Maecenas Whitepaper

Monday, June 18, 2018
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“A new online marketplace promises to give art lovers the chance to buy shares in famous paintings.” - The Telegraph VISION Investing in a Monet has always been trading certificates representing a foundation for Maecenas, the world’s beyond the reach of most people; part of a masterpiece will be available first blockchain-based fine art purchasing a Rembrandt the privilege to everyone that is part of the marketplace. This has been possible of only a few… until now. The opaque Maecenas community. We will because we have assembled an world of auction houses and banks, convert million-dollar artworks into exceptional team of experts and have which allows them to charge smaller digitised financial units that built crucial relationships with exorbitant fees, has cut off fine art can be bought and sold easily — galleries, collectors and investment from efficient modern literally at a fraction of the cost. authenticators. Now, with your markets. support, we will be able to launch the For the first time, technology will platform, nurture this new But it does not have to be that way. allow investors, collectors and owners investment network and turn a to exchange shares in paintings and centuries-old industry mainstream. With help from visionaries like you, sculptures instantly, akin to the way we can democratise access to fine art stocks of a company are traded today. Thanks to its resilience in downturns by creating a truly open platform Plus, top emerging artists will have a and to its capital appreciation, fine art where investors can own a piece of a showcase for their work, free from has long been an attractive multi- Picasso. We are building a global art the interference of middlemen. billion asset class. blockchain market where assets are traded quickly and fairly on a liquid For years, we have been building a Now it will be open to all. exchange. Creating portfolios and secure and robust technology 1

THE ART MARKET OPPORTUNITY There is an estimated $3 trillion worth addition, many investors favour using of fine art in safe storage, of which But the $65 billion annual fine art financial vehicles over direct circa $65 billion are traded annually industry is in desperate need of open ownerships because they want through auction houses and art and fair marketplaces that create exposure to art but don’t want the dealers.i transparency and liquidity. The responsibility of having to care for the antiquated industry is struggling to physical art piece. Fine art is considered a reliable and see trading volumes reach their real safe store of value. Wealthy families potential. The problem is that access Fine art remains one of the rare few have kept art in their portfolios for to information is patchy, and art markets that have remained virtually centuries, and trading volumes have pieces are traded at outdated venues. unchanged for the last three centuries. continued to grow steadily over the Sales are processed manually and It has been impervious to the last few decades. Interest in fine art settlement can take weeks. This technology advances that have been among investors and wealth opaque and inefficient process adopted by the majority of capital managers is on the rise, and younger discourages many potential investors, markets like company stocks, bonds, generations of buyers are eager to which means art trades are infrequent commodities and even real estate. embrace art-tech. and art as an asset is illiquid. In 2

REMOVING INTERMEDIARIES But now blockchain can provide the marketplace that provides a proper Fine art should become a first-class foundation for a secure and efficient price discovery mechanism. In other citizen in capital markets and have market that enables buyers and words, it’s nearly impossible to know rich market data feeds, order books, sellers to transact directly without the fair price of an artwork because indices and even derivatives. intermediaries. An open, agile there are no reliable means for The reason auction houses have platform can energise art markets investors to assess market sentiment. dominated and controlled the fine art and bring millions of investors off the In other asset classes, like public market for so long can be explained in side-lines. company stocks or even a single word: TRUST. cryptocurrencies, any investor can tap We are named after — and inspired by into historical and real-time exchange Lack of information and reliable ways — an early patron of the arts. Gaius price feeds to build pricing models. of assessing the authenticity of art Maecenas helped democratise art in pieces means that investors deal Ancient Rome by financing poor The fine art industry doesn’t have any mostly only with centuries-old poets. We want to be the modern of that. There are no order books or institutions that are perceived as version of Maecenas (pronounced exchanges, and historical information trustworthy. These institutions act as “My-seen-us”) ensuring that fine art is is both scarce and sparse since art intermediaries in almost every art available to everyone and not just the pieces are traded so infrequently. transaction and therefore control the ultra-wealthy. market. The lack of innovation within art Masterpieces will be traded briskly Blockchains replace traditional finance stems from the dominance of through an open exchange, giving intermediaries with decentralised old auction houses. The largest — frequent updates of what the networks of trust. Sotheby’s and Christie’s — artworks are really worth. Portfolio monopolise 80% of the secondary managers will be able to price their By connecting artists, collectors and market volume. They present an positions more accurately and investors directly via an open identical fee structure, which can see diversify their risk by investing in a blockchain platform with smart art buyers paying up to 25 percent range of different art assets. They will contracts, we eliminate the need for commission — and sellers are charged no longer need to have their funds brokers and art dealers to facilitate a even more.ii concentrated in a handful of hard-to- transaction. We replace the need for sell pieces. trust based on reputation with trust in Auction houses also control access to the decentralised blockchain. information as there is no single art 3

