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Making a Picasso accessible and bankable 

Use Cases Tokenization

In 2021, Artemundi, a pioneer in art investment, partnered with Sygnum Bank to tokenize Pablo Picasso’s Fillette au béret, a 1964 masterpiece valued at CHF 4 million. This initiative introduced Art Security Tokens (ASTs), transforming the art market by combining traditional ownership with blockchain technology.

Collaboration and Expertise

This groundbreaking initiative brought together:

  • Artemundi: Offered its expertise in fine art curation and valuation.
  • Sygnum Bank: Provided digital asset banking serviced and a seamless tokenization framework through its blockchain-based Desygnate platform.

Overcoming Barriers in Art Investment

According to Javier Lumbreras, the CEO of Artemundi and an expert art collector, the traditional art market has been limited by high entry barriers, including significant financial thresholds, specialized knowledge and extensive personal connections. Additionally, the opaque and inefficient nature of the art market restricts participation to affluent investors. Sygnum and Artemundi sought to address these issues by creating a model that democratizes access, reduces costs, and enhances market transparency.

However, tokenizing a high-value artwork like Fillette au béret presented unique challenges, such as defining co-ownership rights and ensuring viable exit strategies for investors to realize returns.

Choosing the Right Tokenization Approach

Art Security Tokens (ASTs): The chosen solution involved issuing fungible tokens, each representing a share of co-ownership in the original artwork. ASTs realise the following benefits:

  • Clear co-ownership: The co-ownership structure enabled integration of claims, such as profit participation, making this the most versatile and investor-friendly option.
  • Infinite fractionalisation: Allows for an infinite division of ownership.
  • Tradability: As the tokens are fungible, they can be traded on the secondary market, offering investors an opportunity to exit their positions.

Other potential strategies were evaluated to tokenize Fillette au béret:

Single NFT Token: Representing sole ownership, this approach simplifies proof of ownership but lacks fractionalization, making it unsuitable for democratized investment. This method is more suited to inherently digital artworks, where the uniqueness of a single NFT is desirable.

“Pixel” NFT: Dividing ownership into single NFTs enabled partial fractionalization; however, the lack of fungibility required the continued use of traditional auction processes for sales.

How Art Security Tokens Work

Investors could purchase ASTs representing a fraction of Fillette au béret with the minimum token price of CHF 1,000. Transactions were settled in Swiss Francs using Sygnum’s DCHF stablecoin and all tokens could be traded on Sygnum’s blockchain-based organised trading facility, SygnEx.

The implemented blockchain-based investment case facilitated secure, efficient, and compliant processes, while providing investors with multiple exit strategies.

  • Pre-defined investment period The artwork is to be sold within five to eight years, with Artemundi overseeing the sale via private, gallery, or auction channels. Proceeds would be distributed in DCHF, and tokens will be burned.
  • Drag-along: If an offer for the underlying asset during the investment period which is equal or higher than the aggregate subscription amount is received, tokenholders vote within 21 days. A two-thirds majority approval initiates the sale, with proceeds distributed and tokens burned.
  • Squeeze-out: A tokenholder with two-thirds ownership can compel others to sell their tokens at a premium price based on appraisals. After payment and distribution of proceeds, tokens are burned, unless new co-ownership is achieved through peer-to-peer trading that revives exit rights.
  • Secondary market trading: ASTs can be traded on a secondary market, offering tokenholders the ability to exit their position without waiting for a final sale. This provides greater liquidity and flexibility compared to traditional art investments.

These mechanisms ensure liquidity, flexibility and diverse exit opportunities for tokenholders.

The sale of Fillette au béret Delivers Strong Returns for Tokenholders

The token offering attracted over 60 investors, demonstrating substantial interest in fractionalized art ownership. It achieved approximately 20% returns for tokenholders at the end of the investment period of  20 months validating the model’s financial viability.

When an attractive purchase offer for the underlying asset Fillette au béret emerged, tokenholders were notified and could vote on the sale. Over two-thirds accepted the offer, prompting Artemundi, the art manager, to execute the sale. The proceeds were automatically distributed to their digital wallets at Sygnum Bank via smart contracts, concluding the investment cycle, transferring ownership to the new buyer and burning the tokens.

Key outcomes included:

Evolution in Art Investment

Through this collaboration, Sygnum and Artemundi redefined art investment, demonstrating how blockchain can democratize access, enhance transparency, and unlock new opportunities in the fine art market.

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