The idea of non-fungible tokens has spread to every corner of the Internet and every business willing to spend money on Web3 — a futuristic, blockchain-based version of the Internet.
Hang, a new startup in the fledgling mobile-future space, is helping some of the world’s largest brands replace their existing membership and loyalty programs with mobile-future solutions.
Anyone can view images, videos and music online for free due to the rise of the internet. Blockchain, which serves as a digital ledger of transactions, is being used to support the purchase of NFTs as a way to prove ownership of virtual items.
This past week, the company announced that it raised a $16 million Series A funding round led by Paradigm Ventures, a company with stakes in FTX, BlockFi, and Coinbase. Hang is also backed by Tiger Global, Warby Parker, Allbirds, and Thirty Five Ventures, among others. Budweiser, Bleacher Report, Pinkberry and Bonnaroo are some of the companies it has worked with.
“For most brands at a certain scale, it’s pretty hard to offset increasing customer acquisition costs,” Hang CEO Matt Smolin said. “The best way to do that is by increasing the lifetime value of their user base and harnessing loyalty,” he says, adding that rewarding loyal users is often done in tiers: more frequently a customer buys something or interacts with a brand, the more benefits they receive, and in some cases, they can “level-up” to a different level of customer.
“Because of blockchain technology, NFTs create a way for brands to incentivize their users to not only rank up to a new level in their program, but actually appreciate the value of the asset that they own and can later be resold on [NFT] marketplaces,” Smolin said. ”[Brands] can also take a royalty or percentage from each resell transaction as users continue to fast-track their loyalty status, which inevitably will just make them more aligned with that brand.”
However, there are risks associated with that.
NFTs are scarce, digitized assets that also can’t be forged because they’re registered with blockchain technology. Critics claim they’re overrated and could pose a danger to the environment because cryptocurrencies are power-hungry. Ethereum is the second-largest token, and many NFTs are built on it.
The CNBC’s Eamon Javers reported recently that criminals have stolen as much as $22 million in NFTs through Discord, a messaging app that has proven popular among crypto traders over the last few years. Last month, TRM Labs discovered that at least 10 NFT channels on Discord had been hacked. Using so-called “social engineering” techniques, the hackers would send imposter emails that created a false sense of urgency around a given digital asset, creating a sense of “FOMO” in those users looking to either buy or sell their NFTs.
“Much of what we’re doing isn’t really for your typical crypto audience,” Smolin said. “We’re trying to work with some of the world’s largest brands and help them solve real problems for their business. Yes: if [the brand] wants, they can have their customer pay with ethereum or whatever crypto token, but for the most part, many of these brands are actually opting for their customers and users to sign up with an email and credit card.”
A given reward redemption would obviously require the brand to convert customer payments into cryptocurrency for the NFT transaction. Smolin asserts that Hang’s long-term success will depend upon integrating some of the consumer-friendly transaction technologies that consumers are already familiar with, “like email and credit card.”
Digital assets will have long-term value due to their utility, claim investors. As collectible artworks, such as Bored Ape Yacht Club and equally hyped Crypto Punks, continue to see significant price volatility in tandem with the recent “crypto winter” downturn, it’s a message that’s been hard for institutional investors to digest.
“Bored Ape Yacht Club’s model is all about exclusive, limited supply and that works really well for them. But for most brands, it’s far more impactful to capture millions of people who spend 10% more per year than it is for them to get 10,000 people to spend $400 bucks once or twice,” he said. “A lot of the future that we’re building is toward these NFTs being free and users actually obtaining them in a store, on a website or in an app. And no longer is it the scarcity about how many NFTs are being sold, but just the leveling system.”
In the midst of the struggling crypto industry, it’s a refreshing perspective. With “crypto winter” in full swing, companies like Three Arrows Capital, Celsius, and Voyager Digital have all filed for bankruptcy, shaking confidence in the sector.
This week, however, ethereum and other coins rose, following a prolonged decline that brought it down by about 70% from its peak in November of last year, ethereum has reached its highest level in almost a year.