THE EMERGENCE OF ART-TECH “Technology-driven businesses have a million in 2013 to an estimated businesses will play an important role clear potential to support the US$505 million in 2015 based on 23 in the art market in the next two to emergence of Art & Finance, through art market start-ups.” three years, which signals that art increased liquidity, lower transaction stakeholders are increasingly waking costs and more transparency” Other findings by the Deloitte Art up to the potential of technology and Finance Report 2016 show that the art the online art market. New innovations, - Deloitte Art & Finance Report 2016 market is increasingly more receptive such as the use of blockchain to the usage of technology and it technologies mentioned above, are an In recent years, technology anticipates it playing an important example of how technology and innovation has started to permeate role in the next two to three years. It innovation could contribute into the traditional fine art industry. also cites blockchain technologies as significantly to the development of the According to the Deloitte Art Finance an example of an innovation that art and finance industry.” Report 2016, “increasing investment could contribute significantly to the in art market start-ups demonstrates development of the art and finance - Deloitte Art & Finance Report 2016 continued confidence in the growth industry. of the online art and technology industry”. In addition, “the level of “73 percent of art professionals (up investment in art industry start-ups from 53 percent) and 69 percent of increased from an estimated US$125 collectors believe that online art 4

COMPETITION Art investors have limited options artwork, store it, manage it and look buy the collection, and sits on it for when it comes to investing in fine art after it. This is something that most between 5 and 10 years until they can in a secure and trusted way. investors are uncomfortable with find suitable buyers willing to pay a Auction houses are perceived as because they are not qualified art premium for the pieces. After the last being the safest channel, and that is experts. An estimated 90% of buyers art piece is sold, the fund is dissolved reflected in the high fees which range see art as an investment, and nearly and investors finally get their money between 12 percent and 25 percent. half of them would prefer to have back, plus any returns. The art fund These auctions are mostly conducted exposure to fine art through a manager typically charges investors 2% in the traditional way, and little has financial vehicle instead of a physical per annum of any cash invested plus changed besides the usage of TV purchase. So the traditional 20% of any profits made. This means monitors to track bids in addition to approaches offered by galleries and that on a ten-year horizon, investors calling the bids out loud. auction houses leave a huge part of will lose out on about a fifth of their the market under-served. investment in commissions, and on Art galleries and other art dealers top of that lose another fifth of any charge lower fees to buyers, in the One alternative to these two profits made. In other words, there is range of 6 percent to 10 percent. traditional approaches is to no guarantee of making money even However, these are perceived as less participate in an art fund. The way if the art appreciates, and it’s not trustworthy, and their art selection is this works is that a qualified art expert uncommon to make a loss if the fund quite limited. In addition, galleries acts as the art fund manager. They fails to perform as expected. dictate prices instead of market identify a collection of art pieces that participants. are of good value and have potential The high fees combined with the to appreciate. Investment from large minimum investment and the Besides the lack of liquidity, lack of investors is solicited, with a minimum lack of liquidity (minimum lock-in transparency and the high fees, both of $500,000 typically being required, period of 5 years) makes these art of these approaches also require and larger ticket sizes being the norm. funds unsuitable for most investors. having to physically acquire the The art expert then uses the funds to Borro Fine Art Sotheby’s Art Fine Art Investment Christie’s Galleries Finance Funds FEES 12 – 30 % 13 – 40 % 6 – 10 % 2 + 20 % 2–6% CHARGED FINE ART SYNDICATION COLLATERALIZED ART LENDING PORTFOLIO GENERATION SPECULATIVE INVESTING DEALING 5

