As decentralization gains serious steam in investment circles, it’s only a matter of time before blockchain startups come for a slice of the art market.
A new investment fund called Salon is being launched in hopes of changing the way people collect digital and physical art, using the ethos of Web3 and blockchain to help create first-rate contemporary art collections.
The fund, which functions like a decentralized autonomous organization, or DAO, gives members staking and voting rights backed by Salon tokens. The business model is simple: buy and share Salon cryptocurrency, then participate in identifying, acquiring, and stewarding artworks for the collection.
Founded earlier this year by digital art world citizen, Artsy social media marketing manager Jordan Huelskamp, Salon bills itself as a decentralized, blockchain-oriented art fund that he hopes will take a step back from the traditional art business.
Huelskamp told Artnet News via email that his background in art and corporate management (he previously worked at Apple) will help him identify macro trends in the art market, which can then be monetized and incorporated into a DAO. To this end, Huelskamp began the acquisition of the Salon by purchasing a physical work by the artist Hanna Hur, entitled. nine (2021), via Kristina Kite Gallery.
Huelskamp said he hopes the Salon’s operation will appeal to “Next-Gen collectors,” many of whom lack direct access to the primary or secondary art markets.
“Art market expertise and access to top galleries and artists are required to make the right purchase for investment,” Huelskamp wrote in Salon. white paper. “Enthusiastic investors use experienced art advisors to help them navigate the market, or spend their vacation days gaining social capital to travel to global exhibitions in hopes of gaining access to important works.”
First, Salon will be limited to accredited investors only, which means that participants who choose to join Salon DAO will become, for legal purposes, an investment club, registered as a limited liability company (LLC) in Delaware, a tax haven.
Salon will then be able to legally offer tokens as a DAO with members contributing capital in exchange for Salon Units, which can be used to propose and develop new acquisitions.
It’s an exciting business model, although largely unproven. After all, access in the art world is similar to data in technology: It can be mined for gold, but difficult to measure.
While it’s true that veterans in the art trade spend more time than the average person on a yacht or in the Hamptons, that access can be difficult to quantify—much less a token.
Skeptics of so-called “art-as-investment” startups, such as Masterworks or Otis, say art advisors are quickly learning that it’s not easy to make money in quick, investment-grade art. “Adding blockchain to the mix doesn’t necessarily make it easier,” Brian Frye, a law professor at the University of Kentucky, told Artnet News.
He added that the model ultimately fails to implement what he calls “cartel-ization” of the art market, where big players control supply and demand, keeping smaller ones out of the game.
What makes it difficult for outsiders to invest in the secondary art market, according to Frye, is the fact that demand outstrips supply. In other words, if everyone had access to below-market value Picassos, the business model for buying and selling would be a cinch.
The problem? They are not.
The Salon business model is not a new one. In 1904, a network of dealers in Paris was formed Le Peau d’Ours, which is often considered the first private investment club in the history of art. In more recent times, Collecteurs, an initiative started by Evrim Oralkan and Jessica Oralkan in 2014, is also trying to build a bridge for collectors to share and present their work.
For Frye, the problem with all these models is scalability. He notes that it is difficult for him to grow because successful dealers in the network do not have the financial incentive to combine access to profitable (flippable) art.
“Finally, I’m not convinced by initiatives that promise returns on investment in the arts using fintech, blockchain, or anything else,” he said. “Taking artwork below market value means token access to the dealer network, thereby diluting the dealer’s own stock in what is essentially a one-man operation.”
“Imagine for a moment that Larry Gagosian suddenly had token access to the network,” Frye said. “The incentives just aren’t there.”
Huelskamp said he believes Salon’s user-driven collector community will be different, in part because he will use his own skills in online marketing and data analytics to create value for the pool.
“While early members of Salon strongly believe in art for art’s sake,” he said, “we also embrace art as an asset class, and aim to provide innovative solutions to some of the art world’s investment barriers.”
Salon declined to comment on the amount of money collected so far, and the number of members who are part of the DAO.