Building the Soul of a Web3 Brand: 3 Questions: Why? What? How?

Original Title: “Building the Soul of Web3 Brands: 3 Questions - Why, What, How”

Original Author: starzq.eth

Introduction

Recently, two very timely news items emerged: Starbucks announced its entry into Web3, aiming to create a blockchain-based user loyalty platform; the top blue-chip NFT project Doodles announced a $54 million financing round to build a world-class entertainment brand native to Web3. On one side, top Web2 brands are transitioning to Web3, while on the other, Web3 native brands are accelerating their growth. We have arrived at the eve of an explosion in Web3 branding.

During this time, I have read many articles about Web3 brands, but most focus on the technical aspects. In discussions with friends from Web2, the biggest confusion lies in the philosophical realm: why should we do this? What does a Web3 brand really mean, and how is it different from a Web2 brand? Once we clarify these questions, traditional brands will have a more comprehensive understanding and preparation, allowing them to take the step from why to explore what (what) and how (how). Borrowing the "Three Soul Questions" model from my favorite podcast "Wen Li Liang Kai Hua," I attempt to answer the three soul questions of building a Web3 brand - Why, What, How, from philosophy to technique.

1. Why: Why is Web3 indispensable for brands?

2. What: What types of categories are suitable for Web3 brands?

3. How: How to build a Web3 brand, including mindset shifts / skill trees / case studies

4. Finally, here are 3 very practical Q&As:

• What is the most important thing in the early stages of establishing a Web3 brand?
• Why do I strongly recommend converting membership cards to NFTs?
• Final advice for traditional brands entering Web3.

I hope that after reading this article, you will gain the following insights:

• If you are a traditional brand, I hope this article can help you (and your boss) strengthen your determination to transition to Web3 and understand how to better meet the new needs of Gen Z users. The cases and suggestions in this article can serve as references.
• If you are planning to build a Web3 native brand, I hope this article can help you better choose categories, design products, and initiate community cold starts.
• If you are a Web3 user, great! I hope the methods in this article can help you find better community-driven brands, engage deeply with communities, and co-create for a win-win situation.

Why: Why is Web3 indispensable for brands?

Based on NFTs or ERC-20 Tokens, let's examine what changes consumers/communities/brands will undergo.

Consumers:

1. Demand upgrades from "consumption" to a triad of "consumption + assets + digital identity."
2. Consumers evolve into "sovereign individuals," where brands are not just consumer goods but also personal assets for consumers (Token holders). Consumers will invest more emotion and energy into these assets, helping brands/personal assets grow; at the same time, consumers will have healthier creative incentives, making this investment process sustainable.
3. For Gen Z consumers, there is a greater willingness to establish a unique digital identity to showcase their individuality and serve as a passport to the metaverse, which requires corresponding brands to meet this need.

Community

Compared to Web2 communities, which resemble loose interest groups, Web3 consumers have more tangible investments and rights, leading to deeper community consensus and stronger energy, gradually forming an equal relationship with brands. Water can carry a boat and also capsize it; a strong community can accelerate brand growth or create FUD (Fear, Uncertainty, and Doubt) against the brand. Brands must face and embrace this reality.

Brands

1. Based on the above analysis, brands must meet the new demands of new users; otherwise, they will be eliminated by the times.

• As the proportion of virtual consumption increases, traditional physical brands must prepare in advance and possess the capability to offer virtual products or hybrid products, securing a place in revenue. Nike is the fastest mover in this regard, generating over $185 million in revenue, ranking first among major brand NFT projects.

1. Brands need to establish a symbiotic relationship with consumers/communities to share benefits, rather than the one-sided consumption relationship of Web2.

In summary, users have changed, demands have changed, and there is a need for brands and (hybrid) products that can meet the "sovereign individual" concept. Web3 essentially rebuilds the relationship between brands and consumers, even changing the ownership of "brand sovereignty," granting consumers the right to become brand owners, aligning with the philosophy of the entire crypto space, similar to the confirmation of user asset rights. It is fundamentally about "users first."

