Insurance (Dealer Hedging)

Professional hedging products for luxury goods dealers to manage inventory risk. Protect against price volatility while maintaining physical stock.

Overview

Luxury goods dealers face significant inventory risk:

• Average Inventory: $2-5M per dealer
• Price Volatility: ±15-30% annually
• Holding Period: 3-12 months
• Traditional Solution: None (dealers bear 100% of risk)

Our insurance products provide affordable hedging using perpetual futures and options.

Why Dealers Need Hedging

The Problem

Example: Luxury Asset Dealer

Inventory: 20 luxury assets @ $150k = $3M
Holding Period: 6 months average
Market Risk: ±20% price swings

Scenario A: Market crashes -20%
- Inventory value drops to $2.4M
- Loss: $600k
- Many dealers go bankrupt

Scenario B: Market rises +20%
- Inventory value rises to $3.6M
- Gain: $600k
- But had sleepless nights about downside

The Solution

Hedged Dealer:

Inventory: 20 assets @ $150k = $3M
Hedge: Short 20 RWA_ASSET_PERP

Market crashes -20%:
- Inventory loss: -$600k
- Perp profit: +$600k
- Net: $0 (fully protected)

Cost: 3-5% annual premium
Benefit: Sleep well, focus on sales, eliminate market risk

Insurance Products

1. Perpetual Futures Hedge

Best for: Long-term inventory protection

How it works:

// Dealer has 20 luxury assets
openHedge({
  inventory: 20 × RWA_ASSET @ $150k = $3M,
  hedge: SHORT 20 RWA_ASSET_PERP,
  collateral: $600k (20% margin),
  duration: PERPETUAL
});

Cost:

• Margin requirement: 20% ($600k)
• Funding rate: ±0.01% to ±0.05% per 8h
• Annual cost: 3-7% of inventory value

Benefits:

• Perfect hedge (1:1 correlation)
• No expiry date
• Adjustable position size
• Can close anytime

2. Put Options

Best for: Downside protection with upside participation

How it works:

// Buy put option
buyPut({
  asset: RWA_TOKEN,
  strikePrice: 145000, // $145k (3.3% below spot)
  quantity: 20,
  expiry: 6months,
  premium: 2.5% // $75k upfront
});

Payoff Structure:

Spot: $150k, Strike: $145k, Premium: $3,750/option

If price drops to $130k:
- Inventory loss: -$400k
- Put profit: $300k - $75k premium = $225k
- Net loss: -$175k (protected from worst case)

If price rises to $170k:
- Inventory gain: +$400k
- Put expires worthless: -$75k premium
- Net gain: +$325k (keep most of upside)

Cost:

• 2-5% premium per contract
• One-time payment
• No ongoing funding rates

Benefits:

• Limited downside (strike price)
• Unlimited upside potential
• Fixed cost structure
• No margin calls

3. Collar Strategy

Best for: Balanced protection with minimal cost

How it works:

// Sell call + buy put (net zero premium)
collar({
  inventory: 20 × RWA_ASSET @ $150k,
  putStrike: 145000, // Floor
  callStrike: 155000, // Ceiling
  cost: "ZERO PREMIUM" // Call premium pays for put
});

Payoff Structure:

Current: $150k
Floor: $145k (-3.3%)
Ceiling: $155k (+3.3%)
Net Premium: $0

If price drops to $130k:
- Protected at $145k
- Max loss: $100k (vs $400k unhedged)

If price rises to $170k:
- Capped at $155k
- Max gain: $100k (vs $400k unhedged)

Cost: $0 upfront, but limited upside

Benefits:

• Zero upfront cost
• Downside protection
• Manageable worst case

Tradeoffs:

• Capped upside
• Complex to manage
• Requires rebalancing

4. Variance Swaps

Best for: Sophisticated dealers betting on volatility

How it works:

// Bet on realized volatility vs implied volatility
varianceSwap({
  asset: RWA_TOKEN,
  notional: 3000000, // $3M
  strikeVariance: 0.20, // 20% implied vol
  duration: 3months
});

Payoff:

If realized vol > implied vol:
- You profit from higher-than-expected volatility

If realized vol < implied vol:
- You pay for overestimated volatility

Use: Hedge against unexpected volatility spikes

Pricing & Costs

Cost Comparison

Hedge Type	Upfront Cost	Ongoing Cost	Downside Protection	Upside Potential
Perp Hedge	20% margin	Funding rate (3-7%/yr)	100%	0%
Put Option	2-5% premium	None	~85%	100%
Collar	$0	None	~85%	Limited (10-15%)
Variance Swap	Varies	Varies	Depends on vol	Depends on vol

