Nike, a brand long synonymous with innovation and athletic excellence, has been taking some recent missteps in the Web3 space. The company has announced plans to wind down its RTFKT NFT project that brought it extraordinary sales success, but has repeatedly flopped in execution. To succeed in the digital space, it takes much more than just brand recognition. This move has triggered a class-action lawsuit, damaged Nike's reputation, and left many questioning the brand's commitment to its Web3 endeavors. Let's dissect what went wrong and what lessons other companies can learn from Nike's missteps.

RTFKT’s subsequent closing, despite having created $185.3 million worth of NFT sales revenue in 2023, is curious to say the least. CEO Elliot Hill insists that Nike is only “recalibrating” its digital strategy. Yet, this announcement happens to be dropping at the same time as a $5 million class-action lawsuit filed by disgruntled RTFKT NFT holders. These holders allege that Nike performed a “soft rug pull.” They allege that the company promoted digital assets with claims of future utility, but then left them holding the bag when its priorities shifted. The suit claims that the NFTs derived their primary value from granting access to other NFTs or physical Nike goods and for resale value. It asserts that the shutdown rendered these assets practically worthless.

Plaintiffs filed suit in the US District Court for the Eastern District of New York. It claims Nike violated consumer protection statutes and securities laws. Plaintiffs allege that Nike’s offerings through RTFKT inundated consumers with false information about the scope of Nike’s NFT offerings. They further contend that Nike failed to register the NFTs as securities or otherwise offer adequate risk disclosures. The legal challenge addresses this first with a two-pronged approach. It alleges widespread violations of consumer protection laws in New York and California and federal securities laws. This scenario leaves an opening for Nike to be liable in damages under wider-reaching and more malleable consumer protection statutes. It further compounds the complexity and layering of their challenges.

Nike’s recent blunder serves as a warning to businesses on making sure they understand the legal landscape when it comes to NFTs. The suit alleges, among other things, that these RTFKT NFTs functioned as unregistered securities. If the claim succeeds, it could have a monumental effect on all other companies engaging in the NFT space. This situation underscores the need for thorough legal due diligence before launching any NFT project, ensuring compliance with securities laws and consumer protection regulations.

The Reputational Fallout

Even more than the legal consequences, Nike’s NFT misstep has certainly damaged its public perception. Out of all the brands that have traversed the Web3 waters, Adidas has certainly come out on top. Nike’s exit from the NFT space may appear to be a reflection of timidity or an exaggerated reaction to the recent crash. The fact that the closure of RTFKT also came at the same time as a lawsuit makes it look even worse.

The closure of RTFKT and Nike's promotional initiatives aimed at hyping up Nike NFTs and stimulating demand may have backfired, contributing to the decision to shut down the project. Though a temporary blip, the settlement and project shutdown were significant blows to Nike’s brand reputation. At the time, many were dubbing it as yet another high-profile failure in the ever-revolving NFT space. It’s a miscalculation that reinforces the speculative speculation—and resulting backlash from the NFT community—that the company’s silence on the matter has stoked.

At the end of the day, Nike’s experience should be a warning to other brands looking to enter Web3. A good brand name isn’t going to cut it in this tumultuous and uncertain market. Success takes more than just a famous name. They need to focus on customer experience, deliver genuine value for their NFTs and make clear the risk of loss associated with these speculative assets.

Alternative Web3 Strategies for Brands

Here are some alternative strategies to consider:

Embracing Web3 Without the Hype

  • Decentralized Ad Networks: Utilize platforms like Adshares for transparent and accountable advertising.
  • Virtual Worlds and Experiences: Create immersive brand experiences in virtual environments like Nikeland or virtual product presentations.
  • NFTs and Collectibles: Release NFTs and collectibles to tap into the demand for unique digital assets and create new revenue streams.
  • Web3 Loyalty Programs: Develop Web3 loyalty programs that integrate with existing journeys and real-world experiences to reward customers and foster loyalty.
  • AR and VR Experiences: Utilize augmented reality (AR) and virtual reality (VR) to create immersive brand experiences that engage consumers through multiple senses.

Focus on Utility and Engagement

Nike’s Nikeland on Roblox provides a fun and immersive experience for customers. It allows them to engage with the brand in a colorful, immersive digital world. Such experiences create deeper emotional connections with consumers, resulting in higher levels of engagement and brand loyalty.

Brands need to adjust their expectations from pure speculative value. What they do need to do is figure out ways to incorporate NFTs within their existing ecosystems, providing tangible value to holders. This might be special access to events, discounts on merchandise, or other one-of-a-kind items, like in-game gear. Finally, brands should focus on creating inclusive communities for their NFT projects to help instill long-term value with a sense of ownership and belonging.

Brands can make powerful Web3 strategies that promote utility, community engagement, and transparency. Taking this route will allow them to better engage with their intended audiences and avoid the reputational backlash that Nike has weathered. Approach Web3 as an opportunity to build deeper relationships with your consumers. Meet Authentic Expectations — Stop looking for the next big monetization scheme and instead, create engaging and inspiring experiences.