Decentralized technology has begun to completely change the financial world, and cryptocurrencies are used in different ways to rebuild traditional financial tools. However, since cryptocurrencies have no support other than people’s belief in them, they are very unstable. This means that when it comes to borrowing value in cryptocurrency, neither party can be sure that they will get a fair deal.
There needs to be a way to ensure the value of loaned assets, which can be achieved by supporting them with real-world value. This is where the tokenization of actual assets comes in. When we consider tangible assets such as buildings or gold bars, the process is very simple, but what about intangible assets such as intellectual property?
The rise of the creator economy has caused intangible assets to account for Exceed 90% of the market value of the S&P 500 Index, this number will only grow. There needs to be a way to unleash more creativity to realize the potential of human capital.
Start creator financing
Finding the beginning of financing in the creator economy is a huge challenge, especially for newcomers. As many entrepreneurs in this field have discovered, sometimes it is easier to give up a good idea than to create a business with that idea.
Creativity, as the name suggests, subverts things before; it is about new ideas, new technologies, new products, new services and new ways of doing things. Driven to a large extent by the digital revolution, many creative industries are innovative not only in what they do but also in the way they work.
For a variety of reasons, raising funds can be difficult. On the one hand, banks and investors are often more conservative. They like certainty and are unlikely to be impressed by passionate entrepreneurs. They firmly believe that a new, untried idea—whether it’s design, software tools, fashion concepts, or video games—will succeed in business . In addition, banks want to provide collateral for their loans, but many creative companies have no capital assets to provide.
A stumbling block to game state
Investors who specialize in creative industries may indeed recognize the genius of entrepreneurs. But as a return on investment, they usually want to own the idea and therefore have certain control over its development and marketing. For creative entrepreneurs who prefer debt financing in the form of loans rather than equity financing in the form of sharing ownership and control with investors, this seems unacceptable.
Alex Shkor, the founder of DEIP (a company that establishes a protocol for the creator economy), explained to me: “For creators, in order to tokenize their work and provide collateral for funds, a smart contract is needed. , It can register assets on the chain, issue NFTs, evaluate assets, and manage mortgages and liquidation in the event of default.”
Creative Economy Loan Framework
Just as loans can be issued based on collateral in the real economy, they can also be issued in the creator economy.
Imagine a game developer (let’s call them Jane) starting a side project. After some time, with the active encouragement of friends and family, Jane decided to turn their side projects into full-time jobs. But a few months later, as progress was slower than initially expected, Jane’s funds began to decrease; they again began to consider full-time work. This situation is very common for fledgling creators.
However, through a decentralized knowledge asset platform, Jane’s work progress can be evaluated through a decentralized evaluation system, which brings together the expertise of people in the field, and evaluates unfinished creations guided by the intrinsic value of ideas. This intrinsic value is used as the input for mortgage calculation, that is, the value of the loan that can be issued. Jane can use the loan provided to them for any purpose they like; in this case, support themselves while they finish developing the game.
In addition, small loans can be issued to new immigrants regardless of whether they are mortgaged or not. If Jane does not have any projects, ready-made or partially produced creations, they still have the opportunity to obtain initial financing as newcomers to the platform. The loan amount will be smaller because it is unsecured and the loan itself is supported by the Decentralized Autonomous Organization (DAO) and the budget derived from its Ecosystem Fund. The source of the funds comes from the transaction fees and bandwidth allocation payments of the underlying blockchain.
If the loan is paid off on time, Jane’s personal credit rating will be improved. In this case, if Jane wants to apply for another loan, the mortgage factor will be reduced, allowing them to borrow more money.
If Jane defaults on the loan, the platform will assume any mortgage assets and can be sold through a smart clearing contract to recover the funds. If Jane does not mortgage anything, the risk of default is realized by the platform and covered by the DAO.
As long as the credit history of the creator is reliable and each new loan is positively confirmed, the next batch can be issued with iteratively improved terms and conditions. The credit history becomes an indispensable and unchangeable part of the creator’s reputation file. As Shkor pointed out:
“The whole purpose of Web 3.0 is to achieve a decentralized creator economy, and all related technologies already exist.”
He continued: “We only need to promote the adoption of these technologies in real industries, creative industries, and creators’ assets. It will not only increase the liquidity of creators’ economic assets, but also open up the flow of funds to creators.”
The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Alexandra Luzan It’s a doctor. Students study the connection between new technology and art at Ca’ Foscari University in Venice. For about ten years, Alexandra has been organizing technical conferences and other events dedicated to blockchain technology and artificial intelligence in Europe. She is also interested in the relationship between blockchain technology and art.