ART AND THE BLOCKCHAIN There are non-financial blockchain But fintech start-ups are beginning to and most importantly the fact that initiatives in the fine art space which emerge with innovative alternatives trust is centralised. don’t have an investment focus. to invest in art. Arthena, based in the Instead, they attempt to solve issues US, is one such example, which uses a Maecenas, on the other hand, aims at around provenance of traditional art typical crowd-funding approach to leveraging blockchain technology to pieces and protection of digital create art funds. This new model is fully democratise access to fine art artworks. A prominent example is proving to be popular with investors investment. By tokenising art, the Verisart which provides permanent as it reduces the ticket size to $10,000 platform converts million-dollar digital art provenance for actual and waives the 2% management fee artworks into smaller financial units artworks that would typically be (although it still charges the 20% that can be bought and sold easily stored in galleries. Another start-up is performance price). Although this is globally through a transparent Ascribe, which focuses on providing a definitely an improvement over marketplace. This provides investors secure way to trace digital artworks traditional art funds, this approach with liquidity and a much-needed and control how they’re shared. still fails to address the fundamental market-driven price discovery issues of art investment, namely the mechanism. lack of transparency, lack of liquidity, 6

OUR PLATFORM Once listed on the platform, artworks a multi-currency conversion scenario. go through a bidding process Utilising a Maecenas uses blockchain following a Dutch auction process native currency-independent token technology to create tamper-proof whereby investors submit private bids as proxy for all currency conversion digital certificates linked to pieces of stating how many certificates allows us to eliminate currency art. These certificates are highly representing a fraction of the artwork conversion risks. secure thanks to the cryptographic they want to purchase and at what properties of blockchains. A single price. This is essentially a confidential This token will be called ART. artwork is broken down into and cryptographically secure book- thousands of certificates, similar to building exercise. This process not how a public company issues shares. only gives investors bargaining power OUR TECHNOLOGY Investors can then purchase these but it also provides them with a much certificates to own a percentage of a fairer and transparent pricing The platform’s design provides fault given artwork, and they can sell them mechanism. In addition, it is harder to tolerance and simple recovery back to other investors at any time via manipulate compared to traditional mechanisms. The system is also the Maecenas marketplace. auctions or fixed-price listings. highly scalable, resilient and easy to upgrade. It has a high degree of When Maecenas platform is fully The auction process does not happen reusability and allows us to be agile in operative, new artworks will be instantly but rather it takes place over our development. continuously listed on the platform a number of days or weeks to allow all after passing a strict due diligence members of the Maecenas’ For instance, when we need to process. This involves verifying the art community to participate. When integrate Maecenas with an external provenance, insurance policy, safe Maecenas platform is fully operative service (e.g. a payment processor) we storage, independent valuation, artworks will be listed in any fiat just create a new micro-service to artwork condition and verification on currency (e.g. USD, EUR) or handle that and link it to the rest of the registry of loss and stolen art. cryptocurrency (e.g. BTC, ETH). the services via message queues. This Only high-quality artworks with a Conversely, investors may also prefer has the benefit of letting our pristine track record will be listed. to invest in either fiat currencies or in developers simultaneously work on cryptocurrencies, effectively creating different tasks and makes integration and testing relatively simple. 7

THE ART TOKEN ART – The currency of the Maecenas itself from any potential internal currency - should also grow with it. economy. manipulation or insider trading. That is our reasoning. Of course, These smart contracts that we’re nobody can know or guarantee if the When Maecenas platform is fully creating, including the Dutch auction value will or won’t go up. operative, the ARTwill be the digital contract, will require ART to operate. token that is required by all Maecenas ART is like the fuel of the Still, the economy of Maecenas is not functions that are exposed on the decentralised Maecenas machine. limited to just running auctions. For blockchain via smart contracts. Any fiat or crypto amounts being example, artworks in our platform can invested through smart contracts will be leased to museums for exhibitions. We believe that the art market is in be first given a value in ART first. The income generated by this activity desperate need of transparency and Having our own token allows us to is then distributed proportionally to fairness. Therefore, we’ve decided collect income from these smart holders of fractions of paintings or that all sensitive business logic contract activities. The utility of these sculptures. This leasing and income dealing with money or assets will be tokens is that ART can perform collection function is also performed run on a public and decentralised different platform functions. by smart contracts and therefore blockchain. This ensures that our In the case of our Dutch auction, ART requires ART tokens to work. processes can be publicly audited and acts as a clearing and settlement known upfront. mechanism that Maecenas uses to Besides, as the Maecenas ecosystem issue digital shares of paintings. The grows, we anticipate creating The main and most significant more paintings are auctioned the additional income-generating function of our platform is the Dutch higher the demand for ART will be. processes. Many of these will require auction. This is the process that smart contracts to operate (for the receives bids from investors and ART has a fixed supply, so we reasons stated above), therefore issues digital shares of paintings. anticipate that the increasing further increasing the demand for Running such a critical part of our economic activity of Maecenas will ART. system on an open and transparent play a strong role in the market platform like Ethereum allows the dynamics of ART in crypto exchanges. ART plays a crucial role within entire community to scrutinise our The rationale here is that as the Maecenas. It enables our platform to operations. It also protects Maecenas Maecenas economy grows, the operate transparently and openly in a market cap of ART - the Maecenas decentralised space while at the same 8

