Chapter 3 Research Methodology
3.2 Case 1. Origin Protocol as a pioneer in decentralized sharing economy business
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Chapter 3 Research Methodology
In this chapter, three case studies will be introduced and analyzed from the perspective of economic impact of switching from centralized sharing economy solutions to blockchain-based decentralized businesses. In order to better understand the specifics of each business, firstly there will be case introduction presented, providing information on how a company functions and delivers its services, followed by introduction of the indicators and measurements of the impact of each case study company on the sharing economy industry.
Indicators and Measurements: research companies’ materials with the purpose to find out and estimate company’s influence on fees and incomes of consumers, considering the user base population of existing customers (Origin and SALT).
3.1 Methods
In order to perform this research on decentralized sharing economy businesses, the following secondary data analysis has been chosen as a method, together with company interviews and survey. The secondary information has been collected from the companies’ websites, white papers, marketing kits and online blogs (such as Medium).
The research data for the sharing economy market potential and economic impact have been gathered from articles and journals that engaged in similar studies. Key words for Google search were “decentralization”, “decentralized market place”, “fintech platforms”, “peer to peer platform”, “sharing economy business”, “blockchain based sharing economy platform”. After searching for the relevant information and collecting data samples there has been a process of screening and analysis performed with the following conclusions that are described in chapters 4 and 5.
3.2 Case 1. Origin Protocol as a pioneer in decentralized sharing
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marketplaces on blockchain. The Origin Platform allows buyers and sellers of fractional use goods and services (car-sharing, service-based tasks, property-sharing, etc.) to transact on the distributed, open web. In order to allow for the creation and booking of services and goods without traditional intermediaries, Origin uses the Ethereum blockchain and Interplanetary File System (IPFS).Origin Protocol aims at enabling a large-scale commerce network that:
• Awards marketplace participants that contribute to growing the network (e.g.
developing new technology, bootstrapping new product verticals, and referring new users and businesses)
• Transfers listing, transaction, and service fees from large corporations like Airbnb to individual buyers and sellers
• Transfers indirect financial and strategic value (such as transaction data) from the same corporations to the entire ecosystem
• Is built on an open, distributed, and shared data layer to promote transparency and collaboration
• Helps buyers and sellers across the world to avoid difficult currency conversions or tariffs
• Promotes personal liberty by not allowing a central corporation or government to impose rules on how to do business.
The Origin decentralized app (DApp) is the main technological tool that users have to use to access the network. Users of Origin DApp can use their Ethereum wallet to transact between each other. With Origin decentralized market place, they can search for goods and services, create listings and accept payment.
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It is important that the company doesn’t intend for the Origin DApp to be the only way to access user and transaction data. The code, protocols, and specifications will all be open-source, and it is expected that others will extend and fork the code to create their own frontend experiences.
In this way, Origin DApp is created to be the first way to interact with data, but it is expected that third-party websites, mobile apps, and even APIs will be allowed to transact on the network.
Blockchain and Distributed ledger technology are still very new for software engineers and challenging to work with. Therefore, Origin is creating easy-to-use libraries for developers to simplify the process of creating third-party DApps.
Using Origin Protocol for online commerce has multiple benefits. First, the data is open and immutable, which means it can be trusted without requiring the traditional third-party intermediary that controls it. Second, it allows for new teams of developers, business owners, and organizations to compete with each other off of this shared data, but ultimately creating greater value for the platform.
Origin Protocol allows for creation of new type of businesses that will excel in the future. These businesses will serve a new type of client, a client that did not have access to e-commerce before due to economic or technological reasons, now will be able to consume and trade goods and services. Aiming at more than just profits, Origin enables credit score generation for unbanked people, improves economies with unstable currencies, teaching consumers about the use of crypto currencies.
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Ainves is the next generation online marketplace that creates a collaborative economy by enabling financial benefits to all the users. It is a blockchain-based, peer-to-peer solution to small and medium-sized enterprises financing problem through profit-sharing smart contracts:
• Ainves enables users to sell, buy or invest in products on the same platform, providing financial returns in real time
• Platform users are rewarded in tokens and earn business credits on a secure blockchain
• Users can make extra cash by getting a real-time return on investments when the products they invest in are purchased, while the sellers can easily access capital on the platform to expand and grow sales.
