As decentralized technologies begin to revolutionize the world of money, cryptocurrencies have been used in a variety of ways to recreate traditional financial instruments. However, since cryptocurrencies are not supported by anything other than people’s trust in them, they are highly volatile. This means that when it comes to borrowing with crypto, neither party can be sure that they will get a fair deal.
There needs to be a way to secure the value of the assets acquired, which can be done by supporting them with a price in the real world. This is where tokenization of real wealth comes into play. This process is quite straightforward when we consider real assets like a building or gold bars, but what about indomitable assets like intellectual property?
Related: Understanding the systemic shift from digitalization to tokenization of financial services
The rise of the creator economy has led to the indomitable wealth of more than 0% of the market value of the S&P 500, which is destined for growth only. There needs to be a way to unlock more creativity to realize the potential of human capital.
Kickstarting Creator Financing
Finding a start with financing in the Creator Economy is a particular challenge, especially for beginners. As many entrepreneurs in this segment discover, sometimes it is much easier to give a good idea than to build a business from that idea.
Creativity, by definition, disrupts what has come before; It’s about new ideas, new technologies, new products, new services and new ways of working. Widely driven by the digital revolution, many creative industries are not what they do but how they do it.
Related: In the bull or bear market, manufacturers are diving into crypto early on
Fundraising can be difficult for a variety of reasons. For one, banks and investors tend to be conservative. They like the certainty and are less likely to be influenced by an enthusiastic entrepreneur that they have a completely new and unconventional idea – be it a design, a software tool, a fashion idea or a video game – that will be a commercial success. In addition, banks require collateral for their loans, but many creative businesses have no capital.
Stumbling while playing
Investors who specialize in the creative industry can actually recognize the talent of an entrepreneur. But in return for their investment, they often want some ownership of the concept and therefore some control over its development and marketing. This may not seem acceptable to creative entrepreneurs who prefer debt n-finance in the form of loan n rather than equity finance in terms of ownership and control of work with investors.
Alex Shaker, founder of DEIP, a company that creates a protocol for the Creator Economy, explained to me, “To be able to tokenize their work and guarantee their funding, manufacturers need to have a set of smart contracts that can register on-chain assets. , The NFT can issue, assess assets and handle both collateral and liquidation in the event of default.
A framework for a creative economy
Just as loans can be made in real economics based on collateral, they can also be made in a creative economy.
Imagine a game developer (let’s call them Jane) who started working on a side project. After a while and after some positive encouragement from friends and family, Jane decides to jump in to turn their side project into a full-time job. But over the months, and with slower-than-expected progress, Jane’s funds began to dwindle; They began to consider full-time roles again. This situation is a common one for emerging manufacturers.
However, through decentralized platforms for intellectual property, the progress of their work in Jane can be assessed by a decentralized evaluation method that builds human capacity in the domain to provide an assessment guided by the underlying value of the concept of incomplete creation. This underlying value is used as input for calculating collateral, the value of the loan on which it can be issued. Jane can use whatever loan they want; In this case, to support them when they finish the development of the game.
Moreover, with or without collateral, a small loan can be provided for newcomers. If Jane doesn’t have any project, readymade or partmed creations, they have the opportunity to make initial funding as a newcomer to the platform. The amount will be small because it is insecure, and the segment itself is supported by budgets from decentralized autonomous organizations (DAOs) and its ecosystem funds. The sources of these funds come from transaction fees and bandwidth allocation payments of the underlying blockchain.
If the loans are repaid on time, Jane’s personal credit rating will be upgraded. In this case, if Jane wants to apply for another loan, the collateral factor will be less, which will enable them to take more orrow.
If Jane defaults on their loan, any collateral assets can be seized by the platform and sold to recover funds through a smart liquidation agreement. If Jane has not secured anything, the default risk is realized by the platform and covered by the DAO.
As long as the creator’s credit history is firmly and positively confirmed with each new loan, the next terms can be issued with later improved terms. Credit history becomes an integral and irreplaceable part of the Creator’s honorable profile. As Shakor mentioned:
“The whole purpose of Web of.0 is to have a decentralized creative economy and all the technology for it already exists.”
He continued, “We only need to adopt these industries in real industry, in the creative industry, for the resources produced by the creators. This will not only increase the liquidity of the resources of the creator’s economy, it will also open up capital flows to the producers.”
The opinions, thoughts and opinions expressed herein are the sole property of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Alexandra Luzan A PhD. Students at Ca ‘Foscari University in Venice have been researching the connection between new technology and industry for nearly a decade, and Alexandra has been hosting technology conferences and other events in Europe dedicated to blockchain technology and artificial intelligence. He is equally interested in the relationship between blockchain technology and industry.