Key Terms and Definitions

• Intellectual Property (IP) Intellectual property refers to unique creations of the mind, including inventions, artistic works, and symbols, among others. Currently, IP is primarily represented in the form of non-fungible tokens (NFTs), allowing digital assets to be securely owned and traded on the blockchain. As Arte Finance evolves, the scope of intellectual property may expand to include additional forms of ownership verification, such as proof of ownership for digital assets like YouTube channels or other content platforms. This broadened definition reinforces the platform's commitment to facilitating diverse opportunities for IP owners to leverage their assets as collateral for loans, unlocking liquidity while preserving ownership.

• Curator A curator is an individual or entity responsible for allocating funds deposited by lenders across multiple lending pools. This role is crucial for diversifying investments and minimizing risk within the platform. Anyone can become a curator, allowing for a decentralized approach to fund management. Lenders, or depositors, have the flexibility to choose which curator they wish to work with, enabling them to align their investment strategies with the curators' expertise and methodologies.

• Pool A pool refers to a liquidity pair consisting of intellectual property (IP), provided by borrowers as collateral, and stablecoins, provided by lenders through the allocation of curators. Each pool operates independently, and anyone can create a pool, specifying crucial parameters such as the type of collateral, loan conditions, interest rate model, oracle, loan-to-value ratio, and liquidation threshold. This customization empowers users to tailor lending arrangements to their specific needs and risk preferences.

• Collateral Collateral refers to the intellectual property (IP) that borrowers pledge as security against the loans they receive. This collateral is typically in the form of non-fungible tokens (NFTs) or other verified digital assets. By providing collateral, borrowers can access stablecoin loans while maintaining ownership of their valuable IP. If the value of the collateral falls below a specified liquidation threshold, the collateral may be liquidated to recover the outstanding loan amount, ensuring that lenders are protected against default.

• Liquidation Liquidation refers to the process of selling a borrower’s collateralized intellectual property (IP) when its value falls below a predetermined threshold, known as the liquidation threshold. This process is initiated to protect lenders by recovering the outstanding loan amount. Arte Finance employs an auction-based method for liquidation, where the collateral is sold to the highest bidder within a 24-hour auction period. This transparent approach ensures that the liquidation process is fair and allows participants the opportunity to acquire valuable assets while safeguarding lenders' interests.

• Loan-to-Value (LTV) Loan-to-Value (LTV) is a financial ratio that measures the amount of the loan against the appraised value of the collateral provided by the borrower. It is calculated using the formula:

  • Linear Rate The Linear Rate model applies a constant interest rate over the life of the loan. In this model, interest accrues at a fixed percentage of the borrowed amount, which is predictable and straightforward. Borrowers can easily calculate their total repayment amount since the interest does not fluctuate.

    Formula:

    Rate=k

    Where kk is a constant interest rate.

  • Non-Linear Rate

    The Non-Linear Rate model features interest rates that vary based on the utilization of the loan or the amount borrowed. For instance, the interest rate could decrease as the loan amount increases, or different thresholds of the loan amount could attract different interest rates.

    Formula for Rate Calculation

    Rate Calculation Formula:

    

    Where:

    • Rate is the interest rate applied.

    • k1 is a base rate constant.

    • k2 is a multiplier that scales based on the borrowing ratio.

    • Total Borrowed is the total amount borrowed.

    • Total Liquidity is the total available liquid assets.

    Where:

    • k1k1​ is the base value of the LTV ratio.

    • k2k2​ is a coefficient that determines the sensitivity of the LTV to the utilization of the pool.

    • Total Borrowed is the total amount of funds that have been borrowed from the lending pool.

    • Total Liquidity is the total amount of funds available in the lending pool for borrowing.

  • Dynamic Rate

    The Dynamic Rate model allows interest rates to fluctuate in response to market conditions or specific metrics (e.g., supply and demand of the underlying collateral). This model can provide borrowers with lower initial rates that may increase over time as market conditions change.

    Example Formula: Where: k is the base interest rate, f(Market Condition) represents a function that adjusts the rate based on current market conditions.

• Oracle Oracle is a service used to determine the price and market value of intellectual property (IP) in real-time. By providing accurate and timely data, oracles enable the platform to assess the current worth of collateralized assets, ensuring that lending and liquidation processes are based on up-to-date information.