The Making of the Digital Culture Fund
Digital Culture is an emergent asset class that has been accelerated by the development of NFTs and web3 technologies. The ability to curate an asset rapidly on the path to broader acceptance and ensuring provenance is at the heart of the investment thesis for our Digital Culture Fund. Hivemind aims to bring capital to this asset class that we believe will go from strength to strength as traditional and digitally native participants continue to come together.
Technology Drives Wealth, Wealth Drives Culture
Technological advancements have consistently paved the way for the creation of new wealth, giving rise to a fresh class of investors and collectors looking for art that resonates with their values and the current zeitgeist. Today, not only does digital art represent our identities (both online and offline), but blockchain technology is redefining how we own, interact with, and invest in this asset class. What's more, with the democratization of art participation, online communities have the power to influence markets and are creating a digital native culture that is fueled by the unique confluence of artistry, community, technology, and finance.
We're already witnessing major artists and collections solidifying their place in history. Illustrative examples have included:
- 2017: Larva Labs created CryptoPunks, marking one of the earliest instances of blockchain-enabled art, with the highest sale reaching $23 million by 2022.
- 2021: Beeple's "First 5000 Days" encapsulates significant moments in the digital asset world and pop culture at large, fetching $69.3 million at auction.
- 2023: MoMA made history by acquiring Refik Anadol's "Unsupervised," marking the inaugural inclusion of a tokenized artwork in its permanent collection.
As digital culture rises, these pieces will transcend traditional assets or notions of art; they’ll serve as records of history in the making and their valuations will be expected to follow a ‘power law’ distribution with the value predominately accruing the very best pieces.
A Fund is Born
At Hivemind, we prioritize analysis of the digital asset market at large and focus on introducing the right product at the right time. Convinced that digital art, and the broader spectrum of digital culture, is the vanguard of the future, we identified what we believed to be an ideal moment to enter this emerging market – and so the Hivemind Digital Culture Fund (the “Fund”) was born.
The fund focuses on both primary and secondary markets, utilizing our team’s deep understanding of digital culture, art, and community, as well as decades of experience in sourcing, investing, and trading less liquid esoteric assets in our TradFi careers. Working with close partners and advisors from the native digital and traditional art worlds, we will aim to access the most exclusive digital collectibles (NFTs) by providing capital and liquidity to the space in various forms, including but not limited to primary mints, secondary purchases/sales, and bilateral asset-based lending.
The Hivemind Digital Culture Fund may not be the first to buy digital art; however, we believe the timing is both very exciting and what will set the Fund apart. With the first digital culture market cycle behind us (2021), we now have a full cycle of data to be able to take a more measured and quantitative approach to layer onto the qualitative aspects. We can learn from the challenges others have encountered. For example, when reviewing the post-mortems written by existing digital art funds, regrets are expressed around the over-indexing of obscure and lesser-known pieces that would have been difficult to discern in the “heat of the moment” as the NFT market initially exploded. In addition, a handful of artists and collections have experienced a “break out” and have now solidly established themselves as the pioneers of the digital culture and art movement. This allows the Fund to invest in assets that have been de-risked and at the same time, at a fraction of the cost compared to the market's peak.
As we set forth on this path, we are determined to address several critical considerations to redefine the digital art investment landscape:
- Accessibility: We aim to democratize access to the digital art market, especially for institutional players. By facilitating entry into this niche, we provide our clients with access to exceptional artworks that might otherwise be inaccessible, leveraging our connections to private sales and circles within the digital art community.
- Institutional Grade: Recognizing the critical importance of trust and reliability in investments, we maintain the highest standards of security and robustness. Our approach is crafted to meet institutional-grade requirements, providing a secure and dependable environment for our investors.
- Curation Focus: The curation thesis of the fund attempts to define the final target portfolio and work backwards. The hard work selecting collections and artists to represent each defined chapter of digital culture that will be curated is done upfront with a view to the end state. This allows the team to allocate capital in a very focused manner, leaning in to the curation aspects and building a coherent portfolio with a valuation higher than a sum of the individual parts.
In embracing these pillars, Hivemind aspires to not only navigate the present landscape of digital art but also to help shape its evolution, pushing forward the widespread adoption of digital assets at large.
Working Backwards: End State
Given the less liquid nature of art, it is vital to consider the most desirable end state for the collection and then work backward to implement a plan for reaching that destination.
