Company updates

Maecenas - Token Economics 2.0

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Written by
Marcelo García Casil

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12 November 2018

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Since our token sale in September 2017, our token economic model was focused on a pure utility token concept in which ARTs were used for placing bids during art Dutch auctions, as well as a payment mechanism that provided fee discounts to investors.

A complete redesign of Maecenas ART tokenomics

As part of our beta launch, in which we successfully tokenized a $5.6 million Andy Warhol painting, we gathered valuable insights about the dynamics of our ART token and we could see at work, for the first time, the token economics we had designed.

Even though the pilot project was a success and ART tokens worked exactly as intended, fulfilling the function as a utility token, several key issues emerged through this exercise.

 

    •  ART as a payment token is hampered by its high volatility. Investors typically want to use less volatile currencies as payment.

    • Maecenas’ use of a large liquidity pool to ensure instant and seamless conversion to and from ART has an undesired effect on crypto exchanges liquidity. This token reserve will be reallocated to be used with new utility functions made available through partnerships which will be announced in the coming months.

    • ART as a collateral representation of investor bids results in ARTs going in and out of the Dutch auction contract without driving any real economics. ART, in this role, behaves more like a messaging mechanism than a staking instrument. A stable coin would be needed instead.

 

As a start-up company, we believe in constant learning and adaptation and we continually seek to improve. The faster we learn from and respond to new information the sooner we will be able to adapt and adjust and reach optimal processes and practices.

As a crypto company, and as the first company in history to have successfully tokenized a multi-million dollar asset in this way, we are clearly wading into uncharted territory with every major advance. The reward for being a pioneer is that we can experiment and learn before others, and use the acquired expertise to forge a leading position.

After achieving this major tokenisation milestone a few months ago, and based on all that we have experienced so far, we have decided the best way to bring significant improvement to the token economic model is to implement a design overhaul.

 

Token Economics 2.0 

I am excited today to share with you the initial draft of what we plan to roll out in the upcoming months. This is your chance to give us your valuable feedback and influence the final implementation of our new tokenomics.

To start off with, I would like to outline the changes we want to implement to the mechanics of the Dutch auction.

    • ART will no longer be used to collateralize investor bids, therefore eliminating the need for Maecenas to operate a liquidity pool. Instead, ART tokens will be used to determine auction winners (more on this later).

    • ART will no longer be used as a payment token. A stable coin will be used instead. We will announce an exciting partnership in a few weeks.

    • Our Dutch auction process will change. The previous algorithm determined that bids were sorted by share price (highest to lowest). This is a tried-and-tested model borrowed from the IPO markets. However, we learned that the art market could benefit from having a bespoke and improved Dutch auction process. In the new Dutch auction process, the auction will always be done at a known reserve price for maximum transparency. Instead of competing by bidding higher share prices, the winning investors will be determined by the number of ART tokens they put at stake. Each bid will still be expressed in US dollars and collateralized in either Bitcoin (BTC), Ethereum (ETH), stable coin, or fiat currency (US dollars).  However, in the new process, we will ask bidders to additionally stake ART tokens. Furthermore, upon bidding, all the collateral will be converted to an equivalent amount of a stable coin to reduce the volatility of the bids. As a result, with all bids being equal in price, the winners of the auction will be those having offered the highest stake. In other words, the more ART tokens you pledge alongside your bid the higher your chances of winning.

    • While auction bids will continue to be private, ART stakes will be public (albeit anonymous), allowing investors to see in real time whether they stand a chance to win. This gives them the ability to increase their stake by sending more ART tokens into the auction smart contract. Each auction may have a different minimum stake (e.g. 1,000 ART) depending on a number of factors such as the minimum ticket size, the reserve price and so on.

Once the auction concludes, the ART tokens at stake will be allocated as follows:  
      • A small percentage will go to the artwork seller, with a short lock-up period (~3 months). This payout will be called the “ART stake commission”. The final price for the artwork will be calculated as “reserve price + ART stake commission value”.  The logic behind this is not to anchor artwork sellers to the reserve price and provide them additional upside from a competitive bid in the form of ARTs. In addition, a short lock-up period is imposed to prevent the artwork sellers from immediately selling the resulting ARTs into the open market, therefore creating a more healthy and balanced token economic cycle.
      • A smaller percentage will go to Maecenas as income, with a short lock-up period (3-6 months). This may be zero at the beginning to encourage adoption. 
      • The remaining ART will go into a token sink and be locked up for a long period (12-24 months depending on staking volume) and then be returned to the successful investors in the original auction.

