Seller-buyer networks in NFT art are driven by preferential ties Giovanni Colavizza

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Seller-buyer networks in NFT art

are driven by preferential ties

Giovanni Colavizza∗

Abstract

Non-Fungible Tokens (NFTs) have recently surged to mainstream attention by allowing the

exchange of digital assets via blockchains. NFTs have also been adopted by artists to sell digital

art. One of the promises of NFTs is broadening participation to the art market, a traditionally

closed and opaque system, to sustain a wider and more diverse set of artists and collectors. A key

sign of this eﬀect would be the disappearance or at least reduction in importance of seller-buyer

preferential ties, whereby the success of an artist is strongly dependent on the patronage of a

single collector. We investigate NFT art seller-buyer networks considering several galleries and

a large set of nearly 40,000 sales for over 230M USD in total volume. We ﬁnd that NFT art is a

highly concentrated market driven by few successful sellers and even fewer systematic buyers.

High concentration is present in both the number of sales and, even more strongly, in their

priced volume. Furthermore, we show that, while a broader-participation market was present in

the early phase of NFT art adoption, preferential ties have dominated during market growth,

peak and recent decline. We consistently ﬁnd that the top buyer accounts on average for over

80% of buys for a given seller. Similar trends apply to buyers and their top seller. We conclude

that NFT art constitutes, at the present, a highly concentrated market driven by preferential

seller-buyer ties.

1 Introduction

More than half the global visual art market is made of sales above

1M, largely by so-called ‘ultra-

high-net-worth individuals’. The middle-tier market is thinning, with allegedly 60% of galleries

operating at a loss [

]. While artists start their careers with high expectations, the vast majority

never makes a living from their artistic practice [

]. In the overall ‘good’ year of 2018, ﬁfty

artists accounted for 64% of global auction sales, the top-500 artists accounted for 89% of total

sales [

]. While artistic careers have largely resisted systematic empirical study, it is known that

success in the arts is inﬂuenced by a multifaceted mixture of early and self-reinforcing access to

opportunity [

], tightly knit social networks [

], and even sheer luck [

]. Why is it so? The

traditional art market deals in heterogeneous, mostly unique goods (artworks), bought by collectors

with equally heterogeneous tastes [

]. As a result, uncertainty reigns. Both sellers and buyers are

at a disadvantage, whereas intermediaries retain substantial brokering power [

]. These include

dealers and galleries, auction houses, experts, curators, and cultural institutions. They match oﬀer

∗University of Amsterdam, The Netherlands. g.colavizza@uva.nl.

arXiv:2210.04339v2 [q-fin.GN] 14 Nov 2022

and demand by reducing information asymmetries for a margin [

]. Seemingly, not even the Internet

has disrupted the art market ‘stasis’ [89].

Such feats of the traditional art market go a long way in explaining why many artists and col-

lectors enthusiastically embraced

Non-Fungible Tokens (NFTs): certiﬁcates of authenticity

registered on public blockchains

. The NFT blockchain technology brings with it the promise

to enable radically diﬀerent, actor-ﬁrst markets.

NFTs constitute a new asset class solving a signiﬁcant problem: digital ownership. Markets

cannot operate without property rights, and digital assets have been most elusive in this respect [

NFTs establish at once an immutable chain of provenance and digital scarcity for an object. What

is more, NFTs are programmable, therefore they can be bestowed with deterministic behavior when

they are created or afterwards, expanding their purpose in an open-ended way. For example, NFTs

can be programmed to yield royalties to the original creator over any transaction in the market of

re-sales [

]. From a survey among NFT artists, this emerged as the most appreciated innovation [

In 2021, NFTs have rapidly gone mainstream and seen widespread adoption [65,66].

NFTs promise solutions to many open challenges: they bring full transparency since all trans-

actions are openly stored on a blockchain, providing immediate access to liquidity and better

price discovery. They support socio-technical decentralization, shifting the power balance from

intermediaries to actors (artists and collectors), supporting novel ownership and governance solutions

to emerge [

]. The eﬀects are visible: leading NFT marketplaces SuperRare and ArtBlocks have

gallery fees of 10-15% on primary sales, and 0-3% on re-sales; compare with an average of 30-70% for

galleries and 20% for auction houses in the traditional art market [

]. In 2021 alone SuperRare paid

about

10M in artist royalties on re-sales (source cryptoart.io); compare to zero paid by traditional

auction houses. This is why many view NFTs as building blocks in the realization of an open and

sustainable Internet [69].

