Future Use Cases & Limitations

6.1 Future Use Cases

6.1.1 Equity Financing

Creating an Escrow Vault to receive equity financing will require initiating an Equity Financing Request. This will involve depositing an rNFT and submitting financing documents such as a pro forma, offering memorandum, and/or business plan to a decentralized Underwriting network. Underwriters review financing requests and approve or deny these requests based upon a predetermined risk framework. Once a financing request is approved, the Underwriters submit their response to the EV which generates a request from the Tokr Market to send the financing proceeds in USDC to the vault. This creates an obligation of the user to repay these proceeds, make cashflow distributions, and/or payout proceeds of a sale pro-rata in order to retrieve their rNFT from the EV. The rNFT is held in the EV to give the Tokr Market involved a first lien on the real estate asset in the event of a default.

6.1.2 Proof of Value Oracle

Decentralized Oracle networks enable the creation of hybrid programs, where on-chain code and off-chain infrastructure are combined to support advanced dApps that can react to real-world events and interoperate with traditional systems. [4]

The Proof of Value Oracle will be a price feed that stores the most recent valuation of a property and estimates the real-time value of an asset. The oracle can make this information available to anyone seeking to understand the current value of an rNFT in real-time. The oracle could provide a risk score and incorporate financial reporting by borrowers, on-time payment information, market, and other information.

6.1.3 Decentralized Rating Agencies (DRAs)

Traditional credit rating agencies (CRAs) operate by issuing and updating ratings on a variety of financial instruments, most notably debt. Debt issuers are incentivized to pay a CRA to conduct the due diligence required to issue a rating (to be clear – not for a particular rating itself) due to the reduction in uncertainty that such a rating provides the market. Debt issuances with higher ratings have less uncertainty than those with lower ratings and the market rewards or punishes the issuance by naturally adjusting its required yield accordingly.

Borrowers could interact with a DAO functioning as a CRA to replicate this process in a decentralized manner. The DAO would perform its due diligence on a reserve in exchange for a fee which would be allocated to DAO members in whatever manner the DAO agrees is appropriate. A rating that passes the approval process would then be associated with the specific reserve representing a particular issuance.

DRAs are incentivized to provide the most accurate ratings as possible in order to continue to attract business from borrowers. A DRA that provides inaccurate or inconsistent ratings would be discounted by the market over time to reflect that increased uncertainty around the rating itself, thereby increasing the market determined rate. On the contrary, accurate and consistent DRAs would naturally rise to be among the most competitive due the value they provide the market and, in turn, the borrower.

6.1.4 Other Asset Types

The Tokr protocol establishes a foundation for Tokr Markets that can be applied to asset categories other than real estate. We chose to first focus on real estate, but intend to expand into other use cases such as financing private companies and factoring receivables. Each asset type will have its own framework and standards for the rNFT minting process and will be customized to fit the nuances unique to each use case.

6.2 Limitations

Tokenizing real property for use in DeFi markets introduces risks not associated with cryptoassets, including but not limited to subjective matters of value, human error, and legal disputes that can arise from operating in the built world. A robust dispute resolution, arbitration, and debt collection protocol (herein referred to as the Resolver) is needed to maintain the trust needed for a scalable DeFi market to form, backed by real property ownership. Additional legal and regulatory considerations must be explored, some of which are identified in the Disclosures & Disclaimers section contained herein.

Additionally, this whitepaper and initial Tokr implementation do not enable rNFTs to be fractionalized when they are deposited to EVs for loans. That means that rNFTs can either be fractionalized or they can be used as collateral assets in Tokr Markets, but not both at the same time. Further, this limits the ability to raise equity and debt financing at the same time using rNFTs as collateral. We will iterate to improve the approach and will address this in subsequent versions of the whitepaper.