Unleash the creative juices with decentralized funding
Decentralized technologies are starting to revolutionize the financial world, with cryptocurrencies being used in different ways to mimic traditional financial instruments. However, because cryptocurrencies are only backed by people’s trust in them, they are very volatile. That said, when it comes to crypto credit value, neither party can be sure that they will get a fair deal.
There has to be a way to secure the value of loan assets by backing them with real value. This is where the tokenization of real assets begins. The process is pretty straightforward when we look at tangible assets like a building or bullion, but what about intangible assets like intellectual property?
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The rise of the creative industries has resulted in intangibles making up more than 90% of the S&P 500’s market value, a number that is only set to grow. There has to be a way to unleash more creativity in order to realize the potential of human capital.
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Getting started in financing in the creative industries is a major challenge, especially for newcomers. As many entrepreneurs in this niche have found, sometimes it’s a lot easier to give away a good idea than to turn it into a business.
Creativity, by definition, disrupts what was before; It’s about new ideas, new technologies, new products, new services, and new ways of doing things. Driven above all by the digital revolution, many creative industries are not only innovative in what they do, but also in the way they do it.
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Raising capital can be difficult for a number of reasons. First, banks and investors tend to be conservative. They like certainty and are hard to impress by an avid entrepreneur who believes that an idea – be it a design, software tool, timing concept, website, or video game – is completely new and untested – will be commercially successful. In addition, banks want collateral for their loans, but many innovative companies do not have the necessary capital.
Stumbles in game state
Investors who specialize in the creative industries can really see 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 marketing. This may seem unacceptable to the creative entrepreneur who prefers debt financing in the form of loans to equity financing in the form of co-ownership and control over working with investors.
Alex Shkor, founder of DEIP – a company that creates a protocol for the creative industries – explained to me, “In order for creators to tokenize their work and secure it for funding, it takes a series of smart contracts, can register assets in the chain, issue NFTs , evaluate assets and manage both collateral and liquidations in the event of default. “
Credit line for the creative industries
Just as loans can be granted against collateral in the real economy, they can also be granted in the creative industries.
Imagine a game developer (let’s call him Jane) starts working on a side project. After some time and positive encouragement from friends and family, Jane decided to take the plunge and turn her side project into a full-time job. But after a few months, and with slower progress than originally expected, Jane’s funds began to run dry; they started looking for full-time roles again. This situation is common with aspiring YouTubers.
With a decentralized intellectual property platform, however, Jane’s work progress can be measured by a decentralized rating system that gathers her expertise. This inherent value is used as input to calculate the mortgage, the amount of credit it can be issued on. Jane can use the loan offered to them for whatever they want; in this case, to support themselves as they complete game development.
In addition, newcomers can be granted a small loan with or without collateral. If Jane has no projects, finished creations or partial productions, she still has the option of receiving start-up funding as a newcomer on the platform. The loan amount will be less because it is unsecured and the loan itself is supported by a decentralized autonomous organization (DAO) and the budget comes from its ecosystem fund. The source of this fund comes from transaction fees and payments for the bandwidth allocation of the underlying blockchain.
If the loans are repaid on time, Jane’s personal credit rating is increased. If Jane wants to apply for another loan in this case, the collateral factor is lower so that they can take out more loans.
If Jane defaults on her loan, all collateral is taken over by the platform and can be sold for cash through smart liquidation contracts. If Jane does not pledge anything, the risk of failure will be recognized by the platform and insured by the DAO.
As long as the issuer’s credit history is solid and confirmed positively with each new loan, the next batch can be iteratively issued with improved terms. Credit history becomes an integral and immutable part of a Creator’s reputation profile. As Shkor noted:
“The whole point of Web 3.0 is to enable a decentralized creative economy, and all the technologies for that already exist.”
He continued, “We just need to push the adoption of these technologies in real industry, in the creative industries, for creator-generated assets. Not only will it increase the liquidity of creative industries assets, but it will also open up an inflow of capital for creatives. “
Alexandra Luzan is a doctorate. Students study the connection between new technology and art at Ca ‘Foscari University in Venice. Alexandra has been hosting technology conferences and other events in Europe dedicated to blockchain technology and artificial intelligence for about a decade. She is also interested in the relationship between blockchain technology and art.