Digital fashion enables internet users to express themselves without physical constraints. From digital physical products to fully immersive virtual content, the field is booming. As the virtual economy develops, we expect the industry to continue to grow.

Digital fashion has fundamentally changed the way we think about virtual identities. As more and more of our interactions take place in social media, games, and virtual worlds, our online identities will become a social marker of how others perceive us.

The Age of Digital Fashion

• 60% of Gen Z and 62% of Millennials believe how they present themselves online is more important than how they present themselves in person.
• According to a recent Roblox report:
• Half of the respondents change their digital avatar picture every week;
• 47% said their profile picture helped express their personality; 43% said it helped them feel good about themselves;

Commercialization:

• Digital fashion artefacts are being commoditized through online secondary markets like StockX:
• 60% of Gen Z men are using the platform in 2020;
• The size of the secondary market for fashion products is expected to be 15-25% relative to the primary market by 2025;
• In the game, players are interested in trading their skins, as evidenced by primary sales and gray markets;
• 81% of core US gamers who are aware of game skins expect real-world money to purchase their items; additionally, 75% of players interested in trading skins say that if they have monetary value outside of the game , they spend more money on skin;

Digitizing:

• Consumers want to interact with the brands they buy, and the sense of belonging and influence will become the driving force of the brands they buy. The vast majority of consumers use digital channels to learn before, during or after a purchase. Receive Virtual Cosmetics:
• A US survey of MMO players found that 91.3% of respondents spend money on in-game cosmetics.
• In a 2018 study, 68.6% of the 1,307 respondents said they had no objection to cosmetic microtransactions, while 22% said they strongly disliked paid transactions.
• Nearly three-quarters of Roblox respondents said they would spend money on fashion items, and one-quarter would spend more than $20 on a single cosmetic product;
• Global in-game purchases expected to reach $75 billion by 2025

Promote sustainable development:

• Fashion production accounts for 10% of human carbon emissions and 85% of all textiles are thrown away every year. This has led to efforts to reduce the carbon footprint of the fashion industry by controlling supply and returns while seeking to be as digital as possible.

The Emerging Field of Digital Fashion

What was once seen as a niche experiment is now becoming a vibrant market, a major consumer market, widely adopted by small and large fashion houses. The state of digital fashion today can be broken down into three main movements: digital physical, augmented reality, and direct-to-avatar wearables. Many projects cross between these areas to increase the total utility of assets within their ecosystems, so they are by no means mutually exclusive.

All three parts come from different layers:

• Communication: Consists of digital physical tools such as NFC chips and dynamic QR codes, and blockchain technology such as smart contracts and data feeds. Together these serve as a database of ownership and certification, and a way for fashion to communicate with the digital world.
• Creation: layer of tools for coordinating the labor market and developing physical and digital works.
• Distribution: Distribution can originate from the marketplace or from a custom site. This layer also includes tools to support virtual distribution across platforms, such as avatar infrastructure and logistics operations to ship physical products.
• Augmentation: Physical assets or fully virtual objects are enhanced through AR, in-game utilities, event or token gating, and even play a role in the future governance of the brand.

digital physics

Digital fashion merchandise is paired with physical delivery of real-world merchandise. In its simplest form, a physical item (such as a hoodie) is linked to a digital counterpart (such as an NFT or avatar wearable). Given that the need for a virtual world is still in its infancy, digital-physical fashion benefits from today’s consumer demand for physical products, while preparing for the increased virtuality of the future.

Clothing is no longer an object locked in a closet or isolated from real-life interactions, but has become a utility-based digital asset that doubles as a key element of an immersive online experience. These experiences range from gaming and token-gated community hubs to AR overlays and IP tools.

A user’s physical hoodie might allow the user to attend a local event or virtual concert, or vote within a decentralized fashion house, translating the desire of being a verified consumer into a future commodity. Digital physics is the most complex of the three due to the use of additional infrastructure beyond NFTs, including near-field communication (NFC) chips, decentralized hosting platforms, and value chain distribution services.

NFC chip

Near Field Communication (NFC) chips connect real-world assets to the blockchain. These chips are embedded in physical items and can be scanned with a phone to access additional content. While similar to static QR codes, NFC chips utilize encryption and/or dynamic linking to ensure that only those in close proximity to the physical asset can access it. KONG Land is the main supplier of these chips and has been widely adopted by various digital physics projects.

KONG has two versions of the chip: SiLos and HaLos. Both versions self-generate their own key pairs and store the public key in the KONG registry contract. By scanning the chip with a smartphone, anyone can verify the private key and unlock access to tokenized assets stored in the contract or verify the authenticity of the item. KONG’s HaLo chips use Ethereum’s native elliptic curve (secp256k1), which means they can sign transactions and messages directly, compared to typical NFC tags that cannot generate signatures.

