Picasso from the Block

Every artist has their caveats. Some will starve themselves to understand the struggle, others will kickback slurp juice behind wooden forts. No matter the case, people spend frivolously on watching scenes unfold before their eyes, visualizing themselves within the masterpiece.

Before the advent of Fortnite, YouTube, and Television; artwork was the de-facto form for visual representation of expression. Original masterpieces have withstood the test of time, outliving their creators and rocketing in value with it. Deloitte estimates that $1.62 trillion worth of art, is currently being held by Ultra High Net-Worth Individuals (UHNWI) around the globe. The

The graph above represents total auction sales for Sotheby’s & Christie’s since 2001. As you can see, sales have continued to rise despite small drops during the recession and in 2016. Since the mid-2000s, contemporary art has taken an increasingly large share of the pie. In one recent contemporary auction,

Tokenize the Disruptors

Maecenas is one blockchain startup that I have kept my eye on. They aim to upend the art industry, by tokenizing ownership of the same art pieces which sell for millions at Sotheby's. This Singaporean based start-up charges a 2–6% commission of every transaction. A small price compared to the 15% fee Christie’s charges.

Auctioned art does create certain hurdles in which many investors do not want to manage. There are storages costs, upkeep, and logistical nightmares associated with owning physical art. This is why many investors will turn to art funds, often taking an annual management fee of 2% + 20% commissions. Due to the nature of fraud in the art market, these intermediaries act as a trust solution in which blockchain will disrupt.

Maecenas Big Break

A few weeks ago, the Maecenas platform hit their stride brokering the sale of Andy Warhol’s 14 Small Electric Chairs (1980). This was the first time a multi-million-dollar piece had been tokenized and sold. The auction raised $1.7mm for a 31.5% stake in the art piece, building a total valuation of $5.6mm. This feat sounds simple. Build a smart contract network, get some investors and dealers together, and create an exchange. This is far from the case.

As blockchain evolves, regulatory hurdles will track with it. When dealing in multi-million-dollar assets, regulations are still in place to Know Your Customer (KYC), as well as anti-money laundering efforts. Although this platform has overcome the hurdle for investors to no longer need accredited status, the future is still uncertain down the road.

To overcome the accreditation issue, the owner of an art piece would create a Special Purpose Vehicle (SPV). These legal entities become subsidiaries of their parent company, which in turn mitigates the risk of bankruptcy or default. Each one of these SPVs will issue shares similar to a stock. The difficult part, is the transfer of ownership. Due to the legal framework involved, this makes it much more difficult to sell the physical asset off the chain.

Risks Involved

This use case helps solve the illiquidity issue of art. Making the threshold to invest much more attainable to the rest of the global population. However, if more people have liquid access to art as an investment, this means that prices are likely able to fluctuate more. As more art pieces become tokenized, what happens to the underlying value of artwork, not on the blockchain? This is again one of the many difficulties challenging this use case in which the future is uncertain. As a majority stake holder, the owner of an art piece cannot simply sell their art at their disposal. The SPV creates additional complications for the end user, a last is far from their concerns. For this platform to scale, it will be imperative for partnerships to take place with their competitors (funds, auction houses, etc.). These players will not go away, and can likely create their own solutions to compete head to head.

Overall, I am a big fan of this use case. I am excited to see where it will go, and how this will impact the art world the way Artnet did upon it’s launch.