based on this, numerous BAYC holders have developed nearly 80 derivative brands, including fashion, music, toys, food, beverages, skateboarding, basketball, clubs, podcasts, games, etc. On one hand, BAYC IP and the community help these derivative brands with the initial launch, and on the other hand, these brands enhance the original IP’s utility and expand the ecosystem, attracting more users and creating a win-win situation for both the original and derivative brands.

For a comprehensive introduction to these 80 IPs, one can read the article “Yuga Labs’ IP Empire: Nearly 80 Brands, Creators, Projects, and Artists” by Forj CEO Harry Liu.

3. CC0 Enthusiasts Establish Derivative Brand: Mfers Derivative Brand

First, let’s reference a segment from a previous article on CC0 to quickly understand CC0:

CC0 refers to the Creative Commons Zero copyright agreement. Adopting this protocol signifies that the creator relinquishes all copyrights of their work, allowing it to enter the public domain and become part of humanity’s collective knowledge.

In layman’s terms, it means everyone is free to use CC0 creations, including for commercial purposes and secondary creations.

As mentioned in the previous section, BAYC (non-CC0) grants IP Rights to owners. For instance, Li Ning, who purchased BAYC #4102, can use this specific monkey in posters and T-shirts (but not monkeys that are not owned).

Mfers, being under the CC0 protocol, allows anyone to freely use all 10,000 Mfers, whether you own them or not. This includes personal use (printing on T-shirts to wear), commercial use (printing T-shirts for sale), and secondary creations.

According to incomplete statistics, there are over 50 derivative NFTs of mfers. The number of coffee shops using mfers offline is countless. In terms of quantity, it is on par with the leading BAYC, although the price is less than 1/50th of BAYC. How was this achieved? Why did these derivative brands choose to be based on mfers?

I have summarized two reasons:

1. The mfers’ meme “Are you winning son?” is already well-known in Western culture. Combined with creator Sartoshi’s unique operations, the mfers IP has gained a certain level of fame and a community base.

2. As a CC0 protocol, it allows everyone to use it at zero cost, even commercially. Mfers has become the preferred choice for many brands to attract web3 or GenZ users. For example, Meta Space in Beijing, OFFF in Shanghai, and Social Beast in Hangzhou are three web3-themed coffee shops that unanimously use mfers as decorations, further enhancing the original IP’s influence.

(Shanghai OFFF Cafe, picture from Jiji official account)

4. Co-creating Animated Series: The Real Metaverse

The previous examples were all about tangible consumer products, but for our final example, let’s explore a cultural creative product – an animated series named “The Real Metaverse.”

“The Real Metaverse” is a co-created animated series developed by the parent company @InvisibleUniv. How does this co-creation work? If you hold their Producer Pass NFT, you get the chance to contribute content for the first season (consisting of 34 episodes), determining the dialogues and fates of the characters. If you are a holder of any of the five NFTs from BAYC, Doodles, CoolCats, Robots, or World of Women, you can apply to have your PFP (Profile Picture) appear in the first season of the animation – wow! If you don’t hold any of these five NFTs, you can vote for your NFT to appear in the second season of the series.

Isn’t that interesting? Animated series are well-suited for community co-creation. Compared to novels, owners are already emotionally invested in their PFPs. Having them appear in the series’ plot greatly encourages owner participation, contributing content, and promoting the series. This arrangement is mutually beneficial. Through community involvement, the animated series gains more attention and commercial value, boosting the value of the corresponding Producer Pass NFT. Meanwhile, the exposure also increases the value of the owners’ PFPs. Imagine your PFP becoming a movie star!

All of this is impossible without the participation and contributions of the community. Thus, from the beginning, “The Real Metaverse” collaborated with the aforementioned five communities to jumpstart its community. This project is about to mint today, so stay tuned!

