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Challenges Of The Real Art World
Research from Art Basel and UBS Global Art Market Report shows that total sales of art and antiques by auction houses and dealers saw an estimated $65.1 billion in 2021, which is an increase of 29% from the previous year’s estimated $50.3 billion (the lowest value in 10 years thanks to the effects of the COVID-19 pandemic). What’s more, 2021’s sales have surpassed pre-pandemic levels, indicating that the market is highly robust.
According to Kimberley Bradley in her BBC article on how much artwork in museums is on public display versus how much of it is stored away from sight, the numbers are sure to raise eyebrows: Tate has about 20% of its entire collection on display; the Louvre shows 8%; the Guggenheim 3%; and Berlinische Galerie just 2%.
Part of the problem is that there isn’t enough space for what exists in storage, which in turn severely limits the art and the artist’s exposure since these galleries control access points and exhibition formats. Other reasons for why works are not shown to the public include but are not limited to these: some works are lesser known, some are unsorted and so are sitting in crates for years, others are damaged or, such as those created on paper, are too delicate and need constant special care.
This is why museums like the Albertina may display as little as 0.1% of their entire collection at any one time.
In collector and dealer circles, the market suffers equally as much in that it is heavily fragmented and terribly distant from the audience, offering little beyond a marketplace experience for spectators, something that potentially only HNWIs (high net worth individuals) who collect would be interested in. The processes of exchange, as reported by Daniel Grant of New York Times, keep many interesting artworks and artists in permanent darkness because the works are shuttled between locations in their packaging (sometimes not even leaving the facility) when bought and sold instead of being put up for display.
Finally, there are barriers to be overcome for newcomers looking to participate in the real art world. Artsy in its Online Art Collector Report highlights that in its surveys, it found that many are frustrated with the ownership model that prevails over the making, appreciation, and circulation of works of art. That is to say that the market is very concentrated, promoting only certain mainstream artists and not others, which makes these works unobtainable as their prices tend to be very high.
Furthermore, it found that there’s a lack of transparency in the way of public pricing, issues with reselling, availability or simply the existence of payment options, and inability to find artwork that interests them in the way of self expression. The last one in this list is of particular importance because it is an indication that the market is showing signs of fatigue with the “Western canon” as Artsy puts it. When inclusivity is lacking and everything looks the same, these newcomers end up frustrated and as such abandon their cause.
Challenges Of NFT Marketplaces
Using value as an interest gauge, research on non-fungible tokens (NFTs) shows that the space as a whole is quickly catching up to the fine arts one. In 2021, NFTs hit almost $41 billion (a number that would be higher if chains other than Ethereum were included).
By comparison, the fine art market in the same year was estimated to be at $65.1 billion and around $50.3 billion in 2020 (a number much lower than average thanks to the COVID-19 pandemic). But a deeper into how these numbers came to be hints at an underlying problem of centralization, wash trading, obsession with profits, and other flaws and failures in delivering something innovative and meaningful to the users.
The ERC-721 proposal created the gold standard for NFTs on the Ethereum blockchain in 2018, and since then it had the first mover advantage versus other blockchains. And prior to August of 2020 there was only one marketplace in existence: OpenSea. It wasn’t until mid 2020 that NFTs gained massive popularity, which is when centralization and monopolization became apparent.
First, OpenSea captured and maintained its lion’s share of the market’s volume by keeping up with the market, which naturally helps its growth as new users gravitate to it regardless of other similar entrants; second, it has the power to delist NFTs without an appeal process the way large tech corporations like Twitter and Meta Platforms (Facebook) delete accounts and content; and third, an executive was caught engaging in insider trading, a possibility that can only be explained by how much control the platform exerts over the market.
Another issue the NFT space has is the constant flooding of incredibly poorly designed and useless jpegs,“images,” that have no utility or any application that would incentivize one to want to hold onto them, with the goal to defraud as many buyers as possible.
A team of researchers looked at data from 2021, analyzing 4.7 million NFTs with a cumulative volume of nearly $1 billion, and found that just 1% of NFTs sell for more than $1500 while 75% sell for $15 or less.
Even more interesting is the fact that they had to ignore the majority of the NFT market because those NFTs didn’t sell at all (meaning that users wasted money on their creation, ultimately benefiting the creator himself). This is likely why OpenSea had to openly disclose that over 80% of the NFTs on the platform are either plagiarism or junk.
Despite these challenges, there have been attempts to be more decentralized and innovative; yet, they can all be considered failures. This is mostly due to a lack of innovation, a lack of skilled labor, and a plague of profit seekers.
Unfortunately for the health of the NFT space, the teams behind marketplaces and exchanges do little in changing the course of the current trajectory, opting instead to focus on benefiting themselves first by adding features to the existing unconstructive format as a way to lure users.
The scope of the problem can be better understood by the findings in the Hiscox online art trading report 2021 where 82% of users said they bought NFTs for their “value potential” and 95% of those who had spent over $25 thousand said they were chasing investment returns.
This is glaringly evident on LooksRare, a clone of the OpenSea platform, that came out of nowhere with claims of decentralization and “big” improvements: profit sharing, lower transaction fees, staking, etc.
It was eventually revealed that its relatively small group of traders were wash trading 95% of all of the exchange’s volume—more than $8 billion. This party came to a halt by the dumping of reward tokens which caused the tokens themselves to lose value.
This in turn made wash trading unprofitable (the fees outweighed the rewards), so the majority of LooksRare’s traders left the platform to go back to OpenSea.
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