Solving the Sneaker Resale Market using Polygon SDK

Solving the Sneaker Resale Market using Polygon SDK

By Budget Boy | Budget Boy Finance | 20 Aug 2021


Overview

The global sneaker resale market is worth $2 Billion and will grow to $5 Billion by 2025. It currently faces several problems ranging from liquidity, counterfeits, capital efficiency and high cost of participation in the resale market. A buyer needs to either get lucky during a new sneaker drop, have excellent sneaker bots or have sufficient influence to get hold of the latest sneaker releases at retail price. However this problem can be solved through tokenisation and creating a P2P form of lending market so resellers can make efficient use of their capital investment, i.e. sneakers. Since most resellers buy sneakers to resell, personal custody does not make sense and if custody of sneakers is done by an economically incentivised and trusted third party, the whole resale market becomes more transparent, liquid and safe for both buyers and sellers.

Problem Statement

  • Lack of transparency in the sneaker resale market
  • Poor capital efficiency of sneaker
  • Poor liquidity of sneakers
  • Counterfeits
  • Logistics involved in sneaker resale

Proposed Solution

Create a plasma chain (RESLR Chain) to Polygons PoS chain using Polygon SDK with Sneaker(SNKR) as the native / gas token.

All new sneakers could come with inbuilt RFID chips (many 3rd party suppliers and can be decided by token holders) each containing a unique code and all initial sales can be done using RESLR’s ISO (Initial Shoe Offering) platform which will be built on Polygon SDK. This way, ownership, authenticity and number of shoes sold can be verified easily in the resale market and everything is transparent. Buyers can either opt for physical delivery or 3rd party custody post sale. Each and every transaction henceforth can be verified on chain to ensure transparency and will be carried out with the help of incentivised sneaker consignment units. In order to qualify as a validator, one is required to stake a certain number of SNKR tokens. The monetary value of the SNKR tokens staked by each validator should be a minimum of 150% more than the resale value of all sneakers in their custody / storage. A higher SNKR Token:Resale Value of Sneakers will incentivise more buyers to store their sneakers with the consignment unit. The buyers must pay an annual storage fee to the consignment unit to avail their services in SNKR tokens. The consignment units are free to decide their own storage fee rate and this will help keep the market competitive.

This solution will give the sneaker community a lot more power and influence in the sneaker industry as they will have the power to make standards and dictate terms and compliance norms for the manufacturers to comply with.

SNKR Token

Why hold SNKR tokens?

SNKR is the protocol and gas tokens and stSNKR is the governance token which can be used to make decisions amongst the sneaker community. To get stSNKR, SNKR holders have to stake their SNKR tokens with consignment units also earn a share of the fees. Gas fees are also charged in SNKR tokens for every transaction and the right to publish blocks for validators depends on the number of staked SNKR tokens. The consignment units (stake pools) are free to set their own fee and also determine how much SNKR token stakers will receive. This will make staking competitive. 1% of the total storage fees collected from all validators will go to the RESLR treasury and the funds can be used however the community wishes to use it. The weightage of voting power depends on the number of stSNKR tokens held. Staked tokens or "stSNKR" holders can also vote for various proposals like: new sneaker to be whitelisted to be used in the P2P lending market, interest rates for lending, acceptable tokens as collateral, collateral ratio etc. Holding SNKR also gives token holders an advantage in getting new shoes through the ISO mechanism. The more SNKR tokens held, the more likely you will get the new sneaker at retail price (significantly lower than resale price).

Benefits to SNKR Holders

The below factors will lead to a buy pressure for SNKR tokens:

  • Staking rewards
  • Voting and participation in governance
  • Discounted interest rate payable for P2P borrowing
  • ISO Benefits for new sneaker releases

Sneaker Consignment Units (Validators)

The below paragraph describes the duties and roles of the validators. Minimum of 1 Million SNKR staked to qualify as a validator.

A sneaker consignment unit (validator) to whom buyers can appoint their sneakers for physical custody. Their main duty is to ensure safety of the resale ecosystem and maintain a shared consensus on the state of the RESLR blockchain. In order to qualify, anyone who buys and stakes a minimum of (1M SNKR) is eligible to become a consignment unit / validator and can earn storage and gas fees. These custodians will receive storage fees from resellers for holding their sneakers and also a transaction fee in the form of gas for publishing new blocks. Physical delivery need not be made unless the individual requests for it. These consignment units can attract more SNKR holders to stake with them by improving their ($SNKR : $Resale value ratio) and releasing public audits of their storage facilities and inventories. In case of any malicious behaviour or publishing false transactions, the staked tokens will be slashed.

