Nanalyze

Art Tokens for the Millennial Generation

We have a lot of fun writing articles here at Nanalyze, and it shows in the quality of our content which our lovely readers consume and share across the globe. Sure, we do piss a few people off occasionally when we use cultural stereotypes in a humorous manner, but the people who complain about it are usually Americans who aren’t regular readers, otherwise, they would know that we’re an equal opportunity offender. We pretty much take the piss out of every culture out there in the sort of rib-nudging way that people use to be able to make fun of other cultures. Suddenly today, everyone’s afraid to say that some French people are assholes, or that some Chinese speak funny English, or that some Americans are ethnocentric slobs with no sense of humor. The ability to take a joke and give it back seems to be lost on today’s millennials, who would rather we tread lightly and only tell dad jokes.

Even though the millennials have taken the fun out of having fun, they have heralded in a fresh way to look at dated financial business models. Low-fee robo-advisors, pay-as-you-go insurance, and socially responsible investing are all fintech concepts that have become popular because the millennial generation sees value in these new business models. Another interesting model we’ve come across recently which appeals to millennials, are startups that look to tokenize assets using the blockchain, like Maecenas, which lets people purchase art using the blockchain. Before we go any further, let’s be clear about what we mean when we say “the blockchain.”

Art Tokens on the Blockchain

The blockchain is not that ICO utility token garbage that you see peddled to all the lemmings out there, but rather an infallible method for tracking fractional ownership of something, in this case, art. Why do we need to use the blockchain to track art? Well, today’s millennial can’t afford to splash $1 million to invest in a blue-chip piece of artwork – and frankly, that goes for most of us from any generation – so the blockchain allows us to easily carve up equity in a painting and share it among people with transparency and the ability to transfer ownership if need be. Why would you want to invest in art? There are two primary reasons. The first is that art is not correlated to traditional assets like stocks and bonds, and the second is that some categories of art perform remarkably well over time.

Risk and correlation of art investments over time

Source: Art & Finance Report 2017 by Deloitte

For example, if you invested $10,000 in 20th Century & Contemporary Chinese Art 15 years ago, you would have $66,000 today. That’s not a bad return, especially considering the diversification effect you get from adding this asset class to a portfolio of stocks and bonds. Now that we know why you might want to invest in art and how the blockchain fits in, let’s proceed to talk about Maecenas.

Investing in Art Tokens with Maecenas

Click for company websiteFounded in 2016, London, England startup Maecenas has taken in an undisclosed amount of funding to develop a platform that makes art investing accessible to retail investors. When Maecenas talks about art, what they’re referring to are blue-chip artworks that exceed one million dollars in value. For those of us who don’t belong to a members-only club which is adorned with such pieces, blue-chip artworks are defined by IdeelArt as follows:

Blue Chip Art is any art that’s expected to reliably increase in economic value regardless of the general economic conditions. Artists like Picasso, Warhol, Rothko, and Pollock are Blue Chip. And Blue Chip galleries tend to focus solely on reselling the work of such well-established names, artists whose works are well catalogued and authenticated, and reliably bring higher and higher prices at auction.

Maecenas only deals in such artworks, allowing accredited investors to participate in purchasing a “share” of a well-established piece of artwork with as little as $5,000. The method used to transact is via a blockchain token that is issued by Maecenas, allowing ownership to be easily transferred among individuals with an infallible record being kept over time which provides immediate transparency into who owns what. Listing artwork on the platform incurs a 6% fee on the total transaction with the buyers paying a 2% fee (waived for the beta). Selling art tokens on the platform will always be free.

This year, for the first time ever, Maecenas has successfully tokenized a multi-million dollar artwork, a painting by Andy Warhol named “14 Small Electric Chairs (1980).” One hundred participants were hand-picked to participate in the auction out of more than 800+ sign-ups from 56 countries (mostly based in Asia and Europe). Thirty six bids were received during the auction for a total raised of $1.7 million for 31.5% of the artwork which is consequently valued at $5.6 million:

14 small electric chairs, one massive price tag

14 small electric chairs, one massive price tag – Source: Maecenas

Next up, Maecenas plans to tokenize a Picasso piece, but they’re hardly alone when it comes to companies thinking democratizing art ownership through the creation of art tokens. We inadvertently came across one of their competitors while perusing our very own website.

Investing in Art with Masterworks

Click for company websiteWe’re not sure when Masterworks was founded, or how much funding they’ve taken in, but we do know that they’re advertising here on Nanalyze. (By the way, the quality of our readers is evident in the amount of money that some advertisers are willing to throw at Google AdWords to access this prime demographic.) We saw one of the Masterworks ads, and it was so compelling that we had to click it (sorry Google AdWords) and that’s how we learned about another startup which lets you invest in art – just not using the blockchain. Founded in 2017, New Yawk startup Masterworks has taken in an undisclosed amount of funding to develop a platform that lets investors “invest in the world’s most valuable paintings with as little as $1,000.” The company packages pieces of art as securities offerings and files them with the SEC as security offerings. Their first offering is also an Andy Warhol as seen below:

Masterworks offering - 1 Colored Marilyn

Source: Masterworks

It’s actually quite interesting to read through the SEC filing and learn about how art can be packaged as a security. The point here is that you don’t necessarily need to use “the blockchain” to democratize access to investing in fine art pieces.

Conclusions

The only problem with these business models is that you don’t actually get to appreciate the piece of art you’ve invested in all that much because it’s hardly hanging there in your living room. Still, it does get more people interested in art and more capital flowing into this space. All things considered, it seems like everyone wins, provided that the whole thing doesn’t blow up for any number of reasons. How cool would it be to walk through an art gallery that would allow you to purchase fractional amounts of ownership for any piece on display, simply by scanning a QR code and choosing an amount? Not to mention, you can make some real money in this newly accessible asset class:

Historical returns of art as an asset class

Source: Masterworks

Lastly, before you email us to say that we “missed” your really cool art fintech startup, please note that this isn’t an exhaustive list. We just had one of our underpaid MBAs do a few quick Google searches and we’ve hardly put together an exhaustive list of what’s out there. During our cursory research efforts, we came across a bunch of other art-related startups using technology in interesting ways. Arthena analyzes hundreds of thousands of data points on works of art, “big data” that is then used to find the most valued pieces. Artsy is a global platform for discovering and collecting art, claiming to be the world’s largest art marketplace. Tagsmart has developed the world’s first DNA tagged and certificated artwork aggregation service. ARTA has developed a platform for shipping high-end art pieces. And the list goes on.

If you’re really interested in deep-diving into this topic, check out this 272-page report put out last year by Deloitte. We’ve only scratched the surface with this article, and depending on reader interest we may do some follow-up articles on the topic of art and technology.

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