Nike x RTFKT: Unlocking The Digital Fashion Frontier
Or, how Nike may turn its digital fashion studio into one of the biggest NFT ecosystems (yes, even bigger than Yuga Labs)
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Is the next frontier of fashion… digital?
Nike certainly seems to think so. On December 13, 2021, the iconic athletic apparel juggernaut announced its acquisition of RTFKT, a “digital fashion brand” to “extend Nike’s digital footprint and capabilities”. The tie up caused quite a stir - both in the worlds of fashion and crypto. What does a leading shoe manufacturer have to do with an NFT studio? Are we really going to be wearing Nike sneakers in the metaverse?
In this essay I will explain why Nike is betting on web3, what it means for the luxury apparel industry, and why other brands may soon follow suit. In particular, I will explain how RTFKT got started, why Nike acquired it, and how it plans to leverage RTFKT to disrupt the $3 trillion apparel and footwear market.
This essay will cover:
Origin: What is RTFKT?
Digital Fashion
Let’s get… Phygital
Entering The Metaverse
Where do we go from here?
Let’s dig in.
Chapter 1. Origin
Founded in early 2020, RTFKT describes itself as a “creator-led organization - a community of collectors, investors, artists, gamers, and fans”. The company was founded by three friends deeply involved in gaming, fashion, and streetwear:
Benoit Pagotto (worked in both luxury and gaming)
Chris Le (worked in VFX)
Steven Vasilev / Zaptio (worked in social media, streetwear, and tech)
The original idea was to merge sneakers and gaming culture. The inspiration came from a simple realization that sneakers to sneakerheads are what ‘skins’ are to gamers - they are both collected largely for its aesthetic and scarcity value, and both act as a social signal and status symbol. The only difference was that one existed in the physical world, while the other was purely a digital ‘virtual good’.
The trio wanted to capitalize on the secular trend of people (especially Gen Z) spending increasing amounts of time playing and socializing in virtual worlds, where they already use digital collectibles (mostly in gaming) to express their style and digital identity. Indeed, gamers already spend the majority of ~$150+ billion per year on in-game purchases of virtual goods - something the team believed will eventually transcend the bounds of games into social media and other online applications.
The emergence of NFTs couldn’t have come at a better time - the technology enabled users to verifiably buy, hold, and flip scarce digital goods (at the time mostly JPEGs) - something sneakerheads have already been doing with physical shoes for decades. Another advantage of “digital fashion” over its physical counterpart is that the product cycle is much faster - a new digital product can be shipped in a matter of days, whereas a traditional physical brand would require 12-24 months to ship a new product. This would enable RTFKT to iterate and keep its products up to date on current trends much faster.
Equipped with a provocative idea, some promising social media traction, and a clear roadmap, RTFKT went on to raise seed financing from a stable of high profile investors with a16z calling RTFKT the “Digital SUPREME”.
So how did RTFKT get on Nike’s radar?
Chapter 2. Digital Fashion
RTFKT (at the time yet to be officially incorporated) started to gain significant attention by sharing unique custom digital sneaker concepts (many of which featured the iconic Nike Swoosh 👀). For example, using a blend of CGI and AR (augmented reality), RTFKT shared a concept for Marvel-inspired Iron Man and Thanos sneakers:
Building on the momentum, RTFKT went on to share other custom digital sneaker mashup concepts (not official collabs) such as Dior, League of Legends, PS5 and even Tesla’s Cybertruck which went viral when a photoshopped photo of Elon Musk rocking the sneakers was shared on social media (RTFKT later 3D-printed a custom version for Musk, while the 1-of-1 NFT was auctioned off for 30 ETH or $90,000):
The company continued to innovate, dropping digital wearables that could be used in virtual worlds (e.g. Sandbox, Decentraland), officially partnering with famous brands (such as Atari), and experimenting with other variables (e.g. Metajacket). On the back of its early success, RTFKT moved on to doing some high-profile collaborations, which included a limited collection of digital sneakers designed by a famous NYC streetwear designer Jeff Staple and a collaboration with a crypto-native artist FEWOCiOUS. The latter collab went on to make headlines by selling out in just 7 minutes and generating $3.2 million in revenues.
