Crowdfunding Science via fractional IP-NFTs

Crowdfunding Science via fractional IP-NFTs

Patients must be empowered to fund therapeutics. Scientists must collect funds to conduct research. Fractionalized IP-NFTs enable risk sharing partnerships for researchers, investors and patients.

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Last updated: 18 September 2022 08:54 AM

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The problem Crowdfunding Science via fractional IP-NFTs solves

Pharmaceutical Development is largely centralized by oligopolies. Big corporations make decisions on which drugs get developed and which therapeutic research areas will get explored. This leads to chronically underfunded research, for example for diseases that only affect a minority and therefore is hard to monetize.

To accelerate widespread collaboration on research projects and the related IP, ownership of the IP needs to be distributed amongst stakeholders: from patients, to researchers, to investors. The fractionalisation of the IP-NFT creates a novel mechanism to enable collective management, collaboration and funding of such tokenized research projects. During ETH Berlin 2022 Decentralized Science made significant progress towards truly decentralized drug development.

Biotech DAOs like VitaDAO impressively show that decentralization is part of the solution, token ownership is a powerful incentive, and individuals are able to fund scientists independently of big pharma. This is achieved via a novel mechanism called intellectual property NFTs (IP-NFT). Legal agreements and the related (pre-patent) IP is bridged on-chain and owned by the DAO, consisting of scientists, web3 enthusiasts and patients. In return for their important work, researchers receive funding and ownership rights to conduct their science. The DAO acts as a matchmaking and communicationy platform, monitors researchers and project milestones and governs the IP asset portfolio. DAO votes control the capital deployments into new research projects and whether research results are published to open source.

With more stakeholders owning a share in a research project, their voices are guaranteed to be heard ensuring pharma development in an equitable manner. This increases the chances of novel solutions for human health needs coming to market.

Challenges we ran into

IP-NFT fractionalization differs from general fractionalisation of NFTs in two distinct ways:

The co-owners of the fractions need to continuously collaborate and manage the IP-NFT to continuously support the research after IP has been fractionalised. Hence the asset’s value shall depend on the stakeholders’ individual contributions
Uncertainty on how IP-NFT fractions are treated legally might prevent wide public adoption

Collaboration and continues funding

Different than fractionalised art NFTs, an IP-NFT’s value depends on the support of the related research to bring a therapeutic to market. This can only be achieved if the stakeholders can govern the asset and raise additional funds dedicated to continued research. Therefore the IP fractionalisation event is not a one-time process Instead more shares can be minted off on IP-NFT to dilute existing “shareholders”/stakeholders and collect additional funds from institutional or retail investors.

Legal Uncertainty

An IP-NFT may generate royalties in the future, hence it might be classified as a financial instrument. To combat this we have created two classes of tokens: Fam Tokens and Fren Tokens.

Fam Tokens are ERC1155 shares of the IP-NFT that enables investors with deep insights to participate in the research project, view its data, contribute to decision making and receive royalties from the IP. These are KYC individuals that comply with regulation.

Fren Tokens are derived from the fractionalised ERC1155 Fam shares to drive larger market participation. FREN Tokens are not eligible for royalties or decision making. Retail investors and market participants can propose to reconstitute all FREN tokens to recreate the FAM Share and receive access to royalties and decision making. However, for this to work, the reconstituting entity needs to be KYCed to comply with potential regulation.