Finance professor at University of Toronto. Interested in securities exchanges, technology, and investments.
Prepared by: Marius Zoican
Southern Finance Association November 2020
"Collectibles Tokenization & Optimal Security Design"
- Collectibles (e.g., art) provide diversification against stocks.
- However, they have two drawbacks:
- Indivisible (and very expensive!)
- Require authentication
- Economies of scope: only authenticate once for multiple owners.
- 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!
This paper: Rent viewing rights
- Separate ownership from viewing rights.
- Can diversify portfolios without losing value:
- Asset is rented to highest marginal-utility user.
- 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!
Why did mutualisation fail?
- At its core, the paper proposes the mutualisation of art, + rental of viewing rights.
- Why is a FinTech solution needed?
- I can imagine an ETF purchasing art, then displaying it in museums and collecting ticket revenue.
- The paper suggests art funds have failed due to high startup costs.
- Would this be different in the case of tokenisation?
- You still need to have an initial large inflow in art to reap diversification benefits.
What drives the common value?
- The collectible has a private value component (the emotional dividend) and a common value component.
- What drives the common value? What is the objective value of art?
- 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!
- The current treatment of diversification is a bit ad-hoc.
- The model assumes volatility simply drops (due to diversification) once tokenization is allowed.
- 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.
- Too technically involved?
- Can this thinking be extended to other assets?
- Real estate seems a prime example: indivisibility of investment + competitive rental market.
Source of welfare loss
- You assume emotional dividends are "viewing rights."
- What about "bragging rights"? Exclusivity matters!
- Owning 0.01% of Mona Lisa on a phone app does not impress guests!
Discussion: Collectibles Tokenization & Optimal Security Design
By Marius Zoican