Fee Structure

Protocol Fees:

• Perp trading: 0.05% per trade
• Options premium: Included in price
• Collar setup: 0.1% facilitation fee
• Variance swap: 0.5% notional

Example Annual Cost:

Inventory: $3M
Hedge: Short perp position

Trading fees: $3M × 0.05% = $1,500
Funding rate: $3M × 5% = $150,000
Total: $151,500 (5.05% of inventory)

Compare to:
- Unhedged loss in crash: -$600k to -$900k
- Insurance provides: Peace of mind + capital efficiency

Use Cases

Case 1: Luxury Boutique

Profile:

• Inventory: $5M (30 high-end luxury assets)
• Annual turnover: 60%
• Average holding: 6 months

Problem:

• Exposed to $5M price risk
• Can't sleep at night
• Limits inventory growth

Solution:

Hedge: Short 30 asset equivalent on perps
Collateral: $1M (20% margin)
Funding cost: ~$250k/year (5%)

Benefits:
- Eliminate market risk
- Focus on sales, not price predictions
- Grow inventory confidently
- Improve profit margins

Case 2: Online Dealer

Profile:

• Inventory: $2M (15 luxury assets)
• High turnover: 80%
• Fast sales cycle

Problem:

• Prices volatile on short timeframes
• Need quick hedges
• Can't lock capital in long-term options

Solution:

Hedge: Rolling 1-month put options
Cost: 1-2% per month (~15% annually)

Benefits:
- Short duration matches sales cycle
- Easy to roll forward
- No margin requirements
- Participate in upside

Case 3: Auction House

Profile:

• Consignment model (own inventory temporarily)
• $10M inventory during auction periods
• 2-4 week holding periods

Problem:

• Large but short-term exposure
• Need flexible hedging
• Can't commit to long-term contracts

Solution:

Hedge: Short-dated perp positions
Entry: 2 weeks before auction
Exit: Day after auction
Cost: Minimal funding (2 weeks × 0.01%/8h = 0.42%)

Benefits:
- Perfect for short-term exposure
- Minimal cost
- Easy to enter/exit

Advanced Strategies

Delta-Neutral Portfolio

Maintain zero market exposure:

Physical Inventory: +$5M assets (delta = +1)
Perp Short: -$5M notional (delta = -1)
Net Delta: 0 (market neutral)

Profit from:
- Sales margin on physical assets
- Funding rate collection on shorts
- Zero market risk

Basis Trading

Exploit spot-perp price differences:

Spot assets: $150k each
Perp price: $152k (1.33% premium)

Strategy:
1. Buy asset on spot: $150k
2. Short perp immediately: $152k
3. Hold until convergence
4. Sell asset on spot: $151k
5. Close perp: $151k

Profit:
- Spot PnL: +$1k
- Perp PnL: +$1k
- Total: +$2k (1.33% return)

Rolling Hedges

Continuously roll short-dated options:

Month 1: Buy put @ $145k for $3k
Month 2: Sell put @ $145k for $2k, buy new put @ $147k for $3k
Month 3: Sell put @ $147k for $2k, buy new put @ $149k for $3k

Benefits:
- Adjust strike prices to current market
- Take profits on winning options
- Reduce net hedging cost

Risk Disclosure

Hedge Risks

Basis Risk:

• Physical asset != tokenized equivalent
• Prices may diverge temporarily
• Specific items matter for rarity

Liquidation Risk:

• Perp hedges require margin
• Adverse moves can trigger liquidation
• Keep sufficient collateral buffer

Cost Risk:

• Funding rates can spike
• Options can get expensive
• Budget for worst-case costs

When Not to Hedge

Don't hedge if:

• You have high confidence in price direction
• Holding period < 2 weeks
• Hedging cost > expected risk
• You want full upside exposure

Resources

Hedging Calculator

Calculate your optimal hedge:

• Input inventory value
• Select hedge type
• See cost estimates
• Get recommendations

Use Calculator

Education

• Hedging 101: Introduction to hedging concepts and strategies
• Advanced Strategies: Sophisticated hedging for experienced dealers
• Case Studies: Real-world dealer hedging examples

Learn More

Support

• Institutional Support: support@rwa-platform.xyz
• Hedge Advisory: Schedule 1-on-1 consultation
• API Access: Automate your hedging strategy

Next Steps

• Get Started - Step-by-step hedging guide
• Contact Sales: support@rwa-platform.xyz - Speak with institutional team
• API Access: Contact us for integration documentation