Leveraging Collective Intelligence to Price the Unpriced
The traditional financial sector can be improved enormously by the innovative tools of DeFi and cryptocurrency. These changes are happening now and fast. As the DeFi space and the traditional finance world converge, the needs and expectations of having real-world assets in the DeFi space are also growing simultaneously. Pricing these assets in a decentralized manner is an inevitable process of bridging the two worlds together.
Decentralization can remove the “trusted” intermediaries of the financial world, creating more efficiency, transparency, and better pricing for everyone. This is also an essential part of further integration of DeFi and traditional finance in the long run so that communities can offer their financial services without relying on banks, brokerage, valuation experts, and other intermediaries. Although existing oracles can bring pricing information to DeFi, most of these protocols cannot provide the information promptly. None of them are specialized in private and hard-to-value assets.
With all that in mind, Lithium Finance — a new type of pricing oracle that uses collective intelligence to price the unpriced — could be the key to open the door and bring real-world assets into the DeFi space.
The Power of Collective Intelligence
Lithium Finance is an on-chain pricing oracle that fills one of the most important missing links between real-world asset investment and DeFi. The protocol leverages collective intelligence to price real-world assets, especially assets that are hard to value, such as pre-IPO stocks, private equity, and other illiquid assets.
There are two major stakeholders in the Lithium system: Wisdom Nodes; and Wisdom Seekers. Those seeking answers to questions about the price of an asset will use LITH tokens — Lithium’s native token — to provide a bounty, and those with expertise in delivering answers will stake LITH to signal confidence in their answers. This method of finding the dominant truth by asking subject questions is known as the Determinant-based Mutual Information mechanism or DMI-Mechanism.
Traditionally the only way to price a real-world asset is to hire expert appraisers who have been trained and hold credentials. The process is slow and expensive and therefore limited to few assets. With Lithium Finance and its powerful DMI mechanism, we will be able to source prices for any asset through a decentralized honest-rewarding protocol, all on-chain.
Lithium Use Cases: From Pricing Private Companies to Century-old Antiques
Lithium could be an excellent choice of oracle in many scenarios, from pricing a share of unicorn companies to a fine piece of a century-old antique. Let’s take a look.
Consider a potential investor in Stripe, SpaceX, or another highly valued private company, who may wonder just what would be a fair price per share. Data on the company’s earnings are private, proprietary, and carefully guarded. Even if we had access, revenue or EBITDA numbers would only be a small piece of the overall valuation puzzle. Because allocations in companies like these can be rare, sellers use the psychology of fear of missing out and other tools to create the perception of scarcity and use that to drive the price higher. Some of the brokers may even make matters worse. In some cases, they could covet their information and are reluctant to share without the proper incentives, leaving many accredited and other retail investors in the dark on the question of, “What would be a fair price for this stock?” Lithium leverages proprietary algorithms to poll a community of experts who are incentivized to win LITH if their answers are determined to be high-quality and to lose them if determined to be low-quality. The imperfect information in the market relished by investment banking and brokerage firms is unfair to investors like you; we have a new way.
The housing market is another field that will let Lithium showcase its strength. Let’s say a potential buyer who wants to purchase a great apartment. The market is hot, and the listing price has been skyrocketing. This potential buyer could have been wondering when the price would drop, even just a little. Of course, the buyer doesn’t want to spend the money on an appraiser, and the seller probably won’t even allow it. After all, valuation is an organic, market-driven process. When real estate assets sell, it is the product of an auction. However, crucial data, accounting for real-time market conditions and sentiment, and the opinion of other professionals and buyers on the specific property are all missing from the equation. Lithium can comb through these responses using machine learning and data science to generate our best estimates from the raw data inputs.
Have you ever seen the antiques roadshow? We wouldn’t want to put one of our favorite television shows out of business, but… We can create a community to price the antique watch you saw on eBay and liked. The more data our protocol collects on any given asset, the more accurately we can price others. Collectible items and antiques represent another attractive market segment for our pricing oracle.
Lithium Finance is working to build an on-chain pricing oracle to price real-world assets more efficiently, more transparently, and more accurately. The above cases are just some of the many examples of what Lithium can achieve, and the sky’s the limit when it comes to application scenarios. We encourage DeFi communities to learn more about our protocol design from our official website and litepaper. Please also subscribe to our mailing list, follow our Twitter, join our Telegram chats and stay connected to learn more!