Adidas' NFT loophole: What brands can learn - AdAge.com

Adidas is learning from its first NFT drop last week, which is the latest example of the potential shady nature of non-fungible tokens for brands experimenting in the metaverse.

The much-anticipated collection, released in partnership with Bored Ape Yacht Club, brought in more than $22 million in sales.

But Adidas hit issues early on when it opened up the NFTs to early access, with some owners not being able to mint the NFTs, which is essentially the process to turn a digital file into a crypto collectible. It forced Adidas to pause the minting process. It also encountered at least one buyer who far exceeded the limit of NFTs someone could purchase, potentially creating an issue with how many of the tokens were available. 

Still, Adidas is deeming the launch a success for its first move into the metaverse. 

"To achieve our shared goal, we limited tokens/transaction and transactions/wallet. To evade bots, we announced the time as near to the drop as possible. To warn about the risks of evolving Web3, we worked with our partners to create educational material, FAQ and a Discord," the company wrote in a Twitter thread yesterday. "Even with all the measures we took, it wasn't perfect. But, for the first time, thousands of new adopters experienced the thrills and risks of Web3. We'll never stop learning."

Adidas is promising those who lost gas fees—the fees taken to mint an NFT—will be refunded "as soon as we complete the process of checking all transactions." 

"Those who felt hurt by gas in the public sale, we are learning from it," the company added in its tweet. "Those who think we're going to pocket the money and run, that's not Web3. Have faith. Those who felt the timezone wasn't in your favor, our journey here is just beginning."

For Adidas, the snafus aren't stopping its move into virtual goods. "This NFT drop is the beginning of Into the Metaverse, not the end. We have more in store to share in the new year," the company wrote. 

Adidas is the latest brand to encounter the darker side of NFT marketing. While dozens of brands have been eager to create NFTs and connect with tech-savvy consumers, some are finding that buyers don't play by the rules or can reflect poorly on the brand. McDonald's experienced this with the drop of its McRib NFT, when it was discovered that a recipient of the NFT encrypted a racist message in the metadata field. Since NFT records are permanent, the message, which included a slur, cannot be erased.

Adidas's first splash into the open NFT waters showed yet again why it is still a chaotic marketplace for brands, with unforeseen consequences even when they do their best to protect these experimental projects.

In this case, Adidas tried to place limits on how many NFTs an individual could buy, because brands and NFT creators want to make their "drops" as widely accessible as possible—not see them hoarded by resellers, who then flip the digital goods on secondary markets for a profit. In this way, markets for virtual goods behave like markets for physical ones, such as those for concert tickets, sneakers and popular video game consoles. In the real world, there has been a lot of attention placed on how bots can be used to immediately snag hot consumer products online at regular retail prices, only to resell them at much higher prices to everyday consumers. Just this month, Congress introduced a new bill to regulate bots that buy consumer commodities online, such as Sony PlayStations, so they can resell them at inflated prices.

One of the reasons Adidas hit any problems with its NFT drop was because the project commanded so much consumer enthusiasm. In that sense it was a hit. Adidas had been laying the groundwork for its launch for weeks, after doling out 20,000 free crypto-tokens, which were meant to give its most enthusiastic fans early access to its bigger NFT project last week. The snag in the minting process and other issues, frustrated some of these fans. But the Adidas NFTs are still popular, generating activity on secondary marketplaces like OpenSea.

Adidas seemed to acknowledge the risks of becoming highly coveted brand in the metaverse, by tweeting to followers that they should only buy its NFTs through verified sellers, saying "if you're exploring the secondary marketplace, make sure to only use the verified Opensea link."

This was not a hack, nor did Adidas do anything inherently wrong. But buy-ups like this can be discouraging for first-time buyers or for genuine brand fans. 

"We're literally at the infancy stage of NFTs right now in a space that's moving chaotically fast. This means that mistakes will happen, and loopholes will be discovered," said Mike Proulx, VP, research director, Forrester. "That's the very nature of innovation. What's important is that brands and the NFT community are testing and learning together while beginning to establish best practices, trusted partners, and long-term value."

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