Three Other Important Q&As

1. What is most important in establishing a Web3 brand initially?

• Attracting the right community members and defining the correct OKRs (Objectives and Key Results) and North Star metrics is crucial. Since the community is so vital to a Web3 brand, and initial community members greatly influence consensus, it’s necessary to be very stringent in member selection from the start, as well as set reasonable NFT pricing. In the current market, most NFT launches attract “traders” focused on short-term benefits; however, brands desire users who bring long-term value as “creators” and “consumers.” But you can’t just ignore the users who do come, as this gap can misdirect brand efforts, hinder building and acquiring target users, and even lead to manipulation or backlash.
• As a brand, it is essential to define correct OKRs and North Star metrics to avoid being misled by vanity metrics like transaction volume. These are fundamental in building a brand, product, or even a company. The metrics a brand focuses on can reveal its strength. For example, the founders of Yuga Labs prioritize metrics such as the number of NFT holders and the number of active community members. They don’t want NFTs to be hoarded for profit, but rather to attract more community members, so each founding team member only holds one BAYC.

In summary, focus on doing things that are valuable in the long term, and manage short-term expectations well.

2. My model is a membership club; is it necessary to transition to Web3? The difference doesn’t seem significant

There are several benefits to transforming membership cards into NFTs, including three advantages from the user’s perspective and one from the brand’s perspective:

User Perspective 1: Enhanced Benefits

In traditional membership clubs, once a user subscribes, their interests often clash with the club’s. This is because the club can lower user benefits to increase its profits, resulting in a win-lose situation. However, in a Web3 brand scenario, users are like investors. Membership clubs must ensure high-quality benefits aligned with user interests. Active user participation also enhances brand value, creating a win-win situation.

User Perspective 2: Increased Liquidity and Value in Trading

Traditional membership cards are hard to trade second-hand. Turning them into NFTs naturally creates a trading market and liquidity, thus enhancing the asset value of the membership cards themselves.

User Perspective 3: Acquiring a Personalized Digital Identity

Transform into a unique digital identity to showcase individuality and serve as a pass to the metaverse. Membership cards need not be static; well-designed traits can evolve with the user, incorporating special utilities that increase user loyalty.

Brand Perspective: Expanding the Depth and Breadth of User Engagement

Based on on-chain data and behaviors, brands can more comprehensively understand existing users (e.g., a user owns 5 ‘monkeys’) and more easily reach new users (e.g., users from a certain community being a good fit for the brand).

Therefore, transforming membership cards into NFTs benefits both users and brands. Why not make the transition?

3. Do you have any advice for traditional brands entering Web3?

Initially, it’s advised to make lightweight attempts, focusing on understanding user feedback rather than launching full-fledged projects. Li Ning’s purchase of BAYC is a good example, and many CC0 projects can be used, such as mfers and Black Cat.

As analyzed at the beginning of the article, the essence of brands transitioning to Web3 is to meet the new demands of new users and rebuild the relationship between brands and users. It requires a comprehensive strategy. If not fully understood, it’s advised not to proceed. Don’t treat launching an NFT project as a low-cost marketing campaign. Once a community is established, it requires long-term, sustained operations; otherwise, the community might Fear, uncertainty, and doubt (FUD) the brand, leading to more harm than good.

Additionally, traditional brands entering Web3 also need to upgrade their brand mindset and organizational capabilities, as referenced in the third part of the article.

Conclusion & Outlook

Without realizing it, a discussion with friends evolved into a lengthy article. As mentioned at the beginning, many brands are eager to enter Web3 but struggle to find the right approach. Most of them consider issuing NFTs as a marketing tactic. However, as this article outlines, the essence of brands transitioning to Web3 is to cater to the new needs of new users and to rebuild the relationship between brands and users. There is a huge opportunity space, but it requires a comprehensive and holistic plan. Hopefully, after reading this article, the answers in your mind have become clearer.

Also, as a Web3 surfer, I warmly welcome Web2 brands into the Web3 space to help expand the NFT ecosystem. On one hand, beyond PFPs (Profile Pictures), we need more narratives and utilities, which is exactly where experienced Web2 veterans can shine; on the other hand, the Web3-ization of traditional brands is also a process of introducing new users to Web3. In that news about Nike generating over $185 million in revenue, an interesting statistic from Dune Analytics was cited: on average, 40% of the minters for these brand NFTs are minting for the first time, indicating they are new to NFTs. Achieving a user base of 100 million in NFTs will undoubtedly rely on the continuous influx of Web2 brands. WAGMI (We’re All Gonna Make It)!

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