Digital assets
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Welcome to the world of tokenisation
Tokenisation of investments offers a range of new opportunities, as assets can be divided and digitally mapped using blockchain technology.
Advantages of digital assets
Digitisation of assets – a quick explanation
Tokenisation allows us to combine all the advantages of blockchain technology, such as traceability and transparency, with the usual security standards of a regulated bank. Physical assets such as works of art can be divided into any number of tokens thanks to tokenisation. Each individual token then represents a specific share of an artwork and incorporates enforceable ownership claims, similar to a traditional security. Ownership can be adjusted easily and quickly by transferring the tokens.
The individual tokens can be posted to the portfolio like traditional securities. This creates a complete overview of the assets, which offers numerous advantages. On the one hand, the work of art is presented transparently in the periodic asset statement and can be included in the performance calculation. On the other hand, works of art can be incorporated into the periodic tax invoice.
Future transactions are based on complete and high-quality documentation. Therefore, even before tokenisation, we support our clients in reviewing their documents according to industry standards and provide an independent valuation source. The periodic valuation and the traceability of all changes in ownership ensure a complete history.
Case studies
In the following three case studies, you can see how physical assets can be digitally mapped.
Estate planning – the worry-free path to shared ownership
Current situation
As a father of three daughters and retired entrepreneur, John Doe* can look back on a long and successful life. After selling the family business, Mr Doe turned his attention to building up an impressive private art collection. Although he is enjoying his retirement, inheritance issues have recently been weighing on his mind more and more often. In particular, he is concerned about dividing the collection fairly among his three daughters.
The problem
The value of a work of art is unique in every respect. Therefore, a fair distribution of value in the context of inheritance is difficult. Often, expensive lawyers have to be hired to draft complicated contracts defining the shared ownership of a single object. Future changes to this structure, in turn, require costly contract amendments. In many cases, this complexity means that entire collections have to be sold at short notice at a steep discount. For this reason, Mr Doe is interested in a more efficient way to divide his collection fairly so that it can remain in the family.
The solution
After consulting with VP Bank, Mr Doe has decided to create digital ownership claims of his artworks and orders a denomination of 30 shares per artwork. He then arranges for the transfer of 10 shares each to the securities accounts of his daughters. Through this simple process, he can transfer his art collection to the ownership of his daughters in a legally binding and fair manner. In addition, the ownership structure can be traced at any time on bank records and can be changed easily and quickly via a transfer order. Mr Doe can stop worrying and enjoy his retirement.
* Actual example, fictional name.
Art investment funds – new opportunities through lower costs
Current situation
The company MM Advisory* provides comprehensive art-related advisory services to private collectors and investors. These services include collection development and management, art transactions, appraisals and logistics. Finding optimal structuring solutions for clients is another important driver of success for MM Advisory. Therefore, the option of setting up an art investment fund has been explored several times. Until now, however, MM Advisory has always had to refrain from this solution, as the high ongoing costs would not have balanced out on account of the increase in value of the works of art.
The problem
Unlike traditional securities, works of art cannot be directly posted to the fund’s portfolio by the custodian bank. Instead, securitisation is used to convert works of art into securities that can be held in custody. However, this process requires the use of a special-purpose vehicle, which has to be managed on an ongoing basis and therefore incurs substantial costs. This additional fee component contributes significantly to the lack of economic efficiency of conventional art funds. As a result, MM Advisory is actively looking for a more efficient alternative.
The solution
After a meeting with VP Bank, MM Advisory decides to create digital ownership claims to artworks by way of tokens. In contrast to a traditional securitisation, there are no ongoing management fees for digital assets. In this way, the works of art can be deposited cost-effectively in the fund’s portfolio, with VP Bank acting as the custodian bank for the fund. Through this simple solution, MM Advisory can now establish economically viable art investment funds and better meet client needs.
* Actual example, fictional name.
Multi-family office – a reporting solution for all assets
Current situation
MM Family Office* offers its clients various wealth management services. These services include, for example, wealth planning, accounting and tax services, as well as advisory services for the arts. Accurate and timely provision of asset reports is a critical success factor for MM Family Office. In this context, an increased allocation of client assets in art and other collection objects represents a growing challenge.
The problem
Like most multi-family offices, MM Family Office uses expensive software solutions and makeshift spreadsheets to keep track of clients’ non-bankable assets. The records must be aggregated painstakingly with the information from traditional bank documents in order to present a comprehensive overview of assets to clients, tax authorities and other recipients. To facilitate reporting, MM Family Office is therefore looking for a new solution.
The solution
After a meeting with VP Bank, MM Family Office decides to create digital ownership claims by way of tokens. This allows art objects to be posted to the portfolio, and for them to be shown in the asset statement as well as in e-banking alongside traditional securities. Through access to VP Bank’s network, MM Family Office also obtains a valuation of individual works of art by a competent third party. In this way, MM Family Office has a reporting solution for all assets. Expensive software licensing and manual efforts are now a thing of the past.
* Actual example, fictional name.