Digital Art: Innovation or Tulip Mania?

Transcript

[Applause] [Music] good morning everyone it's a great pleasure being here in front of so many real faces we heard a lot about tokenization in the last few days about this morning also about cryptokitties um today's talk is a little bit related to the current situation that you observe in the token tokenization space thanks a lot and uh it's the time when apes punks and those kitties dominate the headlines some people ask themselves is the next tulip mania really that far so this is a screenshot really from

openc you can buy virtual tulips and this is one of the kind of observations that we are doing these days so the presentation today is a bit about digital art innovation or tulip mania what are key successful success factors to have digital art as innovation and not as a bubble that just bursts cutting edge technologies in the digital art space have prominently been in the headlines uh i guess the most famous uh famous one is every day is the first five thousand days by people which was sold recently for 69 million us dollars another headline of

what or of which i'm also a little bit proud of together with my team is that we tokenized picasso on the left hand side we see an nft a non-fungible token on the right hand side we see an ast an ast is a kind of a new abbreviation that came out of the situation that we were creating fungible tokens related to art representing ownership so what's important to understand and i will deep dive a little bit on that later is it's not an spv that we're tokenizing so it's true ownership direct ownership in a in a concrete art piece when you have a look at the nft market these are just two

samples that we have been observing of the over the past few weeks and months we see that nft expenses in terms of completed sales but also in terms of the number the amount of sales that happens on the on the chain uh is tremendously growing these days so we see on the left-hand side that the nft expense the nft market has reached kind of a sales value of more than 2.5 billion compared to an art market which has been in 2019 2022 at roughly 50 billion so it's still small but as we can see it's growing tremendously on the nft sales side we observe numbers that are now higher than

1 million sales on the rolling base over 30 days i mentioned it initially key success factors what makes such digital art pieces successful going forward um this is kind of the five factors that we identified over the past few weeks and months which creates value add at the end for the issuer the owner of a token as well as the investor we start with the end-to-end perspective this is the only real real presentation slides about the signum offering and i don't really want to go too much into that but what my message is here it's important to

have the whole value chain covered end to end because imagine you need to collaborate with the technical issuer you need to get a lawyer helping you to structure the asset you need the trading venue where you can then trade your token this is currently a reality and everyone is asking me where are the process efficiencies why should i tokenize something where i create more complexity than in the traditional world and that's basically our solution having three products designed as a primary market platform synax as a regulated and kind of finma approved organized trading facility and related also to thomas speech before the

stable coin which allows for a kind of allows us to avoid the risk asymmetry when trading on chain assets so if we trade the token on chain we need to have the fiat lag the stability lag kind of in the in minds of many people also settled on chain which is kind of important to avoid this t plus 2 lag second success factor no tokenization just for the sake of tokenization i guess this is one of the most important messages there are so many people coming also to us asking so uh what can i do with tokenization let's talk a little about can i talk as a can i talk in sb but

at the end of the day important is to understand the motivation why do you want to tokenize what do you want to unlock as terms of benefits as terms of kind of value add this is a kind of a summary which evolved over the past few months when we had uh when we were having our clients discussions so many people were approaching us oh can i get can i tokenize an nft can i create nfts kind of to to to to raise money for art pieces and the fact is yes you can but maybe it's not the solution that you need so simply spoken is like we can create one nft one token which is non-fungible

which represents for example the monoliths on this uh example the second part is like we create many nfts for one art piece so at the end of the day you have like the bottom left corner of mona lisa you have the eye maybe you have a different price for the hair for the ears i don't know and out of the discussion we had in particular also with the token session of the picasa was we actually want to create fractionalization we want to allow many investors to participate in the long-term value appreciation of such an asset and that's the reason why we created fungible tokens because we understood that what our clients want to achieve is a fungibility solution a fungible solution and a

fractionalization what we then created is this ast this art security token and the art security token is basically a combination the best of both worlds the traditional investment vehicle can be a fund can be an spv where you have then or where you become owner of a fund unit for example and on the other hand we have the art for enjoyment people saying oh i want to buy this because i put it in my room and i'm the owner i can decide what happens so what we did we were kind of taking the economical participation through financial securitization so we created the financial instrument giving investors a long-term

opportunity to participate in the value appreciation second we wanted to kind of to unlock this emotional attachment and this is important if you are owner of a fund unit you are not the owner of the art piece you are an indirect you're kind of in a state of indirect ownership the third point that we try to kind of also solve is uh kind of an interesting motivation for tokenization is how can i leverage existing artwork that is my own to leverage my investment portfolio goes also into the to the direction of making non-bankable assets bankable at the end of the day and last but not least we try to include

and bring in and connect some of the rights and the kind of the claims that come out of the traditional world of equities for example so the decision-making power beat like with voting rights with exit rights of such an investment was one of the important features that were the result out of this kind of assessment together with the client third point for today the regulation and trust i guess for a pure token tokenization you don't need a banking license but at the end of the day it's key to have reputation and this is a kind of an example that might be known by many of you it has been shared many times on twitter

so someone has if someone creates an nft i can buy my own nft at the valuation in this case for 2 million i can kind of show on the blockchain that there was a transaction of 2 million i can then sell it to someone else at the discount can be 90 percent and at the end of the day i end up with 2.2 million if i get the latest story just this morning about this flash loan transaction in the nft space so for those that haven't read this this morning just google like flash loan transaction nft this morning and you will find the latest update exactly showing this risk

