The Power of Web3

Crypto Economics

The world of business—and of ExOs in particular—has changed profoundly with the arrival of new forms of exchange, notably blockchains and cryptocurrency. This new medium is driving the creation of a wholly new internet—Web3—built on the unique features and advantages of crypto and blockchain. With the rise of Web3 and crypto wallets, Engagement now intersects with cryptoeconomics, making it irresistibly sticky. 

Cryptoeconomics combines cryptography, computer networks, and game theory to provide secure, decentralized systems that use economic incentives to provide at least in part for their maintenance. As of this writing, more than 70 blockchains are in operation, with a total market cap of over $1 billion. The most successful have grown impressively by creating Communities around a particular purpose, incentivizing Community via cryptoeconomics (e.g., early adopters get rewarded more), and gamifying the ecosystem.

The rise of cryptocurrencies has led to an Engagement revolution. Cryptocurrency creates not only a way to monetize Engagement but, just as important, a way to tie Community members closer to a company’s success and thus retain them at unprecedented rates. This revolution has only just begun. As it evolves into new forms of speculation, gaming, and investing (notably, in non-fungible tokens), it promises to change Engagement in as-yet unimaginable ways. Stay tuned.

Non-Fungible Tokens (NFTs)

Non-fungible tokens, or NFTs, are a product of the rise of blockchain technology in the late 2000s and early 2010s. NFTs were conceptually introduced in 2012 with the development of the Colored Coins project on the Bitcoin blockchain. These tokens, representing real-world assets like stocks or property, were linked to small fractions of Bitcoin. However, it was Ethereum, a blockchain platform with smart contract functionality, that truly provided a fertile ground for NFTs to thrive.

In 2015, entrepreneur Eric Pulier introduced Vatoms, further evolving the concept of NFTs as unique, verifiable digital objects on blockchains. Pulier’s goal was to revolutionize human engagement through gamification and the psychology of ownership, impacting sectors like ticketing, marketing, and loyalty programs. He predicted the next evolution of the internet would involve Web3 digital wallets and self-sovereign identity, leading to individuals controlling their digital identities and selectively sharing information.

The first significant mainstream breakthrough of NFTs came in 2017 with the launch of CryptoKitties, a virtual game developed by Axiom Zen that allowed users to collect, breed, and trade unique digital cats on the Ethereum blockchain. Each cat was an NFT with a distinct combination of attributes. The game quickly gained popularity, drawing attention to the potential of NFTs. This led to the emergence of platforms such as OpenSea, Rarible, and SuperRare, making it easier for users to create, buy, and sell NFTs.

Since then, NFTs have expanded across numerous domains, including digital art, virtual real estate, gaming, sports memorabilia, and music. In 2020, the NFT market gained significant momentum, with high-profile sales and celebrity endorsements propelling it into mainstream consciousness. This trend continued in 2021 when digital artist Beeple sold an NFT artwork at Christie’s auction house for a staggering $69.3 million.

Meanwhile, Pulier’s idea of utilizing NFTs to strengthen human Engagement started to take root. Organizations began to see the value in accessing selective information from individuals for personalized communication, reshaping the roles of intermediaries like social networks and media companies. Major brands started adopting Web3 techniques, collecting first-party data, and building personalized relationships. This shift was driven by changes in regulations, privacy concerns, and the increasing costs of customer acquisition. Pulier’s company, Vatom, began to revolutionize audience engagement using gamified, personalized digital objects.

Today, with increasing interest and adoption, NFTs have become an essential part of the digital landscape, revolutionizing the way people create, own, and interact with digital assets. The dynamic nature of these digital objects not only engages users but also collects valuable data, enabling more personalized relationships and better business outcomes.

We consider most NFT projects to be ExOs. Take the FlyFish Club. Created by Gary Vaynerchuk in 2021, it consists of 3,000 membership NFTs, traded in NFT marketplaces like OpenSea, that give owners access to various restaurant events and other perks. As of this writing, FlyFish’s market cap is more than $60 million.NFTs are among the few phenomena in the current economy that exhibit 10x Engagement, making them an ideal tool for Exponential Organizations. The most popular NFT project as of this writing is the Bored Ape Yacht Club (BAYC), built on the Ethereum blockchain. The collection offers profile pictures of Algorithm-generated cartoon apes. BAYC engages audiences with unique intellectual property that can be leveraged (and owned) by the community, as well as a wide variety of related experiences that galvanize a cohesive Community of enthusiasts. BAYC became a $10 billion project less than a year after it launched.

