Ownable
Museum Financing & Art Patronage in the Web3 Era
A delicate balance
A universal dilemma characterizes cultural management. Balancing the contrasting demands of visionary curatorship with sound finances exemplifies the ambivalence confronting museums and cultural institutions worldwide, who strive to defend charitable, social missions while being pressured to find novel ways to monetize their assets. [1] This article explores the opportunities and challenges offered by the application of blockchain technology and tokenized funding in the cultural field by building on the ideas and research of scholars, artists, and thought leaders, such as Katja Lindqvist, Amy Whitaker, Jennifer and Kevin McCoy, and Diane Drubay.
Typically, museums fund their operations through a mix of revenue streams, including earned income (i.e. ticket sales; gift shop, restaurant and café sales), donations, sponsorships, and endowment’s returns. A highly controversial matter, deaccessioning –or the sale of artwork or other objects from a museum’s collection–, is often prohibited or heavily restricted.
Museums’ revenues, already impacted by the effects of the financial crisis, have further decreased during the COVID-19 pandemic, inducing institutions to make significant changes in their governance and operations. If, on the one hand, diversification –of both streams of income and activities–, contributes to museums’ financial stability, on the other hand, said stability comes at the cost of “potential mission vagueness, even goal displacement”, as researcher and scholar Katja Lindqvist declares, “all […] elements [that] may affect long-term organizational legitimacy among stakeholders.” [2] Facing firm bureaucratic restrictions and expected budget cuts, museums are now exploring alternative forms of funding while strengthening the relationship with their audiences through a renewed, more active attitude toward society.
“So the question of financing is finally a question of audience.” — John Zarobell
The collection as currency?
In an attempt to “provide a new level of accessibility to the Hermitage’s collections and to emphasize the democratic nature of the museum”, the renowned Russian institution created and released a limited edition of five NFTs of selected masterpieces from its collection to be auctioned on the Binance NFT marketplace. The sale generated more than $444,000 BUSD, a U.S. dollar stablecoin issued by the crypto exchange platform, with the highest bid going to Leonardo’s “Madonna and Child.” Confirming the authenticity, provenance and uniqueness of the pieces, each digital copy bears the signature of the Hermitage General Director, along with the date, exact time and place of signing (the museum itself) stored in the metadata.
Similarly, in an effort to diversify its revenue streams, the Uffizi Gallery in Florence collaborated with an Italian company, Cinello, to turn some of its most iconic works of art into NFTs. Each digital artwork, produced in the same dimensions as the original masterpiece, is accompanied by a certificate of authenticity, signed by the museum’s director, permanently recorded on the blockchain. Following the success of the sale of its first Michelangelo NFT, the museum is planning to mint other major pieces from its collection.
Blockchain and NFT technology certainly play a pivotal role in widening the accessibility to –and certifying the provenance of– museum collections, but the affordances of both tools have the potential to solve deeper structural funding and engagement issues by offering cooperative investment opportunities and combining features of crowdfunding and social impact investment with a novel approach to ownership.
“Tokenization, explains Blair Vorsatz of the University of Chicago, transfers ownership rights from a single physical asset to many digital security tokens, facilitating nearly infinite divisibility and low-cost trading on exchanges.” [3] Art tokenization, whose potential was foreseen by pioneer firm Maecenas, the first blockchain-based art investment platform, can also alleviate some of the key frictions present in the art and collectibles market, namely the illiquidity, the high transaction costs, and the assets’ indivisibility.
“Can we… imagine a museum collection owned by the public and only managed by the museum? …Could we also talk soon about crowd-investing and crowd-owning a museum?” — Diane Drubay
Award-winning writer and researcher Amy Whitaker, discussing Blockchain, fractional ownership and the future of creative work [4] with German economist Roman Kraeussl, proposes a conceptual fractional equity model of shared ownership. Originally designed for visual artists to help them share in the financial benefits tied to the evolution of their future careers, the idea is for them to “retain fractional equity in their work at the point of first sale.” She continues, “Once those equity shares exist, it is possible to create a secondary market in those shares, independent of the sale of the actual work of art.”
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In the case of museums’ collections, we could envision a similar system of fractional equity and a hybrid private-public co-ownership model, where the museum would retain fractional equity in the collection and keep possession of the actual masterpieces. The institution would also have a fiduciary duty to its co-investors and would be responsible for protecting, ensuring and taking care of the physical artworks.
By bringing together the museum, its investors and users in a flexible, cooperative, shared structure, digital securitization would allow the museum to access much-needed liquidity without deaccessioning pieces of its collection. The investors/co-owners could participate in the active management of the collection and share in any future IP licensing or royalty earnings.
After minting digital security (or utility) tokens representing fractional ownership in the selected masterpieces, ownership rights will need to be transferred to the digital tokens with all the information regarding the authenticity, provenance, condition and insurance of the piece permanently stored on the blockchain, along with the initial ownership record and the successive transfers of ownership. Through a Dutch auction (or any other preferred auction style), a percentage of the tokens will be sold to the public on the primary market. It is exactly at this point that the most serious difficulties could emerge.
Depending on the nature of the tokens, as well as the local legal and regulatory frameworks, the token structure and distribution, and the desired coordination, or behavior, of the players involved, different options are available, each carrying different opportunities and levels of risk. Tokens, bought in the primary market, could be sold and traded on an exchange (the secondary market), reflecting the latter’s typical erratic behaviors. Past experiments with cultural exchanges, such as the Tianjin Cultural Artwork Exchange in China, weren’t promising. Created with the intent to “boost the co-benefit of cultural and financial industries by attracting more public attention and participation in culture through investment”, as quoted by the China Daily, regulators ended up suspending trading after excessive speculation. When trading finally resumed, “art stock” prices plummeted.
Further challenges are posed by the current technology limitations, such as interoperability, security and privacy, usability, and standardization issues.[5] But, for the speculative scope of this article, we can still envisage the application of a hybrid token standard –part security, part utility, part governance–, to give a meaningful active role to museums’ communities as legal co-owners of their cultural heritage.
Towards a hybrid model
In 2019, NY-based multimedia artists Jennifer and Kevin McCoy donated an original net art piece to the Whitney Museum on behalf of the public. Both exploring and complicating the relationship between the museum, its benefactors and its audiences, the piece issues a digital certificate that each “donor” is free to transfer or sell, thus extending the donated artwork’s market life, which traditionally ends with the piece becoming part of the museum’s collection.
The blurring of the lines separating the historically distinct categories of art donors (investors) and art audiences (users) is perfectly aligned with the increasing hybridity of the new institutional funding landscape. From museums’ cryptocurrency proposals to NFT minting, from art tokenization and fractional ownership to Token Curated Registries (TCRs), we are witnessing the real-time development of radically different funding paradigms that have the potential to transform familiar notions of ownership, distribution, and monetization of cultural content and property. Museums know they need to change. The question is, echoing the words of Michael O’Hare, will they?
Acknowledgments
A special thanks to Jennifer and Kevin McCoy, and the mentors and colleagues, whose support, expertise and generosity made the NFT Talents program at the FSBC an unforgettable experience.
References
[1] Marek Prokůpek et al., Emergency or emerging financing strategies of art museums in the context of a pandemic
[2] Katja Lindqvist, Museum finances: challenges beyond economic crises
[3] Blair Vorsatz, Collectibles Tokenization & Optimal Security Design
[4] Amy Whitaker & Roman Kräussl, Blockchain, Fractional Ownership, and the Future of Creative Work
[5] Gang Wang & Mark Nixon, SoK: Tokenization on Blockchain
[6] Diane Drubay, How Blockchain Can Impact Museums?
