2 – Introduction to Hybrid NFTs

Hybrid NFTs are generally defined as unique collectibles that can be redeemed in both physical and digital format. It's an emerging category of NFTs that has mostly been untapped. Although it appears our society is trending toward a place where most of us will regularly interact in the “metaverse,” many agree that it’ll likely be a while before we realize our Ready Player One destiny. So, in the meantime, people will continue to crave IRL (In Real-Life) items, benefits, and experiences. And businesses and projects that leverage blockchain technology to improve the (real) lives of their communities will win in the near-term.

Before I get started it’s important to note that (a) Hybrid NFTs differ from (b) Utility-linked NFTs. Examples of the latter include LinksDAO and Flyfish Club where the NFT owners receive benefits such as joining a golf club or dining at an exclusive NYC restaurant, respectively. As you’ll see below, Hybrid NFTs don’t necessarily offer utility but rather present real-life alternatives. To help paint the picture, I’ll use the rest of this piece to dive into four examples of Hybrid NFTs – all of which are in different stages of growth:

  1. The Currency | Flying: Renowned artist Damien Hirst's 10,000 mint art collection where owners must decide between keeping their NFTs or trading them in for physical editions

  2. HRO by DC | Running: HRO (pronounced “Hero”) is a trading card platform that gives collectors a physical and digital version of their card

  3. WAX's vIRL | Walking: This technology links real-world items with NFTs so that users can transfer ownership without needing to physically ship anything

  4. 10KTF | Crawling: 10KTF allows owners of select PFP collections to create derivatives of their existing NFTs (e.g., a BAYC owner can generate a new one-of-one NFT accessory – such as a backpack, socks, boots, etc. – featuring their Bored Ape)

While each project offers its own spin on the hybrid approach, they each need to overcome one common user challenge: as a seller/buyer on the secondary market, how can a user ensure the physical collectible successfully changes hands? For purposes of this blog, I'll call this issue the “Physical Trading Dilemma.” I believe this is the main question that needs to be answered for a Hybrid NFT project to find long-term success in this space.

My goal for this post is twofold: I want to (a) introduce multiple flavors of this budding category known as Hybrid NFTs and (b) highlight the key challenge that projects within this category need to overcome.

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THE CURRENCY

Project Description:

Each of the 10,000 NFTs is tied to a corresponding physical artwork. Owners of the NFT have the choice to keep the NFT or trade it in for its real-life twin. By deciding to keep the NFT, owners opt to burn (yes – using fire) the physical version (and vice versa). They have until July 2022 to make this decision.

Why is it in the fly stage?

Because of its simplicity. It was a one-time drop with a limited decision period. There is no roadmap for The Currency, the project is easy to understand and requires minimal time commitment from its investors. Owners of their respective piece choose its destiny based on their individual preference – there is no right or wrong decision. It will be interesting to see how many NFTs exist after the deadline in July.

The Physical Trading Dilemma:

Damien Hirst and the HENI team solve for this challenge by holding onto the physical copies until the owner trades in their NFT. But what happens when the owner of the physical piece wants to sell it? As far as NFT projects go, The Currency is as close to a “traditional art collection” as it gets. And these pieces are not cheap. As of today, the floor for one of the NFTs is greater than four ETH (~eight thousand dollars). I think the real-life pieces will mirror the price of the NFTs and (due to the high price) will experience trades via formal channels such as auction houses, art shows, dealers, etc. The Physical Trading Dilemma is unlikely to inhibit The Currency's long-term success.

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HRO

Project Description:

Imagine growing up with an online counterpart for all your Pokémon cards. Instead of lugging your binder to your friend's house, you'd be able to boast your collection around the globe. You'd see where you ranked on the leaderboard, scan your friends' collections, and seamlessly trade, buy, and sell cards of your choosing. This is exactly the experience that HRO introduced in March 2022 with a focus on DC characters like Batman and Superman.

Why is it in the run stage?

