Collectibles Tokenization & Optimal Security Design
69 Pages Posted: 30 Dec 2019 Last revised: 2 Mar 2020
Date Written: February 28, 2019
I develop a model of collectibles tokenization to understand whether recent tokenization efforts create or destroy value. While issuing divisible security tokens against illiquid collectibles lowers transaction costs and facilitates greater portfolio diversification, security design complications arise because ownership rights and viewing rights are necessarily separated. Current efforts squander the viewing rights, likely making tokenization welfare-reducing, thereby explaining limited adoption. Instead, renting the viewing rights would make tokenization welfare-improving. While collectibles rental markets are immature, I show empirically that only modest rental yields are needed to make tokenization welfare-improving, which suggests this security design shortcoming can be resolved.
Keywords: Collectibles, Tokenization, Blockchain, Illiquidity, Convenience Yields, Art
JEL Classification: G11, G12, G23, Z11
Suggested Citation: Suggested Citation