Tokenization of Alternative Assets: Artwork
Based on S&P 500, the US stock market showed a -5.1% return, while the artwork market showed a 10.6% return in the year 2018. Famous artwork not only increase in value over time, but are also a safe asset due to having a small decline even when the financial market is impacted. However, due to high price, which ranges from thousands to millions of dollars, the artwork market is difficult to enter for small investors.
The recently emerging fractional ownership art platforms in South Korea is an attempt to increase the base of the art market. Instead of monopolizing expensive artwork, it can be shared by hundreds of people so that more people can participate in the purchase of an artwork at a lower cost. From the investors’ point of view, there is an advantage to this factor, since it is possible to alleviate investment risks by distributing investments into various artworks instead of just one.
At the end of last year in Korea, Art Together, a collective or joint ownership art platform service, sold the stakes of a work from Picasso, and around the same time, Art & Guide sold Hwan Ki Kim’s Sanwol, with great success. At the end of January, Pro/Rata Art also launched a fractional ownership arts service, selling the stake of George Condo’s The Antipodal Explorer. Overseas, Masterworks of America is currently selling stakes for Monet and Andy Warhol’s works.
Most of these fractional ownership art platforms have already introduced or are considering the introduction of blockchain technology. The use of blockchain technology makes it possible to clearly disclose stock issuance and transaction details to investors, thereby enhancing transparency and reliability. It also has the advantage of providing more liquidity to the market through an establishment of exchanges based on blockchains that can deal with the shares of artwork issued by different joint ownership platforms. In addition, once a number of artifacts are tokenized, new businesses based on digital value will emerge, as they can be extended to a variety of financial services, such as art investment funds and artifact equity loan.
Blockchain technology does not solve all the problems that arise while tokenizing artworks. The authenticity of the artwork requires the evaluation of a reliable appraisal agency, and the custody and management of the artwork itself also require trust and expertise. Currently, fractional ownership art platforms reveal the verified certificate issued after a successful purchase from an auction. In addition, a separate exhibition space for the artwork is provided so that all shareholders can enjoy artwork that they partially own.
It is my belief that the emergence of fractional ownership art platforms based on blockchain technology will not only expand investment opportunities, but also promote overall growth of the art market. Through small art investments, it is possible for investors to nurture their interests in the artwork and the artist that they invested in, which can ultimately lead them to exercise new types of ownership rights such as becoming sponsors for a specific piece of art, making decisions over art sales and exhibitions, or other activities that can further expand the art market.
In addition, when applied to local communities, the residents may decide to utilize the proceeds of selling jointly owned artworks that are installed in public places through voting. Such joint ownership of artworks can be used as an instrument to encourage active engagement of the community as well as proactive enjoyment of the arts. The tokenization of artwork will make an immense difference not only in the expansion of investment opportunity, but also in the way of owning and enjoying art as a whole.
PS: Thanks to Seungwoo for the terrific translation!
