As in the rest of the world, the metaverse is generating marketing buzz in China. Unlike the rest of the world, China does not allow metaverse activities that involve cryptocurrency or trading in non-fungible tokens (NFTs). Yet brands are still finding ways to be creative in the developing arena.
For example, Kering-owned Italian jewellery brand Pomellato recently commissioned crypto artist Sun Bohan to develop an NFT series based on the jewellery collection Nudo. The brand issued digital collectibles via Weibo’s digital collectible platform Top Holder in July.
Sun, the co-founder of BCA Gallery, also believes in showcasing crypto artwork from the global NFT community. His physical gallery in Shanghai recently promoted NFTiff, jewellery maker Tiffany & Co’s inaugural NFT collection made in collaboration with CryptoPunks, one of the most coveted series of collections launched in 2017. The gallery showed a promotional video for the collection on a giant LED screen before the collection was released on August 5.
“This is not an official partnership [with Tiffany],” said Sun, who is now based in Los Angeles. “But in the ecosystem of NFT or Web3, brands need more spontaneous voices from their communities.”
It is uncertain how much value the unsolicited promotion brought to the final sales result. Tiffany sold out all 250 sets in the collection within 20 minutes on the day of release, bagging US$12.5 million, with each NFTiff priced at US$50,000 (or 30 ether). On Friday, the floor price, or the lowest price of a single NFT in the collection, was 49 ether.
But in China, which is on course to be the world’s biggest luxury market, the physical showcase was perhaps the only connection Tiffany’s effort made with potential consumers. The company delivered no marketing messages about the collection via its official channels.
The different ways Pomellato and Tiffany presented their offerings in China sheds light on a choice brands face with mainland metaverse marketing: investing in China-specific projects that fit the highly regulated NFT and crypto market, or “lying flat” – a popular phrase that describes not doing anything overt, and only passively engaging with an exclusive Chinese community.
Beijing has banned the trading of cryptocurrencies and secondary trading of NFTs on public blockchains like Ethereum. The discourse around NFTs in China is largely concerned with what are more accurately called digital collectibles, which are built on private or consortium blockchains that can be centralised. This is why Tiffany could not tout its collection of NFTs like it would other marketing campaigns in China.
The case of Roblox shows that the window for brands to extend existing platform partnerships into China may be closed. The popular blockchain-enabled gaming platform, which counts brands including Gucci, Givenchy and Ralph Lauren as partners, shut its Chinese platform LuoBuLeSi five months after teaming up with Tencent last year, citing regulatory reasons. Brands can choose to work with nascent, regulated metaverse platforms from Chinese tech partners like Baidu, NetEase and Xiaohongshu.
“Brands can issue digital collectibles on compliant blockchains in China,” said Wang Yinying, a Shanghai-based lawyer focused on blockchain and Web3. “But they should not cross legal red lines, such as processing transactions with virtual assets, or adding financial characteristics to their digital collectible products.”
She cites a collaboration between Hong Kong-listed Chinese milk tea brand Nayuki and NetEase’s metaverse platform Yaotai as a successful initiative that toed the line.
Loopholes still exist for Chinese consumers to trade cryptocurrencies and NFTs, despite China’s hardline stance. They can trade with friends outside China. They can try to skirt restrictions on crypto exchange platforms. They can trade through OKX, a legally ambiguous crypto exchange platform that rebranded from OKEx after relocating part of its workforce out of China after Beijing’s crackdown.
So brands that create buzz by offering cryptocurrency-connected NFT collections outside China may still accrue marketing benefits within China simply by lying low.
Colin Wang, a fund manager and a CryptoPunk holder based in the Chinese mainland, learned about the Tiffany NFT collection through his holders’ community. He had a crypto exchange account before the crypto ban in September 2021 and bought his CryptoPunk for between 30 and 40 ether.
A self-proclaimed fashion lover, he normally spends around 100,000 to 200,000 yuan (US$14,433 to US$28,866) on luxury goods from the likes of Gucci and Louis Vuitton every year. The Tiffany collaboration was made with people like him in mind, though he passed it up this time.
Luxury brands communicate and engage with the metaverse to connect with young generations who may become future clients, according to Laure Charpentier, principal at global consultancy Oliver Wyman’s Paris office. “Chinese young generations are even more digital and digitally social than any other countries.”
“There’s an overlap between NFT holders and luxury,” said Wang, the fund manager who considered buying an NFTiff, adding that the holder community comprises 300 million to 500 million people globally that brands can target.
“Given that the consensus is no secondary trading in China, it may just be easier for brands to focus on branding and raising awareness,” he said. “It is a cost-effective way to get media exposure.”
China’s rules around NFTs are not the only thorny issue the metaverse presents for luxury brands.
CryptoPunk holders like Wang are used to holding the intellectual property for the NFTs they buy, which is contrary to the traditional brand-management perspective of maintaining full control of brand equity. As NFT marketer Thiago de Marco noted in a widely distributed research paper, brands may not be comfortable with this uncertainty.
“What [the NFTiff promotion] shows is the open culture of the Web3 ecosystem,” Sun of BCA Gallery said. “We have a group of exclusive NFT holders and what they did is an expression for their collectibles.” Alongside the showcase for Tiffany, the Chinese-speaking Punk. China holder community in mainland China also offered a collection of CryptoPunks.
“[In Web3 marketing], brands should reimagine their operational logic and truly become user-oriented,” said Ye Meng, the founder of art-tech focused RGRT Group, which has produced digital collectibles for the attendees of LVMH group’s innovation day in China as an internal trial. “It can be quite a challenging transformation for big brands.” South China Morning Post