Expanding on this "symbiotic relationship":

• (Gen Z) consumers need Web3 brands to help establish their digital identities while owning brand assets, gaining more rights from the brand. From the user's perspective, they are no longer merely consumed or objectified by the brand but become owners of the brand, co-creating and sharing benefits. In this process, the community possesses powerful consensus.
• From the brand's perspective, this reduces various costs, including customer acquisition, product definition, testing, and promotion costs. Leveraging a community with strong consensus can facilitate faster growth and dissemination.

This symbiotic and win-win relationship will undoubtedly give rise to highly competitive Web3 native brands. In a highly competitive market, traditional brands will actively pursue Web3 transformation; after all, if they do not revolutionize themselves, they will be revolutionized by others.

Thus, we answer the initial question:

Q: Why is Web3 important for brands, or why will brand Web3 transformation inevitably happen?

A: Because only Web3 brands can meet the triad demand of "sovereign individuals" for "consumption + assets + digital identity." Web3 brands are not just changes in marketing methods or revenue structures; they fundamentally aim to satisfy the new demands of new users, representing a shift in mindset that builds or reconstructs brands from the essence of users.

What: What types of categories are suitable for Web3 brands?

What types of categories are suitable for Web3 brands? My answer is that any category that can be community-driven is worth trying. Users participate in product definition, production, testing, and promotion, with a portion of the product profits flowing back to the community, achieving a win-win situation between users and brands, supported by tokens that facilitate user participation and profit distribution.

Since it is community-driven and can form a brand, the category must meet the following conditions:

• Low production costs
• Short testing cycles
• High category richness, making it easy to form a brand

Theoretically, categories that require extensive testing of products meet all three conditions. More specifically, apparel, food (beverages), and scripts are perfect categories that fit this model. In the examples below, you can also see that many Web3 brand entrepreneurs have chosen these three categories.

How: How to build a Web3 brand

"How to build a Web3 brand" is a very broad topic, and there is currently no so-called "best practice." The players in the current arena are all exploring. This section attempts to answer this question in two parts, hoping to inspire and assist readers.

1. The key differences between Web3 and Web2 brands, and the core skill tree that brand owners need to develop.
2. Through four case studies, we will conduct a more concrete study on how to build a Web3 brand, including different categories and building methods.

Key differences between Web3 and Web2 brands, and the core skill tree that brand owners need to develop

(Key differences between Web2 and Web3 brands)

I created a diagram to clearly describe the two key differences between Web3 and Web2 brands, which are also two win-win strategies.

Win-win Strategy 1: Community First, "Brand-Community" Bidirectional Relationship

1. Compared to the "Brand First" or "Product First" approach of Web2 brands, and the one-way "Brand-Consumer" relationship; Web3 brands need to prioritize "Community First," establishing a bidirectional relationship between "Brand-Community." Why is community first necessary?
2. In terms of time sequence, community comes before brand: As previously mentioned, brands are not just consumer goods. They also become personal assets for consumers (Token holders), meaning consumers are also investors. In fact, users are first investors and then consumers, as creating consumer goods takes time (3 months to 1 year), and startup capital is needed before creation, necessitating the establishment of a "(potential) investor community." Therefore, in terms of time sequence, community comes before brand.
3. In terms of belonging, community comes before brand: Because users possess dual identities as investors/consumers, as brand owners, they have the right to participate in brand definition and construction, so in terms of belonging, it is owner (community) first, then brand.
4. In terms of importance, community comes before brand: The "Brand-Community" relationship forms a bidirectional connection; brands not only grow and spread through the community, but community users will also invest more emotion and energy into it, helping brands/personal assets grow. This process solidifies strong community consensus, and the brand vision relies on this consensus. Thus, the order of importance is "Community → Consensus → Brand"; the community is the foundation of the brand. A brand without a community is like a tree without roots, or water without a source.

Win-win Strategy 2: Deriving Community and Brand Self-Growth, Expanding the Original Brand Ecosystem

1. This is also a significant difference between Web3 brands and Web2 brands. Through the power of community users, larger derivative communities and brand ecosystems can be created, feeding back into the original brand, as highlighted in pink in the diagram above.
2. Unlike Web2 brands that control IP and profit from it, the vast majority of Web3 brands have granted IP rights to NFT holders (Holders), and CC0 brands have opened IP to everyone. Community users can use the IP they hold or CC0 IP to launch derivative communities based on the original brand community, establishing their own derivative brand businesses while expanding the influence and lifecycle of the original brand, creating a win-win situation.

