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Creating Liquidity for Naturally Illiquid Assets: A Discussion with Maecenas

Creating Liquidity for Naturally Illiquid Assets: A Discussion with Maecenas
September 19, 2018 Art World Forum
In Editor's Picks

As we count the days to the 3rd Annual Singapore event, where additional insight on Maecenas will be shared by CEO and Founder, Marcelo Garcia Casil, Art World Forum meets up with the company Director of Acquisitions and Sales, Kim Randall-Stevens, to better understand the aftermath of the first blockchain auction, its mechanisms and what more we can expect.

1. What effect has new technology had on the art market and why is now a good time to be embracing new players?

Technology has had a net positive effect in the art market. It has allowed participants to connect more easily and to engage in art transactions digitally. We’ve seen an emergence of online marketplaces, primarily for contemporary art.

Maecenas is continuing this trend and taking it to the next level by leveraging blockchain technology to enable participants to invest in fine art in ways that were not possible before.

2. Among these new technologies, Blockchain and shared ownership of artwork is gaining so much publicity. What benefits (and/or challenges) do you think this brings to the market?

Blockchain is to assets and money what the Internet is to information and content. Thanks to its cryptographic protocols, participants can engage in a financial transaction securely and instantly without having to rely on intermediaries. Blockchain is a very efficient ledger, and as such is perfect for keeping track of who owns how much of a certain asset.

Applying this concept to fine art enables investors to own different stakes in a valuable artwork, and allows them to transact with each other by buying and selling shares in the underlying piece of art.

3Maecenas recently sold its first painting on the blockchain. Tell us more about it – how do successful bidders obtain a digital share of the artwork? What is the protocol regarding security and maintenance?

Shares in the work of art are tracked digitally on a private blockchain that Maecenas is mandated to operate. Investors who own these digital shares effectively own part of the Andy Warhol painting that we have tokenised.

Blockchains by design are very secure, enabling transactions to be bundled in tamper-proof blocks, making them safe against data manipulation. The digital shares are also legally linked to an old-school paper register which acts as a safeguard in the unlikely event of the blockchain register not being available or having been compromised.

4. What was the Andy Warhol auction reception like? What do you anticipate for future auctions?

We’re pleased that our first auction attracted so much interest from the art market. It has been a successful exercise which provided valuable information to our company in terms of product-market fit.

As innovators, we are making our own path as we move along, so we must keep an open mind and learn to adapt to market needs. As part of building a great product, we will try different structures for our products, so future auctions may see slight changes in the mechanics of how artworks are sold on our platform.

As a start-up company, it is essential that we continuously iterate and refine our product.

5Transitioning from physical purchases to online ones, how are collectors reacting to more virtual investments and commitments?

It’s still too early to come to any conclusions, but we are seeing a healthy mix of keen interest and moderate reluctance. Client feedback is extremely valuable for us, and we often learn more from those who raise concerns than from those who don’t.

6. From an investment point of view, can ownership of an artwork on the blockchain maintain, or rather increase, in value as it would in traditional transactional methods? How can the effectiveness of technology, and a return on investment, be measured overall?

Absolutely. For assets to realise their increase in value they must be transacted. The more frequent they can be transacted the faster they will realise their appreciation. In addition, investors typically attribute a premium to liquid assets. In other words, they’re willing to pay higher prices for assets that are less risky to liquidate. Maecenas is doing exactly that, it’s creating liquidity for naturally illiquid assets.

7. Focusing on the aspect of ownership, and tokenisation, please explain this a little further.

Our view of fine art is that as an asset class it’s been neglected by capital markets, and evidence of that is the absence of any modern platforms enabling investors to have exposure to art. Shared ownership via blockchain registers, also referred to as tokenisation, is the future of investing. Fine art now has the opportunity to leapfrog other asset classes by jumping straight into the latest and greatest asset trading mechanism.