RTFKT’s last big splash before the Nike acquisition was Clone X - a highly anticipated limited collection of 20,000 anime-inspired digital avatars designed by a famous Japanese artist Takashi Murakami. The collection went on to become one of the most successful NFT projects to date, generating nearly $800 million in secondary volume and will eventually become the central part of RTFKT’s roadmap (to be discussed further in Chapter 4).
By the end of 2021, RTFKT has established itself as a major NFT brand alongside other ‘blue chips’ such as Bored Ape Yacht Club and Crypto Punks.
And then… Nike shocked the fashion and crypto worlds by announcing its acquisition of RTFKT in December 2021, ushering a new era for the fledgling NFT studio.
Chapter 3. Let’s Get… Phygital
MNLTH / Cryptokicks Campaign
Two months after acquiring RTFKT, Nike dropped an ambiguous NFT “MNLTH” to RTFKT’s CloneX holders. The NFT was a metallic cube decorated with Nike’s iconic Swoosh. In April 2022 Nike finally unveiled that each cube contains a pair of virtual sneakers called Nike Cryptokicks based on the famous Nike Dunk. The campaign was a huge success - MNLTH line of NFTs generated ~$300+ million in secondary sales, earning Nike a cool $30m+ million in royalties. Even amid a major slowdown across the entire NFT market, the current floor price of a MNLTH cube is still sitting at 2.5 ETH ($4,000).
The Cryptokicks campaign is interesting for a number of reasons:
Distribution. The NFT was ‘airdropped’ for free to RTFKT’s NFT holders, rewarding existing RTFKT collectors. Each MNLTH NFT could be burned in exchange for Nike Dunk Genesis Cryptokicks, one Skin Vial Evo (allows holders to upgrade their Sneaker with limited edition skins), and one MNLTH 2 (contents not revealed at the time of writing). This demonstrates how an established brand can directly connect with/target a specific demographic (in this case existing RTFKT collectors).
Marketing. Collectors had to complete ‘quests’ in order to get a ‘sneak peek’ into the cube’s contents - as quests were being completed, the cube would slowly ‘break’, exposing a glowing blue object inside. This clever, interactive campaign allowed Nike to generate significant buzz and anticipation ahead of the reveal (the pre-reveal floor price of the MNTLH reached 8 ETH ($24,000). )and also demonstrated some of the cool things that can be done with NFTs from a tech perspective.
Value Capture. Nike was able to generate significant royalty revenue from secondary sales derived from a royalty fee programmed into the NFT’s smart contract:
Source: Dune Analytics, Author Composability. The Cryptokicks NFTs are generative - they are customizable with RTFKT-made skins, which enable holders to upgrade their sneakers to change how their sneakers look (similar to Nike By You for physical shoes). At the moment, the Skins are created by well-known designers, but RTFKT has plans to enable other creators, artists, and members of the community to release their own skins in the future (and capture their own royalty revenues).
While Cryptokicks today are purely a digital collectible, RTFKT has hinted that holders will be able to “forge” their NFTs into IRL Nike Dunks in the future (these can also leverage composability by incorporating a screen that could showcase a customized ‘skin’ representing the NFT “Vial”).
RTFKT x Nike AR Genesis Hoodie
Following the success of the Cryptokicks campaign, RTFKT released its first truly “phygital’ product - RTFKT x Nike AR Genesis Hoodie, which was released as both a Clone X wearable and a “forgeable’ physical piece. In addition, each hoodie featured a QR code which links to the AR (augmented reality) experience - tracking the 3D movement of the garment. As was teased in the RTFKT release video, collectors will likely be able to further customize their hoodies with additional wearables (such as wings depicted below).
