The collectibles market is booming. Today, more than a third of Americans consider themselves collectors, and the collectibles market is expected to be worth nearly $500 billion by 2024. The collectibles industry is booming — and blockchain is making inroads into it.
An increasing number of collectors are actually traders whose sole purpose is to buy and sell billions of dollars worth of collectibles — from rare whiskeys to luxury watches to handbags — for a profit, and while online marketplaces in general have evolved from digital classifieds to all-inclusive stores to vertical markets, they have not yet evolved to serve these traders in the most efficient way.
In order to make flipping as efficient as possible, the collectibles market needs to have: 1) instant settlement, 2) physical custody, and 3) authentication. Currently, leading collectibles marketplaces such as Bring a Trailer, StockX, and Chrono24 do not offer all three. Cash settlement is not a viable option. Instead, physical settlement is the default option, and settlement times are often measured in days or weeks.
For larger collectibles, like cars, physical storage quickly becomes an issue (where do you put 20 cars to flip?), and for smaller collectibles, which are often traded through vertical marketplaces like Facebook groups, fraud is an ongoing challenge, all of which make trading collectibles in today’s market extremely inefficient.
We see a huge opportunity to create a new market design built specifically for collectibles traders, called Blockchain-Enabled Collectibles Marketplaces (BECMs), which offer instant trades through cash settlement, reducing settlement times from weeks to seconds, use stablecoins, and leverage NFTs as digital representations of physical assets held by trusted custodians or authenticators.
BECMs have the potential to reshape the multi-billion dollar collectibles market because they make it possible to: 1) unify the market and increase liquidity (compared to the current fragmented black market), 2) eliminate the need for personal physical storage, thereby encouraging more trading, 3) increase trust by providing authentication, and 4) financialize the act of collecting by facilitating lending where previously lending was not possible.
We believe the result of these efficiencies will significantly expand the Total Addressable Market (TAM) for the entire collectibles market as more traders, liquidity, inventory, and marketplaces come online.
However, while it is technically possible to construct a BECM for any collectible category, not all BECMs are created equal, and the remainder of this article will focus on the qualities that make a BECM worth investing in. We will break down seven key characteristics along three design axes: financial, real-world, and emotional.
Financial Axis
Lack of vertical trading venues
Currently, most collectibles do not have dedicated markets or exchanges to centralize liquidity and facilitate public price discovery, instead they are traded on many different platforms — WhatsApp chats, Facebook groups, auction houses, etc. — which fragment liquidity.
This means there is a large opportunity to serve underserved collector markets, however, if existing market structures are already efficient, it will be difficult for BECMs to compete and these markets will be less attractive to venture investors.
Based on our initial assessment of the collectibles market, the markets for wine and spirits, handbags, and watches have the greatest potential for improvement, as these collectibles are primarily traded on the black market, lacking liquidity and price discovery, leaving existing markets in a state of disruption.
Right price point
In order for a collectible category to be worth investing in, the prices of its collectibles should be cheap enough so that a collector can own the asset outright. Partial ownership of an asset is acceptable for a financial investment, but as a collector, owning half of a luxury handbag defeats the purpose of collecting.
Additionally, super expensive collectibles reduce the overall buyer pool, making these collectible categories less liquid, e.g., no one is going to flip a million dollar Ferrari because there is no 24/7 coincidence of demand.
On the other hand, the price of a collectible needs to be high enough so that owning it brings a certain social status, gives a sense of exclusivity, and provides emotional satisfaction. If something is too cheap and anyone can own it, it will fail to attract emotionally and status-driven buyers, making the market less liquid.
Additionally, the price point should be high enough that potential market makers are willing to spend time researching the collectible category. If items are too cheap, they must be traded more frequently to make the unit economics reasonable. However, cheap collectibles do not provide enough social status to attract collectors to form a liquid market.
We believe that the gold price range for a suitable BECM for investment is roughly between $1,000 and $100,000, which makes collectibles such as sneakers, watches, handbags and antiques ideal candidates for a BECM. Collectibles such as fine art and cars are too expensive for most people, and collectibles such as records and stamps may not be suitable for a BECM due to their lower price points.
Considered a store of value
Collectors are status-seeking buyers known as “steadfast holders,” and their presence is critical to maintaining a healthy price floor in the collectibles market, demonstrating that a collectible is not just a passing fad but that it has enduring cultural relevance.
That’s because when enough people believe an item will remain culturally relevant long into the future, it has the potential to be viewed as a store of value. Collectibles viewed as stores of value have appeal across generations and are generally resistant to technological change.
Fine art is a good example, humans have enjoyed art for thousands of years, and it is reasonable to assume that people will continue to appreciate art for thousands of years to come, the example of vinyl records is more complicated, they have broad appeal among older generations, but whether the generations that grew up in the post-iPod era will continue to value vinyl records remains to be seen.
Real World Axis
Storage difficulties
Collectibles that take up significant physical space or are prone to degradation are prime candidates for BECMs and therefore represent a good investable category. It is difficult for the average person to store delicate collectibles such as wine and art for long periods of time without taking environmental precautions (humidity, temperature, light, etc.).