Ainves solution is a blockchain based peer-to-peer online marketplace that brings benefits to the three main stakeholders: SMEs that need capital, non-professional individual investors that look to make returns on their spare money, buyers that look for products online.
Ainves platform provides several benefits to the global economy:
• Shared economy: Ainves enables users to empower each other and make extra income in the process while they all create an income.
• Eliminating intermediaries: Ainves allows for faster financing process for businesses by enabling direct investments without the need for third parties.
• Inclusive global economy: Ainves eliminates obstacles for small businesses to participate in the wider global economy through easier access to customers online.
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• Ease of financing: Ainves facilitates access to financing for online sellers without the need for collaterals, business credits or giving up equity.
• SME financing: Ainves is bridging the gap for the unmet $5.2 trillion that exists between investors and SMEs by providing data to investors and enabling any buyer to be an investor as well.
3.4 Case 3. SALT as a leading North American Peer to Peer Lending Platform
The SALT Lending platform is a membership-based financial ecosystem that enables cryptocurrency holding individuals and companies to take out cash loans with competitive interest rates using their crypto as collateral during the course of the loan.
The platform will require the necessary anti money laundering (AML) and know your customer (KYC) verification steps to lend you money. However, the platform has a fast approval system to release loans as fast as possible, as opposed to other attempts to peer-to-peer lending that happened before.
The company stores the collateral digital assets in a secure and fully audited wallet to prevent hacks or cheating in the loan process. The interest is set by the blockchain provider who keeps the assets safe till the loan is repaid by the borrower.
In 2018 SALT opened operations in 15 additional U.S. jurisdictions including New Jersey, Massachusetts, Washington and Texas, as well as an additional 7 territories including Brazil, Hong Kong, Switzerland, Bermuda, Vietnam, Puerto Rico and the United Arab Emirates. This rapid expansion of services brings the company closer to their goal of being fully operational in all 50
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As SALT continue expanding globally and maintain the current position as market leader, their competitive offerings include:
· Flexible loan terms
· No origination fees
· No prepayment fees
· No servicing fees
· No closing costs
On top of that, they are one of the few companies lending in traditional currency, which puts SALT in a unique position to increase loan access across the world.
Between continued expansion and greater flexibility in loan terms, they are supporting the mission to grant customers maximum utility of their assets.
With more than 60 percent of cryptocurrency trading in international currencies, SALT is seeking to expand their footprint to increase the number of crypto holders they can service across the globe. As of today, SALT is getting closer to allowing financial inclusion for the unbanked, as well as providing access to traditional financial institutions for all users through their digital assets.
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Chapter 4 Data Analysis and Results 4.1 Sharing economy businesses potential and growth
Companies like Origin Protocol have a great potential to help other businesses succeed in building a new type of infrastructure for the future consumers. The research has indicated the following benefits of building sharing economy businesses on blockchain.
Verification of identity is more effective on a blockchain platform and helps sharing economy platforms become more reliable and robust. It is notably beneficial for authorities to move in the direction of keeping record of things such as criminal offenses and driver’s licensing and registration on immutable blockchains. In addition, blockchain-based sharing economy companies can make background checks and Know-Your-Customer processes more trusted and efficient if they make use of blockchain.
The future development for sharing economy businesses seems to be very quick and scalable. Blockchain startups have been successful at developing decentralized solutions and have been noticed by big sharing economy companies.
As revealed in the interview conducted by this thesis, Ainves co-founder and CEO David Maduri said: “Decentralized marketplaces have a huge potential in redistributing value across the network and for the population while at the same time eliminating the traditionally manipulative central authorities or institutions. Take Ainves for instance, our aim is to promote a flawless interaction between shoppers and sellers in a peer-to-peer platform where they do not have to rely on banks or financial institutions to get financed. The shoppers are able to directly invest in the products they like on the platform and get back their money plus a return on investment when the products are sold, creating a shared ecosystem where every user has the ability to make extra money.
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The most important thing however is the distribution of support in the network to create value and redistribute the value among the users.”
