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Loyalty and NFT's - in the era of ecommerce marketplace aggregators

Updated: Jul 7, 2022

This blog was motivated by a recent post on twitter by @brianbehlendorf - you can read the post here. Brian needs no introduction, a pioneer of the internet revolution and the moving force behind the Hyperledger foundation for building open source permissioned blockchains. In a multi-part post about permissioned blockchains, he made the comment that yes, even NFT's have a role.

As mentioned above, we at Pravici have built an application for coalition loyalty programs using Hyperledger Fabric. Business conglomerates have existed for a long time, and a coalition loyalty program that binds all their businesses makes sense. What is interesting is a new twist on that concept - the rise of e-commerce aggregators such as Thrasio, Berlin Brands, Perch, Elevate Brands in Europe and the Americas, as well as Mensa, Global Bees, GOAT Brand Labs and others in Asia. Many of these have reached unicorn status and have become even more relevant with the rise of digital e-commerce post the COVID-19 pandemic. Experts believe that these consumer behaviors are here to stay and define the new norm. So how do we foster loyalty between the consumer and the companies under the umbrella of these e-commerce aggregators? One way is to establish a Coalition Loyalty Program. Powered by a permissioned blockchain such as Hyperledger Fabric, the companies under a conglomerate or e-commerce aggregator can get access to the shared consumer behavior data in near real-time as well as settle the loyalty point balances between themselves easily. After all, the companies are individual entities with their own P&L responsibilities, and they work co-operatively with each other under the "trust, but verify" principle. Permissioned Blockchains provide exactly that.

Now, where do NFT's fit in this picture? Loyalty programs are all about providing a personalized experience and promise of exclusive offers and perks to loyal members. An NFT makes a lot of sense here. An automotive company could issue an NFT for say, the first 1000 people who reserve a new EV and as a gift, mint a unique set of NFT's for that event. It could be an original piece of artwork of the vehicle-- it could even be a tradable coupon for getting a rebate (as a matter of fact, one company VinFast already has done something similar, check out this story). Unlike a regular NFT minted in OpenSea etc., in a public blockchain, we can mint the NFT within the private permissioned blockchain network, such as the one we have created for Coalition Loyalty. Besides the negligible cost to create the NFT's, this allows for creating a great marketplace within the coalition loyalty system for members to earn and trade these NFT's. The currency for trading these NFT's will be the loyalty points earned and burned.

Once a member has earned an NFT, they can sell it, trade it or redeem it, all within the context of the coalition loyalty program. Consider another example: a sports related company could issue unique NFT's from the most popular sports persons, whether it is football, basketball or cricket players. These can be rewards for achieving a certain status such as Platinum within the loyalty program, or for earning sufficient points within a certain time period. Besides fans wanting to possess these NFT's, they are tradable too! An owner of such an NFT can create a 'promotion' themselves and sell the NFT for even more points. This creates a virtuous cycle of encouraging members to join the loyalty program to earn or buy NFT's, trade them, or in some cases redeem them. Engaging the customer in these types of conversations increases the total customer value as well as customer spend, which are some of the key metrics of a successful loyalty program. By having the ability to easily issue such NFT's within the coalition loyalty application powered by permissioned blockchains, the loyalty program operators can save costs and still provide exciting ways to engage with loyalty members.

Above is a block diagram of how such a system could work, within the context of a blockchain network created with Hyperledger Fabric. Implementing a coalition loyalty program involves key participating companies running a blockchain node. Customer activities that result in earning and burning of points are passed into the blockchain network through an API layer and Fabric Chaincode (Smart Contracts) adjusts the account balances of the Partners and Members of the loyalty program.

As a matter of fact, this follows the principles of Fungible Tokens as specified in ERC-20. Pravici TLP is one such implementation which uses the concept of fungible tokens along with several other principles (such as creation of "promotions" by partners and even members with promotions recorded on the blockchain) to create a loyalty program. If you want to explore how Pravici TLP works, check out the following video.

If you want to explore further as to how ERC-20 tokens can be implemented in Hyperledger Fabric, look here. In addition to issuing and redeeming fungible tokens (loyalty points), we can layer in the issuance and trading of Non-Fungible Tokens (NFT's) as per ERC-721. Again, ERC-721's can be implemented in Hyperledger Fabric, as outlined in the "Fabric Samples" article here. Yuki Kondo, a researcher in Hitachi has put out a great video explaining ERC-20 and ERC-721 tokens on the context of Hyperledger Fabric, check it out.

A mobile app used by members to review their loyalty transactions can also be used to display the NFT's owned by a member. As NFT's are "assets" in Hyperledger Fabric, they can be searched and discovered in a mobile app or portal. Transactions within the NFT channel will record the minting, selling and buying of NFT's, essentially capturing the state changes in an immutable ledger.

Now what happens if someone wants to take their NFT from this private, permissioned loyalty network and move it to a public, permission-less network for wider visibility? We can allow such a transaction to happen, at the discretion of the loyalty program operator. We could, for example, allow a cross-chain atomic swap, where the owner of the NFT can spend some loyalty points within the Hyperledger Fabric network in exchange for minting an NFT in a public network such as Matic or Harmony (these layer 2 networks are a lot cheaper) or even Ethereum, which is a lot more expensive as of now. You will just have to fork out more points for Ethereum to cover the gas costs.

How do we do an atomic cross chain swap with Fabric on one side and another public blockchain on the other side ? Researcher Daniel Szego has a great video which explains the basic concepts of doing exactly that.

I want to conclude with the following thought - the role of NFT's, or for that matter emerging token standards such as ERC-1155 which are fungible agnostic is just beginning to be explored. I believe they will play a key role in coalition loyalty systems powered by permissioned blockchains. Another token standard in active discussion is ERC-1238, a non-fungible non-transferrable token. These are tokens that are issued but cannot be traded, such as a record of membership in a loyalty program. As more token standards are developed and matured, there will be new ways to incentivize customer behavior by awarding and trading these tokens within the context of a loyalty program.

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