What is IQ Protocol?

“IQ Protocol is a new decentralized money market protocol for lifetime value tokens that proposes a novel way to avoid common pitfalls in the token issuance process for projects and companies where service or product consumption is measurable over time and volume,” says Tom Tirman, CEO & Co-Founder of PARSIQ.

IQ Protocol provides a framework for subscription-based services and risk-free collateral-less loans in the Decentralized Finance (DeFi) industry.

Over the last ten years, subscriptions have emerged to become one of the most popular ways in establishing economical relations between sellers and consumers. These days, Millennials have an average of 17 paid media and entertainment subscriptions each. Gen Z, Gen X, and even Baby Boomers are not so far behind, with averages of 14, 13, and 8 subscriptions each respectively. This does not even account for free services which users may be using that are paid for by watching or clicking through ads.

With each passing year, individuals prove time and time again that they are willing and happy to pay in advance in order to obtain the right to consume a particular bandwidth of service from a provider.

However, translating the off-chain subscription model into the blockchain world is a known challenge. The 2017 ICO mania has provided many clear examples illustrating that even when a service is well defined, and anticipated by users, it is extremely hard to create a balanced tokenomics model for it.

IQ Protocol solves this — and finally provides the blockchain world with a framework which supports subscription-based services that can be easily rolled out by providers and one which also incentivizes consumers.

How IQ Protocol Works

For every subscription-based service, only two steps are needed in building sustainable tokenomics:

1. Life-Time Value
2. Renting Pool

Life-Time Value (LTV)

Assign a Life-Time-Value (LTV) meaning to the issued tokens. Life-Time Value defines the total amount of a good or service that a holder of that token is eligible for as a result of holding that token. As an example, if a token has a LTV which gives the token holder the right to use one hour of an accounting software each day for 365 days, at maximum, the token holder can only consume this much service. Should the token holder require using more than one hour of service per day for the next year, more LTV tokens will need to be acquired.

Under this model, providers are no longer asking users to actively pay for services with tokens. Instead, users are being asked to hold tokens so long as they would like to utilize the service provided.

In general, the more tokens a user holds, the bigger the volume of the service the user can consume (as per the prior example).

Renting Pool

Renting pools extend the functionality of LTV tokens. With renting pools, LTV token holders can securitize their LTV tokens by providing them as liquidity to the established Renting Pool. In turn, depositors of LTV tokens into the pool receive shares of the pool in form of interest-bearing tokens. When borrowers borrow the LTV tokens from the pool, the depositor who holds the original LTV token will be streamed interest payments for the term of the loan.

Following this model, anyone who wants to consume a provider’s services will have two options: buy original tokens which have a life-time value, or rent the LTV tokens from the renting pool.

The main idea here is that the original tokens are not released from the renting pool. Instead, the pool mints an expirable version of these tokens. The expiration date is requested by the borrower, and affects the upfront interest payment.

An expirable version of these tokens are implemented using Non-Fungible Tokens (NFTs). Until the tokens are expired, they are treated as a permission to consume a particular amount of service and are recognized by the service provider in the same way that the original LTV token is recognized.

As these issued tokens automatically expire, borrowers will not have the ability to extract more value out of the token than was originally intended. With this control in place, no collateral is required for this type of borrowing — and only the upfront interest payment is needed.

All interest paid to the protocol is distributed across the lenders. However, interest from a particular loan is not paid immediately to the lenders. Instead, it is streamed into the pool using a modified money streaming algorithm exponential streaming.

What Problems Does IQ Protocol Solve?

As mentioned previously, the 2017 ICO mania saw many crypto projects seize the opportunity to raise significant funds for their project. Many of these projects found success raising capital via an ICO — but were later trapped with the painful reality that the issued tokens had no viable use cases.

At best, most crypto projects defined a tokenomics model which required users to convert fiat into their crypto token, only to then exchange that token for the service which the user required. Under such a model, there was little, if any, incentive to hold on to any more tokens other than the amount required to consume the service needed.

In short, there was no true economy built around the token. Without a real economy — where users transact with other users, where businesses transact with other businesses, and where users and businesses transact with each other, there is nowhere for the funds to come “full circle”, where the spending of one party has a downstream impact on other participants in the same economy.

With IQ protocol, any project can now directly tie their solution offerings to their tokens. From media content to a weekly delivery of fresh bagels, any product or service can now be tokenized on the blockchain.

Under this token economic model, the relations between economic participants is considerably less linear (fiat -> convert to token -> convert to service -> end) and much more representative of a real-world economy (circular).

Businesses sell tokens to consumers, who are incentivized to hold so that they can continue to consume the goods for the life of the token. Alternatively, consumers can sell the tokens to each other, for varying prices depending upon the remaining life of the token. Token holders can also put their tokens up for rent (renting pool), earning income (interest) on their digital assets, and further incentivizing them to hold the tokens throughout its useful life.

While collecting income from these digital assets, the original token holders can then put those earnings back into the economy to obtain more tokens from the issuer, or to purchase other goods or services from other consumers.