NFT movement is not a fad: Galaxy Digital CEO Mike Novogratz
The record-breaking NFT auction at Christie’s last month has been paying dividends to the 254 year-old auction house well-beyond the US$69.3 million price tag. Not only did it result in torrents of publicity and a fat commission, it also led to at least one major NFT collector “crossing over” from crypto to buy a US$20 million Picasso.
Now, as rivals Sotheby’s and Phillips announce the details of their own auctions of NFTs (non-fungible tokens are essentially certificates of authenticity tied to digital artworks), a less visible upside has emerged: new blood. Every time young, crypto-rich collectors bid on an NFT, they are entered into the auction house’s database.
“While the financial return is always an important component, the success of my sale will be based on the number of people who actually participated in the sale,” says Max Moore, the co-head of Sotheby’s contemporary art day sales in New York. “Through a new medium and new creators, we are attracting a whole new set of clients in a marketplace that’s primarily driven by a younger demographic.”
Rebekah Bowling, a senior specialist at Phillips, echoes this sentiment. “We’re certainly excited about engaging this new community of collectors,” she says. “And of course, we’re interested to see how their interests evolve, and [whether] it will evolve into physical works of art.”
New Medium, New Art
Both Sotheby’s and Phillips have chosen to auction artworks that, in whatever way, embrace the unique possibilities of the digital medium.
In Phillips’s case, that means auctioning a digital image of a copy machine by Michah Dowbak, who goes by the artist name Mad Dog Jones, in an online-only sale that will run from April 12 to 23. The opening bid is US$100; buyers can pay with fiat currency or in Ether.
The NFT attached to the image will replicate itself by creating a new, unique NFT every 28 days or so; those NFTs will then replicate themselves until seven generations of replications have occurred.
The digital image attached to each NFT will change every generation, too. “He calls it the story of a machine through time,” Bowling says. “Paint will start to peel, you’ll see new characters enter the scene, potentially, and eventually it will be an [image] of a machine overgrown in vines.”
By design, there will be some “jams” that happen, Bowling explains, in which the replication process fails; in total, she estimates that the original NFT will produce about 220 NFTs (it could be more or less depending on the jams), all of which will be owned by the purchaser.
Not Quite an Auction
Sotheby’s is holding an even more unorthodox auction of work by the anonymous digital designer Pak.
For starters, Sotheby’s isn’t actually hosting it. The auction will take place on the NFT marketplace Nifty Gateway, where payment is accepted in fiat and cryptocurrencies.
It’s also not quite an auction. In a format that will be familiar to Nifty Gateway’s users, the Pak sale will occur over the course of three days, from April 12 to 14, and include seven separate components.
On Tuesday, Sotheby’s announced details of the first component, which will be a sale of eight, open-edition NFTs. Sotheby’s hasn’t said how long the sale will last—previous, similar “drops” on Nifty Gateway have been as short as a few minutes—but however long it runs, an unlimited number of collectors will be able to buy NFTs connected to digital images of cubes.
An image of one cube will cost US$500; an image of five cubes will cost US$2,500. The next six tiers will bump up accordingly to 10 cubes, then 20, then 50, then 100, then 500, then finally 1,000, which will cost US$500,000. Each of the eight tiers is connected to a single NFT, meaning that if someone spends US$503,000, they’ll get three NFTs: one of one cube (US$500 tier), one of five cubes (US$2,500 tier), and one of 1,000 cubes (US$500,000 tier).
“It’s the most inclusive aspect of the auction,” says Moore, given the price points and open edition. Sotheby’s has yet to announced the six further components of the Pak sale.
Monetizing the Art
NFT artists and collectors haven’t been shy about trying to make money off the field. In fact, the monetization of NFTs could almost be considered integral to the medium. But in recent weeks, the white-hot market has begun to cool down. Last week, Bloomberg reported that the average daily volume of NFTs sold across marketplaces had fallen from US$19.3 million to US$3.03 million as of March 25.
The works at both Phillips and Sotheby’s could be viewed as tests of—and boosts for—this new, stagnating market.
Given that the NFT by Mad Dog Jones will generate many more NFTs and thus potential revenue, the artwork includes a question of “token-omics” says Bowling. “Is there value in scarcity, or is there value in the ability to produce a piece that has so many more pieces?” Potentially, a buyer could take all the NFTs produced in the series and fractionalize them, she says; alternately, the buyer might find more value in selling them individually, or flipping them as a group.
And while Sotheby’s has yet to release more information about the other Pak artworks, Moore says that the open edition’s resale market was “absolutely a consideration” in their planning, though he declines to elaborate. “You’ll have to wait and see,” he says.
What’s clear is that all participants, at least for the time being, are positioned to benefit from established auction houses putting their name behind NFTs. The upside for the artists is clear: The NFT market is only a few years old, and it doesn’t enjoy the respectability or institutional imprimatur possessed by other mediums. These auctions could help change that.
“It’s interesting to see these creators, how they’re interested in having major auction houses promote their work,” says Bowling. “I think they understand what they bring in terms of reach and scope and context—and they want to be in the context of great artists, and that’s why they’re looking to us.”