The fund aims to identify and curate ~8 (6-10 as a range) core collections that will exemplify chapters within the Digital Art movement. Not every chapter is expected to be represented; indeed, if key pieces are unobtainable or there is already a collection covering a chapter in a manner we would struggle to surpass, it is likely better to remove that chapter from the scope. The fund should strive to curate the best interpretation of the Digital Culture Movement and elevate the fund's value for our investors.
Initially, we are focused on identifying collections that can be carefully curated over time, with unique 1/1 items added to elevate the curation of a given art movement with a strong thematic connection to the underlying collections chosen. (You can begin to see what that looks like from twitter reveals.)
Finally, the team will attempt to identify precedent and successional pieces from historical materials and via contact with the artist to take the curation even deeper for selected collections. The value of these items individually is typically much lower than that of the established collection; however, when placed together to produce an exhibit-worthy curated collection, the value can be elevated substantially.
The fund's structure has been deliberately chosen to allow for a long-term, investment-focused approach. This is important as the Digital Art assets purchased are non-granular (‘lumpier’) and less liquid (market depth at a given price can often be thinner). This approach contrasts with a shorter-term trading approach that may be utilized for Fungible Tokens seen in other Investment Vehicles managed by Hivemind.
The Curation
Here is a more in-depth look at how we approach our curation.
Digital Art vs. Generative Art vs. PFPs
We believe that there is value in all types of digital culture while acknowledging how each piece derives that value differs. Within Digital Art, there are several sub-categories, including but not limited to long-form generative art, generative art editions, AI-generated art and, of course, art simply rendered in a digital medium for the modern age. This last category is the most similar to the traditional art world; it is simply the medium that has been updated, allowing an exciting new creative space for expression.
The generative side of digital art falls under the broader umbrella; however, these can also benefit from additional layers of depth where the data used to create the items and run the algorithms can be enshrined on the blockchain itself. With long-form generative art, the need for consistency in the algorithmic output - since every piece is selected - makes the system itself art in addition to the pieces.
When considering PFPs, the value can be derived from the art, the blockchain implementation, the utility provided to owners, or simply the community built by the owners - the essence of digital culture. Each subsection will typically have different price points and demand, which are anticipated to change in time as the adoption of the digital medium increases.
Artist vs. Collection
Digital art, as a genre, naturally sits as a movement with Contemporary Art. As with many contemporary art pieces, the artist is alive, and the actions taken by the artist, engagement with the piece, and perception by others will impact the enduring value of an item. An artist with an appropriate profile is a necessary but not sufficient condition to be considered for a slot as a core collection within the curated portfolio. It is important the collection is significant within the specific chapter of digital art being curated. As a result, the curation effort will focus on approving blue-chip collections from blue-chip artists rather than approving artists and automatically including all their works.
Similarly, when unique 1/1 items are targeted for acquisition, those items should be aligned specifically with the collection/movement that is being curated to ensure a robust thematic thread runs through the collection.
Collection Identification
The fund is anticipated to place concentrated bets on specific collections with an overall portfolio curated to be deep rather than wide. The key to success in our investment objectives will be the selection of collections. At the risk of cliché, this is more art than science, although we believe there is a mix of qualitative and quantitative items that can be used to judge a collection across various dimensions. Strategically, we aim to pick these collections such that they are individually valuable but also collectively form the pillar of storytelling in certain art styles and movements that have historical significance. Tactically, we have distilled critical dimensions to allow for a more objective stance on a collection and to provide a method to determine eligibility. Some elements we consider include: Artistic Significance, NFT technical implementation/mutability, IP, Collection Size, Artist Profile, Ownership Structure, and more.
Sizing and composition
When selecting items within a collection, there are broadly three distinct paths that can be chosen:
- Attempt to cover an example of every trait within a collection.
- Focus on specific traits only.
- Solely focus on price and quantity.
It is crucial to be able to curate the best elements of a collection to ensure it is well represented. At the same time, obtaining significant holdings of a given trait will allow a narrative to be built to elevate that trait within a collection.
For example, within Tyler Hobbs’ Fidenza series the White Mono trait resonates deeply with us.
