An increasingly popular Web3 tool, "token-gating" is one that controls accessibility to selected spaces, limiting it to blockchain token-holders. By token-gating, brands can offer perks to select customers and appeal to the Web3 community. Big brands like Gucci and Adidas are already on board.

Despite Magnolia Park's latest drops being sold out within minutes, the California streetwear store has a loyal fanbase that follows closely with its releases of rare sneakers and hats in limited-edition colours, with fans willing to line up for hours. However, when executed online, their limited edition products end up being conquered by bots - leaving collectors to resort to the resale market to snag a piece with up to 10 times its retail value.

"It's not a great customer experience as it shuts actual fans off from accessing new drops" says Michael Guerra, Magnolia Park's CEO. However, it creates "a perfect storm of hype and opportunity" to try a different technology for launching products using tokens.

The concept of token-gating comes from limiting a site's traffic to only those who hold a specific blockchain-based token - that's either non-fungible or fungible. In the case of Magnolia Park, they've come up with three. Today, certain product drops are limited to the holders of these tokens, who are guaranteed access to product sales by outrunning bots in order to control buyers from flipping products. This is done by limiting the number of items customers can purchase from each drop. In this case, the tokens are NFTs, but its simple concept eases the process with customers with user-friendliness for the convenience of everyone.

In May, Adidas granted its "Into the Metaverse" NFT holders access to several pieces of apparel, and luxury watch brand IWC Schaffhausen launched a 3D virtual event space for its token-holders. In the world of cosmetics, YSL Beauté have also announced a plan for a token-gated page that will become the hub of its Web3 efforts. As for Supergucci NFTs, you are able to connect your wallet to redeem physical ceramic sculptures in real life.

Token-gating works by simply connecting your crypto wallet to a site and verifying ownership of the required token. This could be a way for brands to move beyond the need for a log-in using email addresses or social media accounts and for them to provide special perks to selected communities. For brands with high-profile product releases, it's a way to manipulate who gets access, and appeal to the Web3 community whose cultural influence punches above its weight.

"In a nutshell, token-gating powers the very concept of digital scarcity, which in turn can be leveraged by retailers in many different ways, and especially within the view of creating a Web3 demand base," says Olivier Moingeon, chief commercial officer of Exclusible. To add, he references it to "more like a red carpet thing", where brands can recognise you are important to them and welcomes you into a new realm of their own.

Uses of token-gating

Magnolia Park offered a total of 500 tokens in three tiers of perks including free products and special pricing. As certain products are exclusively available to token-holders only, they are able to better estimate its product allocation accordingly.

Brands can also target specific holders of collections and tailor the experience based on what's in their wallet. For example, they could say, "You can access this content only with a wallet with two YSL tokens, this POAP (proof of attendance protocol) and one Bored Ape," or "This call to action should only be accessible to a wallet with the digital twin of this watch and the membership diamond hand token," says Pierre-Nicolas Hurtle, co-founder of Arianee.

These types of perks can also extend to the physical world. At a recent event, people who owned a Gutter Cat Gang NFT got access to associated merchandise, which was token-gated using the Tokenproof app that displays a QR code to confirm ownership. "Stadium Goods believes that Web3 tech is going to be increasingly and seamlessly woven into our daily lives, and we want to get ahead of that curve," says Stadium Goods chief strategy and product officer Laura Sartor, adding that the retailer's audience is "embracing it more and more".

How to do it

There are many tech companies today that have evolved into helping brands implement this very technology. For example, streetwear brand Daily Paper has been working closely with Web3 tech company Flooz to create a free app on the Shopify marketplace to release a collection of 10,000 NFTs, called Gen-F. Here, all token-holders can connect their wallet on their website to access pre-releases, products and events; 300 of the tokens have a special Daily Paper trait, which grants even more perks. Other brands to use Shopify's token-gated tech tools include The Hundreds and Kith. Shopify head of blockchain Alex Danco says that there is more to come from both Shopify and merchants, and that it's an especially good technology for brand collaborations, due to its ability to unite brand communities.

"Shopify sees NFTs not as speculative assets, but rather as tools for community-building and engagement," Danco says.

On the consumer end, the first step is to set up a crypto wallet. Via a desktop browser plugin, when someone has a wallet and visits a token-gated site, they are prompted to connect and verify their wallet. Then, depending on which tokens they hold, the site grants access accordingly.

Guerra says that among the community, there is still a learning curve. "People want to support the brand but aren't aware of how to use tokens, but the moment they realise how easy it is, conversion is simple." To that ends, brands ranging from Gucci and Prada to Boohoo are proactively explaining key terms and principles to consumers, often through Web3 favourites Discord and Twitter.

Token-gating physical content often comes down to showing a QR code on a wallet app, Annelis says, but while the technology has a simple user experience, the challenge for something like this is training store staff.