Decentralizing Event Financing — Liquidity x DeFi x NFTs
For the last couple of months we have been working hard on adding a new feature set to our protocol. In this blog I’ll provide a high level overview of what we are building in regards to DeFI and why we believe it to fit the markets needs.
Disclaimer. Most of the features and subjects discussed in this blog are still in development. Hence none of what is stated should be considered set in stone. All concepts, figures and processes are subject to change or could be eventually not pursued at all!
The DeFi craze of 2020
DeFi has been all the rage in crypto for the few months. A lot of crypto-projects have suddenly come out of the woodwork by claiming to also be a DeFi project or offer features to facilitate the use case — in an effort to piggyback on the craze.
Surely we can’t help but to join their shameless opportunistic ranks. However, it should be noted that we already discussed our en-devours before de DeFi hype as documented in several blogs published this year (1,2).
If you ask my humble opinion crypto was always ‘DeFi’ all along (since the issuance of Satoshi’s white paper way back). The sudden surge in popularity seems more about the DeFi label and a ramp in value of several DeFi projects, than it is due to any particular innovation being recognized suddenly. Regardless let’s move forward.
The inefficiencies in traditional event financing
Decentralization only makes sense if it yields improvements in efficiency large enough for the change to occur. There needs to be momentum. Over the years we have concluded that event financing is a highly inefficient market — with the organizers getting the short end of the stick.
In the next paragraphs I will break down the difficulties to why even reputable and successful event organizers have troubles in financing their event. There are of course very legit and economic reasons why a lender would not want to provide capital to a event. A good portion of events do not sell all tickets, or are heavenly reliant on the weather to be profitable, or have no trackrecord of being popular. We are not talking about these types of novel/unproven events here. The use case for our financing tooling will be large artist world tours, festivals with 10 years of record and A-level comedians. Not mom and pop first time beer festivals.
About event financing
Large events require huge amounts of upfront capital to bankroll. Regardless of the amount of times an event has fully sold out, finding financing is always a challenge for organizers. This while the financing is needed for a relatively brief period of time. The money is mainly needed as a bridge between the reservation of the venue and deposit payment to the artists and the ticket sale (generally 6–10 months).
Why financing for events is deemed so risky is far too complex of a subject to convey in a few paragraphs. It is well known fact that banks have largely stepped out of providing loans to businesses and start ups. This role of providing financing has, in other sectors, been taken over by private investors and funds. In ticketing most financing is now provided by ticketing companies (more on this later).
The bottom line explaining the challenges in finding reasonably priced credit is that the loan collateral are effectively the tickets. Surely a borrowers brand and equity can used as collateral but in the end it is the tickets that are assumed to generate the future cash flows. Tickets are fleeting/wasting assets that are hard to access fair value of (partly because there is a chance the tickets will be worth nothing at all).
In short; it is well known in the industry that is very challenging and expensive for organizers to find sources of credit. Even when this credit is needed for a brief time for events that have a well documented record of successful editions. Due to the lack of alternative lenders, organizers and artists have no other option than to take loans from conglomerates like Ticketmaster / EventBribe. Not only can the interest they charge be steep, they often add loan requirements as the usage of a certain ticketeer (Ticketmaster).
As ticketing companies have access to large amounts of historic sales data. This puts them in the best position to access the risk of financing events. In addition, ticketing companies operate a service that is first to touch the cashflows generated by the events ticket sale. Due to this, the lender/ticketeer has direct leverage to ensure repayment of the loan.
Due to the pandemic even the once so aggressive conglomerates as Eventbrite (fired 45% of staff, left Dutch & other markets) and Live Nation (have had problems with outstanding debt) have been bitten and have since been less inclined to take on more risk. We already see that the event sector is becoming strapped for credit.
We perceive this as a huge opportunity to introduce DeFi to the yields of financing and organizers to an open market of funding and collaterization.
Where before Covid there was a market opportunity to offer better terms to organizers whereas still offering good yields to investors, this opportunity has grown significantly. Time to execute on it.
The GET Protocol approach to finance
Our DeFi investment module, will offer tooling for organizers to sell their ticket inventory forward. This is achieved by tokenizing the future tickets in an NFT. This system will be non-custodial as the NFT tickets hold the rights to activate and distribute the tickets as the primary sales starts. The diagram below gives a rough outline of the system.
Targeting DeFi investors
Most users of DeFi are currently extracting yields of the pricing inefficiencies created by volatile pairings of cryptocurrencies. While this has been a very profitable en-devour for a while, yields have been normalizing.
We believe that the next boost in DeFi users will be from main stream users that using the infrastructure without really realizing it. Ticketing is an area where people are interacting in price discovery without really realizing it. In addition tickets are digital asset, combining these two characteristics leaves us with an excellent entry point to apply DeFi principles.
Misaligned supply & demand, erratic pricing
We know from our data that supply and demand of tickets in event ticketing isn’t matched. Whereas currently these scalpers are the main beneficiaries of this, we are certain that with the help of liquidity pools big improvements in efficiency can be achieved.