The art market is comparable to other sectors where intermediaries hold positional advantages.

Examples include centralized ﬁnancial services, social media platforms and scientiﬁc publishing. The

arts and collectibles markets have been among the ﬁrst to adopt NFTs, constituting a relatively

mature stage of NFTs adoption [

]. This is evidenced by the move of traditional art market players

into NFTs and the de-facto entry of NFT art into the contemporary art asset class [

]. The

expansion of NFTs in many other sectors is also unfolding, for example online gaming [33].

There remains considerable skepticism around NFTs, and blockchains more broadly. The main

challenges stem from: i) the absence of a legal and regulatory framework around NFTs, making

their actual ownership rights unclear at best [

]; ii) technical risks due to persisting platform

centralization [

] and the environmental costs of mining [

]; iii) the possible negative impact

of rampant ﬁnancial speculation and, sometimes, illicit practices [

]. What is more, blockchain

technology, and NFTs within it, are subject to cycles of booms and busts which might signiﬁcantly

inﬂuence the pricing of assets and the long-term development of products.

In fact, we know very little about the potential and actual impact of NFTs. Empirical research

on NFTs’ social, economic and cultural implications is just beginning [

]. We know little about

how NFTs are used in practice, whether they are delivering social and economic impact to a broad

set of actors, what are the costs and risks involved. As a consequence, the scientiﬁc and public debate

often contrasts opposite viewpoints, with harsh critiques facing radical supporters [

102

]. The

systematic analysis of data, made eminently possible by its availability through public blockchains,

is essential to ground such discussions in facts.

This contribution focuses on the key relationship in art markets: the one between sellers and

buyers, thus most often artists and collectors.

Our goal is to provide a quantitative overview

of the NFT art market from the 2020-2021 boom to the 2022 bust, through the lenses

of seller-buyer networks.

The main question we ask is whether NFT art is collected from a more

diverse set of buyers than ﬁne arts, or instead whether strong preferential ties constitute a persistent

feature of art markets even when supported by public blockchains. Previous work has shown that

NFT traders tend to specialize within NFT segments and collections, and that the market is highly

concentrated [

]. When considering NFT art, preliminary evidence points to signiﬁcant similarities

with the traditional art market in terms of systematic seller-buyer ties, sticky reputation eﬀects,

and high degrees of collector specialization [87].

2 Related work

2.1 Blockchains

A blockchain is an append-only, distributed database, that users store and update via a decentralized

protocol [

]. Cryptography is used to avoid tampering and falsiﬁcation with the data a blockchain

stores. The origins of the blockchain date back to the work of [

] on how to create tamper-proof data.

The ﬁrst, popular implementation of a blockchain is bitcoin [

]: a ﬁnancial blockchain exclusively

devoted to tracing transactions related to minting and exchanging the bitcoin crypto currency.

Bitcoin introduced the idea of ‘proof of work’ as its decentralized protocol (also called ‘consensus

mechanism’). The paramount problem blockchain technology solves is of great social importance:

reaching consensus on authoritative records in the absence of centralized institutions and trusted

third parties. The use of blockchains has been growing rapidly over the past few years, attracting

widespread attention [

100

]. Blockchain technology is creating a space to experiment with novel

forms of decentralized organizations, markets and coordination systems [

103

]. A key development,

in this respect, has been the introduction of programmable blockchains, able to record a variety

of user activities via ‘smart contracts’. The most well-known example is Ethereum [

]. Despite

the growth in interest and adoption of blockchain technology, there is still limited evidence-based

research on its societal, economic, and cultural impact, as well as long-term potential.

The potential of blockchain technology applications in the arts has been much anticipated and

debated, primarily theoretically or relying on circumscribed qualitative studies [

]. Practitioners

consider the arts “one of the least discussed applications for blockchain, yet one where the technology

may hit hardest” [

]. [

] identiﬁes at least three transformations which are made possible by

the aﬀordances of blockchain technology: 1) “blockchain blurs the for-proﬁt/nonproﬁt distinction

in the arts because the decentralized structure shifts responsibility for infrastructure away from

trusted central authorities” such as public property registers, or institutional intermediaries (e.g.,

galleries and museums); 2) “blockchain changes the ownership structure of art by creating fractional

ownership of artworks and scarcity for digital works, [..] these potential shared-value structures

extend to resale royalties and copyright”; 3) “blockchain’s shared value structures generalize to new

models of supporting the arts itself.” Indeed, blockchain technology has been used in a variety of

applications, from enabling novel galleries and marketplaces [

] to tracking looted or contested

cultural heritage [95].