The above describes the mindset changes in building Web3 brands. Next, let's compare the core skill trees that Web2 and Web3 brand owners need to develop. It is clear that the types are still the same, but unlike Web2, where everything is controlled internally by the brand, the foundation of all operations in Web3 brands is the community. How to integrate all work with "community operations" is the biggest challenge in the practical work of Web3 brand owners. In short, building a Web3 brand is essentially about building a community.

(Differences in skill trees between Web2 and Web3)

Case Studies

1. Web3 Community Incubating Brands: FWB x Taika

Taika is a coffee startup that is now launching a new sub-brand and category—mate tea. This time, they chose not to build it entirely on their own but to collaborate with FWB (Friends with Benefits) for incubation.

• FWB is recognized as one of the most creative DAOs (Decentralized Autonomous Organizations) in Web3.
• FWB members have a relatively strict admission mechanism: they need to hold a certain amount of $FWB tokens and fill out an application form, which is reviewed before joining. One can consider that all joining members possess a certain level of creativity and collectively hold FWB Token assets.

Collaboration approach:

1. Scope of collaboration: brand investment, flavor definition, testing, promotion, and profit distribution, covering the entire brand-building process.

2. Brand investment: FWB invests in the new mate tea brand in the form of its own tokens.

3. Flavor definition, testing, promotion:

4. FWB members can apply to join a paid working group to define product concepts, design flavors and packaging, and create marketing materials alongside Taika's colleagues.

5. After defining the product, two flavors are created: a red can and a blue can. A set of 500 NFTs is issued based on the FWB community, and purchasers can redeem a case of beverages and vote on which flavor should be launched. Note that this set of NFTs is not restricted to FWB members; it actually initiates a derivative community for the new brand.

6. Profit distribution: The profits from the new product sales will be shared between Taika and FWB, with FWB receiving 18%.

Currently, the product is in the voting phase to decide which flavor will be launched. To summarize, what are the benefits of having this new brand driven by the FWB community?

1. The testing NFTs issued based on the FWB community effectively initiated a derivative community for the new brand, solving the cold start problem that brands often face while ensuring the quality of community members.
2. Through $FWB token investment and profit sharing, FWB members effectively become owners of the new brand, having a stronger initiative to define, design, and promote, helping Taika create the best products and sell more. Telling friends that you participated in designing this beverage is quite impressive, isn’t it?

Additionally, some friends ask why many beverage brands (like Genki Forest) also conduct extensive flavor and packaging A/B testing, and even have many internal employee tests. What distinguishes FWB x Taika?

• The biggest difference is that for Web2 brands, the brand designers and testers/consumers are in a separated one-way relationship, where the latter passively accepts the decisions of the former, making it difficult to foster a strong sense of identity and initiative. Even internal employees often treat it as just a task to complete (think about how we help test products from neighboring teams in large companies); however, the true owners of Web3 brands are community users, leading to a completely different sense of identity and initiative, which determines the acceleration of brand growth.
• Repeat after me three times: the core differences between Web3 brands and Web2 are community, community, community :)

By the way, after establishing a collaborative model with Taika, FWB has confirmed upcoming collaborations with Hennessy and Reebok, successfully expanding from a startup to international first- and second-tier brands.

Thanks to Chao for sharing this case in web101.

2. NFT Holders Establishing Derivative Brands: Yuga Labs/BAYC Derivative Brands

Although the public's first impression of BAYC (Bored Ape Yacht Club) is often celebrities changing their profile pictures, it actually brought an innovation that impacts the entire NFT ecosystem—IP commercial licensing.

• After purchasing a BAYC NFT, the corresponding numbered NFT IP is automatically licensed for use by the Holder, including commercial use.
• The representative NFT project CryptoPunks did not open IP licensing before being acquired, which led to controversy over what users actually bought.
• BAYC pioneered IP commercial licensing, granting holders the rights to IP empowerment, meaning users acquire not just a small image but also the immense IP value behind it.

