How NFTs could democratise fine art

Greetings, readers, from a very blustery London (and to US readers, a happy President’s Day)!

One topic that’s been on my mind over the weekend is the continued importance of independent journalists in crypto-scoops. See “on-chain sleuth” Zachxbt, who uncovered that the co-founder of Quadriga and convicted felon, Michael Patryn, was involved in running a decentralised finance product.

Even as media coverage of cryptocurrencies has ballooned, these blockchain detectives remain significant — news sites understandably can’t cover every new coin in depth. It certainly feels like a more tangible example of decentralisation in action than the freewheeling talk of Web3.

In this week’s edition, Milan correspondent Silvia Sciorilli Borrelli talks about NFTs linked to physical art, I interview Asher Ismail at Uncapped and two NFT stories make it into our Fintech Fascination section.

As ever, drop Imani (Imani.Moise) or myself (Sid.V) your emails with thoughts and suggested topics for coverage. Have a great week!

Milan-based NFT firm pitches fine art for the masses

In the distant past of 2018, there was talk that the blockchain could one day be a tool for the art world. A report from the University of Oxford and the Alan Turing Institute noted that digital ledgers could be useful for establishing provenance, but concluded that at the time blockchain was “more a narrative than any specific technology”.

Fast forward two years and we’re in the midst of a the non-fungible token boom based on blockchain technology. Bored Ape Yacht Club and CryptoPunks are two of the best known examples, but there are dozens of other NFTs in the space.

Critics may quibble about the quality of some of the most popular examples, or point to the questionable practices of those selling works from creators who have not given their consent — but art is probably the most ubiquitous use of NFTs today. Virtual clothing for games and virtual worlds is currently a smaller if growing ecosystem, while the idea of NFTs for contracts, mortgages and legal purposes remain largely abstract.

A Milan-based start-up, Aesthetes, is launching a new type of NFT, which it says will link the physical art world to the blockchain by connecting to a digital artwork and to a physical one. The NFTs will be based on artworks owned by Aesthetes or third parties.

The company also says that it will make the buyer the full owner of the digital artwork, which they could go on to resell. They would also own a share of the physical artwork, which they can similarly successively resell for a profit.

Aesthetes will manage the NFTs, but also be the curator for the physical artworks. The company’s stated aim is to make the art market “more democratic”.

“We want to break the concept of elitist access to art in order to make it [accessible to everyone],” said co-founder Claudia Cimaglia.

Unlike most NFT platforms which are powered by ethereum blockchain, the Milanese start-up employs XRP Ledger, a decentralised public blockchain which it says allows for NFT transactions at a lower cost and with a much lighter impact on the environment.

Cimaglia and co-founder Luca Bertolani make the case that the €22bn NFT market will grow further. They say that the average investor is under age 40, and they hope to build a transparent and safe marketplace for young art collectors — although digital assets as a whole are still grappling with their use for illicit purposes.

If the image of crypto-art was once just a powerful narrative tool, with NFTs it has become a reality. One issue from 2018 remains salient, though — the divide between creating art for the sake of art and producing it to make more money. Given the prices at which some of the most popular NFTs are sold, that tension has only gotten worse. (Silvia Sciorilli Borrelli)

Quickfire Q&A

Every week we ask the founders of fast-growing fintechs to introduce themselves and explain what makes them stand out in a crowded industry. Our conversation, lightly edited, appears below.

Last week, I spoke to Asher Ismail, co-founder of Uncapped. Founded in 2019, the company provides revenue-based financing to other start-ups as an alternative to banks or venture capital firms. This allows the nascent businesses to acquire cash to cover expenses such as marketing without needing to give personal guarantees or surrender equity. To date, it has made over 500 investments and raised $120mn; its last round in May 2021 raised $80mn, and was led by Lakestar. Previous investors include White Star Capital, Global Founders Capital and Mouro Capital.

What was the inspiration for Uncapped? We’ve been looking at reinventing fundraising for founders. Many of them face challenges around affording inventory and hiring without having to give personal guarantees [to banks]. Every founder is thinking about ‘how can we get capital?’, but many don’t even have a chief financial officer in the business and face a lot of money challenges.

What have been some of the shifts for fundraising as a result of Covid? We launched just before the pandemic started, and many of the investors we spoke to were completely freaked out. One of the powerful things we had was that we could connect the live data that companies use to run a check, compared to a traditional bank where you come in with a business plan and a profit and loss statement that you don’t necessarily believe in. What we saw across the sector was 10 years of ecommerce growth in the first three months of the pandemic, and we believe that one day ecommerce will just be commerce. I think one big shift from pre-pandemic has been a democratisation of capital. Previously, it was a lot easier if you were in a major hub. What Uncapped found was that 70 per cent of businesses would be outside the major metropolitan areas.

How do you see the London fintech ecosystem shaping up? We see the trends in London following similar patterns to corporate funding globally. Capital is at its peak — we’ve never had this dynamic level of venture capitalists reaching out or sending gifts, trying to get in and have a conversation. You can feel this rush, and it’s part of something more global. American VCs are much more interested in the market too and it’s a long time coming, which is only beneficial for the London fintech scene. For us, it’s also great to be able to get backing to build a fintech and reinvest into the [London] community.

What are the trends around diversity when it comes to start-ups and fundraising? Obviously this topic became of great interest following the Black Lives Matter protests. What I find a little frustrating is that a lot of people made promises about what they’re going to do and little action has come of that. Our solution: we try to remove the bias from fundraising, we aren’t looking at your CV, we’re fundamentally working with the data you’ve created in the business to make a decision. That’s the foundation of how Uncapped works. The broader ecosystem, I think, has a long way to go with that.

Fintech Fascination

The taxman’s taken all my NFTs Emma Agyemang reports on the first case of HM Revenue & Customs seizing three non-fungible tokens as part of a wider seizure of crypto assets worth about £5,000. The UK tax authority has released details on how individuals should record, report and pay tax on crypto transactions.

The true size of the NFT world is tiny The hype of NFTs usually centres on the endorsements from the likes of Gwyneth Paltrow and Justin Bieber and the $24bn-worth traded to date. But as Tim Bradshaw writes, even optimistic estimates put the total audience size in the low single-digit millions, and that’s without accounting for wash trading to inflate figures.

Payments company Flutterwave becomes most valuable African start-up Neil Munshi in Lagos writes about Flutterwave, a Nigerian payments company, which has reached a $3bn valuation after raising $250mn in a round led by US-based B Capital Group.