As the global sharing economy grows further, its impact on the way we think of part-time work becomes more significant. According to Brookings Institution, the number of non-employer businesses in the United States has grown from 15 million in 1997 to 24 million in 2014. According to researchers from PwC, within ten years, the five major sharing economy industries, including online hiring, peer-to-peer housing, peer-to-peer lending, car sharing, and music and video streaming, will generate more than 50 per cent of the total revenue globally, up from only 5 per cent of their share in 2014 (Vaughan & Hawksworth, 2014). While 68 per cent of the service providers in the sharing economy are between eighteen years and 34 years old, the platforms consumers are spread across all age ranges. According to Pew Research Center (Niam & Shamika, 2017), 72 per cent of Americans believe that they will use a variety of different services through the sharing economy platforms in the coming years. According to the UK Office for National Statistics, in 2015, 275 European “collaborative platforms”
generated £4 billion in revenue and facilitated £28 billion of transactions, based on the value of online purchases and amounts payable for marketing services (Niam &
Shamika, 2017).
Consumers are ready for a new type of commerce that is based on blockchain and decentralization. The world is moving to a gig economy where more and more individuals earn their income by offering services to other peers. In 2016, more than 22 per cent of American adults have become suppliers to the sharing economy. An open network that does not charge exorbitant transaction and service fees is extremely beneficial for these people (Morency et al., 2015).
Transportation economist Donald Shoup looked into the lifetime of private vehicles and
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vehicles usage in Montreal, it was estimated that 48 to 59 per cent of the current car fleet could satisfy the total demand for access (Morency et al., 2015).
4.2 Sharing Economy Forecast Summary
Juniper expects the sharing economy to go up from $18.6 billion in 2017 to $40.2 billion in 2022 (Juniper Research, 2017), in terms of platform provider revenues (mostly fees taken by the companies). Total bookings on those platforms are forecasted to go over
$335B by 2025.
The research revealed that since the last report (compiled in early 2016) car-sharing companies on average take closer to 30% of driver earnings, with the largest market by far being North America, where Uber dominates its main rival Lyft, earning 9 times more per year (Juniper Research, 2017).
North America has had the most rapid adoption of shared corporate space, with a number of services seeing considerable investment and anticipated growth. These include PivotDesk (recently purchased by fellow shared space provider, Industrious) and WeWork which has been valued at $47 billion (Juniper Research, 2017).
By 2022, Juniper forecasts the average corporate space rental monthly cost per desk, to increase to just under $487, in line with expected price increases (Juniper Research, 2017). Interestingly, the industry’s leading provider, TaskRabbit, is not seeing growth, that has been predicted in the previous Juniper research, as it increasingly comes under pressure from competitor, Thumbtack. As a result, the sector as a whole will suffer as its strongest player sees a decline in uptake.
4.3 Sharing Economy Consumer Survey
During this research, a report released in April by insurance company Lloyd's of London has been reviewed and the key findings from the report include the following.
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economy consumers are skeptical. 52 per cent of them see personal safety as their main issue with sharing economy platforms. Other things that worry them include quality of service (42 per cent), damage to their belongings (42 per cent), theft (40 per cent), and lack of sufficient safeguards in the event something goes wrong (38 per cent) (Lloyd’s Innovation Report, 2018).Consumers and providers recognize the benefits of using goods and services provided on sharing economy platforms, including affordability and convenience, however 58 per cent of consumers in the UK and US think there more risks than advantages.
Consumers expect to be protected, however sharing economy providers have other views on who should be responsible in high risk situations. 97 per cent of survey respondents assume some level of risk protection is offered for users, however, only 28 per cent (Lloyd’s Innovation Report, 2018) reported researching about the coverage for the things they purchase.
53 per cent of users are expecting sharing economy platforms to offer protection, while most platforms surveyed assume that either the consumer (53 per cent) or provider (27 per cent) should bear responsibility.
Sharing economy growth opportunities could be unlocked by risk reduction. 71 per cent of consumers globally would be more comfortable using sharing economy services if insurance was provided and 70 per cent more likely to consider sharing or offering a service if insurance was offered. Most current providers (78 per cent) also think they would get more clients if insurance was provided (Lloyd’s Innovation Report, 2018).
