Digitizing Illiquid Assets Will Unlock Trillions of Dollars for Investors
Gold. It is the best-known asset as a store of value. It is finite and though the value may fluctuate from time to time, it is generally regarded as a secure investment. Most importantly, it is liquid. There is a global market for gold that has been around for thousands of years.
Today, the total above ground stock of gold stands at about 180,000 tons, which at its current trading price has a total value of 8.5 trillion dollars. That is a lot of money to be sure, but a relatively modest sum compared to the tremendous monetary value that is stored in various other assets all around us. The US Geological survey pegs global oil reserves at 2.3 trillion barrels which has a value north of 126 trillion dollars. A massive number, even compared to the total value of stocks traded in the US, which according to the World Federation of Exchanges database equaled more than 33 trillion dollars in 2018 (source).
And then there are the so-called illiquid assets. Fine wine for instance. Or large parts of the real estate sector. Non-investable real estate is estimated to be 136 trillion dollars. Or Art. Works of art have an estimated global value of 3 trillion dollars, and they represent a particularly interesting form of illiquid asset. Fine art, for instance, appreciates faster than most asset classes but investment in art has always been the domain of the ultra-wealthy. There are not many people who can afford to pay 33 million for a Rembrandt.
Now imagine a future where these assets can be represented by digital securities on the blockchain and traded in an open marketplace; one where there is access to liquidity, investors can participate as fractional owners, the transaction process is frictionless, and a global investor base can participate.
That future, where illiquid assets become investable and tradeable, is already emerging and it will accelerate over the next decade. A New York company called Masterworks has taken the first step in the art world by securitizing works of fine art. All their offerings are filed with the SEC as registered offerings. Essentially, they are taking the works of well-known artists public. An investor can purchase shares in a painting and then they will receive their pro rata proceeds when the painting sells in the future. Currently, there is no trading markets for their securities, but Masterworks is working with the SEC on a structure to allow investors to trade shares among themselves for interim liquidity.
A European company called Monart is moving this concept onto the blockchain. They are selling digital securities (or security tokens) that will offer investors fractional shares of an art collection and participation in a global art marketplace. Investors will receive their pro-rata proceeds of the sale of art from the collection and a percentage of revenue generated from transactions in the Monart marketplace. In addition, these digital securities will eventually trade on crypto exchanges which will offer an additional opportunity for investor liquidity.
This trend of digitizing hard assets that hold significant value, but are illiquid and generally inaccessible to the public, is being replicated across industries. While real estate and oil reserves are obvious categories, we are seeing offerings of digital securities secured by everything from asparagus crops to intellectual property royalties. Someday soon you may be able to tell your friends that you are a proud owner of a Rembrandt.