These monochromatic pieces pay homage to Return Zero, a 1/1 NFT and precursor algorithm to the Fidenza series, that also resides within the fund. These pieces present an inverse representation of the original Fidenza color scheme, featuring pure white shapes on a colored background. By removing color and visual complexity, the viewer can establish a deeper connection with the lines and flow of the piece. By focusing on this specific trait, we can create a cohesive and compelling narrative that highlights the unique elements and significance of the White Mono trait within the broader Fidenza collection. Please explore some of our selections below:
Ultimately, it will be a balance, ensuring the fund owns enough of a given collection to make it worth curating while leaning into potentially desirable traits – with a lower supply - when pricing is opportunistic.
Grails vs. Mezz vs. Floor
Grail items in a long-form Generative Art collection should be distinct and recognizable based on the image alone (i.e., no need to look at the metadata to establish how rare the item is). One of the most skillful aspects of creating the algorithm behind long-from Generative Art is that your best and worst pieces judge you. You need an algorithm that performs under all conditions, or you risk tarnishing a collection. Within a collection, certain traits will be distinctive and rare. Even within this small group, it may be necessary to weigh certain traits heavier than others if they are the most desirable.
For an item to be considered a grail, it should represent the intersection of multiple desirable traits. Selection of potential traits is, of course, somewhat subjective; however, it is important to follow the spirit of long-form Generative Art and consider the full gamut of pieces bearing the given trait - if any pieces with the trait are not desirable, distinctive, or do not effectively embody the collection, then they will be rejected from the potential list.
1/1s
The value in the art world tends to rise to the top. The price variation between the best items and those of lesser importance will typically follow a power law distribution rather than a linear path. Incorporating 1/1 items into the portfolio will be important from a curation perspective. However, given the higher price tags of such items, careful curation will be required to ensure purchased items are priced appropriately. Forming a consistent narrative for how the specific artist(s) and items fit within the fund's theme will be important. Our 1/1 collection should not comprise isolated pieces but be an integrated part of our overall strategy of storytelling particular art styles and movements, complementing and enhancing the 1/1/x collections we focus on.
For example, "A Slight Lack of Symmetry Can Cause So Much Pain," by Dmitri Cherniak, exemplifies the profound impact of subtle asymmetry. While remarkable on their own, these pieces truly shine when contextualized alongside Cherniak’s renowned Ringers series, of which we hold a substantial collection. Sharing thematic elements with the Ringers series, such as strings and pegs, "A Slight Lack of Symmetry Can Cause So Much Pain" is intrinsically linked to the genesis of a notable feature in Dmitri's acclaimed Ringer series. These 1/1 pieces complement the "bullseye" trait, showcasing the algorithm's expansive capabilities and underscoring the breadth and depth of the collection.
In this way, the 1/1 items, such as "A Slight Lack of Symmetry Can Cause So Much Pain," fit seamlessly into our broader curation thesis. They enhance and elevate the overarching narrative we are building around the Ringers series and other collections, creating a cohesive and compelling story that underscores our investment strategy.
Ultimately, our fund is designed with the agility to adapt to the rapid pace of change inherent in the digital art space. This flexibility allows us to expand our horizons, exploring new opportunities as they arise and ensuring that our portfolio remains dynamic and forward-looking. Our ability to pivot and evolve with the market is a cornerstone of our approach, reflecting our commitment to staying aligned with the latest trends and breakthroughs in digital art.
Curating the Future of Digital Art
We are now thrilled to share the shape of our collection thus far, which can be explored in our gallery here. Hivemind continues to adhere to the curation strategy outlined above as our guiding principle, while maintaining the agility necessary to adapt to the evolving landscape of the space.
Beyond mere acquisition for the Fund, we proactively seek opportunities to engage more deeply and invest more significantly in the digital art space, and specifically our collected artists. This may include special in person gatherings, commissions, or other collaborations with artists and the ecosystem at large. Our venture capital arm also serves as a unique conduit for actualizing this vision, enabling us to directly support emerging talents and innovative platforms at the core of the NFT ecosystem. This strategic expansion of our operations not only allows us to influence but also actively shape the future contours of the digital art landscape. By championing promising artists and pioneering projects, we ensure that our engagement is both impactful and transformative, cultivating a rich, quality-centric ecosystem that aligns with our values and our vision for the future of art.
We are inspired by the potential of NFTs to democratize access to art, dismantling traditional barriers and heralding a new epoch of participation and engagement. Our ambition is to enhance accessibility and adoption, fostering recognition and embrace of the inherent value and appeal of digital assets by a broad and growing audience. We envision a future in which the digital art space is not only more inclusive but also more interconnected, nurturing a global community of creators, collectors, and enthusiasts.
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