time deriving revenue from those activities. THE DUTCH 1. An art owner decides to sell an artwork on the Maecenas platform, and chooses in which currency to receive the proceeds. This could be ART tokens, cryptocurrencies or fiat currencies. 2. Investors participate in the auction by submitting ART tokens to the auction smart contract. For those investors wanting to participate with fiat currencies or other cryptocurrencies, deposits are kept in a per-investor fully- segregated virtual bank account.. 3. The Maecenas platform, upon reception of monies, allocates an equivalent amount of ART tokens to the investor and pledges the tokens on the smart contract on behalf of the investor. Maecenas uses its ART reserve funds to guarantee liquidity, and converts the submitted funds into ART seamlessly to ensure a good user experience. 4. When the Dutch auction process finishes, the smart contract proceeds to analyse all bids to determine the final share price and the amount of shares each successful investor ends up purchasing. 5. The smart contract settles the transaction by issuing artwork crypto-certificated to investors. The artwork seller receives either the ART tokens or the equivalent amount in currency depending on what they chose before the auction started. AUCTION PROCESS 9

WORLD-CLASS FINE ART We have worked very hard to build a strong shortlist of flagship artworks that qualify to be listed on our platform. We now have access to a diverse pipeline of art pieces by blue-chip artists that collectively is worth in excess of one-hundred million dollars. This initial lot is an excellent starting point that will allow us to have good volume and traction when we launch. These are some of the names that could make it into the initial collection. • Impressionist and Modern: Picasso, Monet, Braque, Pissarro, Giacometti, Brancusi, Modigliani, Renoir, Chagall, Munch, Sisley. • Post-War and Classical Contemporary: Warhol, Basquiat, Lichtenstein, Soulages, Beuys, Duchamp, Bacon, Sam Francis, Dubuffet, Bourgeois. LEGAL & COMPLIANCE One of the challenges that we face when we started defining the business model of Maecenas was to figure out how to structure the art investments in a way that would not infringe financial regulations, while at the same time provide security and protection for investors. For that purpose, we are engaging withnumerous art finance experts, law firms and investment professionals worldwide to seek advice and to determine the best legal and financial structure to enable secure co-investment in fine art, underpinned by blockchain technology. 10

Since this has never been done before, the process required extensive research and validation carried out over a period of nearly a year. We've covered all top financial jurisdictions and explored a number of different financial structures, weighing all pros and cons for each approach. The result of this effort is a very comprehensive global view of how our blockchain-based art shares would fit on each of the top financial jurisdictions worldwide, which has allowed us to strike the right balance between flexibility and simplicity. The diagram below shows a high-level structure for the adopted model of ownership. KEEPING ART SAFE BUT NOT HIDDEN Every artwork listed on the platform will be kept in purpose-built safe art storage facilities. These high-security vaults actually also operate as galleries whereby dedicated rooms are allocated for viewing purposes. Maecenas, in its effort to democratise access to fine art, will allow investors and their nominated guests to arrange visits to appreciate the artworks. These art storage facilities typically sit within international designated areas next to airports so that the valuables kept in storage do not attract local tax when they're transacted, making it attractive for investors. Known as freeports, these facilities are available in most tier-1 art trading hubs and we have already established relationships with many of them. One such facility is Le Freeport in Singapore where Christie's operates their Fine Art Storage Services (CFASS). Equivalent facilities exist worldwide, namely: • Geneva http://geneva-freeports.ch/en • Luxembourg http://www.lefreeport.lu • Singapore http://www.singaporefreeport. com • Shanghai Le Freeport West Bund (scheduled to open late 2017) • New York http://www.arcisartstorage.com 11

