In the dynamic intersection of art and finance, Mads Boie Thomsen’s journey from the art world to the realm of asset financing has been marked by innovation and foresight. His transition, spanning over 15 years, led to the inception of Arkefi, a groundbreaking venture dedicated to addressing liquidity gaps in the art market through asset tokenization.
Collaborating closely with Nexera, Arkefi’s disruptive approach extends beyond traditional tokenization, introducing option financing to democratize access to exclusive asset classes. In this article, we delve into Arkefi’s transformative model, exploring its impact on investment opportunities and the future of asset financing.
Getting to know Arkefi
Mads Boie Thomsen
Mads reflected on his journey, transitioning from the art space to the finance sector over the past 15 years. Throughout that time, he engaged extensively with high-net-worth individuals, primarily in the financing space, navigating the challenges of art’s non-bankable nature. In response, he sought to innovate within the art financing domain, leading to the founding of ARTBANX, a venture focused on global collection management for top collectors.
His experience with ARTBANX unveiled a significant demand among collectors for financing solutions due to the limitations of traditional banking systems. This realization spurred him to establish Arkefi, a company dedicated to tokenizing assets to address liquidity gaps in the art market. Along this transformative journey, Mads crossed paths with Nexera, an infrastructure partner and advisor pivotal to the project’s progression. Their expertise and collaboration were instrumental in shaping the trajectory of his initiative.
Tokenizing Real-World Assets: Arkefi’s disruptive financing model
By tokenizing high-value assets, like cars or art, investment fragmentation became possible, allowing a broader range of investors to participate. He cited examples like the Knight Frank index, highlighting art, fine wine, and cars as top investment classes, traditionally limited to high-net-worth individuals. However, Mads emphasized that Arkefi’s approach went beyond mere tokenization, introducing option financing to create utility for collectors.
Option financing, as Mads described it, enabled investors to purchase entire assets at 50% of their fair market value, with the option for collectors to repurchase at a slightly higher price in the future. This setup, resembling a loan but with ownership transfer, offered significant upside potential for regular individuals to access previously exclusive asset classes. Mads underscored the democratizing effect of technology, enabling wider participation in investment opportunities previously out of reach.
“We have a disruptive model that replaces lending completely with this option financing.”
Mads outlined the mechanism laid out in the smart contract with Nexera, where if a Ferrari valued at $1 million is listed on the platform, the community can purchase it for $500,000 within a one-year cap. If the option isn’t exercised, ownership transfers to investors. This decentralized peer-to-peer solution, facilitated by Arkefi, acts as a possession holder, ensuring scalability and regulatory compliance.
Smart Contracts, Custodianship and Asset Safety
Arkefi’s smart contracts, developed in collaboration with Nexera, facilitate decentralized peer-to-peer transactions. The mechanism allows community members to purchase assets at predetermined prices, ensuring scalability and regulatory compliance. This disruptive model replaces lending with ownership transfer, simplifying the acquisition process.
In terms of an asset’s custody, it was explained that art pieces and cars are stored in free ports globally, acting as bonded warehouses; they serve as intermediaries ensuring asset safety. Free ports offer high-level security, notably akin to a jail but more fortified with the “highest level of security.”
Notably, access requires strict protocols, including passport checks and scanners, and different lighting cues to guide entry to specific areas. Subsequently, due to their robust security measures, insuring assets in free ports is inexpensive — break-ins are virtually unheard of, making them highly secure locations.
Thomsen also pointed out the importance of transparency and simplicity in the financing process. Requests for financing underwent thorough verification of both client and asset. Upon agreement, they involved a third party. Simultaneously, the asset was sent to a free port, with costs covered by the seller. This approach aimed to avoid imposing additional costs on potential buyers. Furthermore, many collectors are already familiar with bonded warehouses, but for regular individuals, concepts like free ports might be unfamiliar. Therefore, the company often handled such matters directly, ensuring clarity and ease for all parties involved.
Education and User Experience in Web3 Platforms
Early on, Arkefi realized the challenge of explaining the value behind real-world tokenized assets to users. Initially, they provided detailed information in PDFs about the assets’ background and performance. Recently, they’ve been developing a database driven by AI to empower users to research assets themselves, like the value of a Ferrari F40.
Notably, they believe this self-education approach is crucial, as inundating users with information can be overwhelming, especially for newcomers. They’re also planning to introduce gamification soon, allowing users to predict prices of real assets in auctions to familiarize themselves with the market. Once users feel comfortable, they can proceed to invest in assets through their platform.