 

A practical example

To better explain this new approach, please find below an example:

A registered and fully KYC’ed Maecenas user decides to invest USD 10,000 (or BTC/ETH equivalent amount) in an upcoming bid


  • User deposits USD 10,000 in the Maecenas’ custody bank account (or BTC/ETH custody wallets). Resulting amounts are credited to the user’s profile to be used as collateral during the bidding process.
  • The user will also deposit ARTs in Maecenas’ custody wallets and as a result, the user will see specific amounts in his/her dashboard.
  • When a bid is submitted, Maecenas will convert the collateral amount into a stable coin (e.g. USD Coin – USDC). In addition, the user will stake ART tokens to increase the value of his/her bid.  Both amounts (stable coin, and ARTs) will be locked until closing of the auction.
  • Bids will be ranked by 1) ARTs at stake; 2) time of bid (earlier bids are given priority)
  • Upon closing, two events may occur:
    • Unsuccessful bids – investors will have their funds (including staked ARTs) returned; and,
    • Successful bids – investors will be allocated a specific number of shares in the corresponding artwork. All corresponding staked ARTs are locked up accordingly.

 

Let's look at some hypothetical figures based on a realistic scenario.

Average investment size: $10,000

Target Average artwork price: $5,000,000

Estimated funds raised: $2,000,000 (40% ownership)

Number of investors required: 200

Minimum ART stake: 5,000

Average ART stake: 10,000 ($1,500 at current prices of $0.15)

Average Lock-up period: 20 months (considering the different lock-up periods)

Totals ARTs locked up per artwork auction: 10,000 ART * 200 = 2,000,000 ART.

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With Maecenas no longer running its own token reserve pool for conversion, Maecenas users will have to acquire their tokens at crypto exchanges, which should result in increased liquidity and a more natural market dynamic.

For those investors who are not crypto-savvy, and who do not want to learn how to use a crypto exchange, Maecenas will provide a seamless integration with an external liquidity providers (think atomic swaps or crypto exchanges) so that those fiat investors can express their stake in dollar terms and, behind the scenes, tokens will be acquired instantly, at market rates. This will also drive more liquidity into the markets.

We are confident this new model will eliminate the inefficiencies we observed in the Warhol auction and create better utility of the token overall. That should inject greater dynamism into our marketplace and help propel us further toward our goal of democratising access to fine art investment.

We value your feedback

If you have any feedback and suggestions you would like us to consider for the new Tokenomics 2.0, please fill in this form (click here).

Further Reading

If you have some questions regarding our Tokenomics 2.0, check out the latest AMA session (Ask Me Anything) we had in our official telegram group on November 21st 2018.  

Topics: Company updates

Marcelo García Casil

Written by Marcelo García Casil

Founder and CEO of Maecenas. Having previously worked at a number of large global banks, Marcelo has wide-ranging experience in designing and building large-scale enterprise-grade systems with a focus on investment banking and financial solutions. An an entrepreneur, Marcelo has specialised in blockchain and financial technology, primarily in areas covering tokenisation of assets and new capital markets. His strong technical architecture and leadership skills have earned him the recognition and endorsement from amongst his clients, teammates and peers. Marcelo frequently speaks and presents at industry events, conducts specialised workshops and training sessions, and provides expert advice to companies.

Please read the following disclaimer >

This blog post is illustrative and for informative and general education and discussion purposes only. It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action, including without limitation as those terms are used in any applicable law or regulation. This information is provided with the understanding that with respect to the material provided herein (i) MAECENAS is not acting in a fiduciary or advisory capacity under any contract with you, or any applicable law or regulation, (ii) that you will make your own independent decision with respect to any course of action in connection herewith, as to whether such course of action is appropriate or proper based on your own judgment and your specific circumstances and objectives, (iii) that you are capable of understanding and assessing the merits of a course of action and evaluating investment risks independently.. MAECENAS does not purport to and does not, in any fashion, provide tax, accounting, actuarial, recordkeeping, legal, broker/dealer or any related services. You should consult your advisors with respect to these areas and any material with regards to investment decisions. You may not rely on the material contained herein. MAECENAS shall not have any liability for any damages of any kind whatsoever relating to this material. No part of this document may be reproduced in any manner, in whole or in part, without the written permission of MAECENAS except for your internal and/or personal use. This material is being provided to you at no cost and any fees paid by you to MAECENAS are solely general educational purposes. All of the foregoing statements apply regardless of (i) whether you now currently or may in the future become a user of MAECENAS’s platform or products and (ii) the terms contained in any applicable contract between you and MAECENAS.

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