ArtDeFi establishes a lending pool that allows individual digital artists to enter the DeFi lending market with customized collateralization requirements through their credit scores originated from on-chain records of their artwork production and income streams.
Crypto art market is one of the interesting use cases on NFTs (non-fungible tokens) in these days where individual digital artists can publish their artwork and get NFTs in return where people can own and trade. Crypto art has 2 unique properties over other NFTs. First of all, each NFT is originated from individuals rather than pre-created in a platform (e.g. a game, a virtual world) - general public who has ability to produce artworks can do so. Secondly, there is continuous income stream throughout the lifecycle of crypto artwork. Even if it's on secondary market, the artist (the original creator) is able to get portion of sales (usually 10%) through any secondary sales (a.k.a. royalty - see https://blackbox.art/royalties/). The income stream is recorded on-chain rather than off-chain. In DeFi lending market, the collaterization ratios are quite high (up to 700%) and this makes lending of cryptos inefficient. With the aforementioned properties in crypto art world, it's possible to differentiate an individual artist with others and establish credit scores, without asking for more additional information, and hence customize lower collateralization requirements for them. ArtDeFi evaluates artists’ credit scores through on-chain artwork production and income streams, and establishes a lending pool with customized collateralization ratios based on the credit scores. ArtDeFi is expected to benefit the participants in the whole ecosystem: 1) Crypto Artists – borrow with lower / customized collateralization ratios in light of their reputation and increase adoption to DeFi 2) ArtDeFi Depositors – fill in the “collateralization” gaps with stable returns with presumably quality artist borrowers 3) Aave – introduce new source of liquidity
How it's made
The project consists of 3 main components - the on-chain data collection of artists’ artworks and income streams, the smart contracts to evaluate credit scores and manage deposits and loans in the pool with the resulting collateralization, as well as the front end for artists and depositors to interact with the pool. TheGraph is used to collect on-chain data from two decentralized platforms – SuperRare (https://superrare.co) and Async Art (https://async.art). It includes the artworks created, the relevant metadata (e.g. bids, ownership changes, etc.), primary income and royalty through primary and secondary markets respectively. TheGraph (https://thegraph.com) is able to capture all historical information since inception. Chainlink (https://chain.link) plays a key role to query the needed information on-chain from TheGraph web services on-demand for credit scoring. The evaluation of artist credit score is done through smart contract. For now it’s a simple linear model to compare the collected income streams and the given loan amount. Having said, more complicated model can be built based on other parameters like artwork production frequency, etc. A specialized lending pool was built for this, and it heavily relies on Aave (https://aave.com) to gain the needed interest and redirect loans. Through our front end user interface, ArtDeFi users can interact with our pool smart contract that manages the incoming deposit and loans. The current version handles DAI which is available in Aave’s Kovan testnets. The future work includes the extension to other ERC-20 token combiantions in the specialized pool, additional handling of artist’s privacy through zero-knowledge proofs, and further exploration of covering other NFTs with similar properties like crypto arts.