Should Your Business Launch an NFT?

At a glance

• Main takeaway: Non-fungible tokens (NFTs) are one of the many emerging technologies coming out of the growing blockchain industry.
• Impact on your business: As consumer interest in NFTs grows, so do their use cases and the benefits to companies looking to capitalize on this growing emerging market.
• Deciding whether or not an NFT makes sense for your company may require the assistance of a proven leader in cryptocurrency accounting.

Schedule a consultation with Aprio today.

The full story:

Non-fungible tokens (NFTs) are one of the many emerging technologies coming out of the growing blockchain industry. NFTs came to prominence in 2021 with $40 billion of sales. Despite the general downturn in the crypto market, NFTs are still on track to outpace that growth with $37 billion in sales thus far through 2022.

As consumer interest in NFTs grows, so do their use cases and the benefits to companies looking to capitalize on this growing emerging market.

What are Non-Fungible Tokens?

NFTs are digital assets that represent ownership of anything from art collections and music to event tickets and in-game assets. While they began as art, they have evolved to include other digital assets as well as land, music and more.

All of the data relating to an NFT, including ownership rights, utility and images are stored on the blockchain.

Since tokens are non-fungible, they have individual, unique properties. Therefore, the value of each NFT varies based on its particular properties.

With each passing day, the utility of these assets continues to increase. NFTs are becoming an essential tool within the gradual transition to Web3, where the internet moves to being more decentralized, with users having more ownership of the tools they are using. 

Should companies consider using NFTs to enhance their brands?

With the rapid pace of growth and adoption of NFTs, now might be a good time for businesses to consider how they could use NFTs and what the benefits of doing so are. The primary motivation for a brand to launch its own NFTs is to drive revenue. But, they can also be used to increase customer engagement and loyalty, or to improve business processes.

NFTs offer a unique and attractive revenue model.

Beyond the primary benefit of generating revenue from the initial sale of NFTs, businesses can also create NFTs so they receive a royalty each time one is resold. This creates an opportunity for ongoing revenue from secondary market sales. 

However, not all NFTs are created with the goal of generating revenue. Many are launched to enhance business processes. For instance, an NFT launch may provide authenticity over qualifications or be used to help develop tight-nit communities around a brand.

Common business uses for NFTs

In 2021, Clinique became the first major cosmetic brand to launch an NFT. Given away as part of a competition aimed exclusively at loyalty members, it was offered as an incentive prize alongside free cosmetics and was designed to drive loyalty program signups.

Another area NFTs have found success is with ticketed events. Not only can an NFT be an actual event ticket, it can offer additional revenue opportunities including as exclusive event merchandise and event access.

NFTs can also offer revenue as collectibles on the secondary market. In 2022, the Coachella Festival offered NFT tickets, which included a small collection of NFTs that provided lifetime event access as well as an opportunity to receive unique festival merchandise.

NFTs allow ticket authenticity and ownership to be tracked via the blockchain, which helps solve many of the problems facing the events sector. For event owners, they also open opportunities for additional revenue streams through the programming of specific rules around merchandise, secondary sale royalties, and food and drink deals into the tokens. 

Aprio recently attended and was a sponsor of the 2022 NYC NFT conference and despite the downturn in the cryptocurrency market, the interest and excitement around NFTs was palpable. 

Zach Gillam, a senior associate at Aprio who attended the conference commented, “As one of the conference’s sponsors, we created and minted our very own NFT. When an attendee claimed Aprio’s NFT, they were able to schedule a free 30-minute consultation with our Technology Team. I witnessed firsthand how valuable this technology can be.”

Does launching an NFT collection align with your company goals?

Companies are increasingly adopting the use of NFTs to expand their market presence and generate additional revenue streams. When determining whether to launch an NFT project, it is important to assess whether the project aligns with your brand and business goals.

What audience will you reach?

Are you trying to generate new customers or increase the loyalty of existing ones? It’s critical to ensure that the use of NFTs aligns with your brand image and ideal customer profile. Think about who you are trying to appeal to and the level of comfort that audience would have around the use of NFTs.

What utility will your NFT have?

Does your business already have utility that it could offer NFT holders? For example, do you have unique art (e.g., characters), music or merchandise? It is important to think through the reasons a customer would want to buy and own your NFTs.

What is your launch strategy?

NFTs are a new Web3 technology and as such, are constantly evolving and changing. It’s critical to build out an NFT that can have maximum impact for the months and years to come.

Factors to consider before launching an NFT include evaluating how experienced your internal team is with NFTs, and verifying that you have the technical experience internally to develop a strategy and rollout plan for them.

The bottom line

Deciding whether or not an NFT makes sense for your company may require the assistance of a proven leader in cryptocurrency accounting.

Aprio has been working within the blockchain industry for a decade. Our team of consultants works with you to analyze the opportunity and develop a go-to market strategy to generate maximum impact upon launch.

As you determine what’s next for you or your company, count on Aprio’s Technology and Blockchain CPA Services team to help you achieve your desired outcomes.

Aprio’s Technology and Blockchain CPA Services team can help you determine an NFT and blockchain strategy. Schedule a consultation today!

Related resource

The Ethereum Merge is Almost Here – What You Need to Know
Blockchain: The New Fraud Fighting Tool
Technology and Blockchain CPA Services

Disclosures

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.