Based on this, many BAYC holders have developed nearly 80 derivative brands based on BAYC IP, including fashion brands, music, trendy toys, food, beverages, skateboards, basketball, clubs, podcasts, games, and more. On one hand, BAYC IP and community helped these derivative brands with cold starts; on the other hand, these derivative brands enhanced the utility of the original IP and expanded the ecosystem, attracting more users to join, ultimately creating a win-win situation for both the original brand and the derivatives.

Forj CEO Harry Liu wrote an article titled “Yuga Labs' IP Empire: Nearly 80 Brands, Creators, Projects, and Artists” that comprehensively introduces these 80 IPs. Interested friends can read it directly; I won’t elaborate further here.

3. CC0 Enthusiasts Establishing Derivative Brands: Mfers Derivative Brands

Let me quote a segment from a previous article I wrote about CC0 to quickly understand CC0.

CC0 stands for Creative Commons Zero copyright protocol. By adopting this protocol, the author declares the abandonment of all copyrights for that creation, placing it in the public domain and making it a shared knowledge asset for humanity.

In simple terms, everyone can use CC0 creations, including for commercial purposes and derivative creations.

1. The previously mentioned BAYC (non-CC0) grants IP rights to owners. For example, Li Ning purchased BAYC #4102, allowing Li Ning to use this ape in posters and T-shirts (other non-owned apes cannot be used).
2. Mfers, due to being under the CC0 protocol, can be freely used by anyone, regardless of whether they own Mfers, including personal use (printing T-shirts to wear) and commercial use (printing T-shirts to sell), as well as derivative creations…

According to incomplete statistics, Mfers has over 50 derivative NFTs, and there are countless cafes using Mfers offline. In terms of quantity, it is not inferior to the flagship BAYC, even though its price is less than 1/50 of BAYC. How did this happen? Why did these derivative brands choose to base themselves on Mfers?

I summarize two reasons:

1. The meme "Are you winning son?" from Mfers is already well-known in Western culture, and the unique operations of creator Sartoshi have given Mfers a certain level of recognition and community foundation.
2. Because it is under the CC0 protocol, everyone can use it at zero cost, making Mfers the preferred choice for many brands to attract Web3 users or Gen Z users. For instance, the three Web3-themed cafes in Beijing (Meta Space), Shanghai (OFFF), and Hangzhou (Social Beast) have all coincidentally used Mfers as decorations, further enhancing the influence of the original IP.

(Shanghai OFFF Cafe, image source: Jike official account)

4. Co-Creating an Animated Series: The Real Metaverse

The previous examples focused on physical consumer goods; now, let's introduce a cultural creative category—animated series, The Real Metaverse.

The Real Metaverse is a co-created animated series developed by its parent company @InvisibleUniv. How does co-creation work? If you hold their Producer Pass NFT:

1. You have the opportunity to contribute content for the first season (34 episodes), deciding the characters' lines and fates.
2. If you are a holder of one of the five NFTs (BAYC, Doodles, CoolCats, Robots, World of Women), you can apply to have your PFP appear in the first season of the animation—wow!
3. If you do not hold any of the above five NFTs, you can vote for your own NFT to appear in the second season of the animation.

Isn't that interesting? Animated series are very suitable for community co-creation. Compared to novels, holders already have emotional investments in their PFPs, and if they can appear in screen plots, it will greatly motivate holders to participate in content contribution and promotion. At the same time, this is also a win-win situation; through community participation, the animated series itself gains more attention and commercial value, driving the appreciation of the corresponding Producer Pass NFTs; meanwhile, the holders' PFPs also appreciate through exposure—imagine your PFP becoming a movie star!

All of this relies on community participation and contribution. Therefore, from the beginning, The Real Metaverse collaborated with the above five communities to build its own community for a cold start. This project is set to mint today; stay tuned!

3 Other Important Q&A

1. What is the most important thing in the early stages of establishing a Web3 brand?

Introducing suitable community members and defining the correct OKRs and North Star metrics.

