Crypto exchanges are starting to allow retail users to speculate on the price of high-end footwear, potentially unlocking an endemic new use case for cryptocurrency as the default medium of exchange for collectibles, as pointed out by Three Arrows Capital CEO Su Zhu.
I think one use case that is under-explored is the fact that deliverable derivatives on collectible goods can now spread like wildfire b/c of the benefits of liquidity of underlying as well as the global frictionless-ness of the counter currency (BTC) https://t.co/wuQp1AbyOj
— Su Zhu 🦁 (@zhusu) August 22, 2019
Several exchanges including ZB, 55 Asset Network, Coinex, and BBX, are now permitting users to trade against sneakers as an underlying derivative, taking positions on each item priced in BTC and other cryptocurrencies.
Long Yeezys, short Air Jordans
As opposed to an open auction-style marketplaces that facilitate the purchase of collectibles, these exchanges seem focused on creating liquid derivatives markets for traditionally illiquid items—with an emphasis on speculation and not actual redemption of the physical asset.
U.S.-based exchange 55 Asset Network, for one, offers a limited supply of “collectible-backed tokens” for each product in an IEO-style scheme, or what it describes as an “Asset Token Offering” (ATO).
As such, 22,000 YEEZYB tokens are backed by 10 pairs of YeezyBoost 350 V2 “Static Black” shoes. Users must accumulate 2,200 tokens on the exchange and cash them in in order to redeem a pair, the exchange reports.
Unlocking a global market
While it could come off as a gimmick, such a scheme could have broader implications for cryptocurrency adoption and the “deliverable” (physically-settled) derivatives markets, especially for collectibles. Such an industry could be worth billions of dollars globally as fashion, trading cards, antiques, and keepsakes are transformed using crypto.
The limited-edition sneakers market alone is estimated to be worth $2 billion and slated to top $6 billion by 2025, with some pairs of preowned (often unworn) shoes reselling for tens of thousands of dollars, Business Insider reported. With crypto exchange-style accessibility and liquidity, the crypto sneakers market, like other derivatives markets, could thinkably be orders of magnitude larger in capitalization than the underlying market.
Business seems to be booming for the handful of startups in the space attempting to make the market more liquid, like StockX, a live bid marketplace for limited-edition shoes. StockX has reportedly gained unicorn status with sales exceeding $100 million per month.
In spite of StockX’s success since its 2015 launch, its founder, Josh Luber, says “the future of the business” will be in allowing users to buy and sell products without ever having to handle them. A market perhaps just a step away from what the likes of Coinex and 55 Asset Network are offering.
Bitcoin, and cryptocurrency more broadly, continue to gain traction and recognition as a globally liquid, secure, and efficient method of payment. As such, crypto would be a natural first choice as the monetary base for the international collectibles derivatives market.
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