Prepared by: Marius Zoican

Southern Finance Association
November 2020

Discussion of

"Collectibles Tokenization & Optimal Security Design"

(Blair Vorsatz)

Main idea

  • Collectibles (e.g., art) provide diversification against stocks.
  • However, they have two drawbacks:
    • Indivisible (and very expensive!)
    • Require authentication 

Solution: Tokenization

  1. Economies of scope: only authenticate once for multiple owners.
  2. Allow diversification through fractional ownership.

Problem: Who has physical ownership?



Having a 50% stake in "Mona Lisa" is not the same thing as admiring "Mona Lisa" 50% of the time!

I would pay $20/hour to see Mona Lisa

I would pay $25/hour to see Mona Lisa

Solution: Locking it away (status quo)

Easy to implement, but value is inherently lost....

Art has value only if people can admire it!

I would pay $20/hour to see Mona Lisa...but I cannot!

I would pay $25/hour to see Mona Lisa...but I cannot!

50% ownership

50% ownership

This paper: Rent viewing rights

  1. Separate ownership from viewing rights.
  2. Can diversify portfolios without losing value:
  3. Asset is rented to highest marginal-utility user.
  4. Always improve value!

I'm getting $20-25/hour for my right to see Mona Lisa.

I am paying $20-25/hour to see Mona Lisa!

50% ownership

50% ownership

Comment #1:

Why did mutualisation fail?

  1. At its core, the paper proposes the mutualisation of art,     + rental of viewing rights.
  2. Why is a FinTech solution needed?
  3. I can imagine an ETF purchasing art, then displaying it in museums and collecting ticket revenue.
  4. The paper suggests art funds have failed due to high startup costs.
  5. Would this be different in the case of tokenisation?
  6. You still need to have an initial large inflow in art to reap diversification benefits. 

Comment #2:

What drives the common value?

  1. The collectible has a private value component (the emotional dividend) and a common value component.
  2. What drives the common value? What is the objective value of art?
  3. Where does the noise/volatility come from?
  • Perhaps the common value is driven by the arrival (birth) or an investor with a higher private value than the current viewing-rights holder.
  • Or, perhaps art is a hedge against inflation?
  • Some more explanation/structure would be nice to have!


Comment #3:

Fractional ownership

  1. The current treatment of diversification is a bit ad-hoc.
  2. The model assumes volatility simply drops (due to diversification) once tokenization is allowed.
  3. A richer model would have a budget constraint and a number of collectibles, such that without tokenization the budget constraint does not allow for diversification.
  4. Too technically involved?

Comment #4:

Alternative applications

  1. Can this thinking be extended to other assets?
  2. Real estate seems a prime example: indivisibility of investment + competitive rental market.

Comment #5:

Source of welfare loss

  1. You assume emotional dividends are "viewing rights."
  2. What about "bragging rights"? Exclusivity matters!
  3. Owning 0.01% of Mona Lisa on a phone app does not impress guests!

Discussion: Collectibles Tokenization & Optimal Security Design

By Marius Zoican

Discussion: Collectibles Tokenization & Optimal Security Design

Discussion of "Collectibles Tokenization & Optimal Security Design" at the 60th SFA Meeting (November 2020)

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