The Rise of Income-Based Financing with DebtDAO: A New Option for Crypto Entities

On April 10th, it was announced that the encrypted credit agreement DebtDAO had been launched on the main network. Before the main network was launched, DebtDAO had undergone three months of beta testing, and the total transaction volume of the platform reached approximately $150000. It is reported that DebtDAO provides “income based financing” for crypto entities such as DAO and agreements, where borrowers do not need to sell equity or provide collateral, but instead pay a certain proportion of their income to lenders. Once the debt is repaid, borrowers will receive 100% of their income and receive all the value they create through the loan.

The encrypted credit agreement DebtDAO has been launched on the main website, providing “income based financing” without the need to sell equity or collateral

Introduction

On April 10th, DebtDAO, an encrypted credit agreement platform, was launched on the main network after three months of beta testing. The release of DebtDAO has brought a new option for crypto entities, particularly DAO and agreements, to access financing without needing to sell stakes or provide collaterals. Instead, DebtDAO provides “income-based financing,” a system where borrowers pay a certain proportion of their income to lenders. In this article, we will delve deeper into DebtDAO and its offering, including its features, benefits, and possible drawbacks.

What is DebtDAO?

DebtDAO is a protocol built on Ethereum, the second-largest crypto network, that aims to provide an alternative financing solution for peer-to-peer lending. With income-based financing, borrowers get loans from lenders without collateral or equity by agreeing to pay a certain percentage of their income for a given period, typically 18-36 months. DebtDAO’s income-sharing agreements (ISAs) are governed by smart contracts and can be traded on decentralized exchanges like Uniswap.

How Does it Work?

To participate in DebtDAO, borrowers have to register on the platform and submit their applications, including their income estimated for the coming year. Lenders can then select the borrowers they wish to fund based on their specific criteria, such as risk tolerance and expected return. If the borrower is selected, the amount they can borrow gets automatically determined based on their income, with a cap of 10% of their expected annual revenue. Once the loan is funded, the borrower is expected to start paying back a certain percentage of their income monthly until the total loan amount plus interests are paid up.
When a borrower’s income exceeds a predetermined threshold, as specified on the agreement, DebtDAO’s income-sharing agreements automatically terminate, and the borrower gets back to receiving all of their income. It is noteworthy that DebtDAO does not guarantee income, nor does it foreground collateral. Instead, it provides a low-risk funding option for borrowers without subjecting them to the traditional financing framework of equity and debt financing.

Benefits of DebtDAO

DebtDAO provides an innovative way to bridge the funding gap faced by many crypto startups and entities. With traditional equity or debt financing, a company is required to relinquish a certain portion of its equity or assets as collateral. DebtDAO, however, does not require borrowers to sell stakes or put up assets. Instead, borrowers pay a percentage of their income. This system helps crypto entities maintain control of their businesses and assets while still receiving much-needed funding.
Additionally, DebtDAO provides a flexible system where borrowers can design specific repayment plans, as agreed upon by both the borrower and lender. This flexibility allows for innovative financing solutions that cater to the borrower’s specific needs, which may not be possible with traditional financing options.

Possible Drawbacks

While DebtDAO provides an innovative financing option for crypto entities, it does come with potential drawbacks. First, being a new financing option, DebtDAO’s system is relatively untested and carries a higher level of risk compared to other traditional financing options. Second, the income-sharing concept is relatively new and may not be suitable for every investor and borrower. Some investors may prefer more traditional investment options with a fixed rate of return.

Conclusion

In conclusion, DebtDAO provides an innovative financing solution for crypto entities, allowing them to raise funds without relinquishing equity or providing collateral. DebtDAO has the potential to disrupt traditional financing options; however, it is important to recognize that it is a relatively new concept and carry higher risks compared to more established financing systems. Despite the potential drawbacks, DebtDAO represents a new wave of financing options that cater to the unique needs and requirements of the crypto ecosystem.

FAQs

1. Can anyone participate in DebtDAO’s Income-sharing agreements?
– Yes, anyone who meets the criteria can participate in DebtDAO. However, lenders may have specific requirements for potential borrowers.
2. How does DebtDAO ensure the legitimacy of borrowers’ income?
– DebtDAO utilizes third-party oracles to verify the legitimacy of the borrower’s income.
3. Is Income-sharing Agreements legal?
– Yes, Income-sharing Agreements are legal. The Internal Revenue Service considers ISAs as equity, and since DebtDAO’s system is built around smart contracts, it is legally binding.