3. Why NFTs of real art are so difficult
Selling fractionalized art is hard, and generally requires registering with the SEC as an issuer of public securities. Selling fractionalized art as NFTs on the blockchain, however, is even harder, as one Swiss company is discovering.
Why it matters: Investors, including billionaire Bill Ackman, have put $20 million into Origyn, a company that plans to create "digital twins" of paintings, watches, and collectibles, at a valuation of $300 million. But the first attempt to fractionalize a painting by Magritte is already stumbling.
How it works: Origyn Art, a subsidiary of Origyn, plans to sell the Magritte off as 200,000 NFTs, each representing a separate tiny part of the painting, but each also representing an identical ownership stake in the work.
- That's possible under Swiss law, which allows such sales to avoid securities law if the painting is worth less than $8 million, or if it is being sold to fewer than 500 investors.
- The pitch: "Millennials value ownership over possession," Origyn Art CEO Edouard Planchat tells Axios. The painting will remain in storage in Switzerland until it's sold — but owners of the NFTs will also be able to download a high-resolution image of the work, and enjoy it that way.
The catch: Origyn owns the painting, but it doesn't own the right to reproduce the painting. In the art world, the artist — or, in this case, the artist's estate — invariably retains control of the copyright to the work.
- To its credit, Origyn recognizes that it needs the Magritte Foundation's permission to be able to create the "digital twin." It also plans to give some of the resale royalties — generated whenever the NFTs are traded — to the Foundation.
- So far, however, that permission has not been forthcoming — even though the current owner of the work bought it directly from the Foundation.
Be smart: Most NFTs are sold by copyright owners like, say, Beeple. If the Magritte Foundation gives Origyn permission to sell an NFT of a given work, then it would effectively be giving up the right to sell an NFT of the work itself.
- That's a tough decision to make, and it's understandable that the Foundation is taking its time making it. (The Magritte Foundation did not respond to a request for comment from Axios.)
The bottom line: The general consensus in the NFT world is that NFTs should only be minted by the creator of the work in question. When art collectors try to use NFTs to fractionalize art they didn't create, that can cause problems.