DeFi and Web 3.0: Unleashing creative juices with decentralized finance

Decentralized technologies are starting to revolutionize the world of finance, with cryptocurrencies applied in different ways to recreate traditional financial instruments. However, since cryptocurrencies are only backed by people’s faith in them, they are extremely volatile. This means that when it comes to lending value with crypto, neither party can be sure of getting a fair deal.

There has to be a way to secure the value of the loaned assets, which can be done by backing them up with real world value. This is where the tokenization of real assets comes in. This process is fairly straightforward when you consider tangible assets like a building or gold bullion, but what about intangible assets like intellectual property?

Related: Understanding the systemic shift from digitalization to tokenization of financial services

The rise of the creative economy has led to intangible assets representing more 90% of the market value of the S&P 500, a number that will only grow. There must be a way to unleash more creativity to realize the potential of human capital.

Launch funding for creators

Finding a start-up in the designer economy is a big challenge, especially for newcomers. As many entrepreneurs in this segment are discovering, sometimes it is much easier to convey a good idea than to start a business from it.

Creativity, by definition, disrupts what came before; it’s about new ideas, new technologies, new products, new services and new ways of doing things. Driven in large part by the digital revolution, many creative industries are not only innovative in what they do, but in the way they do it.

Related: Bull or bear market, creators dive headfirst into crypto

Fundraising can be difficult for several reasons. On the one hand, banks and investors tend to be conservative. They like certainty and are unlikely to be impressed by an enthusiastic entrepreneur who is convinced that an entirely new and untested idea – whether it’s a design, a software tool, a fashion concept. or a video game – will be commercially successful. Additionally, banks want collateral for their loans, but many creative businesses have no capital to offer.

Stumbling blocks in the inventory

Investors specializing in the creative industries can indeed recognize the genius of an entrepreneur. But in return for their investment, they often want some ownership of the idea and, therefore, some control over its development and commercialization. This may seem unacceptable to the creative entrepreneur who prefers debt financing in the form of a loan over equity financing in the form of shared ownership and labor control with the investor.

Alex Shkor, the founder of DEIP – a company that develops a protocol for the economics of creators – explained to me: “In order for creators to symbolize their works and guarantee them for funding, there has to be a set of contracts. intelligent, which can register assets on chain, issue NFTs, value assets, and manage both collateral and liquidation in the event of default.

Lending framework for the creative economy

Just as loans can be issued in the real economy on the basis of collateral, so can they be issued in the originator economy.

Imagine a game developer (let’s call her Jane) who starts working on a side project. After some time and some positive encouragement from friends and family, Jane decides to take the plunge and convert their side project into a full-time job. But a few months later, and with slower-than-expected progress, Jane’s funds start to dwindle; they’re starting to look at full-time roles again. This situation is common for aspiring designers.

However, with a decentralized platform for intellectual assets, Jane’s progress on their work could be assessed by a decentralized appraisal system that pools the expertise of people in the field to give the unfinished creation an assessment. guided by the intrinsic value of the idea. This inherent value is used as input for calculating collateral, the value of the loan for which it can be issued. Jane can use the loan offered to her for whatever she wants; in this case, to support themselves while they finish game development.

In addition, with or without collateral, a small loan can be granted to newcomers. If Jane does not have a project, a ready-made or half-done creation, she still has the possibility of initial funding as a newcomer to the platform. The loan amount will be smaller because it is unsecured and the loan itself is supported by the segment’s Decentralized Autonomous Organization (DAO) and budgets from its ecosystem fund. The sources of this fund come from the transaction fees and bandwidth allocation payments of the underlying blockchain.

If the loans are repaid on time, Jane’s personal credit rating will improve. In this case, if Jane wants to apply for another loan, the guarantee factor will be lower, which will allow her to borrow more.

If Jane defaults on her loan, all secured assets are taken over by the platform and can be sold to recover the funds through smart liquidation contracts. If Jane has nothing guaranteed, the default risk is realized by the platform and covered by the DAO.

As long as the creator’s credit history is strong and confirmed positively with each new loan, the next installment can be issued with improved terms and conditions iteratively. Credit history becomes an integral and immutable part of the reputation profile of the creator. As Shkor noted:

“The goal of Web 3.0 is to enable a decentralized designer economy and all the technologies for that already exist.”

He continued, “We just need to drive the adoption of these technologies in real industries, in creative industries, for assets produced by creators. This will not only increase the liquidity of the assets of the creators’ economy, but will also open up a flow of capital to the creators. ”

The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Alexandra Luzan is a PhD student researching the link between new technologies and art at Ca ‘Foscari University in Venice. For the past ten years, Alexandra has been organizing technological conferences and other events in Europe dedicated to blockchain technology and artificial intelligence. She is also interested in the relationship between blockchain technology and art.

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