Open Capital

21st Century Financing & Funding

Chris Cook

Paris 20th May 2015

“21st Century problems cannot be solved with 20th Century solutions”

Economy 3.0 ?

Economy 1.0 – decentralised but disconnected, physical market presence

Economy 2.0 – centralised and connected, market presence through intermediaries

Economy 3.0 – decentralised but connected, network market presence

Economy 3.0 – Value Basis

Location – Place (Land) or Space

Energy

- material - embedded in Place (eg buildings)

- immaterial - passing through Space (eg solar or wind)

Intellect

- subjective (people)

- objective (data patterns)

Open Capital – Credit Instrument

A Credit Instrument is a Promise

- made by an issuer to an acceptor

- issued in exchange for value received from acceptor

- returnable in payment for value provided by the issuer

A Credit Instrument is not

- Debt – acceptor cannot demand payment in money

- Derivative – acceptor cannot demand delivery

- Equity – acceptor has no right of asset ownership

Open Capital requires Trust

Credit instrument is a Prepay credit - “Pay it Forward”

- acceptor may use credit instrument to pay instead of $

- acceptor trusts that issuer will be good for supply

Economy 1.0 - trust in physical currency

Economy 2.0 - trust in middlemen eg Treasuries/Banks

Economy 3.0 - trust in mutual risk and production sharing agreements or Protocols

Prepay – Then....and Now

Now – DrinkPrepay

Now – TalkPrepay

Then – TaxPrepay

Tax Prepay

Tax Prepay – credit returnable in payment of taxes

Tax Return – 'stock' part of tally stick returned to Treasury

Rate of Return - rate over time at which stock is returnable for cancellation

eg Prepay £8 for £10 tax - £2 profit 25% pa rate of return

- not fixed - depends on existence & quantity of flow

Protocols and Prepay

Asset-based (Peer to Asset) Prepay Credit

– Capital Partnership production sharing agreement

People-based (Peer to Peer) Prepay Credit

- Guarantee Society risk sharing agreement

These agreements are associative two-way & interactive protocols: social contracts or Contrats de Société

Capital Partnership – Peer to Asset Credit

Location – credit returnable in payment for usufruct ie rental of land/location or production from land

Energy – credit returnable in payment for energy use

Intellect – credit returnable in payment for use of intellectual property eg knowledge, software, video

Capital Partnership

Capital Partnership is a social contract or trust framework for sharing usufruct of a productive asset

A proportion of production is allocated to the developer or manager

The balance of production is available to be issued to Investors in the form of Peer to Asset prepay credit

Capital Partnership – Land/Location

Custodian(Community)Custodian(Community)

InvestorInvestor

OccupierOccupier

RentalPrepay

%

%

ManagerManager

Rental

Land Prepay – Value Proposition

Community

- sells rentals forward at a discount and locks in price

- receives an interest-free land loan until rental credits are returned in payment for land use

Occupier

- prepays rental and locks in price

Land Prepay – the Value Proposition

Investor

- direct 'inflation hedge' investment in land

- Occupiers buy rental credits from Investors at best price below issue price & return in payment for land use

Manager

- shares in gross rentals or production

- interests aligned with Investor

- no 'Principal/Agency' problem

Land Partnership - Outcomes

Housing as a Service - relationship-based not transaction-based model - costs transformed to revenue shares

Neutral – transcends ego and politics

Collaborative - stakeholder interests aligned

Sustainable - all have interest in minimising cost over time

Capital Partnership - Energy

Custodian(Community)Custodian(Community)

InvestorInvestor

ConsumerConsumer

Prepay %

%

ManagerManager

Payment

Energy Prepay – Value Proposition

Community

- sells energy forward and locks in price

- receives an interest-free energy loan until energy credits are returned in payment for supply

Consumer

- prepays for energy and locks in price

Energy Prepay – the Value Proposition

Investor

- direct 'inflation hedge' investment in energy

- Consumers buy credits from Investors at best price below physical energy price & return against supply

Manager

- shares in gross revenues or production

- interests aligned with Investor

- no 'Principal/Agency' problem

Energy Partnership - Outcomes

Energy as a Service - relationship-based not transaction-based; costs transformed to revenue shares

Neutrality – transcends ego, borders and politics

Collaborative - stakeholder interests aligned

Sustainable - all have interest in minimising cost over time

Currency is an outcome of Investment

Currency is defined as generally acceptable credit

- Land-based credit – currency local by definition

- Energy-based credit – currency universally acceptable

It'll Never Work

For thousands of years people gave credit to those they trusted: others paid in currency eg gold, silver, salt

For thousands of years Capital Partnerships have existed: Islam calls Capital Partnership 'musharakah'

Guarantee Society - People-based Credit

Guarantee Society is a social contract within which Peer to Peer credit risk is shared

Sellers and Buyers pay a guarantee charge, share costs of operation & make good any failure to perform

Manager allocates guarantee limits, manages platform, ensures transparency, manages non-perfomance risk

Guarantee Society - Seller accepts Buyer's IOU

Seller Buyer

IOU

Value

IOU is guaranteed by Sellers & Buyers mutually

Seller Buyer

IOU

Value

Pool

GuaranteeGuarantee

Seller & Buyer pay guarantee charge into Pool held by Custodian

Seller Buyer

IOU

Value

Pool GuaranteeGuarantee

Fee Fee

Buyer settles credit in € or '€'s worth' eg energy-based or land-based currency

Seller Buyer

Value

Pool GuaranteeGuarantee

Fee Fee

If Buyer defaults: system pays sellers and collects from buyer if possible

Seller A BuyerDefault

Pool

Collects

Pays

Seller B

Default

Pays

Service provider sets guarantee limits, handles defaults & manages system

Seller Buyer

IOU

Value

Pool GuaranteeGuarantee

Fee Fee

Manager

FeeService

Clearing Union

Producer Consumer

Pool GuaranteeGuarantee

Fee Fee

Manager

FeeService

Outcome – the Community is the Currency

Mutual assurance of direct (P2P) credit risk

Banking as a Service

We need Banking....but we don't need banks

It'll Never Work

For 140 years, Protection & Indemnity (P&I) Clubs have mutually guaranteed risks Lloyds of London won't cover

For 125 years P& I Clubs have been managed by Thomas Miller

Open Capital – the Co-operative Advantage

Co-operative Advantage

- Open Capital does not give 'something for nothing' return to landlords or shareholders

- Open Capital provides financing & funding with which conventional capital cannot compete

- Middlemen will transition to service provision or fail

Maybe Ethical is Optimal?

21st Century problems cannot be solved with 20th century solutions.........

…....21st century solutions pre-date modern finance