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What is Token Gating in the NFT world?

What is Token Gating?

Token gating is a verification method utilized to restrict access to certain services, websites, and applications depending on the ownership of the token. Here, token gating refers explicitly to ownership of NFTs or tokens.

Token gating is the next evolution for gating a community or physical/virtual experience. It is a way in which exclusive digital content access is granted to a limited number of users. Whether the community is coming together virtually or in person, access is only granted as per the type/number of the tokens a person holds in their wallet.

What is an NFT (Non-Fungible Token)?

NFT refers to a token encrypted on the blockchain network that represents ownership of a unique item. For example, music, art, real estate, and videos are real-world objects that can be converted into NFT.

NFT is one of the popular ways of providing digital assets as collectibles. NFTs reside over the blockchain network, such as Ethereum and Solana. Authentication has been one of the major parts of NFTs and blockchain technology. It is possible to obtain digital content attached to an NFT even if the user doesn’t hold it in the wallet.

How are NFT and Token Gating interrelated?

Sometimes, NFT-based membership is used as an interchangeable term for Token Gating. This is because the NFT-based membership grants a particular service only when the ownership of a specific NFT is verified. In NFT-based membership, the former must be related to NFT, however, there are a variety of distinct tokens that can be utilized for token gating.

NFTs are commonly used in the token gating mechanism to authorize access to content. For example, the user requires to connect their crypto wallets to access token-gated advantages. Once it is successfully connected, it verifies the NFT or crypto-token to allow access to the exclusive content.

How does Token Gating work?

Token Gating is an ecosystem of its own that is implemented on top of the public blockchain. The key to the user’s digital wallet is utilized to read information from the user’s wallet. The user requires to connect their wallet to the platform in order to access their exclusive services. Further, the platform verifies if the user is holding the right fungible or non-fungible token in their wallet or not. In case, the token is correct the access is granted, else it is denied.

Some projects have an in-built token gating system. For example, PROOF Collective utilizes token gating to give access to exclusive content to its membership card holders. They developed a portal on their website in which the users link their wallets to gain further access.

How is Token Gating beneficial for NFT projects?

Token gating is beneficial for NFT projects for a variety of reasons. The primary reason is that the token gating creates value for their NFT holders. Token gating helps in creating exclusivity and strengthening the community by providing rewards to the token holders.

  • Community building: It is growingly becoming a tool to generate value for community members by developing unique rewards and providing access to exclusive content.
  • Access control: It eliminates the issue of users sharing their credentials with other people. This is because access is only given if there is an NFT in one’s wallet.
  • Marketing: It can be utilized as a significant story to publish in the media. For example, every time you add a new token gated perk, you can post a new article, tweet, press release, etc.

What are the advantages of Token Gating for creators and customers?

While the Web3 space is still progressing day by day, token gating has already shown how beneficial it is. Apart from the obvious advantages, for creators and customers, it offers better security. It is a gateway to developing a multi-level verification system.

The following are the advantages for creators and customers: 

Creator-

  • Access control – Creators are given the right to regulate access to their content.
  • Royalties on secondary sales – Creators can earn recurring revenue generated from secondary sales.
  • Aligned incentives with customers – Without paying any recurring fees, the creators are provided aligned incentives in the future also.
  • Security – As the ownership is also verified via the blockchain, there is no way to forge an identity. Hence, only token holders are granted access to the services.
  • Cost-effectiveness – Token gating is a low overhead as it eliminates intermediary parties, making it cost-effective.

Customer-

  • No subscription payment – The customers are provided with unlimited access to content without any subscription fee.
  • Ability to liquidate the asset – The customers can sell the asset in the open market.

Example of Token Gating:

The following are the companies that have moved into Web3 space with token-gating experience:

  • VeeCon – Gary Vaynerchuk (the creator of VeeFriends) airdropped NFT tickets for the initial VeeCon conference. The NFT tickets were distributed to the VeeFriends Series 1 holder. The users needed to pass two-step verification, first hold a VeeFriends Series 1 NFT, and second show the VeeCon NFT ticket for the entrance.
  • Lyrical Lemonade – Lyrical Lemonade (Chicago-based multimedia) released tech subsidiary, L3mon, whose 1st NFT collection was “The Carton NFT Collection”. This NFT collection provides owners with 3 years of access to Lyrical Lemonade’s Summer Smash festival. The event tickets were airdropped, creating exclusivity as there were only 500 unique pieces in the NFT collection.
  • Flyfish Club – The Flyfish Club is a private dining club that is based on NFT-based membership, which needs members to have a Flyfish Club NFT. Holding the NFT gains access to Flyfish Club’ New York City restaurant and social experience. The number of Flyfish Club NFTs is 3035 from which half of the NFTs are listed over the secondary marketplace for resale.
  • The Block – The Block (Crypto media company) released a tokenized paywall to provide its exclusive content in exchange for crypto. The company is utilizing a framework, known as the Access Protocol, and provides Access Tokens to the crypto marketplace for consumers to buy.
  • Stoner Cats It is an animated series created by Mila Kunis’ production company. To watch the show, users need to hold Stoner Cats NFT. Using the model, the team can completely control how the show will be distributed.

What’s the takeaway?

Token Gating in the NFT world has created a positive impact. For creators, if they continue producing great content, demand for their work will increase with limited supply. For customers, if they buy an NFT, they get access to exclusive content with the highest quality work. Further, when they are done, they can resell it to another user on a secondary marketplace. While token gating has been well-known for a long time, the NFT world has reshaped how utility and exclusivity will work within Web3 solutions.

PrimaFelicitas is a top Web3 development company with rich experience in launching your NFT Collections on your own NFT Marketplace with special features like token gating, royalties, etc.

So, how can this issue be overcome? This issue can be eliminated using Token Gating. This is because to view or access the exclusive digital content, the user must have the required token or NFT in their wallet.

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