Today, KONG’s chips are embedded in projects as diverse as Metafactory, Rags, Mattereum, IRL Art, and Azuki. NFC chip stacks can be extended with infrastructure such as IYK, which provides custom modules for digital physical items to plug in. Projects can mix and match IYK’s no-code tools, modules such as POAP claims, templated websites for viewing digital projects, and analytics around NFC taps.

As part of the NFC integration, sending a dynamic one-time access link every 30 minutes ensures proof of proximity and facilitates location-based analytics. Items that use IYK include 9dcc, Index Coop x Bankless in a hoodie drop, and POAP cards.

Recently, Azuki and KONG wrote an EIP for physically backed tokens, demonstrating the potential of these chip integrations. According to the PBT proposal, each NFT is conceptually associated with a physical chip and can only be transferred to a different owner if the chip signature is provided to the contract. If you trade physical objects, the new owner can scan the chip and transfer the NFT from the original owner’s address to their own, always keeping the link between the digital and physical copies.

Decentralized hosting platform

A core infrastructure need for most digital-physical brands is an escrow service that holds the physical asset until it is redeemed by the NFT holder — this stems from the need to submit an order to a manufacturer to create the physical object, whether it has been redeemed or not. While escrow can be circumvented by using a stated period in which NFT owners can claim physical assets (such as RTFKT’s forging window), not all projects take this approach. For example, it makes sense for 9dcc to include vaults as part of the asset’s value proposition — like the Unisocks phenomenon in 2021, where unclaimed physical numbers hold more value than claimed items.

Projects can choose to build their own infrastructure for this, but it may be easier to plug into existing solutions such as 4k Protocol and Courtyard, or use futures-like contracts through protocols such as Boson. Both 4k and Courtyard use a model where physical assets are shipped to storage providers, and once received, NFTs are generated that are redeemable for the underlying asset.

4k takes a decentralized approach, using a token economics incentive model to bootstrap a network of storage providers (“Guardians”). In the event of item degradation or loss, NFT holders receive slashed tokens, which are managed through a staking and slashing mechanism. Guardians compensate for this risk through token inflation and protocol fees. Notably, 4k has highlighted the potential of physical backed NFTs by partnering with Arcade to provide collateral for Rolex watches. Additionally, 9dcc performed their ITERATION-01drop working with 4k, showing how an airdropped 4k NFT can be used as part of the distribution process.

Courtyard takes a more centralized approach, relying on security firm Brink’s for shipping and storage. They also want to expand their current operations by building a network of resellers to assess the authenticity of items before they are represented on-chain. To help create a supply of on-chain assets, Courtyard is also considering adding a 1% royalty rebate to the project’s initial minter for all subsequent secondary sales of the project.

Supply Chain and Value Chain

Physical and virtual product development results in a highly fragmented supply chain of designers, suppliers, manufacturers and 3d modelers, necessitating the need to distribute the value of the final sale among multiple parties. This opens the door for web3 infrastructure projects like Hibiscus and Crowdmuse that specialize in profit redistribution and contribution management.

Hibiscus recently created the first on-chain profit redistribution contract purpose-built for apparel production—redistributing profits from FWB merchandise sales to supply chain participants. They hope to expand this by onboarding sewers, pattern makers, printers, and other apparel industry workers to create a decentralized supply chain that cryptographically redistributes profits to creators.

Additionally, they are building a forkable asset library from which creators can quickly build or remix existing designs, which can be seen as an example of composable fashion Lego bricks. Crowdmuse is also dealing with value chain process infrastructure. Their model allows brands, designers, and manufacturers to co-create digital physical collectibles on-chain, transparently track contributions and distribute revenue automatically. In addition to the on-chain database, there is a reputation identity associated with a contributor DID based on the number of contributions made and products created on the protocol.

Creators can also contribute to design specs, which earn a share of revenue through licensing, giving smaller independent creators the opportunity to gain wider distribution for their models. Additionally, aware of the impact of manufacturer minimum supply orders, creators can use Crowdmuse’s pre-order feature to help reduce the upfront cost of new products.

AR x fashion

Augmented reality (AR) superimposes digital objects onto the real world. This feature is already ubiquitous across social media, with most users of apps like Snap and TikTok using AR filters in their content. Software technologies like ARKit and ARCore have further improved AR delivery, making it easier and cheaper than ever for brands to create immersive AR experiences. Excitingly, full AR hardware adoption is expected to increase dramatically over the next few years as consumer-grade solutions hit the market.

With AR, fashion can expand in a unique way in the physical world that is not limited by physics itself. All of this can be achieved through the lens of a smartphone, without the need for expensive hardware, making AR fashion items as ubiquitous as smartphones.

