Buyout Process
Introduction
LiveArt Buyouts are a way to offer to buy fractionalized artworks.
Definitions
ArtVault - one or more physical artworks being tokenized
ArtToken - an NFT token (ERC 721 or similar) representing the ArtVault
EditionSize - the number of ArtShares that the ArtToken is fractionalized into
ArtShare - each individual fraction (ERC 721, 1155, 404 or similar)
Design Objectives: When designing a way to buyout an ArtVault/ArtToken we had the following design objectives:
Fair and game-theory sound price discovery
Agency of ArtShare owners
Limited need for on-chain interactions (to minimize the gas expense)
LiveArt Buyout Process
Web3 Native Offers
With LiveArt Buyouts, any ArtShare owner can offer to buyout the ArtVault/ArtToken. To do so you, the ArtShare owner, must declare a fair total purchase price for the ArtVault/ArtToken (in ETH).
This offer amount will be used to calculate an implied value per ArtShare. You must then put up that amount in ETH + ArtShares. To submit an offer, you must put up at least 1 ArtShare as collateral.
The implied value of the ArtShares offered reduces the amount of ETH needed for the offer. In other words, the more ArtShares you put up as collateral, the less ETH you have to pay in the event your offer is accepted.
ArtShare owners can stay on top of any current offers by joining the LiveArt Discord.
Web2 Native Offers
To provide a simple experience for traditional art buyers, each vaulted artwork will be listed “for sale” (on a separate Web2-friendly sales page) with its current USD price (as implied by the current ArtShare price) plus our 10% (TBD) fee.
Web2 users will be made aware (via UI/UX) that they can put in a USD offer at, below, or above this price, but the higher the offer the more likely it is to be accepted. (“Accepted” means that it results in a successful buyout, as described above.) Financial and historical background on the artwork will be provided using LiveArt art analytics data and estimates.
The fee (payable to LiveArt) for a Web2 user to put in a USD offer is equal to the USD value of ½ ArtShare. (This is analogous to the LTV ratio in an asset-backed loan: we assume that the artwork will retain at least ½ of its current value in the foreseeable future. This could be anywhere from ¼ to 1, but ½ is a good start.)
On the background, LiveArt: Receives the offer funds in USD (which includes LiveArt’s fee), converts this to ETH (is this necessary?), and holds these funds in escrow on behalf of the user during the buyout process. Buys 1 ArtShare on behalf of the user making the buyout offer. Executes the buyout mechanics on behalf of the user as described above.
Buy Now Option
After the IFO an optional voting process to set a liquidation price for the artwork is triggered. If successful, the artwork will be set at a “buy now” price on Liveart website. Anyone can at any time acquire the work.
If the voting does not reach a supermajority that artwork will be opted out of the buy now option. The liquidation price can be readjusted at anytime by the holders.
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