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Many musicians have generated income from selling rights to their music since the innovation of “Bowie bonds” in the 1990s. The advent of tokenization, the process of representing physical assets as digital tokens on a blockchain, has led to another innovation.
A 1708 Stradivarius violin which has been owned by European royalty, including Catherine the Great, Empress of Russia, which is valued at approximately $9m, has been tokenized.
Bowie negotiated with record label EMI to sell bonds based on royalties for 25 albums released between 1969 and 1990, including such classics as Ziggy Stardust and Heroes. In 1997 he sold “Bowie bonds,” which were backed by these royalties and allowed investors to earn a fixed annual coupon of 7.9%.
Fast forward to June this year and Galaxy Digital Holding said in a statement that it had tokenized “Empress Caterina.” The US digital asset and blockchain company said tokenization of this iconic musical instrument, celebrated for its unmatched craftsmanship and storied provenance, marks a significant advancement in the application of blockchain technology to unlock the value of unique real-world assets.
The Stradivarius violin is owned by Yat Siu, co-founder and executive chairman of Animoca Brands. He acquired the instrument in 2023 and is using the tokens as collateral for financing facilitated by Galaxy’s Global Markets business. The tokens provide a pathway for owners to realize the economic value of their holdings without selling the asset itself.
Siu said in a statement: “As a technologist with a background in classical music, this is a very special moment for me. I am thrilled to help trailblaze this new economic model for unique assets while at the same time preserving and sharing not just a very rare and precious instrument, but also a piece of history.”
Galaxy tokenized the violin through GK8, the firm’s enterprise-grade blockchain custody and monetization platform which has a proprietary Tokenization Wizard tool. The Stradivarius non-fungible token (NFT) is on the Ethereum blockchain and publicly recorded on OpenSea, and so could potentially be traded. However, this NFT is exclusively for the financing transaction between Sui and Galaxy, and will not be available to investors in any secondary market or public offering.
A violin is an unusual asset to tokenize, but the procedure is becoming more mainstream. Even The WFE, the global association for exchanges and clearing house, recently published a paper, Demystifying Tokenization: Embracing the Future. The WFE said tokenized traditional assets should be viewed as nothing more than a modernized and innovative iteration of traditional finance, providing new opportunities for investors and market participants.
The benefits of tokenization include fractional ownership, enhanced liquidity and greater financial inclusion. However, the paper also warned that some of the supposed benefits are overexaggerated or don’t exist at all.
“Continuous 24/7 trading – if truly needed – can be achieved without tokenization,” said the WFE. “Disintermediated models face conflicts of interest and instantaneous settlement in tokenized trading may have unpredictable timing, affecting market liquidity and trading costs, especially if assets and funding need to be blocked prior to execution.”
In addition, distributed ledger technology is currently not fast enough to execute and settle all the trades running through a highly active exchange, different blockchains are currently not interoperable and there is a lack of regulatory certainty.
James Auliffe, manager, regulatory affairs at the WFE, said in a statement: “The fundamentals of tokenization and the infrastructures these assets trade on need to be better understood. Regulation in this area should reflect that tokenisation is a natural evolution in the financial industry, rather than a drastic break from the norm. Its usage is suitable in particular environments and for particular assets, but in these cases, market participants can reap great benefits.”
Ripple, the enterprise blockchain and crypto company, and Archax, the UK’s first Financial Conduct Authority regulated digital asset exchange, broker and custodian, believe in the benefits of tokenization. They are extending their existing collaboration to bring “hundreds of millions of dollars” of tokenized real world assets onto the XRP Ledger over the coming year.
Graham Rodford, chief executive of Archax, said in a statement: “We have hit the tipping point for mainstream adoption of digital assets for real world use cases.There is clear real-world utility in use cases like RWA tokenization for the operational efficiency, access to liquid markets and transparency inherent to crypto, and Archax has already tokenized assets such as equities, debt instruments and money market funds.”
Note that Rodford did not mention violins.
