“The Future Lies in the Tokenization of Real-World Assets”

As the world moves towards democratization and tokenization of basically every asset, the art industry is one of the fastest moving sectors in this direction. The introduction and acceptance of non-fungible tokens (NFTs) has played a big role in democratizing the traditional art industry, allowing art lovers to own art pieces that they could not afford before.

Artfi, launched in 2022, is one of the leading projects looking to democratize and fractionize the $1.7 trillion fine art and collectibles market. By harnessing the power of NFTs and blockchain technology, Artfi allows investors to own a stake in some of the world's most sought-after works of art. Artfi aims to redistribute fine art ownership through the tokenization and fractionalization of physical works of blue-chip fine art.

Run by a team of experienced art and technology experts, and led by art connoisseur Asif Kamal, founder of Artfi, the project is ushering in a new paradigm for collecting, owning and investing in fine art. We spoke to Kamal to get a deeper understanding of the project and how it aims to help any art lover enter the fine art industry.

Hello Asif, thanks for joining Finance Magnates. Could you start by giving us a brief history of Artfi and its journey so far?

Thank you, it’s a pleasure to speak with you about this project which is very dear to me. I began Artfi in early 2022 with the vision of democratizing fine art investing. It’s been an incredible journey so far, and we are only just beginning.

We’ve built relationships with key players in the industry and received a $3.26 million private round investment from Mr. Raza Beig, CEO of Splash fashion brand and Director of the Landmark Group retail conglomerate. The investment has allowed us to quickly grow our team to a dedicated group of over 10 employees.

Our recent focus has been on building a physical representative office in Dubai – the world’s foremost Web3 city. Dubai is an incredible investment hub where people really understand what we are doing and see the value in it.

As a prominent gallerist of South Asian art, what or who inspired you to the digital aspects of art and creating a fine arts NFT platform?

I was always a believer of decentralization and in the last 12 years of my career in fine art, I always felt that there was a much wider audience who wanted to financially participate in the fine art business and invest in this asset class, but they never could participate due to barriers such as heavy ticket size, long holding period, and dependency on the experts like galleries, art connoisseurs and auction houses.

My vision was to widen participation to different segments of society, so that people could to think art as an alternate investment.

Historically, art has outperformed the major traditional investment modules in existence over the last 30 years, but the technology to democratize art investing did not yet exist. Now we have an opportunity to implement the latest NFT technology that allows a piece of art to fractionalise into thousands of units, each of which are sold as a discrete NFT.

This has a number of additional benefits: NFT technology gives undisputed ownership proof to investors, and since the share in the painting represented by Artfi NFTs is tradable in nature, fine art investing through NFTs is am more interesting, exciting, easy and simple proposition for anyone to own a piece of multimillion dollar painting.

I understand that Artfi aims to tokenize fine art and offer fractional ownership of blue-chip art. Could you explain to our readers what this means and the benefits of a fractional ownership structure?

Yes, of course. In the legacy art market, the way that the ownership of a work of art is determined is through a certificate of authenticity. Immediately, this poses some problems because these certificates have a history of being forged. Printed certificates and databases simply don’t have the same tamper-proof transparency and legitimacy of NFTs. The provenance of NFTs on a decentralized public ledger blockchain like Ethereum is unquestionable – it simply cannot be tampered with. This security feature is the most obvious reason why fine art needs to be tokenized.

Secondly, once the ownership of a physical asset like a painting is tokenized, it can be traded with much less friction, and thus much lower fees. Transacting on an NFT marketplace could incur a service fee of about 2.5% plus gas fees. The typical commission of an auction house is almost 10x that amount.

Most importantly for Artfi is that once fine art is tokenized, it is capable of being collectively owned. To be fair, this was technically possible in the pre-NFT era, as families and institutions could pool wealth to buy art, but the process was very cumbersome.

Masterworks streamlined collective ownership and became a unicorn by tapping into the vast retail demand in the American market for blue chip fine art. However, these approaches to collective or fractional ownership still encounter a number of hurdles that can be easily overcome with the Web3 infrastructure.

With the Artfi approach, participants can easily buy and sell NFTs around the clock, with no KYC requirements or minimum investment amount. NFT minters are also entitled to a special minter royalty that ensures perpetual revenues on subsequent trades. This simply doesn’t exist in the legacy art market and Web2 approaches to collective ownership.

A number of NFT projects are selecting Polygon blockchain as their ‘home’ platform due to low gas fees in comparison to Ethereum. Are there other reasons why Artfi chose to build on Polygon over other blockchains?

The benefit of Polygon isn’t simply that it has lower fees than Ethereum. Many blockchains have low fees. What makes Polygon so powerful is the way it was designed specifically to be an Ethereum scaling solution. Rather than trying to compete with Ethereum like other alt Layer 1’s such as Cardano or Solana, Polygon taps into the vast network effects which are already present in the Ethereum ecosystem in a synergistic manner.

That’s the kind of collaborative attitude that Artfi has as well. We aren’t in an antagonistic relationship to the longstanding fine art institutions which came before us – we are scaling them.

Traditional fine art auction companies such as Christie’s and Sotheby’s are also entering the NFT market with their own marketplaces. What are your thoughts on this and what is Artfi’s competitive advantage over these traditional art auction companies?

The major difference between Christie’s, Sotheby’s and other traditional art companies, is that Artfi is making fine art accessible to wider audiences by democratizing it in a way that redefines fine art ownership and gives people a different way of expressing their love for the arts and their collecting experience. Whereas Sotheby’s and Christie’s have by and large replicated NFT marketplaces that sell monkey cartoons.

We are a fine art company building on Web3 and making art investment accessible to millions of those who never had the opportunity to own a piece of art, we are making it easy and simple to own masterpieces that is tradable in nature and gives them an opportunity to earn royalties on their asset and option to liquidate their asset whenever they want to.

On the buy side, Artfi is serving different clientele. An ultra-high net worth individual who can afford to buy a $10 million dollar painting doesn’t need to participate in fractionalized ownership through Artfi. That individual can simply buy the painting outright, whereas we are serving the people who have $100 to $100,000 to invest.

On the sell side, Artfi does have a competitive advantage over the legacy auction houses when it comes to serving art collectors. That’s because when a collector goes through an auction house to sell, he or she must sell their entire canvas, oftentimes parting ways with a family heirloom or beloved artwork in order to access liquidity.

Artfi allows for a partial selling opportunity where an art collector can sell only a portion of their canvas and retain a financial interest in the work even after it has been sold. In a recessionary environment, we feel that this option could be especially attractive to a number of art collectors looking to raise capital.

While the NFT market has witnessed a major downturn in sales and value across 2022, the industry still looks promising in the coming years. What are your projections for Artfi in the NFT space for the coming decade?

The theme of the next decade will be the tokenization of physical assets. We feel that we are positioning Artfi as a leader in this domain, particularly when it comes to the tokenization of fine art. Crypto and NFTs have taken hit over the past 12 months due to a complicated macro environment mired by high inflation and monetary tightening.

Nevertheless, the long-term trend has not changed – Bitcoin and Web 3 technologies are being adopted faster than the internet, and this new ecosystem of digital assets will become commonplace very quickly.

This means that Artfi’s TAM is bigger than we can even imagine based on today’s way of thinking about online activity and value exchange.

Any closing words?

Art is more than an investment. It is an expression of beauty and belonging. Artfi is bridging the market and aesthetic orientations of art so that everyday people can invest in what they love and share that love with others who feel the same.

We believe that Artfi and fine art NFTs more generally will usher in a whole new type of digitally native art collector who couldn’t have existed in previous epochs.