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NFTs Hit the Mainstream—And Risk Follows | Woodruff Sawyer

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These “high-priced pixels” quickly became new status symbols for pop stars, professional athletes, and wealthy entrepreneurs, fueling the rapid growth of the peer-to-peer market supporting the trading of digital assets. Idol-busting apes, punks, owls, and skeletons have become artwork for popular avatars and streetwear. The budding artist, with names like Beeple, XCopy, and Mad Dog Jones, takes this digital world of his art and Meta his heroic digital works, political commentary, surreal still life paintings, dystopian worlds and more. A kind of crypto spawned his renaissance. And the major brands have taken notice.

Luxury brands Gucci, Tiffany and Mercedes Benz join Main Street brands Coca-Cola, McDonald’s and Frito-Lay in new Web 3.0 ventures.flat time magazine Joined the fray by issuing TIMEPieces at the first mint featuring an interview with Ethereum’s Vitalik Buterin.

Each company’s NFT strategy can be very different. In fact, their strategy can change from casting to casting. But are there new risks with nascent technologies like Web 3.0? The answer may surprise you.

Promotional campaign

This summer, The History Channel made waves with a limited number of NFT promotions during popular series Shark Week. Viewers were prompted by her QR code between segments directed to download a free NFT of him featuring a still of their favorite shark in action. McDonald’s will distribute a limited number of his NFTs with his McRib starting in November. Fans of the limited-time sandwich will have a chance to win his NFT for free during McDonald’s marketing his campaign to celebrate his 40th anniversary of McRib.

Avid fans of both brands may appreciate the novelty of these NFT products, but the monetary value of NFTs may not increase over time. Although the risks to brands associated with this type of promotional campaign are limited, the vendors behind the minting are exposed to the risk of copyright infringement and intellectual property infringement without proper authorization from those brands. increase.


Coca-Cola, Kia, and Tiffany have developed NFT collectibles with different strategies. Coca-Cola provided his NFT artwork by fashion designer Rick Minsi in July in celebration of Pride Month, with proceeds going to his LGBTQIA+ charity. Kia Automotive replaced the street-savvy hamster character with the skeleton of his DASK (Dark Army Skeleton Krew) in a TV commercial for the Soul SUV. Viewers were shown her QR code with instructions for downloading a free promotional DASK NFT. The offerings quickly ran out. Perhaps the most frowned upon is that of solid jeweler Tiffany & Co., which offers NFTiff. Consumers will receive a limited number of unique cryptopunk NFTs created as NFTiffs. NFT will then grant the right to purchase custom Tiffany necklaces and pendants depicting the Crypto Punk.

These strategies are different (even if some are part of a marketing promotion) as the NFTs offered contain an inherent value. NFTs are immediately tradable on the peer-to-peer trading market. As federal anti-money laundering laws are increasingly enforced on his NFT creators, corporate governance challenges are surfacing.


Fans and collectors looking to take refuge in the Metaverse include UPS, Frito-Lay and Mercedes Benz. UPS and Frito-Lay have applied for new trademarks to offer their products, services and multimedia in the Metaverse. Details of each offering have not yet been announced. But Mercedes-Benz has issued his NFT of the iconic G-Class SUV. Status-conscious collectors can bring the “G-Wagon” into the Metaverse.

Metaverse creation and development is still in its infancy. But crimes like NFT theft and fraud are already making headlines.

Access control/ticketing

Sports franchises, entertainment venues and concert festivals are looking for NFTs that offer exceptional access and an enhanced fan experience.

Since NFTs are offered as virtual tickets, there are many different technologies that allow entry into the venue. If these NFTs do not function properly or the admission process is slowed, the NFT issuers may be exposed to reputational damage and class action lawsuits from fans who are not authorized to access them.

split ownership

Perhaps one of the biggest potential growth areas also contains the biggest risks for NFT issuers. Recording artists and independent filmmakers have struggled with production deals deemed unsustainable for these artists. Criticism is that film and music studios hold a disproportionate share of revenue streams derived from unit sales, tours and other promotions. As a result, artists market directly to their fans while looking for ways to monetize their work. Perhaps there are different levels of customer experience for superfans.

Ideas are compelling. The artist offers the work as her NFT which grants fragmented ownership to the work, but the artist retains most of the intellectual property rights. The artist then distributes a split portion of subsequent royalties to her NFT owners. The artist also regularly drops content and products to reward her NFT owners. This novel approach also provides an incentive for owners to promote their artists’ work to increase future royalty payments.

While the idea is tempting, the licensed sale of unregistered securities could put the issuer in violation of the Securities and Exchange Commission (SEC), according to Howey Test. The SEC is now pursuing several cryptocurrency issues and trading platforms under the same securitization theory these artists are considering. For publishers, this represents another high risk that directors and executives must consider, along with governance requirements, technology risk and cyber exposure.

where to turn

The underwriting community has proceeded cautiously in offering insurance solutions to both incumbents launching Web 3.0 initiatives and digital asset organizations built natively on this technology. The impact on both coverage and pricing will vary greatly from company to company.

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