For fashion brands, the benefit of Decentralized Finance, or DeFi as it is known, is difficult to understand and navigate. Although there is a lot of potential upsides for companies, large and small, in the fashion space to create opportunities within this blockchain-driven world. Forbes speaks to Alex Lemberg, CEO of Nimbus, a DAO-governed ecosystem that offers 16 revenue streams for users on its one platform, on his perspectives on how engaging with DeFi can help the growth of fashion businesses worldwide.
How can DeFi become an alternative to classical financial sources for a fashion brand?
Here, if we consider a small-medium fashion company participating in DeFi, it gains access to alternative financing which might not be available in classical financial institutions due to a whole list of factors checked during risk assessment by banks. DeFi might not substitute the bank as an intermediary needed to process transactions, but it might substitute it as a source of permissionless financing.
However, if a company chooses DeFi in order to get a loan it means that this company already uses cryptocurrency thus it can transfer funds across the world in a fast, secure, cheap and transparent way and keep a close track of its financial operations. Along with this, DeFi opens doors for companies with higher profits to make more profit through lending mechanism.
Fashion companies performing profitably might use excessive profit to provide direct loans to other DeFi market participants at the same time differentiating their sources of income and receiving even more profit, thus increasing volume in their primary operations. Cryptocurrency and the ability to directly swap from one token to another bring more liquidity to a company along with the ability to use different products and services at the same time without any visits to centralized entities.
Can DeFi help brands interested in taking their companies overseas?
When a fashion company decides to move its production or expand it to another country or state, but it doesn’t have any credit rating in that state and still needs to have a source of finances to cover costs of such a move or expansion, DeFi options can be helpful.
Since there is no banking story in the new place, the company has no access to the local capital market, meaning that it will have to pass through an even more difficult process of obtaining loan in its home-country to cover international expansion and it might be the case that it’s just impossible. Platforms like my own might help here, since there is no definition of borders for DeFi protocols, meaning that you can use the platform as a source of finance to cover the costs of expansion abroad.
What about royalty and tax payment automated systems?
Fashion brands might use platforms like ours as an automatic royalty payment system for designers, meaning that designers who created a design might create an NFT token locked up under their name and receive automatic royalties paid to them for their design being used by a fashion brand. Along with that there is an option to use platforms like ours as a pre-payment system for collectible shoes from limited editions.
For such applications, one key capability of blockchain technology is smart contracts. Smart contracts are self-executing programs stored on a distributed ledger that automatically execute payments or related actions when specific conditions are met. The contract could trigger an automatic payment processing when a company verifies it has received a shipment. This would accelerate the transaction and at the same time reduce the likelihood of payment processing service errors. These could potentially automate manual processes from compliance and claims processing to distributing the contents of a will.
It can be used for automation of not only royalty payments or pre-payment, but also automatic payments of taxes. Fashion brands can utilize its smart contracts to make organized chunks of tax payments in order to cover such an accounting function.
Tell us about how data acquired when operating through DeFi can be used to a brand’s benefit.
NFC-chips are a great place to start. These chips are devices integrated into the design of a product in order for blockchain to gather, track and organize different types of information. This information might be how the logistics of products are organized, how much time it takes for a product to reach a shop or a warehouse. As well, it can be used to track other personal metrics such as, for example, related to shoes, steps, time or location of usage and gather relevant big data.
This data might be used to optimize production or product design and development. Along with that it provides a competitive advantage of incentivization of active users. Along with the ability to finance your operations through alternative Peer-to-Peer lending or borrowing it opens a new, previously not available, space for companies of different sizes and kinds.
Can designers sell designs as NFTs and collect royalties? How would a designer do this?
A designer might create a digital representation of a design piece and mint it into NFT as the first step. Then during the process of minting, which is basically a conversion of a digital file into a recognizable and unique token locked and distributed inside a blockchain, like Ethereum or Solana.
A designer might want to specify the conditions of the distribution of his/her token. For example, when Beeple, a famous digital artist, put on auction his “Crossroads”, it was resold on the secondary market for $6.6 million, which was 100 times higher than the initial price, however Beeple received 10% royalty fee from that transaction, since he included his royalty constraints when created a non-fungible token.
Since every single smart contract is basically a code, it means that it executes when some event occurs causing some other event to happen. In our case, a designer might mention inside a contract (a design converted into NFT) that every single time this token is bought, the system or platform should input a royalty fee and send it back to the original creator of a token.
Due to the fact that a blockchain is utilizing coding, the only limitation to constraints inside such smart contracts, like NFTs, is the imagination of the creator of this contract. A designer might input restrictions on the number of resales or uses of his or her token or how long royalties should be paid back to the original owner of a design or even a percentage paid.
Another limitation might be cross-platform sales, here the limitations are imposed by a platform originally used to mint a non-fungible token. In the near future, some of the conditions will be customizable and non-dependent on technological knowledge possessed by a user, or in our case a designer.
What about the instability of cryptocurrency? How much should a company be concerned about this?
Since cryptocurrencies are considered as risky investments, every single market participant should calculate risks on their own. However, Nimbus Platform is developing its own stablecoin—STAN—cryptocurrency tied 1:1 to USD in order to mitigate some risks associated with the cryptocurrency market. Lending, borrowing as well as staking mechanisms will be available with STAN.
If we consider the case of NFTs, companies should not worry about the instability of the cryptocurrency, since most of the transactions on the NFT market are performed through auctions. When a designer or a company sells its non-fungible token, it is possible to exchange this income into fiat currency in a fast and easy manner.