Artists often see blockchains as a possible means to bring about a re-centering of the market

around and in support of their creative processes, with a sustainable and inclusive outlook [

where “artists set the terms of their market participation” [73].

2.2 Non-Fungible Tokens (NFTs) and the arts

The key blockchain innovation underpinning this vision are Non-Fungible Tokens (NFTs). Art

registered as an NFT is called rare digital art, crypto art, blockchain art or NFT art [

] (we

use NFT art throughout). NFT art may be considered a form of digital art [

]: NFT artworks

often use digital media and do not share a unique set of aesthetics. Furthermore, a share of NFT

art is born-analog and has been digitized in order to register it as an NFT. Many of the innovations

NFTs are bringing to the arts have antecedents in early blockchain projects such as Monegraph [

Ascribe [

], and Plantoid [

]. NFTs are used to trade in several assets, from collectibles to virtual

land; the ‘art’ segment of NFTs has been the leading one so far, with higher average prices and

volumes [

]. In March 2021, NFTs made the news thanks to Beeple’s ‘Everydays: The First 5000

Days’ sale, went for about

69 million at Christie’s. This sale made the artist the third highest-selling

living artist at the time. Beyond the hype of large sales, NFTs are by now widely used in a growing

ecosystem made of several, small to large marketplaces.

To see how, let us imagine the following scenario, illustrated in Figure 1: an artist has created an

artwork, either born digital (e.g., digital sculpture or animation) or digitized (e.g., a picture of street

art or a video of a performance). This artwork is stored on a computer as a ﬁle, therefore it can

be endlessly copied. Programmable blockchains like Ethereum allow anyone to record transactions

resulting from the interaction with a piece of code, called a ‘smart contract’ [

]. By interacting

with a suitable smart contract (e.g., via an NFT marketplace such as SuperRare or OpenSea, or by

creating their own smart contract), the artist can generate a unique certiﬁcate for their artwork.

Certiﬁcates are called ‘tokens’, and typically contain a reference to the artwork by way of a URL to

where it can be accessed online, artwork metadata, or even the input data required to re-create it

programmatically (as is the case with generative art, e.g., on ArtBlocks). Thanks to the blockchain,

a token is immutably recorded via a transaction, thus creating a transparent, auditable and scarce

(i.e., unique or limited-edition) certiﬁcate of authenticity for the artwork. The token is at ﬁrst

deposited in the artist’s wallet, it can then be exchanged and interacted with, for example traded,

used to unlock collector-only rewards and showcased on social media.

2.3 Why many artists and collectors are turning to NFTs

One reason why NFTs have become rapidly popular in the arts and collectibles markets is frustration

with the status quo. The art market supports the economic exchange of creative goods with a

primary cultural value. In Bourdieu’s parlance, art is one way to objectify cultural capital into

goods [

]. The main task the art market solves is pricing artworks: a feat not easily accomplished

given their heterogeneity and the diverse motivations for buying them [

]. The art market

obtains its supply from living artists, selling from their studio, via galleries and fairs, and from

collectors or institutions in all other cases. Intermediaries, such as auction houses, dealers and

consultants are active mostly in the secondary market of re-sales [

]. The art market has many

peculiarities and outstanding limitations, one of which is that it severely lacks in transparency [

some see the presence of information asymmetries as the main cause of limited eﬃciency in the art

market [

]. The attribution, provenance, authenticity, and even copyright of an artwork is often

unclear, and this plays a signiﬁcant role in its ultimate pricing [18]. The division between primary

and secondary markets creates a further informational barrier, in the context of a general diﬃculty

in estimating the quality of intrinsically unique goods [

], and lacking regulatory frameworks [

What is more, price data in the art market is notoriously lacking, hindering the systematic study of

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Seller-buyernetworksinNFTartaredrivenbypreferentialtiesGiovanniColavizza*AbstractNon-FungibleTokens(NFTs)haverecentlysurgedtomainstreamattentionbyallowingtheexchangeofdigitalassetsviablockchains.NFTshavealsobeenadoptedbyartiststoselldigitalart.OneofthepromisesofNFTsisbroadeningparticipationtotheartm...

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Seller-buyer networks in NFT art are driven by preferential ties Giovanni Colavizza

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