Web3 Product Passports: The Regulatory Use Case

Product information is rapidly turning digital, and many products have digital twins. This information is harnessed by Web3 technologies to authenticate, track, trace and trade these products in marketplaces, adding liquidity. Many industries like fashion, construction, chemicals, etc., are seeing increased pressure on sustainability, and regulations are pushing for end-to-end views and digitally connected data sets for increased transparency.

The information about products and their lifecycles will likely be captured in Digital Product Passports (DPPs). These DPPs are required by regulations in many countries to help businesses and consumers track the origin and authenticity of parts and raw materials in finished goods. Trustless, third-party verification for compliance can also unlock new and innovative business models.

The Fractured Current State

Information flow is often opaque, slow and fragmented from one stage of the product lifecycle to another. Often, no information flows, a small part is made available or it is unclear or out of date. This makes market participants in the value chain distant and unconnected with each other producing operationally inefficient products which are not sustainable. Blockchain and Web3 may help resolve this problem through product passports.

DPPs and Blockchains

Blockchain and Web3 have gained importance and momentum as key infrastructure elements and through implementing on-chain applications that leverage their properties around immutability, decentralization, security and being permissionless. Blockchains can identify assets uniquely, maintain immutable records and enable tamper-proof tracking of digital and physical assets on-chain. They can also drive smart contract-based automation, lowering operating costs and boosting asset efficiency. The intersection of regulation and blockchain will unlock major innovation opportunities for enterprises.

European Regulations

Europe plans to mandate DPPs for several types of regulated goods to track their origins and lifecycle. This will also make sure supply chains are circular and consumer awareness of environmental impact is raised. The two major regulations at play are Sustainable Products Regulation and the Battery Regulation, which have outlined DPP requirements to enhance sustainable, durable and repairable products across EU markets. These regulations offer large opportunities for blockchain and web3-enabled track and trace use cases in the EU and globally.

DPP Beyond Regulation

New tokenization standards like NFTs (non-fungible tokens) and SBTs (soul-bound tokens) have unraveled critical technology to operationalize DPPs. The tokenization market is expected to be $17 trillion by 2030, unlocking massive value through decentralized economic processes. There are several innovation-oriented benefits of implementing DPPs outside of compliance.

• Streamline and automate multi-party collaboration, such as suppliers, partners, auditors and vendors through smart contracts.
• Manage counterparty risks and reduce reworks from wrong claims.
• Prove compliance without revealing sensitive internal information.
• Improve authentication, access control and integrity of data.
• Enable better decision-making and planning cycles for recyclers and the downstream economy.
• Track consumer behavior information better, enabling product improvements.
• Provide transparency around how resources and ingredients are used to improve manufacturing and supply chain processes.
• Improve tracking and optimizing of carbon footprint.
• Track resource consumption (raw materials, fuel, transportation, etc.) when metered on the blockchain.
• Digitize and insert all package inserts into DPPs, reducing costs and creating opportunities for real-time updates.

All these outcomes are derived from designing a good DPP profile with the right attributes mapped to the right parts of the product lifecycle. Leveraging blockchains can improve ROI by lowering the speed and efficiency of the implementation.

DPP Implementation Considerations

A few different elements must come together to robustly implement a DPP.

Product Identity Definitions

Each product assumes a unique identifier using DID (Decentralized Identity) technology, as mandated by the EU. These identifiers can be assigned to batches in cases of raw materials or batch production, the identifiers are made blockchain readable and bound to physical products. All identifiers are created in a decentralized way not controlled by a single entity.

Consortium Cooperation

Implementing a robust and scalable DPP use case requires the cooperation of all economic participants in the value chain. Siloed operations will make network effects from an industry-wide scale difficult to deliver.

Using DPPs

Web3 wallets enable access to product passports and information requests are granted through the product's unique DID stored on the blockchain.

Interoperability

Web3 is a new space and interoperable blockchains have not yet developed at scale. It is a likely scenario that economic participants may have adopted different chains and interoperability could become a barrier. If you are an enterprise, pick an EVM-compatible chain to mitigate short-term interoperability risk.

Other Challenges

The information requirements across each value chain are also evolving, such as what can and cannot be included. Data storage and manageability of storage like on-chain versus off-chain have no standard practices and challenges with privacy that have yet to be resolved at scale.

Phased Approach

Given the diverse needs of economic participants in the value chain, the DPPs can vary based on the value chain stage, industry, product category, and other factors. It is difficult to implement a one-size-fits-all system. Shorter sprints to a bigger goal mitigate execution risk, exposing the system gradually to new participants through the addition of small but useful features and functionality, which will foster sustained adoption and make it easier for everyone to manage changes.

Concluding Thoughts

DPPs promise to have information about the entire product lifecycle. Regulation around DPPs continues to evolve and helps strengthen the use case for product passports and information transparency. Blockchain technology exists and is a good fit for the use case, and businesses must invest in the enablement, digitization and automation of DPPs to achieve speed to market, compliance and scale. However, making every economic participant get on board remains a challenge. DPPs can unlock tremendous value in the short-term, such sustainable business models and better products, and in the medium term on compliance and regulatory needs. There exist ample innovation opportunities with digital passports even outside of compliance.