This section describes how much it costs to redeem wine with tokens on the OpenVino.exchange, and explains how we determine these costs.
When you redeem tokens for bottles of wine on OpenVino.exchange, we need to know where to ship the bottles by asking you for your shipping information.
The shipping information you provide determines the deliver (shipping and handling costs) that appear on the exchange and differ greatly according to the end destination.
Our delivery (shipping and handling) costs are determined by three factors:
How much does it cost to ship and import the bottle from Argentina to your destination country. This is called the “landed cost”.
How much does costs for us to courier the wine from the importer in your country to your destination. This is the domestic shipping cost.
Ethereum gas fees for executing the token redeem.
All of the costs of redeeming tokens, landed cost, domestic shipping, and Ethereum gas fees, though estimated in USD, are paid in ETH, the base cryptocurrency of the Ethereum blockchain. So, in order to redeem your tokens for bottles of wine, you need to have sufficient Ether (ETH) in your wallet.
Landed Cost
The “landed cost” can vary greatly from country to country.
Here is a break down of the landed cost:
The cost of shipping bottles from the winery by land to a boat on the coast. (This is usually done in multiple pallets of 800+ bottles of wine.
The export duties and handling expenses (Argentine customs).
The shipping costs and insurance to move bottles by boat from Argentina to your country.
The import duties (excise taxes) imposed by your country.
The importer expenses of receiving, processing, and storing the pallets.
As an example, the landed cost of bottles of “Mike Tango Bravo 2018” (MTB18) shipped from the Costaflores winery in Mendoza to our importer in New York cost approximately $5 USD per bottle.
On top of the landed cost, our importer receives a 15% commission ($0.75 USD), and repackages the wine for domestic shipping at a cost of $1.25 per bottle.
So, the “Landed Cost” for the USA is currently $7.00 USD per bottle.
This is a fairly high price, affected in part because we are currently shipping small volumes to the USA, and because of today’s high prices for logistics. As OpenVino incorporates more wineries, allowing shipping consolidation, these costs should decrease dramatically, thus reducing the landed cost per bottle.
Regardless, a substantial portion of the landed cost is the import duties imposed by US customs (in this example). Different countries have wildly different excise taxes and tariffs on foreign wine imports.
The Landed Cost for wines shipped within the origin country (Argentina) is $0 as there are no export/import or trans-national shipping costs involved.
Domestic Shipping Cost
The domestic shipping cost is simply the expense of moving the bottles from the importer to your doorstep. Using again the example of the USA, the cost of shipping one box (6 bottles) of wine from New York (east coast) to California (west coast) is considerably higher than shipping bottles within the state of New York.
For practical purposes, the cost of shipping one or two bottles is similar to that of six bottles because of the repackaging requirements, so to keep things simple, we determine the cost of shipping based on a 6-bottle box.
Again, as OpenVino grows, and our distribution network expands (with warehouses for OpenVino labels in different regions within countries) the cost of domestic shipping will also come down.
Final cost formula
Therefore the cost of delivery, as presented by OpenVino.exchange is:
(Domestic shipping Cost [up to 6 bottles]) + (Landed Cost x Number of bottles)
For example, if you are redeeming 10 tokens in the state of Missouri, in the USA, the cost would be:
Domestic Shipping for 2 boxes = ($12 x 2) = $24
+
Landed Cost ($7) x 10 = $70
=====================
Total cost = $94 USD for delivery of 10 bottles.
Therefore, it is more cost effective to redeem tokens for wine in units of 6.
Ethereum gas fees for token redemption
When you redeem tokens on OpenVino.Exchange, you are interacting with an Ethereum smart-contract on the blockchain. The cost of using the smart-contract on ethereum is called the “gas fee” and can vary wildly, depending on Ethereum network congestion.
Also, The FIRST time you interact with your wallet with OpenVino.exchange to redeem, your wallet goes through an additional step to validate your transaction. This adds an additional, one-time, gas fee.
When OpenVino first tokenized wines in 2018, gas fees were measured in pennies. Today, gas fees can range from a few dollars to tens of dollars. The recent Ethereum “Merge” will hopefully help to bring down these gas fees as transaction costs are reduced. At OpenVino we are constantly evaluating other alternatives to help reduce or eliminate this cost.
It’s too expensive!
Yes, we are aware that the redeem costs are much higher than we would like them to be. Going forward the strategy to reduce this expense to the drinker is three-pronged:
Increase the number of wineries participating on OpenVino, enabling shipping consolidation to reduce logistics costs.
Work with different domestic couriers, bundling shipments, and enabling real-time cost determination through API’s.
Drastically reduce gas fees by incorporating (layer 2) services on Ethereum or by using different blockchains.
What happens to the token after I redeem my wine?
The token is “burned” or eliminated from the blockchain. One token equals one bottle of wine. So as soon as you redeem the token for a bottle of wine, the token disappears forever.