4.4 SME economic instability
Platforms like Ainves target small and medium enterprises, because it is usually them who need help with funding the most. According to the research by the Fit Small
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Business portal, the following are the most common reasons SMEs fail in the first year of operations (the data is about the US market).
30 per cent of businesses fail because they run out of money. 42 per cent of businesses fail because of not finding their customer. About 23 per cent fail because of the wrong team, 19 per cent got outcompeted, and 18 per cent said they have had difficulties with cost reduction or earning margins (Merkovich, 2019). Other top reasons for failure included inefficient marketing, user-unfriendly product, poor customer service and lost focus.
Another significant reason for small businesses to stop operations is unavailability of loans. Big banks approved around 26.9 per cent of small business loans. Banks with a much higher approval rate were the smaller banks. A few companies also use the service of credit unions, which have approved more than 40 per cent of applicants as of November 2018 (Merkovich, 2019).
o Small banks approved 50.2 per cent of applicants
o Institutional lenders approved 64.7 per cent of applicants o Alternative lenders approved 56.7 per cent of applicants
1 out of 6 loans fail: lenders consider loans that are backed by the Small Business Administration (SBA) less risky, however, borrowers still need to repay the loans on time. About 17.4 per cent of SBA loans awarded from 2006 to 2015 defaulted. It took 4.5 years on average borrowers to fail to repay after they took them out.
Defining a budget before starting a business is essential, so that business owners can have a realistic idea of what funds they will have. Most microbusinesses can get started for $3,000 or less. According to the SBA, “most home-based franchises can be started for as little as $1,000 to $5,000” (Merkovich, 2019). The SBA and QuickBooks also
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SMEs, they charge high interest (Merkovich, 2019).Statistics show that only 40 per cent of small businesses are profitable, 30 per cent break even and 30 per cent are losing money.
Building a website is essential for most small enterprises, not just to use it for content marketing, but to get an additional income stream from e-commerce. Only 28 per cent of small firms sell products or services online via their website (Merkovich, 2019).
4.5 Lack of funding for MSMEs
Micro, Small and Medium Enterprises (MSMEs) account for a large part of the world economy. They struggle to get funding hampering their growth and productivity. At the same time, these firms are strong drivers of economic prosperity, innovation growth and employment supply. The funding gap is mainly caused by lack of access to credit, weak cash flow, lack of collateral, banks fearing risk and the small loans they seek.
The International Finance Corporation (IFC) and the World Bank research unit produced an estimate of the financing gap for SMEs (International Finance Corporation (IFC) & World Bank, 2017). This study covers 128 countries, of which 112 are low- and-middle income countries. In the developing economies that were researched, the potential demand for loans is estimated at $ 8.9 trillion, compared to the current credit supply of $3.7 trillion. The finance gap from formal MSMEs in these developing countries is valued at $5.2 trillion, which is equivalent to 19 percent of the gross domestic product (GDP) of countries analyzed in this research. This in turn amounts to 1.4 times the current level of MSME lending in these countries. Additionally, there has been estimated an equivalent of 10 percent of the GDP in developing countries ($2.9 trillion) as a potential demand for finance from informal enterprises. According to this research, there are 65 million formal micro, small and medium enterprises that are credit
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4.6 Lending sharing economy industry potential
For companies like Salt there is very solid demand indicated by the current markets.
Fintech credit refers to credit activity facilitated by electronic platforms. This presumes borrowers to be matched directly with lenders. Some platforms, however, use their own funds for lending. Forms of credit that can be facilitated by such electronic platforms include secured and unsecured lending, as well as non-loan debt funding. Aside from the peer-to-peer lending platform model that connects individual borrowers and lenders, lending business models include the notary, guaranteed return, balance sheet and invoice trading.
Credit market size varies across different jurisdictions. The largest online credit market is China, followed by the US and the UK. Generally, credit provided by fintech platforms accounts for a small fraction of overall credit, but it is growing quickly and may have more significant shares in specific credit market segments. The adoption of
Credit market size varies across different jurisdictions. The largest online credit market is China, followed by the US and the UK. Generally, credit provided by fintech platforms accounts for a small fraction of overall credit, but it is growing quickly and may have more significant shares in specific credit market segments. The adoption of