Distributed Income Share Agreements

We propose a DeFi lending application that finances educational pursuits using Distributed Income Share Agreements (DISAs)

See Below

Problem Statement: Financing for higher education is scarce in lower-income countries where a range of economic factors and systemic risks have eroded creditor confidence. Evidence suggests that the efficient channeling of digital capital into growth-enhancing areas like higher education can reduce economic informality and foster upward mobility at scale. Tackling poverty in places like Sub-Saharan Africa is inextricably linked to confronting the shortages of human capital in the region. Economic inclusion and financial empowerment through education and skills training are central to the Cardano ethos; however, Cryptocurrency and DeFi have yet to bridge the gap between the crypto community and the needs of the "Real World."

Proposed Solution: Against this backdrop, we propose a DeFi lending application that finances educational pursuits using Distributed Income Share Agreements (DISAs). Traditional income share agreements (ISAs) are gaining popularity due to the flexible nature of the agreements and the incentive alignment amongst lenders and borrowers. ISAs are a perfect application for blockchain and cryptocurrency; however, the tools do not exist in a simple, open, and practical format. We propose a feasibility study and pilot program that designs and tests the efficacy of a Cardano-based DISA ecosystem in Ethiopia. Borrower accountability remains a critical risk in the DeFi industry worldwide. Yet, we anticipate the country's growing adoption of Atala Prism's identity solution to catalyze a new era of trustless governance, enabling higher flows of cross-border DeFi transactions. 

Our reasoning for choosing Ethiopia as our test market is twofold: First, with its young population and open-mindedness towards systemic innovation, we firmly believe that emerging markets like Ethiopia are the perfect testing grounds for new economic thinking. Second, our pilot program will leverage the Atala Prism DID platform already established and running in-country and utilize Cardano Africa's working relationship with the Ethiopian Ministry of Education. This project will also draw on OpenLaw and previous efforts to tokenize ISA agreements on Ethereum (Ma, 2019).

Proposal: We propose a two-phase work plan.

• Phase I is a feasibility study that explores best practices for DISAs in Africa and publishes a whitepaper with an outlined strategy for implementing a pilot program in Ethiopia.

• Phase II is the implementation and impact evaluation of the pilot study to establish proof of concept. To be funded during subsequent Catalyst funds.

High-Level Goals

• Lay foundation for Decentralized Income Share Agreements (Phase I)

• Develop and fund a pilot program to inform the development of DISAs on Cardano (Phase I & II)

Phase I Work Plan (3 Months)

• Conduct a literature review to inform pilot program and MVP development

• Deliver a community peer-reviewed whitepaper on DISAs

• Deliver Phase II strategy and implementation outline

Definition of Success After 3 Months: Completion of Phase 1 Goals

Phase II Work Plan

• Develop a pilot program for DISAs in partnership with Cardano Africa, Atala Prism, and Ethiopian educational institutions

• Deliver an MVP smart contract to generate a legal ISA contract and facilitate lending

Scope: The scope of this project includes mapping the existing ISA ecosystem onto DLT systems. ISAs have several counter-parties, each with accompanying oracle problems.

The parties involved include students (borrowers), education institutions, financiers (lenders), credit agencies, and payment facilitators.

The processes involved include ISA legal contract generation (OpenLaw), DISA tokenization contract, Atala Prism DID integration, Stablecoin integration, Income reporting/monitoring, and payment rails.

Phase 1 Cost Estimate: $40,000

Cost Breakdown:

• Compensation for (4) core whitepaper contributors (3 Months): $8000 each = $32,000

• Legal Consultation: $3,000 for 3 months

• Developer Consultation; $5,000 for 3 months

Phase 2 Cost Estimate: Costs and Items will be output from Phase 1. (The list below are preliminary ideas)

• Smart contract developer fees: TBD

• Legal consultation: TBD

• UI/UX Developer fees: TBD

• DISA Pilot Funding: TBD

Who we are:

Tyler Botzon

A recent graduate of Cornell's SC Johnson College of Business, Tyler was a Research Fellow at the Cornell Emerging Markets Institute (EMI). During his time at EMI, he analyzed the pandemic-triggered sovereign debt crisis in Sub-Saharan Africa. He was also a Policy Scholar at the Cornell Institute of Politics and Global Affairs, focusing on health policy. Before starting college at 29 years old, Tyler was a commercial fisherman on Alaska's Bering Sea and spent over a decade traveling the world climbing mountains.

Paul Byrne:

Paul has been a student of blockchain and cryptocurrency since 2017, which led to his current studies for MS Energy Systems Management. His goals center around improving the physical world through technology, specifically at the intersections of blockchain, energy, and finance. He participates in syndicate VC investing and has done deals in the ISA space. He is also a welder, skier, and live music lover.

What we are looking for:

• Collaboration and guidance from the Cardano community

• Project peer-review at Cardano Summit 2021

• Establishing Ethiopian partners and contacts

• Technical and Legal whitepaper collaborators

References

Ma, J. (2019, June 12). A New Kind of Student Loan — Tokenizing Income Share Agreements and Trading them Using OpenLaw and Ethereum. Retrieved August 21, 2021, from Medium website: https://medium.com/@josh.ma91/a-new-kind-of-student-loan-tokenizing-income-share-agreements-and-trading-them-using-openlaw-c2566800b20d

Klawitter, A. (n.d.). The Ultimate Guide to Income Share Agreements. Retrieved August 23, 2021, from https://www.meratas.com/blog/guide-income-share-agreement