Tokengating
Changing the way we think about loyalty programs
What is tokengating?
You’ve probably seen the odd tweet along the lines of “web3 is the future of reward programs”, or more recently read the headlines that Starbucks is launching an NFT rewards program.. What does it all mean? Why should you be paying attention? Keep reading.
Tokengating is a crypto powered way for brands to give their consumers exclusive access to products, discounts, events, and more. Tokengating has some significant benefits to conventional rewards and can easily be deployed into an existing user base via crypto wallets.
How does it work?
User owns wallet -> Wallet holds special Token -> Special token provides access
It really is that simple. Brands can launch their own digital asset, assign rules to it, or if desired, easily delegate rules to any existing NFT - or in some cases entire communities (many people holding the same token).
All the brand requires is a connect wallet button on their site or at point of sale IRL, so that they can authenticate the tokens ownership. This provides access to the gated perks. Gated perks can include access to a hidden part of the site, ability to purchase exclusive merchandise, discounts, and so much more.
Sounds great in principle, but how is this technology being used today?
I was first exposed to tokengating back in February while launching the Eternal NFT project with legendary DJ and multiplatinum recording artist Timmy Trumpet. We created an NFT project that had three components; IRL experiences, a unique physical object, and a digital asset (NFT). The physical object was linked on-chain by a very cool company called Matterium, which establishes governance of physical goods on the blockchain.
The auction winner was able to take the NFT and connect it to our site that was linked up with matterium. Once ownership was authenticated, the auction winner unlocked the IRL experiences and established their custody of the physical good.
We sold the IRL experiences, physical item, and accompanying NFT for 33 ETH ($101,000 USD respectively at the time). Click to read the article.
One month later, I was in Los Angeles for a web3 conference and I quickly experienced tokengating IRL for the first time. This happened while a friend and I were attending the Bored Ape Yatch Club party in Studio City. The entrance to this party was gated by proof of owning a Bored Ape (famous NFT backed by a16z and more). Think of tokengating in this instance as a digital bouncer, verifying via blockchain that the owner holds a given token, then providing access once ownership is established on-chain.
Why is tokengating better than existing rewards programs?
This is undoubtedly the most debated topic when web3 rewards are brought up. I am not of the mindset that NFT’s or any technology that is new and/or different, inherently makes anything better. I believe that in lots of situations the rewards solutions that we have today are well suited for the market's current needs. Trying to force web3 onto it is like trying to fit the square block into a circle hole.
I italized the word “current” in that last paragraph because market needs are constantly changing. For example, we have seen the popularization of collab themed product/reward campaigns over the past couple years. Typically these are led by two flagship brands, everything from GoPro x Redbull, to collabs we didn’t even know we needed like Disney x Givenchy. These are great examples of two brands coming together in a collaboration where the sum product has a greater value than their singular product. Bringing together two different communities or groups of consumers to enjoy the combined value.
This brings us to why tokengating can revolutionize collaboration and rewards. The current rewards solutions, for the most part, require an account which has a walled garden existence (think login, brand specific discount codes, etc), meaning to add in a partner brand increases complexity of the system required. When you start thinking about adding more brands, things can get factorally more complex and become impractical to deploy. Picture 5 different brands trying to launch a rewards initiative together, on top of their individual legacy programs. Where do you make the account? do you sign in? and if so, where? This becomes extremely complicated even at a small scale.
Tokengating gives us the ability for many brands to quickly and easily create a shared value trench, that both the brands and users can win from.
All that is needed for a multi-brand collab is a connect wallet integration. With that, any brand can assign rules, and users can go cross company to receive awards based on what they hold in their wallet. Here is an example I like to think about;
A consumer buys NBA game 7 tickets, this is a high ticket (😏) purchase and one that is likely to end up on-chain in the near future with POAPs (proof of attendance protocol). In the world where tokengating sees adoption that user could use their game 7 tickets to get a discount on their next jersey purchase online, they could also see a small discount on a drink at the next game IRL, a free apetizer at a local bar that sponsors the team, even a discount on their uber to and from the arena.. you get my point.
All these brands that have a shared stakeholder value in the NBA game 7 can win from a single purchase just by adding one integration and assigning their own rules to that specific POAP. Not to mention, our ticket holder getting residual value post sale which increases his brand loyalty across the board.
Web3 rewards of the future
Are these massive companies launching web3 programs for the PR? Or do they actually plan to execute on these headlines? My take is half yes and half no. I believe that brands who put the big headline out and don’t already have a dedicated blockchain team, are likely not going to execute. The other half of brands; Starbucks, Shopify, and more, are setting up to see a great deal of success in the coming years as the infrastructure continues to build, and they already have the human capital and a web3 strategy in place.
The biggest winners in this race will be community driven brands and their consumers. Sneakerheads and high fashion have entire communities driven by exclusive drops and gated experiences, so they are already acclimated to the coming trends tokengating is bringing.
Lets Connect.
If you’re passionate about web3 and disrupting the consumer rewards space, you can connect with me at Alex@comeauholdings.com.
This is my first Substack post, welcoming all feedback 😊
-Alex