Beyond NFTs: Could Museums Use Social Tokens Or Attendance Tokens For Fundraising?
In our most recent WAC Weekly, we discussed how Web3 offers new models for fundraising beyond just selling NFTs linked to famous works.
While NFT sales have been criticised as a kind of “digital deaccession”, smart contracts and social tokens could give museums more autonomy and control over fundraising and community-building efforts that use the blockchain. In that way, they might be a more natural extension of the membership initiatives they’re already used to and — crucially — already good at.
What are social tokens?
In our last session, we covered everything museums need to know about smart contracts. Despite their unsolved problems, smart contracts have the potential to automate complex transactions in industries from finance to supply chain logistics.
Social tokens, on the other hand, are currently the preserve of independent creators. When we hear the word “crowdfunding” we think of Web 2.0 platforms like Kickstarter and Patreon. When these platforms became famous the narrative was that the internet was democratizing access to funding; rather than struggle to get a loan or go through a publisher, anyone with a good idea could now take it directly to their target market.
While this has worked out very well for a lot of creators, it’s not without fundamental issues: artists, audiences, and finances are locked into these platforms which are accountable to no one. As the founders of Web3 creator protocol Channel write: “these platforms atomize creators, requiring them to compete with each other for subscribers and to then individually serve these audiences at scale. In the past, cultural institutions provided a haven for creative production by mitigating market pressures and providing high-quality public platforms.”
Social tokens, on the other hand, are an experiment in giving creators and institutions their own financial tooling. It’s almost a cliché in web3 circles to cite David Bowie’s Bowie Bonds from 1997 as a precursor. These were securities Bowie issued to fans as a way to crowdfund the purchase of his own master recordings from a previous manager. While social tokens centred around single creators have struggled so far — Lil Yachty’s $YACHTY having fallen flat after a few months — many community-oriented social tokens like Friends With Benefits’ $FWB are showing long-term success.
Social tokens can be bought in exchange for ETH (or cryptocurrency) or airdropped freely to users as a reward for taking part in events or activities. Those tokens could just be used as “frequent flyer miles”, maybe gating access to certain perks for loyal fans, or they could be used for varying degrees of DAO-like governance as in $FWB or in the decentralized science (DeSci) movement.
Because they’re on the blockchain, these tokens and the financial structures they’re running through are all interoperable with the rest of the web3 ecosystem. An institution using these for funding would have full ownership of the stack, rather than handing over control to a for-profit tech company. So are there any museums using this already?
Are museums using this for fundraising?
Smart contracts are integral to many NFT exchanges when they’re not part of the artwork itself. As we’ve discussed before, there’s a lot of potentials there for museums if the arts and culture sector is willing to invest in building tooling that serves artists and institutions, not just the NFT market.
Social tokens remain uncharted territory for museums. The Royal Museum of Fine Arts Antwerp (KMSKA) offered an Art Security Token (AST) this April on the Rubey platform, crowdfunding the purchase of James Ensor’s Carnaval de Binche for the equivalent of €150 per share (more info here).
While the ASTs are traded on the Polygon blockchain, they’re not quite social tokens. They’re recognized by Rubey — and the financial authorities — as financial instruments. These are explicitly asset-backed securities — more like Bowie Bonds than $YACHTY — where the buyer can expect a return.
The well-known Masterworks, allowing retail investors to buy fractional shares of famous art at as low as $20 a share, originally started as a blockchain platform in 2017. They were planning to run the primary and secondary market for those shares on Ethereum, before having to move to more traditional financial instruments. Whether this was because of regulatory uncertainty or Ethereum’s rising gas prices is unclear, but in any case, it shows how challenging it can be to do traditional fundraising in crypto.
What Rubey’s model means is that the museum can crowdfund effectively and cultivate a highly-engaged membership, without straying into any of the legal gray areas currently facing social tokens or NFTs.
The potential of attendance tokens for museums
NFTs and social tokens might run afoul of financial regulations, and the whole idea of using them as “crowdfunding” might be an issue for nonprofit museums in any number of funding arrangements.
What’s needed, Christiane Paul suggests, is a shift of focus away from direct fundraising and more towards building community and membership.
To that end, Web3 offers a way to reach out to new an audience whether they’re a local resident or someone participating in virtual events halfway around the world. NFT projects like BAYC might prioritise the building of community, but that’s nothing museums aren’t doing with their membership already; “tokenizing the members’ dinner” isn’t enough. Instead, museums could look to include those community-building efforts within a broader Web3 effort.
Discussing the coming wave of regulations on crypto — specifically the SEC in America looking into treating NFTs as securities — lawyer Erika Kneirim suggests that proof-of-attendance protocols (POAPs in Ethereum and VERI in Tezos) might be more suitable for museums looking for a new way to raise funds.
POAPs are described by the creators as “a gift from an issuer to collectors, in celebration of a special shared memory. By minting these memories to the blockchain, collectors build a rich tapestry of tokenized experiences which unlock a world of possibilities.”
The attendance token functions as a free souvenir for museum visitors, but as a kind of NFT (not marketed as having resale value), it has many of the benefits that on-chain technology offers. A museum attendance token could function just as well as a social token for gating access to members-only events or used to vote in a DAO.
The attendance token is carried around in the visitor’s crypto wallet and can be “seen” by any on-chain program. This identifies the holder as a supporter of the arts and of one museum, specifically, which is the whole idea behind selling branded tote bags in the gift shop. (Why start a membership drive when you could begin a fandom?)
When it comes to fundraising via Web3, the biggest gain might for museums might be in using smart contracts to manage donations from high-net-worth members. Not only could the smart contracts be used to manage some kind of tiered system of VIP membership — and associated perks — but it could also save museums time and money spent chasing funds from those members.
Rather than work to get a hold of HNW members or their family offices every year, museums could get them to sign up for multi-year memberships via a smart contract that would automatically manage most of the paperwork involved in renewing memberships with such large transactions.
As areas like supply chains and contract law see more automation enabled by smart contracts, oracles, and related APIs, museums should start to feel confident they can fundraise more cost-effectively by using these tools.
As for the rest of their membership, attendance tokens could help fundraise indirectly by engaging with a crypto-native section of the museum’s membership. Just by cultivating that active membership, museums could see an increase in their revenues without having to market what is arguably a financial instrument.
Not only does this avoid regulatory uncertainty, but it also steers clear of what many perceive as the crass “financialization” they associate with the crypto space. In a future where NFTs are clearly regulated one way or another, they could function as something for dedicated patrons while attendance tokens remain low-stakes and fun that turns one-time visitors into something more.
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WAC Weekly is part of WAC Lab, a new program unleashing the full potential of Web3 for the arts and culture produced by We Are Museums in collaboration with TZ Connect and Blockchain Art Directory, and powered by the Tezos ecosystem.
