Hook Odyssey Highlights: Synthetic Derivatives w/ Watches.io

Over the past few weeks, we’ve started covering Odyssey’s new features like put options, perps, and margin. In today’s blog, we’re diving into how Watches.io traders can use Odyssey’s synthetic derivatives to enhance their trading experience. 

Synthetic derivatives allow traders to open positions without depositing an underlying NFT. Instead, traders can use a small amount of WETH to collateralize a position. This reduction in collateral requirements promotes capital efficiency and enables new instruments to be traded.

Watches.io

Watches.io is an on-chain marketplace and portfolio management platform designed for efficient watch trading. Watches.io supports nearly 40,000 watch models, of which more than 13,400 have market values and prices enabled in their dApp. 

Watches.io has developed an oracle that has collected over 2 million data points on listings, offers, and sales in the watch market. The Watches.io oracle pulls in daily market information from popular online marketplaces, as well as private watch dealer community chats.

The Current Watch Industry

The pre-owned watch market has grown significantly with over $22 Billion* in volume in 2021. Many investors have turned to watches as an alternative investment class. Over the past few years, luxury watch prices have appreciated nearly 20% each year - much more than the S&P 500 over the same period.

Despite the impressive growth, trading watches remains inefficient and inaccessible to most investors.

The majority of growth and returns have come from luxury watches, which require a large minimum investment, and other costs like storage, shipping, sales tax, and insurance. Many traders are likely dissuaded from trading watches as they might need to invest a large portion of their portfolio to own a single watch. Additionally, the ability to short and hedge doesn't exist, so traders can only bet on the price increase and cannot minimize their downside risk.

How Hook’s Derivatives Can Benefit Watches.io Traders

Together, Odyssey’s synthetic derivatives can bring a better trading experience for watches on-chain enabled by Watches.io. Watches.io is set to offer many benefits like instant access to price movements, low fees, custody solutions, and oracle support for both off-chain/on-chain prices.

With Hook’s synthetic derivatives, watch traders will be able to access new features like:

1. Take long and/or short exposure.

Traders can use put options or perps to take short positions on watches – which allows them to profit if prices decline.

2. Enables traders and lenders to hedge while they hold watches.

As we’ve highlighted in a previous blog, when defaults occur, lenders can be left with collateral worth less than the debt. By purchasing a put option when the loan starts, lenders protect themselves against downside risk.

3. Deposit a watches.io watch as collateral for your derivatives position.

While Hook’s derivatives are synthetic, traders can collateralize certain positions with a watch NFT. For example, a watch owner could deposit their watch and then write a call option using the watch as collateral. This will be familiar to Hook’s current call options protocol writers.

4. Trade partial watches.

Although they lead the market’s price appreciation, luxury watches come at high price points. Odyssey’s synthetic derivatives allow traders to take a much smaller position, so they can access gains without putting up the full amount of capital. This allows new participants who were previously held back, to access the market. Unlike past NFT fractionalization protocols, watches do not need to be deposited to create fractions, and the whole watch needn’t sell to create value.

What’s next?

We’re excited to be working with Watches.io to support an index for the luxury watches market. Traders will be able to trade perps and options on the index once it is live!

*Figures taken from https://www.bcg.com/publications/2023/luxury-watch-market-trends