How NiftyApes upgrades finances—and why the current approach is outdated

The terms of a NiftyApes loan can only ever improve. To do this, the protocol uses aspects of Harberger taxes.

This post explains:

• Why traditional financing is outdated
• Why Harberger taxes are the future of financing
• How we're updating financing with Harberger taxes

The social contract between borrowers and lenders is thousands of years old. The NiftyApes protocol demonstrates how it can evolve.

Traditional financing is outdated

A loan is something borrowed, like money, that is expected to be paid back with interest.

Anyone with money can get more money by lending it to others. Borrowers pay interest (money paid for the use of money lent, or for delaying the repayment of a debt). Lenders gain capital (assets that add to their wealth).

There's a fundamental imbalance of power between those with capital and those without. Throughout history, third parties are crucial to keep this system in balance. In 1790 B.C.E, the Code of Hammurabi solidified the social contract between lenders and borrowers.  (For more on the history of lending, we recommend Annabelle Amery’s A Brief History of Lending.)

For roughly 5,000 years, those with more capital have dictated capital terms for those with less. And for the last 50 years, we’ve seen how those terms tip already-imbalanced scales in the modern world.

The contract between lenders and borrowers is due for an upgrade.

Harberger taxes are the future of financing

Growing inequality is a problem. Harberger taxes offer a potential positive-sum solution.

A Harberger tax aims to balance private ownership with common ownership to increase the general welfare of society.

To summarize how Harberger taxes work:

• Individuals assess the value of their own asset, and pay tax on that valuation (“a self-assessed tax”)
• At any time, someone else can force a sale by buying the asset at that price

Simon de la Rouvière articulates the benefits of Harberger Taxes as follows; emphasis ours.

“It helps ensure that property is more productively utilised by the society, resulting in an increase of overall economic productivity and general welfare of society. It keeps the power of the market, whilst reducing the inefficiencies in how property is currently allocated. At a relative cost to efficiency in investment returns, it reduces the prevalence of monopolies that exclude society from an asset’s wealth generating capabilities.”

"A relative cost to efficiency in investment returns'' is the only relative shortcoming. And its mitigatable, if we update certain aspects of Harberger taxes.

(Learn more about Harberger taxes via Simon de la Rouvière’s essay on Harberger yaxes, or see them in action via Jonathan Mann and the BeetsDAO experiment Harberger.Tax)

How to update lending + borrowing using Harberger taxes

The NiftyApes protocol synthesizes aspects of Harberger taxes to evolve lending.

• Harberger taxes are traditionally applied to physical real estate. The NiftyApes protocol applies them to financial agreements and digital assets.
• An assets valuation for a Harberger tax is self-assessed. The NiftyApes protocol also requires an assessment of an asset's risk.
• A Harberger tax is traditionally paid as a tax. On the NiftyApes protocol, lenders provide liquidity (ie. “take on the asset’s risk”)
• Harberger taxes fund common goods projects via taxation. On the NiftyApes protocol, 1% of revenue funds public goods projects.

Using aspects of Harberger taxes, the NiftyApes protocol turns lending into a positive-sum system. Everyone—borrowers, lenders, and the commons—can benefit.

We're building the future of lending

The best way to shape the future is to build it. That’s why we’re building game-changing features for borrowers and lenders alike.

Want to help?

We're hiring key roles on our careers page, and we're actively approving grant proposals and are excited to encourage builders on the space utilizing our smart contracts.

Connect with the NiftyApes team in our Discord or on Twitter @niftyapes. Or, ping founders @zherring  or @captnseagraves with any questions or banana-related memes.