To prevent malicious consignment units, the price of SNKR that has to be staked will always be at least 150% of the $value of the sneakers in custody with the consignment house. In order to publish blocks and enjoy validator benefits the minimum ratio must always be maintained. In the event that the value of $SNKR falls below 150% of the resale value of the sneakers in storage, the block producing benefits will be suspended until the ratio is brought back to the minimum amount. In case a validator steals sneakers, they will also be blacklisted and slashed $SNKR will be used to compensate those who lost their sneakers. A part of the treasury funds will be used as a bounty to encourage buyers to find and report the stolen sneakers. Since all sneakers are fitted with RFIDs, they can easily be verified and will make it difficult to sell them in the black market.

This will make it a standard practice for buyers to scan the RFID to inspect the status and legitimacy of the shoe to avoid getting scammed into buying fakes or buying stolen sneakers. Since these are physical and verifiable storage houses, legal action can also be taken against them by the users. The operations of the consignment units are verified each week by a council of incentivised auditors. This protects the interests of the entire sneaker community and serves as the first layer of security before finality on the PoS chain.

Sneaker Auditors (Sneaker Counters)

A Sneaker Auditor is any SNKR holder, which has staked their SNKR tokens in the auditor smart contract. They play the most important part in ensuring the safety of the shared economy. A minimum of 10k SNKR has to be staked in the auditing contract in order to have auditor privileges. For more details on how the audit will be done refer para "Audit Council".

By employing this mechanism of independent consignment units and auditors and by fixing the economic incentives between the two we can create an extremely scalable sharing economy for sneaker resale.

Auditing is another way for the community to earn income. Malicious auditors will have their SNKR slashed as punishment. This encourages the community to audit the consignment units truthfully. The rewards for auditing will be remitted by the protocol. Auditing also ensures that the blocks published by the validators are always true and serves as the first layer of security before finality on the Polygon PoS layer.

Auditor Pool 

Anyone who has staked the required SNKR in the auditing smart contract is automatically put into the auditor pool. This cannot be stSNKR. By doing this, they earn fees and they oblige. themselves to perform audits when requested by the protocol. Auditors can be removed from the auditor pool through a mechanism called auditor slashing, which will be expanded on further in this document.

Audit Council

Once a week, for each listed Consignment Unit - an Auditor Council is selected at random from the Auditor Pool of selected auditors. The chances of an auditor being selected are weighted on the amount of their staked SNKR. The auditor council consists of at least three and no more than 21 auditors. The audit report of each unit is then cross verified by the all the other audit committee.

A consignment unit must prove once a week to the selected auditors that:

  1. They have custody of the assets they are collecting storage fees for.

  2. The sneakers are in good condition.

  3. They have a valid legal agreement for the consignment unit, furnishing of rental documents and other legal docs that are required to ensure safety to the sneaker community.

Once the audit is done the report has to be verified true by more than 50% of the other audit committee members. Based on the results, the smart contract will decide if there is any malicious reporting and accordingly reward or slash SNKR tokens.

Audit Slashing

After finishing an Audit - the Auditors need to present their audits to the Auditor Council. If a sign of intentional malice, auditor downtime or incompetence is found, other auditors can report another with a call for “Slashing” the Auditor. The Auditor reporting cannot be uncovered as the one reporting and is confidential.

If an Auditor has been reported for this behaviour - the current Auditor Council for the current span (1 week) has a vote to verify or deny these claims. A one-member-one-vote system is employed and a simple majority decides whether the Auditor reported has acted in a nefarious manner.

If an Auditor is found voted to be slashed - the vote for their slashing is moved as a Governance vote in the RESLR Protocol and the entire community (stSNKR holders) takes part. The Governance vote requires a quorum and a simple majority to decide that the Auditor should be slashed.

Once an Auditor has been slashed - their staked SNKR is split. A percentage of the staked SNKR, up to a maximum amount defined by a Governance vote is sent to the Auditor that reported them and the rest is sent to the SNKR Treasury and its usage can be determined by stSNKR users through a governance vote.

