Tokenization of RWAs: Wine and Luxury watches

The global wine market, currently worth $441 billion and predicted to grow to $700 billion by 2030, is seeing an increase in traction as an alternative investment. Fine wine provides a strong source of diversification due to its low correlation with traditional asset classes like equities and bonds. Advantages also include stability, and the appeal stems from different risk factors like weather patterns and consumer trends that aren't tied to the stock market. However, investing in wine can be tricky due to high initial investment costs, high shipping and storage costs, and a lack of market transparency. The article explores the future of wine investing, wherein tokenization could resolve these issues and bring transparency, authenticity, and ease-of-access to the market. Similar trends have been noticed in the luxury watch market. Initiatives like Cellar DAO and Watchvestor that capitalize on blockchain technology and tokenization show promise in revolutionizing these markets, offering exciting possibilities for both investors and owners.

The world of wine investing

The global wine market is big, reaching a valuation of $441 billion in 2022. The market is forecast to grow to $700 billion by 2030. Though it is one of the longest standing alternative asset classes, fine wine is getting traction as an alternative investment in recent years.

The reasons why wine is increasingly becoming a part of investor portfolios are several:

• Wine has a low to no correlation to traditional asset classes, such as equities and bonds. Diversification can be the only free lunch in financial markets if there is one. The performance of wine market is not related to legacy (traditional) market factors, such as corporate earnings, interest rates or exchange rates. Fine wine has an exposure to other risk factors, e.g., weather patterns and consumer trends which are not correlated to the stock market, which makes it a good source of diversification.

• Low volatility. Wine is a moderately stable investment being not as volatile as stocks or commodities. The chart of Liv-ex Fine Wine 100 Index reflects this. Liv-ex Fine Wine 100 is the most popular benchmark of the industry tracking the prices of 100 most coveted, highly regarded fine wines on the secondary market. Though during COVID-19, the Index did fall, its drop was much lower than for example S&P500, which lost about 30% of its value; Brent oil fell to a 20-year low during that period.

Challenges

Having said that, I should note that it is pretty difficult for an individual to invest in wine. First, a portfolio of wines requires a high initial investment which can be as high as $25,000. The fact that shipping and storage costs, and insurance fees can be prohibitively high don’t help either.

In addition to being expensive for an individual investor, fine wine market has other disadvantages which may be discouraging, such as the lack of transparency and presence of middlemen which results in an opaque, illiquid, and fragmented market.

Lastly, the high market valuation can be off-putting for an average investor. I believe this is the ideal recipe for an asset class ripe for tokenization.

Wine Tokenization

Tokenization of the fine wine industry can unlock millions, if not billions, of dollars invested in it. Tokenization will make the market more transparent; since everything on blockchain is public, users can track the wine bottle to its origin. One of the issues of the industry today is fake wine sales, which account for about 20% of global wine sales. Tokenization can solve this particular problem among others.

Another benefit of tokenization is that it largely cancels intermediaries, connecting wineries directly with its customers. It is a win-win situation both for customers and producers. It will cut unnecessary costs resulting in more cash per bottle for winemakers. Customers will be better served, as these asset-backed NFTs (or another form of tokenized wine) will ensure that “you get what you see”, i.e., customers will receive wine what they have paid for. This fixes the fake wine problem as well.

Last but not least, tokenization will make wine market more accessible to investors because it obviates the geographical barriers; you don’t have to visit France or make a bid at auction to purchase French fine wine.

Cellar DAO

One new initiative in the field is Cellar DAO, “a fine wine & spirits investment community” as they present themselves in their whitepaper. To be a member of Cellar DAO you have to buy its governance token called $CASK. One can currently buy the token for $0.05 which is expected to rise to $0.1 in public sale. As the governance tokens of other DAOs, $CASK gives its holders the right to vote on investment proposals offered by the team. Not only that, in order to incentivize users, any member bringing in leads will get 10% rewards of the investment value of the new member in $CASK tokens. Token holders are also entitled to
an airdrop – they will receive 50% of the profits that the DAO will make on a quarterly basis, while another half will be reinvested.

How it works

Funds from the token sale will enable society to raise capital. Once investment grade wines are selected by the team and voted on by the community, it is tokenized into NFTs. They represent digital ownership of wines and spirits. An owner of NFT can order the bottle to be sent to them or leave it in the storage supervised by Cellar DAO. NFTs can be traded on VINTAG3, the DAO’s NFT marketplace.

Luxury watches

The luxury watches market is another one that will be transformed by blockchain technology and tokenization. It may not be as big as the fine wine & spirits market, but it is still a market generating revenue of billions of dollars, which is projected to grow steadily. The data and forecast below are taken from Statista, a reputable online platform specialized in data gathering and visualization.

First, what makes a watch “a luxury watch”? To be considered a luxury watch, a watch should have several features. Perhaps the most distinctive of the luxury watch is its materials. It is not rare to see a luxury watch containing precious metals, such as gold or platinum. Some watches can contain even more extraordinary materials, e.g., moondust, or eggshell.

Possessing expensive contents doesn’t suffice to be labeled a luxury watch, of course. It should also be made by a professional chronometer. Chronometer is an elite watchmaker certified by an independent and non-profit professional certification organization. Finally, one of the most, if not the most in public perception, characteristic features of luxury watches is their prices. Since they involve a lot of craftsmanship and exclusive materials, luxury watches tend to be very expensive. Though the price range for these items is pretty wide – from $1,000 to $1 million – they typically have a price tag of ten thousand dollars.

Watchvestor

Though there were several attempts to transform the luxury watches market, its potential has remained mostly untapped. At the time of this writing, Watchvestor is working on blockchain-based luxury watch marketplace. It will make exclusive brands, such as Rolex, Patek Phillippe, Audemars Piguet, and Richard Mille among others accessible to everyone.

For those who don’t know, Patek Phillippe and Audemars Piguet are two of the “Holy Trinity of Watchmaking”, the third one being Vacheron Constantin. This makes Watchvestor an ambitious platform I believe. Each watch will be tokenized though NFTs and fractionalized into multiple tokens. Watchvestor will make it possible to invest in luxury watches with the amount as little as $100. If a user chooses to purchase all minted NFT fractions of a particular item, he can burn (redeem) NFTs and get the physical watch shipped to him.

The protocol has its own token, $WVTR, which is used both for governance and staking. At the time of writing, one can buy WVTR tokens pre-sale for $0.03 paying either with ETH, USDT or BNB.

Conclusion

In summary, tokenization has the potential to reshape the fine wine and luxury watch markets. It can enhance transparency, reduce costs, and increase accessibility for investors. Initiatives like Cellar DAO and Watchvestor are leading the way in transforming these markets through blockchain technology and tokenization, opening up new opportunities for both investors and asset owners.