The most popular and widely used platform for brand engagement and community building is Vatom. Vatom has built the world’s first and most proven enterprise-ready Web3 SaaS engagement platform. Their solution has become the Web3 infrastructure and engagement platform of choice for some of the largest companies in the world, including Google, PepsiCo, P&G, Deloitte, E&Y, Verizon, iHeart Media, Dentsu, Animoca, State Farm, and WPP, among others.

Here are five examples of how brands are using NFTs:

1. Gucci—The NFT Collection: Gucci collaborated with blockchain-based platform Arianee to create a limited-edition NFT collection featuring 10 exclusive digital designs.

2. Pepsico & FIFA joined forces with Vatom to print more than 200 million QR codes on bags of snacks, inviting consumers to take selfies and become part of the world’s largest digital art project—a massive NFT soccer ball. The metrics of engagement were staggering, with 38% of all visitors registering to play, 70% engaging daily, and 40% of registered users sharing the campaign with a friend. Best of all, every player opted in for an ongoing direct relationship.

3. Porsche announced the creation of its first NFT project, which will offer unique, limited-edition digital collectibles to its fans and enthusiasts. 

4. Louis Vuitton collaborated with Axiom Zen to create a virtual art exhibit, featuring NFTs that showcase the brand’s history and heritage.

5. Nike and Rarible partnered to launch a collection of limited-edition NFTs, featuring iconic pop-culture moments, as well as original works of digital art inspired by Nike’s history and brand values.

In each of these examples, digital objects and wallets are used in different ways to engage more effectively. In a discussion with the authors of this book, Pulier described the evolution of these methods, specifically the market’s shift from speculation to engagement. While NFTs are designed for long-term engagement, it was clear that the early frenzy of get-rich-quick schemes and gamblers in the NFT space would dominate the news until the bottom fell out and the true value of these technologies became apparent. That time has now come, Pulier says, as organizations worldwide seek better ways to collect “zero-party consumer data” transparently and directly. Zero-party data is defined as information that a customer intentionally shares with a brand or company. Examples include preferences, purchase intentions, and even hopes and dreams—anything that the individual wishes to share to enable the highest value from the brand. This is by far the best data a group can aspire to acquire, creating win-win dynamics that any successful relationship needs to sustain over time. 

Today’s consumers are bombarded with marketing noise, want to engage selectively, and are increasingly careful about how they spend their time. What’s the best way to find out what a particular person wants to spend time on? The answer is deceptively simple: ask them. Better yet, give them the opportunity to tell you in their own way. By engaging them upfront with digital objects of value (“take one” vs. “take my time”), combined with gamification methodologies like Octalysis (discussed below), Exponential Organizations provide the framework to establish this path. Importantly, the application of artificial intelligence to this data results in mass personalization at scale. A confluence of exponential technologies, all maturing at the same time, creates an unprecedented change in the way we engage. The result, says Pulier, is decreased customer acquisition costs, increased loyalty and retention, and personalized, one-to-one experiences at scale.

Virtual spaces—what some call the “metaverse”—are perhaps the most misunderstood form of Web3 experience for driving data. The real power here is Engagement. In the metaverse, the Engagement one seeks is more powerful amongst the audience than between brand and audience. Unlike Zoom, Instagram, Twitter, and other common forms of online social activity, virtual spaces offer a dramatic shift in how people can achieve “real world,” spontaneous social interactions. In virtual spaces, you can run into someone in an unplanned manner, have a laugh, play a game, and go on an adventure. 

The best way to think about this kind of Engagement, says Pulier, is as a simple improvement to the web itself. The web started as static markups of data, moved to more dynamic pages and user-generated content, and now adds “people, places, and things.” with the goal of more seamlessly integrating our physical and digital lives. “People” is our identity, represented by the wallet; “things” are digital objects we truly own; and “places” are the dimensional experiences we can now “enter” to engage with each other, as we do in the physical world. Every website, says Pulier, will have a “Come in” button and will feel naked without it. The objective is not to create artificial scarcity and sell it for a profit but instead to create environments and activities where people want to come back, engage with each other, and feel comfortable sharing data to create mutually valuable relationships. 

Michael Jonsson is a pioneer in the crypto space who has worked with some of the earliest coin protocols and left an indelible imprint on the evolution of this digital frontier. NFTs, he says, “are comparable to the invention of the hyperlink, paving the way for a myriad of applications that will transform the way we interact, create, and transact. Just as the hyperlink revolutionized the way we use the internet, so too will NFTs blaze the trail for unprecedented innovation and transformation across countless domains.” 

A final point about the power of NFTs: From a marketing perspective, the most interesting aspect of NFTs is not that they’re digital but that they are programmable. Thus, once a set of customers has NFTs, an ExO can use frameworks like Octalysis to nudge behavior with different Engagement and gamification mechanics. That said, let’s examine the Octalysis Framework.