Even if you could magically fix these problems, you’d quickly run into space limitations – storing more than 50 paintings or 100 bottles of wine is impractical in most people’s homes, and even if you could magically eliminate space limitations, you’d face insurance headaches.
If custody of a collection category is trivial, establishing a BECM may still be profitable, but the barriers to entry will be much lower, leading to increased competition, fragmented liquidity, and reduced pricing power.
NFTs are the best example of this category: they are not affected by the environment and do not take up any physical space, and the transparent provenance on the blockchain makes fraud almost impossible, making it difficult to build a defensible NFT market.
We believe that collectibles such as wine, whiskey, and cars present the greatest challenges in storage, and therefore the interests of these collectors will benefit most from BECMs. Wine and whiskey are extremely environmentally sensitive and require special vaults that control temperature, humidity, light, and other factors (our investment in Baxus is addressing this issue).
Whereas cars require a large garage - most people struggle to store more than 3 or 4 at home, trading cards, sneakers, watches and handbags are relatively easy to store - these collectors can still benefit from outsourcing storage, but the marginal improvement is smaller.
Trust issues exist
In addition to addressing the issue of physical custody, BECMs must also address the issue of authenticity to attract investors.
Today, collectors face serious trust issues. Buyers and sellers in group chats rely on community recommendations and anonymous administrators to vet their counterparties. Scams are commonplace in almost every collectible, and it is difficult for market participants to maintain 100% confidence in their purchases. Establishing market standards and trusted authenticators is critical to attracting market liquidity for collectors, alternative asset investors, and speculators.
There are two authentication methods:
1. In-house authentication: This requires domain expertise and is more operationally complex. If the marketplace misauthenticates an item, it will have to compensate collectors. However, this can be a good moat, especially when collectibles are difficult to authenticate. Marketplaces that do in-house authentication need to manage potential conflicts of interest and require some oversight to maintain buyer trust.
2. Outsourcing authentication: This is simpler, but reduces the profits that the market can make, so when the collectible category is easier to authenticate, outsourcing makes more sense. Another benefit is that outsourcing authentication naturally provides a separation between the market and the appraiser, alleviating potential conflicts of interest.
If BECMs can build trust and offer a money-back guarantee, it can create a competitive barrier that makes it attractive for venture capital. Collectibles such as watches, handbags and wine are rife with fakes, and BECMs have a good opportunity to increase trust and attract new collectors who are reluctant to collect due to fraud concerns.
Emotional Axis
The origin of time and brand
In the context of collectibles, provenance is how an item acquired its value, which in the case of collectibles is often time-based or brand-based.
Time-based provenance means that the asset has increased in value due to age and historical context. Rare books are an example of this category. Assets with time-based provenance are often traded only on secondary markets - there is no central issuer and the assets are usually unique, or there are only a handful of them.
This property can limit secondary market activity, as collectors do not need ongoing funds to purchase new issues, and steadfast collectors suppress the supply available for trading. Constitution DAO is a good example - the copies of the Constitution they bid on have not yet returned to the secondary market. Other collectibles with time provenance include antiques, fine art, cars, and guns.
Brand-based provenance, on the other hand, is when a brand builds prestige over time and the market begins to view its products as valuable. Watches are a classic example of brand-based provenance, with the top luxury watch manufacturers – Rolex, Patek Philippe, Richard Miller and Audemars Piguet – able to control nearly half of the luxury watch market based on their brand value.
Brand-based collectibles have a central, profit-seeking issuer that continually releases new items, and unlike time-based provenance collectibles, these types of collectibles encourage secondary market activity because collectors need funds to purchase new supply and turn to the secondary market for sales.
Therefore, brand-based BECMs are more attractive for venture capital than time-based BECMs.
There is a passionate collector base
Venture capitalists want to see strong sentiment towards a collectible, which is a precursor to having committed holders, without whom it is difficult to achieve organic liquidity, so a BECM with a weak community will struggle to attract trading volume and lose investment appeal.
The best sign of a thriving community is passion to the point of debate, we expect to see car collectors arguing over the best supercar ever, or handbag enthusiasts defending what they believe to be the most underrated brand, a passionate collector base will be active in all corners of the internet - subreddits, forums and group chats.
The Cambrian Era of Collection
The future is not limited to BECMs for watches, handbags and wine, there are hundreds of other investable categories, and the opportunity for BECMs lies in opening up new markets for all kinds of collectibles and improving access to new types of alternative investments.
We have long been interested in how cryptocurrencies impact the real world, having made an initial investment in Helium back in 2019, which pioneered the concept now known as DePIN. We learned a lot from DePIN’s early development and share some thoughts on the DePIN market opportunity.
BECMs, like DePIN, offer another such opportunity and will fundamentally redefine what it means to own and collect, and if you are building in this space, we want to hear from you.
#BECMs #multicoin #NFT #Depin赛道
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