Tokenization and Regulatory Compliance for Art and Collectibles Markets: From Regulators’ Demands for Transparency to Investors’ Demands for Privacy

Abstract

AbstractArt and collectibles markets tend to involve lower liquidity and higher fees than public equity markets. Distributed ledger technology can tokenize artworks and collectibles, so that claims to these assets can be exchanged digitally without intermediaries. Tokenization offers investors access to a global market plus a digitized paper trail, as well as new options for the fractional ownership of artworks, art-collateralized loans, and yield-bearing art assets. The main challenge for tokenization researchers and platform developers is to simultaneously satisfy regulators’ demands for transparency and auditability as well as art investors’ demands for privacy. New technological solutions are required that enable market participants to disclose the absolute minimum amount of information that is demanded by regulators. We investigate how distributed ledger technology, cryptography, and digital identity management can help address this challenge.