Continuing with our series of posts that explore the Empowa Blackpaper we focus on the concept of collateralisation, why it is needed, and the role of the $EMP token in the underwriting process.
Here again Andrew Forson, our Head of Quantitative Analytics and Risk, explains the relationship in the below video.
There is also a summary of the video below.
Collateralization is a vital concept in the lending industry. It is the process of securing a loan with assets that the borrower owns, which can be seized by the lender in the event of a loan default. In the affordable housing space, collateralization can be challenging, especially across different countries where developers may have different experiences and legal hurdles associated with international firms providing capital. This is where technology comes in to eliminate friction and make the process more flexible and nimble.
The Empower Platform has introduced the EMP token, which is a platform-native token used to collateralize investments. The capital raised is secured by the cash flows associated with the homeowner repayments. Developers can collateralize their projects using the EMP collateralization index, which is a set of formulas used to determine how much EMP must be purchased to secure a specific amount of loan. The idea is to lock up a basket of EMP against the loan across many projects and years, with one EMP token representing $100 of house.
It is essential to note that there is a distinction between the measure of the EMP token being a 1 to 100 unit of value and the market value. The market value of a product is based on its utility at that particular time. For example, in extreme circumstances like being dropped in the Sahara Desert, a liter of water may have a higher value than a kilogram of gold. The EMP token fundamentally measures the unit of the house, set at a value of one EMP token measuring $100. This concept provides a baseline to enter multiple countries, enabling discussions on collateralization expectations.
The collateralisation approach creates demand pressure for the EMP token as more projects come on board, and they purchase the EMP token to collateralise the funding raised through the Empower NFT SDRIs.
The EMP token’s collateralisation index is a vital innovation in the affordable housing space. It eliminates friction and makes the collateralisation process more flexible and nimble, enabling discussions on collateralisation expectations across multiple countries. The demand pressure created by the EMP token as more projects come on board will increase its utility value, creating a reliable measure of house.
If you would like to find out more about the above approach check out the full video series explaining the Empowa Blackpaper here or visit the Empowa website at Empowa.io/blackpaper.