Rethinking ownership — NFTs as the artist’s cap table

Many of my conversations this weekend, in addition to vaccination sites, has been about how powerful and intra-generational the conversation is around NFTs. For the next generation, it is their mode of operating — they understand value that is communicated and distributed on the internet, they understand the power of the creator and, having grown up in an influencer’s world, know that creativity can be monetized.

At Lobus, this is the conversation we have been having and how in the not-so-distant future the artist will have the option to either sell 100% of their work or 75% or maybe even 2%. Let your mind wander. Artists will be owners and a whole new generation of collectors will be born.

There are a lot of questions still being considered. How does scarcity work in an ecosystem that is all about removing gatekeepers? Keep an eye on Heat. How can you connect the digital and the physical? Will we want devices to view our digital art? Sure — though I am more in favor of printing my NFT as wallpaper versus a screen. But, we digress. NFTs are opening the floodgates to new concepts of ownership.

Rethinking ownership

For as long as we can remember, an artist produced a work of art and then would sell it. 100% of it. Musicians and screenwriters have been able to operate differently. They have been able to create a discrete unit of unique work and syndicate it to thousands, if not millions of people. Artwork has never worked that way because there was always one thing and there was, correctly so, the idea of being able to live with art.

There have been models of fractionalized ownership but I want to suggest that this is not about fractionalized ownership. Fractionalized ownership is the method in which to accomplish an artist being able to participate in their upside. It is not about taking one thing and breaking it into 10,000 smaller parts; it is about creating the vehicle in which an artist can retain ownership of his or her work, participate in the upside and in the process allow more people to interact, own and live with their work.

We are lucky enough to work with an amazing investor Upside Partnership in which every portfolio company they invest in becomes a partner in their fund (in other words, when they bought equity in our company we were given equity in their fund). It is an amazingly powerful model which aligns incentives across the ecosystem.

For artists and the future success of their work, many have suggested that this should take the form of a resale royalty fee or a transaction charge. What does this mean? Well, the suggested models say something like this: if an artist sells their work to me today for $1,000 and I resell it in 5 years for $50,000, they should be paid 10% of my gain of $49,000 or $4,900). Again, I want to argue that this severely undercuts the agency of the artist and their right to be an owner in perpetuity of their work. At Lobus, we believe it should look something more like this: an artist could sell me 80% of the work valued at $1,000 and custody rights of the work for $800 and I resell it in 5 years for $50,000, they would receive 20% or $10,000). At Lobus, we have been having this conversation over the last three weeks across our most trusted partners and minds in the art and technology worlds. Mark our words, this is the future and NFTs are the art world’s cap table.

The benefits of being a being in partnership with an artist

Back to the idea of an artist receiving a payout if their work sells in the future. In this model, incentives are not aligned. Collectors are not incented to share information with the artist because of a ‘bill’ they will owe to the artist. In this model too, the collector of the work is viewed as the owner. In the royalty fee model, the artist is following up on payments and is put in a position as being punitive rather than being considered as an owner. This is odd. Why is an artist producing a work different than a founder of a company?

In our model where an artist retains ownership in their work as it goes out into the world, incentives are aligned. An artist will feel aligned to continuing to support the work and knowing that additional work they creates will help grow the ownership stake they have in past works. The new owner (be it an individual or an institution) will benefit by this artist’s support. It will likely be exhibited widely, talked about and included in the zeitgeist of that artist (ps — exhibited widely doesn’t mean it has to travel 3,000 miles in a crate to a museum; there is a whole world of Roblox cityscapes awaiting a billboard by Amy Sherald). The artist also has the ability to sell off 10% of that 20% and the individual or institution could also further fractionalize their ownership — with family and friends or co-institutions. If given the option, I would only want to buy works in partnership with the artist and look forward to the day I could potentially co-own a work with the Whitney.

I was forwarded an article this weekend written by Loup Ventures. In it, they suggested that “NFTs could offer a powerful mechanism for creators to monetize music, videos, and writing as a new type of DRM. They may even build in a future cash flow mechanism that allows owners to profit and would allow investors to value them more like securities. Royalties are already a robust industry for music. NFTs could democratize that across many other industries.” Our answer to this is yes.

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*Some key Resources we recommend

Note this list will stay updated with everything we are reading and thinking about at Lobus*

Listen

• Recorded Clubhouse talk with MetaKovan, buyer of Beeple’s 5,000 Days
• Kara Swisher and Beeple on Sway

Read

• Kara Swisher’s Another Big Step Toward Digitizing Our Lives
• NFTs Explained: What’s Driving Prices for LeBron James and Kings of Leon Digital Collectibles
• Loup Venture’s How to Value a NFT

NFTs, the Resources

• NFTs, explained a fun Q&A about NFTs v Monet
• The NFT Bible on OpenSea
• Scott Belsky’s The Furry Lisa, CryptoArt, & The New Economy Of Digital Creativity
• WIRED PLAIN TEXT on NFTs