The Hoodie was distributed via a “private mint”, which means only the owners of Clone X and Cryptokicks NFTs could participate (1 Hoodie per each existing NFT held). This distribution method achieved:
Created exclusivity around the release as only RTFKT collectors were eligible to purchase the Hoodie
Rewarded existing collectors with first access (and ability to flip the NFT to a higher bidder in the future - with RTFKT capturing 8% of the secondary sale proceeds).
Ensured built-in excess demand for the product as there were only 8,888 of Hoodie NFTs available vs 20,000 Clone X and 12,000 Cryptokicks in circulation.
Other Phygital Products
RTFKT didn’t stop there - shortly after the Hoodie release, the team went on to release a phygital Space Drip sneaker collection (just as with hoodies, these NFTs could be ‘forged’ into IRL sneakers). Importantly, the designs were created by artists in the community, who will earn royalties on all secondary sales.
Next, RTFKT came up with an even more provocative idea - “web3 perfume”. Inspired by potion crafting in video games, RTFKT partnered with a Swedish fragrance maker Byredo to release ALPHAMETA, extending its product offering into perfumes. Similar to Genesis Hoodie and Space Drip collections ALPHAMETA is a phygital product consisting of an NFT of a wearable digital aura for the Clone X avatar as well as an IRL Byredo perfume.
Yet again, RTFKT pushed the boundaries at the intersection of technology and fashion. In this case, NFT holders will be able to create personalized scents using any of the 26 feeling-based ingredients named after emotions (e.g. Acuity. Naivety, etc). These digital scents will then be forged into a limited edition personalized Byredo perfumes, packaged in custom NFC-tagged bottles.
All of these innovative products were setting up the stage for RTFKT’s next big act - a creation of its own unique ecosystem, in which every digital collectible could be worn by the collector both IRL and in the virtual world by its Clone X avatar.
It’s time to enter the metaverse.
Chapter 4. Entering The Metaverse
In August 2022 RTFKT finally unveiled its next major product launch - 10 Clone X collections of phygital goods, that would range from caps to jackets and sneakers. Clone X avatars and Pod X virtual rooms will be leveraged to display collectors’ apparel, sneakers, and other wearables in the virtual world RTFKT has been building behind the scenes. Each good will be inspired by the “DNA” (e.g. Human, Robot, Angel, Demon, etc) and Trait of the collector’s Clone X avatar. For example, by owning a Human Clone X with Murakami Drip, a collector can mint up to 31 total items (click here for full lookbook).
Each physical item will be embedded with NFC chip which would be linked to the digital NFT, and will be used to prove ownership and authenticity, truly merging the digital and physical worlds.
The mint is currently ongoing, and only time will tell how successful and iconic this first collection will become - we are still in the early innings of the phygital revolution. If this trend continues and becomes ubiquitous, these early, first collections will become canon and really valuable to collectors.
This is where the Nike’s ownership is an undisputable competitive advantage - RTFKT is the only crypto-native brand that has the muscle, the resources, and the know-how of a major apparel manufacturer behind it. This is exactly the kind of product that only RTFKT can execute and deliver today, and in my opinion, this is only the beginning.
Where do we go from here?
So where do we go from here? The public mint for SZN 1 drop is still ongoing and only time will tell if it is successful. If the collection does well, it would only make sense for Nike to continue expanding its phygital offerings. The digital twin model (discussed by Nic Carter in this article at length) is a fantastic use case for NFTs, and I expect most luxury brands to eventually join this trend.
Benefits & Opportunities
So what exactly can Nike do with RTFKT moving forward?
Trustless secondary marketplace with royalty capture. Physical products that are linked (via NFC chips) to a digital twin (an NFT) can facilitate a safe and counterfeit-resistant re-sale market. An NFT can host a wide range of data - from proof of authenticity to the product’s vintage, total supply, and past ownership. Further, NFTs can come with pre-programmed royalty capture mechanisms for both Nike and the creator of the product’s design.