HRO is a working product – they have a slick app and recently released the first chapter of cards to users. Prior to selling out, users had the ability to buy packs online or in stores like Walmart. The app is also interoperable with Layer Two solution Immutable X (so you don't technically need the app to buy the NFTs). The project has accomplished a lot in a short period of time, however, they've also had setbacks. In one example, some users received blank cardboard in packs as opposed to cards. In another example, a few users received a mismatched mint number upon scanning their physical card to create its digital twin. With each setback, HRO has been quick to right the ship and address the issue. They also have an ambitious roadmap which includes future Chapter releases, app incentives, the introduction of auctions, etc. It's a promising company with a long way to go before it can fly.

The Physical Trading Dilemma:

So what happens when a user buys a digital card on the HRO app today? The buyer receives the NFT, however, he or she does not receive the physical copy. The buyer would need to work with the seller offline to find a solution to exchange the physical card. There are many reasons why this is problematic for HRO – the big concerns being trust and safety. At the bottom of this post, I dive deeper into HRO's Physical Trading Dilemma and propose a solution for how they can overcome it with future Chapter releases.

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vIRL

Project Description:

Created and patented by WAX, vIRLs (virtual, and In-Real-Life) represent physical goods that are linked to NFTs. The technology allows users to easily and sustainably purchase, exchange, and trade consumer products. vIRLs lay the foundation for v-commerce, which WAX has defined as the act of buying, selling, and trading virtual items linked to real-world merchandise and services. Here's an example of a project where vIRL technology was used:

Why is it in the walk stage?

Overall, I love the concept of vIRL, but the lack of publicly available information is preventing it from hitting the run stage. WAX has held the patent for at least a year, however, it's unclear if vIRL has many partnerships. In the few collaborations that made “headlines,” vIRL's application seemed broad-stroked (and unoriginal) which makes me believe there is room for competition. With that said, I can see how this technology will enhance the physical collector's experience. For example, let's say Kanye decides to leverage this technology for his next YEEZY shoe drop. Here are a few of the benefits:

The Physical Trading Dilemma:

Similar to The Currency, vIRL solves this problem by holding onto the physical good until the user trades in and/or presents their Redemption Token. vIRL differentiates itself from The Currency in that it is a technology enabler that has potential to support many projects, whereas The Currency is a one and done project. The technology is primarily focused on the initial physical transaction. Once the physical good reaches the owners' possession, vIRL's job is done. So as far as vIRL is concerned, they have solved for the Physical Trading Dilemma.

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10KTF

Project Description:

Each 10KTF item is unique (one-of-one) and corresponds with the parent project NFT. So for a 10,000 mint project, there will be at most 10,000 variations of the item and only one of each variation available (e.g., one backpack per ape). It's important to note that 10KTF can only make derivatives from collections that give commercial rights to their owners (e.g., BAYC, MAYC, World of Women, Cool Cats). Further, the parent project NFT owner determines whether he or she would like to participate in 10KTF. At the moment, the available parent project collections to choose from are limited, though 10KTF plans to grow this list over time.

Why is it in the crawl stage?

In short, this project is in the crawl stage because – as of today – 10KTF projects are purely digital. With that said, the founders have stated that they have “ambitions beyond the metaverse” (i.e., physical accessories are on their roadmap). So in the context of Hybrid NFTs, 10KTF is crawling. Yet, even if the project fails to deliver physical accessories, it still has potential to succeed in the metaverse. Any project with Beeple's (rumored) name on it is worth keeping an eye on.

The Physical Trading Dilemma:

This project does not yet have a physical good, and thus this problem does not exist!

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As mentioned above, I'd like to dive deeper into HRO's Physical Trading Dilemma. In my opinion, there is great potential for the trading card use case of Hybrid NFTs. And as the pioneer, HRO is spelling out issues that followers will also need to solve. Like The Currency and vIRL, HRO should consider distributing their NFTs first, and allow the owner to claim the physical packs afterwards. Here are two illustrative use cases for how that might look:

Use Case 1A

Use Case 1B

I'll admit this solution isn't perfect, though I'm confident it's superior to HRO's current state process. Let me briefly address a few questions that are likely to pop up:

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If you've made it this far, thanks for sticking around. Believe it or not, I feel like I'm barely scratching the surface with this topic. If you have comments, suggestions, or questions, feel free to share your thoughts on my Twitter page (@_CHARL13).

Thank you,

CHARL13