So far, attempts to represent physical goods on-chain have been spearheaded by crypto brands for the authenticity and provenance of high-end fashion items. At the same time, the vast majority of on-chain activities, such as NFT minting, proofs, transactions, and equipment, are still limited to the digital environment. We see great potential in bringing on-chain interactions into the physical environment through digital-physical consumer goods, and believe that digital-physical infrastructure will soon bring programmable utility to any physical product. A crypto-native digital item is a commodity that exists in physical form and maintains an encrypted link to its digital (on-chain) record through NFC technology. This record can be in the form of an NFT, an entry in a registry, or an on-chain identity with signature functionality. Chip technology combined with on-chain programmability provides wallet-like capabilities (such as token-controlled access, signatures, and asset ownership) to anything in kind, unlocking end-consumer experiences that were previously impossible.
COSO is excited about this new generation of digital physical goods because they:
Bring on-chain interactions into the physical environment. Embedded scannable hardware enables consumers to verifiably prove their proximity to an object or presence in a physical space. Such proofs can arbitrarily unlock location-sensitive utilities, such as living mints, or serve as a record of participation, making holders eligible for future rewards.
Give agency and reputation to any consumer product. Chips with signature generation capabilities allow any physical object to establish its own on-chain history and accumulate value in its owner's interactions with brands and communities. Since the on-chain record of an item is decoupled from its owner, the item can be sold with its history intact and priced accordingly.
Create a new distribution channel for publishers. Brands, communities, and creators can provide continuous, dynamic utility to their products and spaces. Employee engagement becomes a metric used to provide different rewards to the most engaged members, who in turn are motivated to become more involved in the community.
Unlock full-stack utility for consumers. Owners of digital physical products can derive value from products in both physical (wearable items) and digital (flexible ownership, early access, exclusive content) domains.
The role of the RWA tokenization and digitization protocol is to give existing physical goods representation on the chain, by chipping items (Mattereum’s Star Trek collectibles, Sunya bracelets), or minting “physically backed tokens” , through the guardian's decentralized network (4k) or centralized service (Courtyard) to ensure the physical link. PBT can then be traded on an open market like OpenSea, or used as a financial instrument in a DeFi protocol. Digital platform Altr offers brick-and-mortar brands the tools to upload their profiles as high-fidelity 3D assets, enabling virtual try-ons, wearables and digital physical redemption options.
Financialization of NFTs. Once physical assets manifest as NFTs on-chain, they can be plugged into existing NFT financial infrastructure. They can be traded on OpenSea like other NFTs and used for collateralized loans on platforms like NFTfi and Arcade. There are also specialized marketplaces such as unxd for tokenized luxury goods, Tectyle for tokenized textiles and fine art, and mntge for period clothing.
Generative Manufacturing / Digital to IRL. The adoption of generative engines has so far been in the digital art market. As consumers look to interact with their collectibles, projects like Trame and Artmatr offer creators a fabrication pipeline to turn digital files into physical art. Beyond the art market, these fabrication pipelines could eventually serve as the infrastructure for any generative consumer product. For example, a generated fashion product can first be minted into an NFT, and the holder can then use it to purchase the corresponding physical product.
Standards and Registration Agencies. Physical-Backed Tokens (PBT) are a standard by which physical goods with chips can assert their own authenticity and remain closely tied to their on-chain NFT counterparts. This is achieved through a chip capable of generating its own signature, and NFT transfers are only allowed if the chip's signature is provided to the contract (guaranteeing that the token cannot be transferred without the consent of the physical owner). The Ethereum Reality Service (ERS), spearheaded by Arx (Kong chip), proposes a canonical registry of chips, manufacturers and service providers proving the functionality of chips and the projects/companies embedding them in objects. It also proposes patterns by which developers can indicate the requirements and capabilities of the chip.