How tokenisation is revolutionising the art world

On 27 June 2024, a total of 20 PwC colleagues with a STEM background toured the Swiss Re building in Zurich, discussing various topics related to craftmanship, the interpretation and impact of artworks and much more.

The Swiss Re Group is one of the world's leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, working to make the world more resilient. It anticipates and manages risk – from natural catastrophes to climate change, and from ageing populations to cyber-crime. The aim of the Swiss Re Group is to enable society to thrive and progress, creating new opportunities and solutions for its clients. The Swiss Re Group is headquartered in Zurich, Switzerland, where it was founded in 1863, and operates through a network of around 80 offices around the world.

The company also boasts an impressive art collection, and both art and architecture significantly contribute to Swiss Re's brand and identity. It includes a diverse array of artworks, including paintings, sculptures, photographs and site-specific installations. The extensive collection features work from both Swiss and international contemporary artists, emphasising commissioned pieces that resonate with Swiss Re's architectural spaces and corporate culture. By integrating art into its global offices, Swiss Re fosters a stimulating and inspiring work environment, promoting dialogue and creativity among employees and visitors alike. This approach not only enhances the aesthetic appeal of their spaces but also underscores the company's dedication to supporting local arts and enriching the cultural landscape.

By exploring the fascinating world of artists and art pieces at one of the largest reinsurers in the world, as women in STEM we couldn't help but contemplate on the regulatory and security challenges and proven opportunities for revenue models and transparency of tokenisation in the past years.

While still in its early stages, tokenisation in general (and not just in the art market) has the potential to transform various aspects of the reinsurance industry, opening up new opportunities for risk transfer and capital efficiency. The potential benefits include increased transparency and efficiency in risk transfer processes. Tokenisation of Insurance-Linked Securities (ILSs) or catastrophe bonds, for example, could streamline the issuance, trading and settlement of these instruments. Reinsurers could leverage blockchain technology to tokenise reinsurance contracts, enabling more granular risk transfer, easier portfolio management and improved access to alternative investments. Additionally, tokenisation may facilitate the creation of innovative risk-sharing mechanisms, allowing reinsurers to better manage their exposure and optimise capital utilisation.

From an underwriting perspective, these assets present both potential for unexpected losses and opportunities for new types of insurance coverage.

As the crypto asset sector grows, the insurability of these assets with new types of coverage becomes increasingly relevant. Digital assets cannot be insured against physical risks. However, insurers might consider offering coverage for the private keys that provide access to NFTs. Insurers could offer protection against loss or damage in the event of these keys being stored offline, in so-called ‘cold wallets’. Similarly, online accounts on crypto exchanges are susceptible to hacking, and insurers could provide cyber coverage for both the exchanges and the individuals trading on them.

A newer development in this space is the tokenisation of physical assets also known as real world assets, ranging from collectibles to real estate. As the tokenisation of items like artworks or luxury goods becomes more common, there will be a growing need for storage and maintenance at dedicated facilities. These facilities will require insurance coverage, and may face accumulation risks if too many valuable assets are stored in one location.

The most significant barriers to the widespread adoption of tokenised art are low maturity, regulatory uncertainties and complexities in underwriting. Below are some of the challenges that need to be considered:

The future of tokenisation in art is not just a technological advancement, it is a profound transformation that promises to reshape the very fabric of the art market.

The promise of tokenisation is to democratise art and make ownership of it accessible to a global audience. No longer confined to the walls of exclusive galleries or the vaults of private collectors, art can now be owned and appreciated by many. Fractional ownership means that even the most iconic artworks can be divided into digital tokens, allowing art lovers from all walks of life to own a piece of history.

The transparency and security provided by blockchain technology are revolutionising the way art is bought and sold. Each transaction is recorded on an immutable ledger, ensuring that the provenance of every piece is clear and indisputable. This not only reduces the risk of fraud, but also builds a foundation of trust that is essential for a thriving art market. Collectors can buy with confidence, knowing that the authenticity and ownership history of their acquisitions are beyond reproach.

The future of tokenisation holds unprecedented opportunities for artists. No longer reliant solely on traditional galleries and auction houses, artists can now reach a global audience directly. They can tokenise their work, creating digital representations that can be sold and traded on innovative platforms. This opens up new revenue streams, allowing artists to benefit not just from the initial sale but also from secondary sales, thanks to smart contracts that ensure they receive royalties when their work changes hands.

Innovative platforms and marketplaces are emerging, providing artists and collectors with more options and flexibility. These platforms facilitate the buying, selling and trading of tokenised art, making the process seamless and accessible. As the market for tokenised art grows, regulatory frameworks will evolve to address issues related to ownership, taxation and intellectual property rights, ensuring a fair and transparent environment for all participants.

The future of tokenisation in art is full of potential, but has yet to reach a point of maturity for the mainstream public. It promises to reshape the art world, making it more inclusive, transparent and dynamic. The journey has begun, but there’s a long way to go with an extended business model for the vision to fully become reality.