Since the community is so crucial to Web3 brands, and the initial community members will greatly influence consensus, it is essential to conduct strict member screening at the community's inception and set reasonable NFT issuance prices. In the current market environment, most NFT sales attract "traders" who focus on short-term gains; however, the users that brands desire are "creators" and "consumers" who bring long-term value. But once users arrive, they cannot be ignored; this gap can divert the brand's energy to the wrong places, hindering brand building and target user acquisition, and even lead to being hijacked and backfired.

As a brand owner, it is necessary to define the correct OKRs and North Star metrics to avoid being led by vanity metrics such as trading volume. These are the foundational skills for building a brand, product, or even a company. From the metrics that brand owners focus on, one can also gauge their strength. For example, the founder of Yuga Labs places the highest importance on the number of NFT holders and the activity level of the community. He does not want NFTs to be hoarded for profit by holders but rather to attract more community members; hence, each founding team member only holds one BAYC.

In summary, engage in long-term valuable endeavors and manage short-term expectations well.

2. My model is a membership club; does it have to transition to Web3? It seems there isn't much difference?

Converting membership cards to NFTs has the following benefits, including three user-side benefits and one brand-side benefit.

User Perspective 1: Enhanced Rights

• In traditional membership clubs, once users obtain a card, their interests often conflict with those of the club. The club can increase its profits by reducing user rights, leading to a one-sided situation.
• However, as a Web3 brand, users are also investors, and the membership club must ensure high-quality rights that align with user interests; active user participation also enhances brand value, creating a win-win situation.

User Perspective 2: Enhanced Trading Liquidity and Value

• Traditional membership cards are difficult to trade second-hand. Once converted to NFTs, they bring a natural trading market and liquidity, thereby enhancing the asset value of the membership card itself.

User Perspective 3: Obtaining a Personalized Identity

• Transforming into a unique digital identity to showcase individuality and serve as a passport to the metaverse.
• Membership cards do not have to be static; well-designed traits can grow alongside users and have special utility, increasing user stickiness.

Brand Perspective: Expanding User Depth and Breadth

• Based on on-chain data and behavior, brands can gain a more comprehensive understanding of existing users (e.g., User A holds 5 monkeys) and more easily reach new users (e.g., users from a particular community are particularly suitable for this brand).

Therefore, converting membership cards to NFTs benefits both users and brands; why not make the transition?

3. Do you have any other advice for traditional brands entering Web3?

Initially, I recommend lightweight attempts, focusing on understanding user feedback, rather than launching projects right away. Li Ning's purchase of BAYC is a good example, and there are many CC0 projects available for use, such as Mfers and Black Cat.

As analyzed at the beginning of the article, the essence of brands transitioning to Web3 is to meet the new demands of new users and rebuild the relationship between brands and users. This requires a comprehensive overall plan; if not well thought out, it is advisable not to act. Do not treat launching NFT projects as a low-cost marketing campaign; once a community is established, it requires long-term continuous operation; otherwise, the community may FUD the brand at any time, leading to a loss.

Additionally, traditional brands entering Web3 also need to upgrade their brand mindset and organizational capabilities, as referenced in the third part of this article.

Conclusion & Outlook

Unknowingly, I have turned a discussion with friends into a lengthy article. As mentioned at the beginning, many brands currently wish to enter Web3 but struggle to find the right approach, with most viewing NFT launches as a marketing tactic. However, as discussed in this article, the essence of brands transitioning to Web3 is to meet the new demands of new users and rebuild the relationship between brands and users. The opportunity space is vast, but it also requires a comprehensive overall plan. I hope that after reading this article, the answers in your mind can become clearer.

At the same time, as a Web3 surfer, I warmly welcome Web2 brands to enter Web3 and work together to expand the NFT ecosystem. On one hand, beyond PFPs, there needs to be more narrative and utility, which is a battlefield where experienced Web2 veterans can excel; on the other hand, the Web3 transformation of traditional brands is also a process of introducing new Web3 users. In the news about Nike generating over $185 million in revenue, there is an interesting piece of data from Dune Analytics: among the mint users of these brand NFTs, an average of 40% are first-time minters, which can be considered new NFT users. The large promotion of 100 million NFT users cannot do without the continuous influx of Web2 brands to help. WAGMI!

(Distribution of minting frequency among brand NFT mint users)