Minimum Viable Product (MVP) on PoS Chain

Sneaker Index Derivatives

This product will make use of UMA protocol just like how YAM is doing it for uPUNKS, uGAS and uSTONKS. Certain sneaker types like "Yeezys", "Travis Scott Colaboration", "Air Yeezys" etc have become established as an OG sneakers and are held in the highest regard by many in the sneaker community. A use case of synthetic tokens could be sYeezy which would be a synthetic asset giving exposure to the price volatility of certain whitelisted Yeezy sales over length of the contract. The selection of whitelisted sneakers that is to be considered for the index can be decided via the governance route.

Such synthetic assets make it possible to gain exposure to the entire Yeezy market without actual physical ownership / owning the NFT backed by the physical sneaker and the holder can also benefit from fractional ownership without needing to purchase the actual thing. This can completely alter the concept of liquidity in the sneaker resale market.

You can also hedge existing Yeezy exposure by shorting sYeezy. Simply mint sYeezy and sell on the open market.

The value of sYeezy is calculated by computing the median resale transfer price of all yeezys transferred over the last 30-days. However, only the last transfer price of each individual yeezy NFTs is used in this computation which removes all prior trades of a single NFT in that 30-day period. We believe this provides a good representation of the value and price trend of Yeezys collection and minimizes and discourages any price manipulation.

The token is collateralized with MATIC and does not have to be collateralized with the actual sneaker NFT. This allows anybody to gain short exposure to Yeezy's by simply depositing MATIC to mint the sYeezy token and then selling it into an AMM pool. sYeezy will determine liquidations based on a 2-hour trade weighted average price (TWAP) of the token itself.

 

Future Products on Polygon SDK Chain

P2P Lending

A sneaker owner can efficiently utilise their capital investment i.e. sneakers by minting a unique NFT and engaging in P2P lending. Below is an example of how this would work:

Bob is a sneaker reseller and owns a new pair of a whitelisted sneaker which is in custody of a consignment unit. He has spent a total of $1500. He has to first mint an NFT for the shoe. He uses this NFT as collateral and gets a loan worth $1000 (Over Collateralised by 150%) from Alice in $USD or stable coins or $SNKR. If the token is selected in SNKR then the collateral ratio will be higher but interest rate will be substantially lower. The interest rate payable and tenure of the loan for such whitelisted sneakers will be determined by the SNKR holders through the governance mechanism. A fixed interest rate will be paid by Bob for a fixed period. At the end of the loan tenure if Bob does not repay the borrowed capital + interest amount, the NFT gets transferred to Alice. Alice is incentivised to lend because she can get the shoe at a discounted rate worst case. Essentially this is like a futures contract because Bob will benefit if the price of the shoe goes down and he can use the borrowed capital to bet in that direction and cover the risk if there is a fall in the price of the shoe. and Alice will benefit if the price of the shoe goes up.

Order Book Trading

There will also be an order-book based exchange for sneaker NFTs. Unlike the existing online resale platforms like StockX, Ebay and Goat, physical delivery need not happen every time a sneaker transaction happens. One can opt to keep the sneaker in the custody of the consignment unit by paying the necessary storage fees. The sneakers can be bought using any ERC20 standard token allowed by the governance process but preferably stable assets or $SNKR.

Architecture & Tokenomics of RESLR Protocol

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The RESLR Chain will be built as a Plasma Chain (Fork of MATIC) to the MATIC PoS Chain

The RESLR chain will be built on Polygon's SDK chain and will be a fork of Polygon with the same tokenomics. There will be a block production layer and a validation layer just like Bor and Heimdal nodes and $SNKR will be staked on Polygon. Thereby, finality of all transactions will be on the Polygon layer. To get a better idea of the proposed architecture of the side chain please refer this link. The Validators on the RESLR chain will have to stake SNKR tokens on the MATIC PoS chain and it will work just like the Root chain and Child Chain Contracts on MATIC and Ethereum.

Matic Architecture | Matic Network | Documentation

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Budget Boy
Budget Boy

DeFi and Crypto Enthusiast


Budget Boy Finance
Budget Boy Finance

Decentralised Finance, Crypto and Economics

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