The rise of the creator economy has led to intangible assets now accounting for over 90% of all the value of companies listed on the S&P 500, and this is only set to grow. As we begin to prize knowledge and intellectual creation more, we need a way to assess the value of creations better and, as a result, unlock more creativity to realize the potential of human capital.
Loan system
A decentralized system for loaning funds for intangible assets in the creator economy is one way to unlock more value in the creator economy. Such a system has the potential to boost DeFi by backing crypto assets with real assets.
Securing crypto with real-world assets will lead to a dramatic improvement of price stability: something that is hampering the adoption of DeFi instruments right now.
Using a decentralized framework, intellectual creations can be appraised by an assessment system that will pool the knowledge of domain experts to assign value to ideas and (un)finished intangible assets that anyone could have created.
Let’s take a look at precisely how this works.
Appraisal as is
In the world at the moment, there are currently three different methods to put a valuation on intellectual property (IP). Valuations are based on:
- Cost
- Market
- Income
Cost-based valuation
This type of valuation takes into consideration both how much it cost to create the asset historically and how much it would cost to recreate it given current rates and costs of inputs.
For example, how much a software product for video conferencing costs to develop as the basis for its value assessment.
Market-based valuation
Market valuations look at comparable transactions, whether sale or purchase, of similar assets to arrive at conclusions of value. In short, they use the current market values to appraise an asset.
For example, how much a SUV design is sold for at current rates to make a valuation.
Income-based valuation
Income-based valuation looks at the stream of income attributable to the IP based on the historical earnings and expected future earnings.
For example, how much revenue royalties from a musical composition are generated over a set period of time to assign a value to newly created compositions.
These three types of asset valuation can assist in placing a value on raw ideas. In turn, this can help in the appraisal of intellectual property assets along the complete innovation cycle: from ideation to commercialization.
However, for a more accurate appraisal, we need to apply a more flexible methodology at the early stages of IP-asset development, where the above-listed methods struggle to be applied.
Fair-value approach
To appraise early-stage IP, we need to adopt a fair market value approach. First, we need to consider the potential of an IP asset potential in three separate areas:
- Potential of industry segment (based on VC-segment investments from the previous year and rolling current year quarters)
- Number of patents within the segment in the previous year
- Number of research papers within the segment in the previous year
If we weight the areas according to their importance (70%/20%/10%) and consider previous work in the previous year compared to historical values, we can formulate a potential segment indicator.
This segment indicator gives an indication of the value of ideas in this area.
In addition to the overall segment assessment, we would need to apply two initial peer reviews with conditions (low, mid, high) based on the following criteria:
- Addressable market size
- Lead time to commercialization
- Level of disruption/innovation
For example: blockchain technology
- Potential industry segment: $2.6 billion so far this year
- Number of patents: ±1500 at the end of 2020
- Number of research papers: ±1000 (756 mid-2019)
- Addressable market size: medium
- Lead time to commercialization: medium
- Level of disruption: high
Together with the peer reviews and the segment assessment, understanding the overall trend for the IP asset class will help us come to a decent valuation of the asset.
Since the peer reviews may well take some time to complete, we can use the overall segment assessment as a rough value for trend assessment. By doing so, we can assess the value of the initial IP asset from day 1 and forecast the price development of underlying F-NFTs or pools of them.
After finalizing the initial IP asset trend assessment, we carry out a continuous peer review using a protocol for the evaluation of intellectual capital, where related expertise will contribute to the continuous development of the asset in terms of quality and reputation. AI/ML models can be initiated based on the trend assessment, along with agent-based simulations which improve with each iteration in terms of IP asset development trends.
Decentralized assessment system
As we can see above, the decentralized assessment system implements:
Continuous peer-review crowdsourcing
The core idea of the assessment is to continuously review contributions by people with similar competencies as the producers of the asset.
Assessment of the review
To increase the accuracy of the evaluation we introduce a second layer of assessment, which is basically an open assessment of the review.
Early-stage review incentivization
Provide incentives to experts who are ready to assess and appraise assets.
Multi-dimensional quality indicator
The result of the review process is a continuous log of structured data points, formalized by an algorithm in a metric that reflects the quality of an asset.
Review curation
Selection and organization of the expert reviews to give a final and transparent assessment of the asset.
All in all we can create a transparent system for intangible asset appraisal and even automate it. Assets appraised using this system can open up possibilities for collateralization and loan issuance with the assets used as securities. This is something that will be of great value when it comes to assessing NFTs or even fractions of them.