Asset Performance and Hedge Against Inflation
Thomsen acknowledged the challenge of comparing asset classes like cars, whiskey, and art against traditional indices. Educating the audience is key to showcasing the potential of non-bankable assets. Data plays a crucial role, but it must be genuine, not manipulated, and furthermore, access to filtered data empowers users to make informed decisions.
Historical data reveals the outperformance of assets like the Ferrari F40 over the past 20 years, and these assets serve as a hedge against inflation due to their ownership by ultra-high-net-worth individuals. Unlike the watch market, which saw fluctuations tied to the crypto market, assets like cars are mainly owned by high-net-worth individuals, ensuring a more stable value appreciation.
“If you look at the historical data for a Ferrari F40 over the past 20 years, you will be able to see that this asset does indeed outperform all the other asset classes available when it comes to inflation.“
Notably, there is a correlation between rising interest rates and art market transactions. Last year’s $65 billion art market saw $32 billion in lending. With a total market size of over $1.7 trillion, increasing interest rates could impact art and car transactions heavily influenced by debt. Major auction houses like Christie’s and Sotheby’s faced challenges, with the latter reducing commission rates to stimulate sales amid rising interest rates. This indicates a clear correlation between interest rates and acquisitions in both art and car markets.
Assessing value
Arkefi has a unique approach to assessing asset values, particularly focusing on risk aspects and devaluation. They utilize a database and AI to gauge the likelihood of asset resale at various percentages of the fair market value, providing insight into potential returns for investors. Notably, they are committed to transparency by involving third-party specialists in due diligence and valuation to avoid conflicts of interest.
Unlike traditional tokenization platforms, which often sell assets at a premium, Arkefi offers assets at 50% of the fair market value, addressing liquidity needs for collectors. While facing challenges with on-chain liquidity, Mads expressed anticipation for future developments as they navigate this space.
The RKFI token
RKFI, the Arkefi token, was described as essentially a utility token with several valuable features. Staking the token offers significant potential value, providing a sustainable option within the ecosystem. Moreover, RKFI facilitates access to data, allowing users to make informed decisions across various collectibles, not just limited to art and cars. Mads emphasized their goal to include all collectibles within this data segment, enabling users to assess the likelihood of an asset’s appreciation and resale value. He hinted at additional features in development but refrained from disclosing further details during the podcast.
Nexera’s Contribution and Compliance Framework
Coming from the art and finance space, Mads highlighted the immense benefits of having Nexera as an infrastructure partner, providing invaluable expertise. By combining their domain knowledge in art, cars, and collectibles with Nexera’s expertise in Web3, they create a solid product that functions seamlessly on and off the blockchain. Mads elaborated on how Nexera contributes to data utilization, enhancing their educational efforts by providing more valuable insights into markets like art and cars.
Additionally, with Nuklai marketplace’s new proposal to offer additional data for monetary value, there’s even more potential to amplify their educational initiatives and showcase the value proposition they bring to the table.
Moreover, the value from NexeraID is significant, particularly in its adaptability to regulatory changes. Mads pointed out how NexeraID allows them to swiftly adjust to new legal requirements by implementing changes directly into smart contracts. This capability enables them to whitelist or decline certain wallets based on evolving regulations, ensuring full compliance with KYC and AML standards.
Furthermore, Mads praised NexeraID for its seamless integration into their compliance framework, highlighting its potential to scale their services even to financial institutions. He commended the team for their remarkable work in creating such a versatile and invaluable tool.
Arkefi: the future is clear
Nexera’s Fundrs peer-to-peer financing was a major success, raising 200k in the first seed round within three and a half hours. Now, Arkefi is planning to enhance the data further and secure residual value insurance for art acquisitions based on historical data. This momentum from the Fundrs platform has fueled their efforts to expand the platform and focus on educational elements. Additionally, partnerships with Nuklai and Solus Group aim to increase awareness about their initiatives.
Mads expressed his confidence in Arkefi’s unique business model, emphasizing its revolutionary nature in option financing. He highlighted the significant demand for such solutions, with over $500 million in financing requests and a vast potential market of 1.7 trillion in art assets. Arkefi’s focus now lies in educating and building a strong community to fuel its growth. Notably, partnerships with entities like Solus aim to bolster marketing efforts and attract liquidity to the platform. Mads views this as the beginning of a journey, with the community’s feedback playing a crucial role in shaping Arkefi’s future success.
Stay tuned to Genfinity’s website for more updates on Arkefi’s progress!
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