Increase customer loyalty through token gating

What is token gating and how does it work? Learn how your business can benefit from token gating in this article.

Scarify and monetize content through Token.

The underlying principle of token gating is probably already familiar to many in various forms. On the one hand, almost all digital subscription models are based on a similar approach that grants access to content exclusively to paying customers. For example, one needs a Netflix account to access the media library, or an Adobe account to use the functions and various software programs. But even real events, such as admission to a soccer stadium, are based on a "gating principle." This is because only people with a valid ticket are granted access to the stadium. So why use the token gating mechanism to achieve what is possible with the technology already in use and adapted today?

What is token gating?

Token gating means restricting access to certain content, areas, products, or even communities to holders of a specific cryptocurrency token or non-fungible token (NFT). Here, the tokens act as keys that reside in a user's digital wallet. This additional use for NFTs can thus be thought of as the ticket inspector outside the soccer stadium who denies unauthorized access or entry.

While the subscription examples described above require a monthly payment and login data such as e-mail and password, the token-gating principle offers equally exclusive access, but without the need for data or regular payments. Accordingly, only the specific NFT has to be purchased once.

How does token gating work?

A token gate is an interface that uses the readout of a crypto wallet to deny unauthorized access. Users connect to the deposited smart contract on a website, app, virtual or real events by linking the digital wallet to a coded Web3 interface. The software can view whether the user holds a specific NFT, which authorizes as a key for the token gate. In doing so, the technology detects whether access can be authorized in a completely automated manner. In doing so, token-gating technology can revolutionize the access mechanism to digital domains as well as real-world events. Only after authorization can users experience the various added values behind the token gate, which can consist of exclusive products, premium content, pre-purchase rights, events and more. There is no monthly fee or transaction fee to pay.

What are the benefits of token gating for consumers?

But why should the token-gating mechanism be used from the consumer side? A major advantage and thus also difference to conventional access models is that the consumable content and inlets are transformed from consumer goods to merchandise. This is because if the token is no longer needed, for example because there is no longer any interest or the content has already been consumed, it can be sold on the open market as NFT. This is because the content is still only available to token holders and is therefore limited. If the content delivers continuous added value, it is also possible to speculate on a price increase for the token and sell the access at a correspondingly higher price.

For consumers, it is often very desirable to belong to a special customer group of a company in order to enjoy added value and benefits that are denied to others. Issuing NFTs that unlock exclusive items in a fashion label's online store, for example, creates a sense of exclusivity and thus an inner circle whose membership is seen by many as desirable. Accordingly, the demand of the "keys" to these exclusive products can increase and thus also the price on the secondary market.

At the beginning, it was described that admission to real events can also be reformed with a token gate. This is because tickets could previously only function as a one-time entry entitlement and were kept at most as a memento. With token-gating technology for events, tickets as NFTs can deliver significant value even after the event. For example, in the soccer ticket example, various added values can be associated with the token, such as exclusive video footage, discounts on merchandise, advance ticketing rights, exclusive access to booths, or invitations to special events. The token tickets usually do not lose value in the process, as the creator can constantly add new incentives to the tickets that have already been used.

What are the benefits of token-gating for businesses?

By using tokens to access content, companies have control over who can access their products and can generate recurring revenue from secondary sales in addition to initial sales due to royalties. Customers benefit from not having to pay recurring fees and instead acquire an asset that they can sell at a later date.

Whereas in the past, access was typically tied to a specific user account, token gating only requires proof that the user's digital wallet contains a specific token. User accounts are often divided among groups of buyers, which is very unfair to the originator. However, digital wallets are rarely shared by more than one person, making piracy increasingly difficult. In addition, ownership of NFTs is verified via the blockchain, which circumvents opportunities to counterfeit token ownership. Therefore, only token holders have access to the benefits behind the token gate.

The aforementioned added value and exclusive rights for a specific group of customers are also considered a major benefit for the creator of the tokens, as the sense of community and thus customer loyalty are increased.

How your company can use token gating

To learn how your company can also use token-gating, it's worth taking a look at existing examples. For example, Gary Vee uses the technology for his VeeCon conference. Token-gating software at the entrance identifies the VeeFriends NFT collection as a ticket and grants holders access to the event. But even after the event, the admission ticket is highly relevant for users, as it serves as a ticket for future events on the one hand and offers exclusive benefits outside VeeCon on the other. For example, only holders of these tokens are allowed to participate in exclusive forums and meet & greets with Gary Vee.

YugaLabs, the founders behind the successful Bored Ape Yacht Club, are only granting Bored Ape NFT owners access to their online store where exclusively branded BAYC fashion items can be ordered. With limited access and brand recognition, Yuga Labs has achieved a high level of exclusivity and established itself as a status symbol in the real world as well. In addition to access to the online store, the tokens, similar to Gary Vee's, serve as tickets to the so-called Ape Fest, a four-day festival featuring world-renowned musicians like Snoop Dogg and top speakers from the scene. All for free, mind you. These added values make the Bored Ape NFTs the most popular and valuable project at the moment.

PROOF, the collective of successful entrepreneur Kevin Rose, uses its NFTs as a digital key to chat forums with stars from the Web3 scene, podcast recordings and other content that has high added value for entrepreneurs and inquisitive minds. The scarcity of access to this valuable content has allowed these digital keys to rise to become one of the most valuable NFT collections.

We would also be happy to consult your company for an optimal use of a token gate to increase customer loyalty. We are confident that in a no-obligation initial consultation, we can explore options to help you on the path of your business goals.

Breaking new ground together.

Are you ready to initiate the change? I look forward to a get-to-know-you conversation to explore initial opportunities for using Web3 in your business model.

Florian Suckfüll

Florian Suckfüll
Founder & CEO

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