The “Art” of Fund Tokenization
What do gold and art have in common? Aside from attracting aristocrats, these are assets do not need economies behind them to retain their value. In other words, should the banking system and states of the world collapse, we will all be going back to trading assets in gold coin pieces. But what about art? Art will always retain value. The Mona Lisa, probably the most famous painting, is worth a hundred million dollars. And in a dystopian future described earlier, it would probably still cost the same, albeit in sacks of gold. The problem is though, unlike gold, which are malleable and can easily be shaped into coins or bars, art cannot be cut into tiny pieces to redistribute its value.
In 2017, art was estimated to be a sixty three billion dollar industry. That is about as much as Bulgaria’s gross domestic product which ranks 75th in the world. Aside from being a factual comeback against all the “art major” jokes, this fact presents an opportunity to derive value using crypto assets. As described earlier, art is immutable. For instance, cutting off the head of the “Thinking Man” will not mean that you will have two statues with both values summing up to the whole statue’s value. What you will have are two carved stones probably worth way less than when it was still whole, and surely a very scary version of the “Thinking Man”. Using UIA(User Issued Assets) and fund tokenization, ownership of the art can be sold to investors. The primary owner can, for instance, give up five percent exhibition rights of the art. Then, the owner of the five percent will reserve the right to display and make money out of the art for five percent of the time. Depending on the price per stock, this can a very attractive form of investment. The Louvre which houses the Mona Lisa gets at least 15,000 visitors everyday with rates varying from the general admission worth 20 euros and private tours ranging upwards of 30,000 euros.
This is just a manifestation of the current trend where crypto assets such as currencies are getting solid tangible backing. A development defined to ensure the continued growth and stability of the less than tangible crypto asset. As a form of investment, art will grow in a value as time passes. This will mean growth in value on all ownership that comprises it. This arrangement helps both the art’s original owner and investors. The owners gets a boost in funding to expand their portfolio while the investors gain assets that can theoretically increase in value for a millennia.
The digital tokens, corresponding to rights to portions of art are fluid forms of financial tools. They can be further divided(a specialty of crypto assets), repackaged, and resold to an alternative market. This will boost the number of audiences, the assets can be sold to. But, bottom line, having to own famous works of art, even just a tiny portion of it, should be case enough to attract investors.
SCO vs ICO
The ICO or initial coin offering was the standard in investing in crypto assets. They are quick to put up, and the initial capital, quick to swell. But because it is made entirely of pledges, the value may or may not pick up. A new ICO could literally be worth nothing but promises. On the other hand SCOs of security coin offerings derives its values from tangible assets. The Securities and Exchange Commission is in charge of determining form of assets, as well as granting legal status to the assets. During the early days of crypto trading, many ICOs slipped through the crack as being marketed as securities. This prompted stricter policies now being enforced by the commission.
Securities have been around for as long as corporations were. So when a new complex asset such as the crypto currency and its derivatives came about, the laws governing securities were understandably outdated. Many challenges face the regulating body. As complex as the blockchain technology already is, defining and keeping track of blockchain-based assets can be more daunting. Given the developments, SEC can decide to go away with, and phase out ICOs completely. SCOs is the proverbial “New Kid on the Block”, and even with the hurricane of changes surrounding crypto, could be the lasting standard.
Generally, the government is letting things play out on it’s own. They understand that the technology is novel and an overzealous regulation can hamper innovation. But they are still closely monitoring the situation to ensure the welfare of both buyers and sellers.
A timely demise
One may ask if one day, all securities are going to be traded in one form of crypto assets. It was once said, that fund tokens were the poor man’s venture fund. Of course, this poor man should still be have substantial equity, but a telling observation nonetheless. The world’s middle class is shrinking. And protests from all over the world is echoing displeasure in the sentiment – the latest being, the Yellow Vest protests that are shaking up Europe. That being said, normally, only the richest of the rich are able to join massive money making undertakings such as Venture Capitals. Now, securities in the form of crypto assets, affords the common man the ability to invest on tinier, cheaper, fractions of these investments.
What is new
Security tokens, even with much confusion surrounding them, are still all essentially securities. As stressed by the SEC, the laws that govern securities should also govern SCOs. Nevertheless, SCOs present a few changes.
Incentivizing Innovation – Given that much of the blockchain technology’s products is still in it’s formation, innovation plays a key, if not the most important, role. Investors, knowing the direct impact of these innovations, can directly share portions of their investment to encourage the inventors.
Living Equity – Currently, securities are attached with rules to regulate themselves. These rules are enforced by the investor’s legal team, but ultimately by the authorities. Crypto tokens are unique, in that they can be “programmed” to update it’s value based on an agreed on criteria its constituents.