User-generated fashion + composability. Platforms like YouTube, TikTok and Roblox have already demonstrated the power of UGC (user-generated-content) and the network effects this can drive for the business - Nike has the opportunity to do the same with apparel. Nike/RTFKT can tap into the creativity of its community / consumer base to enable artists to contribute their own designs to the products by the brand. The community (token-holders) can even vote on what designs get accepted into physical production. A brand for community, by the community can have meaningful advantages over traditional brands as it scales the creativity beyond that of the RTFKT design team, while rewarding top contributors and bringing the fans closer to the brand. Additionally, NFTs unlock composability enabling partnerships with other projects, similar to Tiffany’s highly successful CryptoPunk collaboration.
Token-gated experiences. Nike can offer the owners of its apparel to access exclusive IRL events and experiences - all you have to do is scan your phygital wearable. This in turn could unlock other perks - like discounts on other products or first access to highly anticipated future drops.
Authenticated digital flexing. Given the proof of provenance that NFTs provide, phygital products enable collectors to verifiably show off their collections - this is something sneakerheads cannot easily do today with their possessions with Instagram / other social media platforms.
Metaverse brand presence. While mainstream adoption of Metaverse is still a few years away, RTFKT’s technology provides Nike with a roadmap to establish a strong presence in the virtual world, which will become increasingly important as our lives continue to become more and more digital.
Risks & Challenges
However, as with any disruptive technology, there will also be a few challenges along the way that will need to be resolved:
Abstracting ‘crypto complexity’ away. Today, RTFKT has catered to very crypto native customers, who understand how NFTs / crypto / wallets work. If Nike decides to bring these types of products mainstream, the onboarding process (e.g. setting up a wallet, fiat on-ramps, purchasing an NFT) must be made as simple as it is ordering a regular Nike sneaker online. Without this, phygital goods will remain a niche product catering to a relatively small crowd.
Offering true digital utility. At the moment, the virtual world RTFKT is building is largely a cool gimmick - there isn’t much utility or purpose for any user to use this ‘metaverse’ on a regular basis. In order for the digital wearables to truly offer utility (e.g. social signaling / digital flex), Nike will either have to develop a robust interactive and fun virtual world (very hard) or provide a bridge for users to use these items in other virtual worlds (e.g. Fortnite, Roblox, etc). This may not be as far fetched as it may seem - RTFKT already uses Unreal game engine (developed by Fortnite maker Epic Games). Absent true interoperability / compatibility, the NFTs will remain merely a proof of purchase / proof of authenticity.
Avoiding brand dilution. The reason digital sneakers were such a hit with sneakerheads and crypto enthusiasts alike is because they are scarce and signal either being early or being rich (similar to high end luxury goods). As Nike / RTFKT looks to scale the brand and its product offerings, they are risking diluting the brand as each new collection makes the preceding one less scarce and exclusive. This may result in significant brand dilution, and in turn, reduced demand / price of these phygital goods. Maintaining scarcity (both digital and physical) will be key to the long-term success of the RTFKT brand. One way to do so is for Nike to continue on its strategy of exclusive limited editions collabs, such as the recent Luis Vuitton x Air Force 1 x Virgil Abloh drop, which featured IRL experiences, digital galleries, as well as AR functionality enabled by Snapchat Lens. NFT technology also enables Nike to conduct auctions for the super rare drops, allowing the brand to capture value that is currently leaked into the secondary market on eBay and StockX.
Conclusion
Overall, I have been extremely impressed with RTFKT’s execution to date and I believe the Nike acquisition gave it the necessary resources to scale and push the boundary of what’s possible. Similarly, Nike benefits from RTFKT’s crypto-nativeness and track record, as it prepares itself for a world in which the society spends increasing amount of time, energy, and resources on its digital identities and how they present themselves online and in virtual worlds.
I believe RTFKT has all the right tools and team in place to continue growing its ecosystem and I can see a world in which it becomes the biggest NFT brand over the coming years, as it continues to bridge the digital and physical worlds, and imbuing its holders with actual utility (gated commerce/experiences/events + high quality physical apparel). Time will tell how this experiment plays out, but I am certainly excited to see what the future holds for this highly innovative brand.
Disclosure: None of this should be interpreted as financial advice. Do your own research.