If you think about it liquidity poules as they are found on Uniswap already solve this supply/demand misalignment using bonding curves.
Example — Selling a event ticket to a stable coin poule
Let’s say a fan isn’t able to attend an event and decides to put their ticket for sale(as the organizer isn’t buying it back). In this case the fan will only receive their money back if there is demand for the ticket in the secondary market. In this new system we are building the fan could be offered the option to sell the ticket immediately but for 80% of the price.
Some sellers will choose the certainty of selling the ticket for sure for less over taking the risk of not selling the ticket at all. While in this case the selling fan might think the organizer is buying their ticket back, this isn’t really the case. With the GET Protocol liquidity poule the ticket would be sold to a stable-coin poule funded by DeFi investors whom are market making the secondary market for a large set of ticket NFTs.
The offered ‘sell now’ price for that particular ticket that is offered to the fan by a bonding curve that classifies the ticket NFT based on data and poule risk parameters. If demand has been low for the category of ticket, the poules bonding curve will offer a discounted ‘sell it now price’. Vice versa, if demand has been high, the fan will be offered a higher price as they paid for initially by the bonding curve. The poule as a whole is projected to make a certain yield as they ensure they always have a large enough spread to cover the risks.
This might sound far fetched of a concept but exactly what is described is already happening in the poules of Uniswap and Balancer poules. All these poules do is market-make by connecting sellers with buyers — without taking a directional position in the asset. Thereby guaranteeing margins assuming a certain stable price (something that is more achievable with tickets as it is with speculative tokens!).
Liquidity staking & more
We will be introducing staked liquidity poules where investors can act as market makers for tickets sold and bought on the secondary market.
Initially the GET Protocol will act as gatekeeper to ensure all NFT tickets in the poules have a rating of likely to be in high demand. Thereby ensuring a yield fitting to the risks.
After this process the intention is to open up the creation of poules and thus democratizing financing. All these poules will require GET staked as skin in the game to both provide capital as access it. Surely there is always a risk, hence there needs to be a robust framework that is data driven that can value ticket NFTs in real time (similar to how the greeks in option pricing).
In the end our goal is to make using the GET Protocol not only the more honest choice but also the more profitable one. By locking in value and credit (see example above) we will, in time, be able to ensure that selling tickets via te protocol is simply more profitable.
Uniswaps Sock market
Uniswap has been experimenting with unique assets in liquidity poules for a few months now. Read the article linked below to get a feel on the concept of bonding curve pricing and unique assets.
Money Laundry: The Rise of the Crypto Sock Market
Crypto winter is over, and the pace of innovation in the blockchain space is accelerating. ICOs are out, and…
Selling gimmicky socks to crypo-savy speculators is a different cup of thee as buying and selling thousands differently priced tickets for mainstream (non crypto savvy) buyers and sellers. The GET Protocol has sold close to 500 000 smart tickets to date and thus is ideally positioned to spearhead this effort!
Invitation to cooperate with other DeFi projects
Cracking primary and secondary market ticket is going to be exciting but quite rewarding problem to tackle. Hereby we would like to invite anybody in the DeFi and/or NFT space to chip in and think along. The market is so large and stretches so far beyond concert tickets that there is no need to revert to tribalism.
For both financing applications GET staking and liquidity provision will be required. As it stands now we expect to roll out our features in the following order:
- Liquidity provision + Staking for GET (in progress)
- Wallet & NFT infrastructure, custodial and non-custodial (in progress)
- Creating a pricing framework allowing us to batch NFTs in a single poule (planned)
Say hello to the new dedicated blockchain team
For the last 4 years we have been working with one single development team(17 devs). This was needed as back-end and front-end where constantly evolving, making it hard to split in more team efficiently.
As a fully operational protocol with paying clients (main stream artists, theaters and museums) we often receive pressing requests for certain features to be built. As our operational momentum is our unique value proposition, our strategy is to build what makes us sell even more tickets.
We might not be listed on Binance/Coinbase but we sure as hell have more active users than 95% of the projects that are listed there. Ensuring we remain able to make this claim does often lead us astray in building less cutting edge features (for good reason).
Regardless of this sound strategy, it became apparent that delivery of our innovative blockchain features was falling behind. In addition, no meaningful progress has been made in open sourcing the protocol — something that is rather ironic for a project claiming the transparency higher ground. Point taken.
The foundation is in, let’s go vertical
We concluded that after 4 years of constant changes to the back-end, we are now at a point where we can assume some ‘primitives’ will remain unchanged. This has allowed us to set up a second development team that will exclusively focus on blockchain features. I (Kasper) will be leading this effort together with Joao and Mark (a new addition to the team)! Welcome :)
The progress we have made in the last couple of weeks has been impressive. The first repo we developed has already been open sourced. I have no doubts that many more will follow!
More about GET Protocol
Where to buy GET
Want to get your hands on some GET tokens? Here’s an easy guide.
If you would like to see the GET token listed on specific exchanges, the best way to do this is to (publicly) let exchanges know about the project. The more they hear about it from actual traders, the better!