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The $4 Billion Company Going All In On NFTs
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Hey Friends,
StockX is one of the most fascinating businesses in sports culture today.
At its core, it’s an online sneaker, streetwear, and collectibles marketplace that launched in 2016 after Cleveland Cavaliers owner Dan Gilbert realized how poor the infrastructure of the secondary sneaker market was when buying shoes for his kids.
“Transactions were murky, information was limited, and it was based on trusting strangers with your money."
So he hired an impressive group of operators that built a secondary marketplace, utilizing bid-ask protocols to find efficient pricing through supply & demand.
They authenticate the items in exchange for processing & transaction fees that range from 10% to 12%, and the business has exploded in popularity & financing.
StockX has completed roughly 10 million trades, posts hundreds of millions of dollars in annual revenue, and was valued at $3.8 billion after a secondary tender offering in April — they are expected to go public sometime this year.
But that’s not what we are here to talk about today.
Instead, I want to run through the unique NFT-based service StockX launched this week, allowing users to trade sneakers without ever taking possession of them.
Here’s how it works, according to Bloomberg:
The service, set to be unveiled Tuesday under the name Vault NFTs, uses non-fungible tokens tied to physical products that sneaker traders can buy and sell instantly using blockchain technology to ensure authenticity.
Buyers will own the token and the corresponding sneakers and may have them delivered at any time. All the products will be warehoused in one place until final delivery, eliminating intermediary shipping costs and transit times that would otherwise delay transactions for several days.
“To date, unlike traditional stock exchanges, the millions of orders executed on StockX involve physical products moving from sellers to StockX for authentication, and then ultimately to buyers to be worn, collected, resold, or simply held as an alternative investment,” StockX Chief Executive Officer Scott Cutler said in a statement. “We've always known that this was just the beginning.”
I think it’s probably worth mentioning that StockX plans to roll this service out slow, with a limited selection of sneakers available to trade immediately and a plan to expand the offering over the next few months.
Still, this is one of the most practical ways to use NFTs that I’ve seen.
The StockX NFT’s will be tied to physical products. That means that the buyer isn’t just purchasing a digital signature verifying ownership of their profile picture on Twitter; they own the physical item.
But by issuing NFT’s that are linked to physical products, StockX can store the items in a central vault, reducing transaction costs, increasing asset turnover, and making the process significantly easier for people trading sneakers as an asset class.
Here are two examples to illustrate the process:
Old Process: If someone wants to flip sneakers on StockX, they purchase the shoes online, have them authenticated & shipped by StockX, and then hold them in their personal inventory until they go to sell them again.
The process takes a minimum of 7-10 days, has shipping & insurance costs associated with it, and the flipper must have adequate storage capacity to hold the item.
New Process: If someone wants to flip sneakers on StockX, they can purchase the NFT tied to a physical shoe held in the StockX vault. These shoes are already authenticated and don’t require shipping, insurance, or customer storage.
This provides the reseller near-instantaneous ownership of the item while reducing transaction-related costs for both StockX and the buyer — that’s a good thing.
StockX didn’t exactly invent this concept. Companies like StarStock & Alt are already doing something similar for trading cards. Still, my guess is that if this ends up providing a significant operational benefit to StockX, then we will probably see most other secondary resale marketplaces follow suit.
And some might say that you don’t need a blockchain to do this because all perceived decentralization is lost, given you need to trust that StockX actually owns the shoe.
I get that, and I believe that a centralized database run by a corporation can actually get pretty close to doing most of the things NFT owners expect today, outside of the decentralization component, of course.
But given some owners will want to display these as a digital flex within their online identifies—Twitter launched NFT profile pictures yesterday & Facebook/Instagram is reportedly building an NFT marketplace—I think it probably makes sense to run this on an open standard where anyone globally can plug into the system and add value.
We’ll see what happens. I’ll be tracking the level of demand and trading volume StockX sees over the next few months, and of course, I’ll keep all of you updated.
I hope everyone has a great weekend. I’ll talk to you on Monday.
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