AR fashion is usually done through virtual fittings and filters. For the former, asset owners send their own high-quality photos, and digital artists apply the project using 3D modeling and rendering software. Filters, on the other hand, leverage available AR delivery apps such as Snap, TikTok, Instagram, and Zoom to generate digital renderings of assets on people in real time.

The first on-chain full AR clothing product launched by OG digital fashion brand The Fabricant in 2019 is Iridescence. Since then, they’ve launched their own marketplace and co-creation studio, allowing end users to create and remix designs each season and sell their creations to collectors. Each season, designers create combinations of patterns and designs that end users can customize to their liking before casting. This collaborative process opens the door to novel forms of multiplayer game creation.

DressX is another leader in the AR scene, offering 4k rendered stills, live streaming AR dress-ups through their app, and “metawear” that follow the aforementioned virtual fitting model. To date, they have partnered with leading web2 social platforms including Snap for instant AR, Meta for avatar stores, and Roblox where they have become the first to design layered clothing for the Roblox marketplace A pure digital fashion brand.

DressX offers purely digital clothing and NFTs, some of which can be used in crypto-native virtual worlds like Decentraland. Recently, DressX announced a change where they will be offering users a subscription-based service that will allow them to experiment with all the various AR fashion looks on the platform for a recurring monthly fee.

D2A’s Wearables

Direct-to-avatar is a business model that sells decorative wearable devices to players in a social or gaming environment for use in their avatars. In an environment where players spend a lot of time, the direct-to-avatar cosmetic economy thrives. The more real a game world is to a person, and the more time they spend in it, the more likely they are to buy cosmetics to fill their social role in the game.

Some of the most successful games have demonstrated direct-to-avatar mods, such as Fortnite and Roblox, with 77% and 54% of active US players using game skins, respectively. However, these models typically do not include a direct ownership tier, although consumer research suggests this increases players’ payouts.

A Web3-enabled avatar economy is well-positioned to benefit from the aforementioned preference for real-world transactions, desire for asset ownership outside of gaming environments, and growing acceptance of virtual cosmetics. As with any virtual commodity attempting to cross digital boundaries, the main challenge is interoperability. Different virtual environments have different constraints in terms of aesthetics, polygon count, etc. While cosmetic items do benefit from having no direct utility in the game or world, which can cause balance issues between environments, they still require tweaking.

Some current approaches to addressing interoperability include:

• Developer Tools and Cross-Platform SDK: Avatar infrastructure where virtual worlds and games can be plugged in as easily as Ready Player Me is is a way to sell cosmetics to a growing player base while helping to meet these challenges. Ready Player Me is a cross-platform avatar system that provides developers with an avatar creator and SDK to easily get user-generated avatars in-game across web, mobile, Unity, Unreal and other applications. Digital fashion brands can leverage their distribution reach to sell on these platforms – DressX and Artisant are two notable brands doing so today.
• Standardization: RSTLSS takes a unique approach to interoperability challenges by standardizing 3d asset models through seasonal drop-offs. Users receive mockups of each virtual world integration, and creators can mix and match IP and designs into preset positions to customize their wearables. These designs are then applied to all other applicable models as 2d texture wraps. A smaller set of base models added over time plus a host of new texture designs should quickly lead to a large library of components for various virtual environments.
• Public datasets: Metafactory is exploring another interesting interoperability effort with their VR/Metaverse Crew. Using Ceramic as a data layer, they wanted to create a single “master” NFT for each garment that could be linked to multiple file format types in the metadata. As new platforms are integrated, metadata can be updated with the appropriate file type, future-proofing their wearables as more virtual environments are rolled out.

In addition to interoperability, there is also the issue of fitting a wearable device to a specific avatar, which may vary in shape and size within and between platforms. For avatars following the VRM/gLTF standard, owners will need to customize the fit of the wearable on the avatar via Blender or Unity + UniVRM. Tools like Marvelous Designer/Clo3d can do this automatically, but still require the user to complete these extra steps. This will be a lot of friction for most users, so alternative solutions have been sought.

Roblox has introduced one of the best solutions on the market - albeit limited to their platform - called layered clothing. The technology combines Skinned Meshes with a Cage Mesh Deformer to effectively shrink-wrap 3d objects onto 3d models, allowing for easy application of clothing without additional user steps. In web3, using a meta NFT as described above is probably one of the best solutions, especially when paired with an interoperable file format standard.

Fashion DAOs

Fashion-centric DAOs are still a nascent field, but today there are DAOs that serve as vehicles for grant or investment funding, tool/infrastructure development, and general collectives of experts and beginners alike.

Red DAO is arguably the most well-known fashion DAO. They are an investment DAO in the Tribute Labs ecosystem, using the 4,000 ETH they raised to support, buy, archive, collect and invest in the emerging world of digital wearables and fashion. Founded by Megan Kaspar, Red DAO currently has 43 initial members drawn from across the industry. Last year, they won the auction of The Doge Crown, a jeweled crown with a physical version, for 423.5 ETH during the UNXD Dolce and Gabbana fashion event.