TARGET SEGMENTS AND TRENDS Maecenas' target market is sizeable in its own right. In addition, we capitalise on a number of recent investment trends which are set to continue: The Shared Economy: Maecenas allows investors to syndicate and jointly own a piece of art. This model has been validated at large by the continual increase in popularity of the many property and equity crowdfunding platforms available. Cryptocurrencies: Investment in cryptocurrencies and crypto-assets has grown exponentially over the last few years. The value of many of these digital assets has increased 50x in less than a year. Trading volumes at crypto-exchanges are at all-time highs and show no sign of slowing down. The value proposition of cryptographic tokens is simple: democratise access to wealth. Blockchains allow investors to be in full control of their digital assets without having to rely on intermediaries or be exposed to central counterparties. Maecenas capitalises on this trend by opening up trillions of dollars’ worth of fine art to the crypto investor community. Investment in Art Finance Innovation: The investment in art-related start-ups quadrupled in the last two years reaching over $500m a year. Art as Collateral: Art finance is expected to grow significantly. The US art-secured lending market has grown an estimated 15 to 20 percent annually for the last five years. Self-Investment: 50 REVENUE FORECAST (IN MILLIONS) $43.72 45 40 35 30 USD (Million) $24.67 25 20 15 10 $4.67 5 $0.52 0 Year 1 Year 2 Year 3 Year 4 12

Over the coming years, more and more money will be handed to younger generations, who are actively looking to participate in the decision making of their investments. The behaviour of this digitally native generation favours digital- first platforms and the ability to self-invest. Millennials are going to be the largest adult segment by 2020. Alternative Investments: The younger generation of investors favour tangible assets over traditional capital market products, such as government bonds and stocks. These products are currently offering negative or very low interest rates, making alternative assets even more attractive. BUSINESS MODEL Our business model is based primarily on two revenue streams: issuance and secondary market. • Issuance: Artworks listed on Maecenas attract a one-time issuance fee of 6% which is charged to asset owners. Investors participating in auctions pay a 2% one-off fee. These fees are charged on settled transactions only. • Fine Art Marketplace: Shares or certificates representing rights on artworks will be available on Maecenas Fine Art Exchange. It will always be free to sell your auction-acquired shares or certificated, while buyers will pay a commission. 13

OUR TEAM Marcelo García Casil Miguel Neumann Jérôme Croisier Co-Founder & CEO Founding Partner Chief Arts Officer Singapore London Geneva Financial technology expert who has Business manager with over An independent Art Advisor and Art wide-ranging experience in designing 15 years of experience managing Historian, based in Switzerland. He and building large-scale enterprise- teams, involved in digital projects has 20 years' art market experience grade applications with a focus on including large-scale transactional and his art history research has been investment banking and financial platforms for first-class investment published in a variety of books and systems. banks. publications. Federico Cardoso Javier Tamashiro Federico Videla Saul Hudson Marc Garriga Co-Founder & CTO Compliance Information Security Communications Marketing & PR 14

ADVISORS Gimena Rabinad Guillaume Dubray Markus Gnirck Tom Ludescher Scott Huan Legal Counsel Partner, Partner, CEO of Swiss Partner, Polytech Ventures Tryb Capital Insurance Company Aumakua Venture Fund Fouad Bajjali Daniel Liebau Luis Pastor Alessandro Maiano Philippe Beckers CEO of Global Partner, Partner, Partner, Founder, Financial Company Lightbulb Capital Grant Thornton Wilbe Ventures Finarchitects 15

ROADMAP 2018 Q1 2018 Q2 - Q4 Private Beta Launch 2019 Q1 - Q2 First Art Public Launch CryptoAsset First Maecenas 2019 Q3 - Q4 Created Art Vault Secured Art Exchange Launched 2020 Q1 Second Maecenas Third Maecenas Art Vault Secured Art Vault Secured Art Leasing for Fine Art ETF Art CryptoAsset launched Derivatives Museums via Smart Contracts Art Crypto- Indices REFERENCES ihttps://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/artandfinance/lu-art-asset-class-122012.pdf http://www.christies.com/features/guides/buying-guide/related-information/buyers-premium ii http://www.sothebys.com/en/news-video/blogs/all-blogs/sotheby-s-at-large/2016/10/important-update-regarding-sothebys-buyers- premium.html DOCUMENT HISTORY - Version 1.0 – 10th August 2017 - Version 1.1 – 14th August 2017 - Version 1.2 – 21th August 2017 - Version 2 – 21 March 2018 16