Tokenizing real-world art using blockchain technology — Case Study

Overview

A client of Aurum rediscovers collective ownership of real-world artworks through the development of a groundbreaking platform. The project involves the creation of a venue where users can purchase fractions of artworks represented as blockchain tokens. This innovative concept posed unique legal challenges, including the need to structure flexible governance for assets with multiple owners of unknown identities, while also navigating regulatory concerns to ensure compliance.

Challenges

The key challenges we faced included:

• Structuring flexible and enforceable governance for assets with multiple owners of unknown identities.

• Establishing a robust and efficient structure that would not trigger Virtual Asset Service Provider (VASP) or Collective Investment Scheme (CIS) regulations.

• Working across multiple jurisdictions to achieve the optimal legal framework.

Legal Strategy

To address these challenges, we devised a comprehensive legal strategy by formalising collective ownership of artworks using trust agreement as a structuring instrument, providing a flexible governance framework that accommodated multiple owners. Additionally, we ensured that the blockchain tokens representing ownership did not possess characteristics of regulated instruments, thereby mitigating regulatory risks.

Actions Taken

Our team worked across various jurisdictions, including Singapore, Cayman Islands, and Guernsey. The team engaged in-depth research, analysis, and consultations to develop a strong legal framework tailored to the client's needs. This involved drafting complex legal documents, such as Terms of Services, Artwork Sale Agreement, Trust Agreement, Artwork Management Agreement, engaging necessary suppliers, incorporating legal entities, and reviewing best practices to ensure compliance.

Outcomes

Through diligent planning and execution, Aurum successfully achieved the necessary results for the client. The proposed structure allows the client to launch the platform, allowing users to acquire fractional ownership of real-world art represented as blockchain tokens. The legal framework established provides the necessary flexibility and compliance, enabling the client to realise their vision while mitigating regulatory risks.

Lessons Learned

This case highlights the importance of proactive legal planning and strategic collaboration across multiple jurisdictions when dealing with innovative projects. By leveraging legal expertise and navigating regulatory complexities, businesses can unlock new opportunities while mitigating risks.