risk can be summarized in kind of different uh kind of uh characters so we have an immature market a young market new innovation is being driven we have the most important question what does happen when we tokenize an underlying when a tokenized mona lisa or just another art piece and they create an nft or also fungible tokens what happens if i sell the tokens who has the claim to get access to this physical art piece and the third important point i want to highlight is also the transfer of ownership i've recently been in a panel where an artist mentioned oh nft are a great way to make revenues without selling ip so the it's often not clear

what are the contractual claims that you get when you're selling for example an nft there are definitely also other risks which are pretty known to many of us there's a potential for scammers it's completely unregulated market yet and it's the young technology there are new protocols evolving and this are definitely risk being considered when investing in such digital art and regarding the third point also kind of an important quote if you think that compliance is expensive try non-compliance at the end of the day and this i guess summarizes best what how important this aspect is as a key success factor the fourth point that i want to highlight is really

accept that it's pioneering we're creating something new we are in a young market we're creating new products so this is how we did the tokenization these were the headline headlines and uh kind of the important statement out of this different kind of headlines is not everyone was really understanding what we are doing so for example masterpieces swiss bank issuing nft shares in picasso painting for 6k each so people understanding nft nfts are creating headlines and at the end of the day you end up with nfts in the headlines even if you do fungible tokens coming again a bit to this pioneering aspect of our ast what did we include what did we create

new we included an investment horizon so if you get owner of this picasso token you have an investment horizon of five to eight years five years kind of a lock-up period and then three years in which the administrator which brings me to the different roles is kind of committed to sell the art piece and to get the cash flows back to the investors so we created really a financial instrument as i mentioned there's an administrator there is a manager there's a custodian of the art piece as we're having a physical art piece or a kind of artwork we need to have it custodized be it in a bonded warehouse within a kind of in a vault

voting and exit rights are pretty important just imagine someone is coming like after two years and saying i want to buy this picasso can i get this painting into my room he needs to in this concrete case kind of make a proposal he can either uh get just a voting on and makes a kind of uh making an offer and we have uh drag longer rights for existing investors other possibilities you can get more than two-thirds of all tokens and then perform a squeeze out so this is really kind of creating new aspects compared also to pure ownership tokens where we started beginning of this year and i guess another important aspect is like the optionality on trading secondary

market it's just about to start in particular for security tokens but the message is it's an option on liquidity there's no guaranteed liquidity yet but we're growing this kind of opportunity these options and this is kind of summarizing this pioneering aspect so this is just a quick overview kind of uh in about the facts and figures of such a tokenization so this this painting was roughly word uh or is currently valued at 4.5 million us we created 4 000 fungible tokens we front loaded all the costs so if you buy such a token you pay the nacho of uh 8.9 and this is exactly also the message

that i want to highlight at the end of the day traditional vehicles in the art space create costs for an investor of roughly 20 to 25 percent according to our clients and we got or we made achievement that we could bring down this cost to 8.9 percent so that's the reason why we're tokenizing why we choose direct ownership why we choose an ownership token like an ast this is quickly a glance on the this operating model so we started with an owner of the artwork then we went into the book building phase where investors were committing their subscription

after token sale that's the state where we're now we have the fractional ownership so one part of the asset is still with the issuer because he still believing in this in the value appreciation of this picasso painting but we have fractional owners that are now co-owners of this artwork 0.4 and 0.5 for summarizing the points that i mentioned before for example the option of a squeeze out option of a drag along if a third party wants to buy the whole picasso and after a cliff for five years we're moving to the final exit where the where the art piece is either being sold auctioned off or just uh yeah sold or taken over by someone else last point for today understanding

crypto prerequisite for successful tokenization sounds a bit complicated but the message here is we often get the question what or how is actually an nft valued and we tried to kind of bridge the gap to the traditional world so imagine you go to the luffrand you see the monolith this is the original it has a tremendous value but it's just one piece you take a picture of that you go to kind of a professional photoshopper or kind of a can photoshop and you create a copy of the mona lisa put it to your wall at home what's the what's the value of this mona lisa copy

even if it's more or less professionally copied the value is like nothing compared to the original same is like the in the digital space we can create for example a crypto punk or uh or a cryptokitty or whatever or an ape and if you are the owner of the original you have a higher value compared to just the digital twin which is like a copy of it this is also related to the cost to copy which then further increases and supports the price of an nft at the end of the day to summarize for today we learned about five key success factors which are

important to make digital art an innovation and not a tulip mania bubble that bursts what we are observing these days is significant growth be it from questions from requests from projects that are that are about to be kicked off and it definitely cannot be ignored nfts digital art asds it's life it's real second point there's a huge potential for mass adoption so uh we just read yesterday yesterday about facebook turning into meta and this whole metaverse and the kind of metaverse environment is also pushing and creating new opportunities also in particular also in the nft space therefore it's important to focus on

trust and security i mentioned try try non-compliance i guess it's not a bad it's not a good idea and the third point there's still risk be aware that the risk it's a young technology i mentioned there are new protocols there are risks related to that and it's a young market and i'll leave the question to you will the bubble burst i want to say thank you and leave you with a question for today when is your first tulip in your portfolio thanks a lot for your attention