What Is Art Tokenization?
Introduction
One of the most positive applications of Distributed Ledger Technologies (DLT) is the tokenization of assets. In this blog, we will frame the basic idea behind tokenization with an effort on art tokenization and its benefits.
Tokenization mentions to a piece of creating a digital representation of a physical or non-physical asset on a distributed ledger such as the Ethereum blockchain. A token, which is Latin for a sign, signifies the ownership of an asset or the portion of an asset. Tokens can signify everything from real estate to carbon tributes to artworks.
Tokenizing an asset carries along with the benefit of the underlying DLT. Since assets are characterized as tokens on a blockchain, their ownership record is always up-to-date and can’t be changed with, instant payments, accessible ownership, and pretends-unidentified stored on the blockchain. Further, similar to native tokens such as Bitcoin and Ethereum, these asset tokens can be used round the clock.
Fractional Ownership of Assets
One of the most widespread use cases for tokenizing an asset is fractionalization, specifically for exclusive assets such as artworks and real estate. The concept behind tokenizing these assets is very easy, increase the investor base and liquefy the illiquid assets.
Many assets are illiquid because they are exclusive, and most investors can’t afford to buy an entire real estate or artwork. With the creation of tokenization, an asset can now be fragmented into multiple tokens, each representing a share of the asset and therefore enormously reducing the lowest capital requirements for investors.
We associated with Artemundi recently tokenized the Picasso painting «Fillette au béret» estimated at CHF 4 million. The artwork was tokenized and divided into 4000 Art Security Token (AST), with one AST being assessed at DCHF 1,000.
With this, the minimum capital required to buy a unique asset such as a genuine Picasso painting has been tremendously reduced and made available for a much wider range of investors. This carries the potential to offer a wider audience of investors the possibility to invest into such exclusive assets, which were advent remote, while simultaneously providing users a larger investor base.
Increase Liquidity of Assets
An additional benefit of tokenization for users and investors is better liquidity. For users of unique artworks, the liquidity of their assets increases as fractional ownership exceedingly opens up the investor base and they can trade a piece of their tokens when in need of liquidity.
For investors, tokenization allows and streamlines secondary markets trading. If we continue with the model of the Picasso painting, an investor frequently must invest pretty some time and capital unless he discovers a suitable consumer to make his holdings liquid again.
With the tokenized artwork, an investor can easily trade his share of the Picasso on a secondary marketplace such as Sygnum’s SygnEx and make his investment liquid former to a final auction of the artwork. This delivers excessive flexibility for investors and reduces the holding period of artworks that generally might be several years. Furthermore, this also enables for more flexible portfolio expansion.
Benefits of Art Tokenization
Certainly, the blockchain is an irreversible and transparent technology, its features and other advantages are inevitably applied to the tokens stored on the platform. In fact, art tokenization assists carry out a number of issues affecting the industry.
· Mainly, tokenization digitizes the ownership into tradable tokens thus improving the liquidity of artworks. This changes art into a profitable investment option. Investors are fascinated to invest in art.
· Instead, an art tokenizing platform also doubles up as a reliable technique to validate and authenticate the works of art. It is easier to track the authorization and owners of an item; thanks to blockchain technology.
· Finally, autonomous and potential artists can use this standard to list and stimulate their artwork instead of opting for the services of expensive galleries. This also assists them to obtain entire ownership of their works while also escaping payment to third-party mediators or agents.
Not every Art token is an NFT
Presently there is a large hype around non-fungible tokens (NFTs) as they enable proof ownership of a digital artwork such as a standard meme and allow artists to apply royalty schemes for their tokens. As their names state, NFTs are non-fungible, which makes them impossible for fractional ownership.
Creating multiple NFTs pieces of artwork might result in different values for each NFT. For this reason, we do not provide NFTs but fungible (interchangeable) tokens enabling co-ownership of an artwork. Although, NFTs are highly attractive for the above-mentioned reasons and increased awareness of the benefits of DLT in the mainstream.
Conclusion
The tokenization of artworks and other assets carries multiple benefits for both users and investors. Quickly assets that have been reserved for high-net-worth individuals become accessible for consistent investors, which are in line with the essence of Crypto to democratize finance.
While there is more hype specifically in the NFT segment there is the real added value for artists and investors. At ChainTechSource we offer the initial fully regulated, banking-grade tokenization solution that is end-to-end from issuance to secondary trading of tokens.