DAOs can also be used to build a broad network of creators and create open source tools such as Digitalax. Digitalax bills itself as a collection of tip writers, stylers, and coders building open source tools for the web3 fashion economy. Through various sub-DAOs, their mission is to educate, train and gather fashion designers exclusively within the CC0 space. One of their main communities is the Global Designers Network, a community of designers who help each other build new and interesting virtual fashion prototypes.

We expect more trendy DAOs to emerge in the coming years as projects continue to innovate in organizational design. Outside of decentralized brands like Metafactory, opportunities exist in creator collectives that help steer brands and game offerings, grantmaking organizations that help accelerate the pace of the industry, and open source asset and software creation organizations.

Digital Fashion Trends

We anticipate further experimentation as the project continues to innovate around integrations, frameworks, and operating models within and outside of web3:

NFT financialization:

• NFT financialization has many applications in the fashion industry. While PFPs have been quieter than expected in the rental market, perhaps due to their unique relationship to personal identity, fashion seems to be a good fit. Decentralized Rent-the-Runway or leasing for wear rewards is not far away.
• Additionally, collateralization of high-priced USD NFTs for lending and IRL fashion collectibles unlocks fashion as an asset class. As mentioned above, financialization is already achieved through platforms such as StockX, so extending it to lending is a logical next step.

Dress to earn models:

• With growing interest in the x-to-earn model popularized by Stepn, wear-to-earn seems to be the way to go. Decentral Games’ wearables stand out in particular, with Decentraland Casino players earning multipliers through token-incentivized mining when they wear their branded wearables in-game.
• Draup, a platform set to launch in the coming months, hopes to incentivize greater use of virtual cosmetics by establishing a protocol that allows renting out, reselling and — most interestingly — earning money from wearing them.
• Wear-to-earn isn’t limited to virtual either – by using NFC chips, it can be extended to physical through a hybrid form of tokenized incentive-based affiliate marketing, allowing collectors to earn money by wearing branded merchandise.

Gamification:

• A basic form of gamification might look like a loyalty program, such as earning XP or tokens to level up your animated avatar. This could evolve into cross-brand social apps or integration into virtual world interfaces – the latter stands out as another way to engage and drive greater focus on avatar customization as a go-to-market strategy. co-creation:
• As Fabricant and RSTLSS mentioned above, co-authoring is an emerging field in web3 fashion (and elsewhere) that seeks to bring collectors into the creative process. Whether through a collector-preferred minting experience or tokenized curation-based governance, we expect co-creation to play a greater role as brands and communities engage with each other more thoughtfully.

Alternative licensing model:

• Several projects have begun experimenting with alternative licensing models. For example, Digitalax enforces a strict CC0 policy - any wearable device or item in the ecosystem must be created under a CC0 license to increase the mixability and composability of its assets.

Emerging fashion from NFT native IP

• One of the more promising developments is the use of crypto-native IP in commodity development. We look forward to the largest collection of NFTs exploring fashion further.

artificial intelligence fashion

• Creative artificial intelligence is emerging in various fields, and the fashion industry will also benefit from it. Neural Style Transfer, which combines objects and styles to synthesize new ideas, and StyleGAN, which creates a generated output after training on a specific dataset (such as a designer’s previous work), are two suitable approaches.
• Curation plays an increasingly important role through creative AI output. Deep Objects is experimenting with this, using AI algorithms to generate shoe designs that are then curated by the community until the final 1 of 1 is created.
• Other ideas may include:
• A decentralized brand that uses governance to manage AI-generated clothing
• Combine NFTs with trained models to create ownable, tradable or divisible human designers
• AI tools for converting 3D models between different virtual environments, making interoperability more seamless and less dependent on partnerships
• The social application analyzes the collected garments, creating suggestions for other assets (real and virtual)

Crossover with Virtual Influencers

• Virtual influencers can appear in the digital fashion space in two main forms: models (e.g. Lil Miquela, Shudu Gram) or anthropomorphic AI fashion designers (e.g. anthropomorphic StyleGAN).

we believe:

• As consumers become more demanding about the brands they wear, collectibles and apparel will increasingly be linked using NFC chips and blockchain.
• Augmented reality and avatar wearables will be common equipment in most luxury fashion products.
• Cutting-edge experiments, such as co-creation and collector curation, will be born out of crypto-native apps and infrastructure as legacy brands are slower to innovate. This will lead to high-value acquisitions — as in the case of RTFKT and Nike — and the emergence of new crypto-native luxury brands.
• For wearables and AR projects, adoption will be slower until there is more mass consumer education and interest. Projects should consider using digital physics to demonstrate what can be done in higher-level enhancement layers.