Commercial Score

An IP Asset's value can often be priced by its royalty revenue. However, such pricing does not take into account enough of the underlying asset's risks, i.e. its legitimacy. Therefore, we introduce a concept of commercial score - an estimate of the asset's legitimacy adjusted commercial value. Commercial score is determined by four factors: validity score $V$, current stake weight $W$, its royalty percentage claim of its children $R$, and its children derivatives' commercial scores $C$. The following formula expresses the commercial score $C$ for an IP Asset:

$$C = w \cdot \frac{V}{100} + \sum_{i \in \text{children}} R(i) \cdot C(i)$$

Where:

• $w$ is the current stake on the IP Asset.

• $\frac{V}{100}$ is the IP Asset's legitimacy score in percentage between 0 and 1.

• $R(i)$ is the royalty percentage claim between 0 and 1 of the IP Asset on its child $i$.

• $C(i)$ is the child $i$'s commercial score.

Key Points:

• A leaf IP Asset's (i.e. no children) commercial score is simply $C =w \cdot \frac{V}{100}$.

• A parent IP Asset's (i.e. has at least one child) commercial value needs to take into account of the commercial value of all of its children (i.e. child, grandchild...).

• The more children an IP Asset has, the IP Asset's commercial value strictly increases.

• Child commercial value can be greater than that of its parent with $C_\text{child} > C_\text{parent}$.

Stake Weight Imbalances

A conclusion that can seemingly be drawn from the Validity Score Section is that most IP Assets will converge towards a similar time based stake weight because the target stake weight is the same for all IP Assets. However, this is a misconception. The key reason is that incentives offered on IP Assets can be drastically different, making the yield percentages for the same stake on different IP Assets uneven. Therefore, stakers will optimize and choose the IP Assets with higher rewards until the (risk-adjusted) yield percentage becomes balanced across IP Assets, resulting in consistent imbalances of stake weights among IP Assets. Consider the two cases below that demonstrate this scenario:

Case One

An IP Asset owner offers 1,000 $IP as incentives for stakers. Given a target stake weight of $W_t=10,000$, a double rewards weighting for early stakers, and a total stake of 30,000, the late stakers' yield percentage is calculated as

$$Y_1 = 1000 \cdot \frac{30000 -W_t}{2W_t + (30000 - W_t)} \div (30000 -W_t) = 2.5\%$$

Case Two

An IP Asset owner offers 2,000 $IP as incentives for stakers. Under the same assumptions, the total stake needs to be 70,000 to match the same yield percentage of $2.5\%$ on the IP Asset.

$$Y_2 = 2000 \cdot \frac{70000 -W_t}{2W_t + (70000 - W_t)} \div (70000 -W_t) = 2.5\%$$

Legitimacy adjusted Commercial Value

When an IP is wildly utilized by many users and generate a lot of royalty, the creator of the IP Asset should have much more capital to offer as incentives on the IP Asset than a creator owning an IP with no adoption and revenue. If both creators choose to offer the same proportional amount of their IP revenue as incentives directed on their IP Assets, we would expect the more famous IP to have significantly more stake than the other one. Therefore, continuing with the example above, we have

$$w_2 > w_1, V_2 > V_1$$

and assuming the more famous IP Asset also has more total derivatives royalty revenue, we have

$$C_2 > C_1$$

By simply assuming creators' offer a similar proportion of revenue as staking incentives, we reach a consistent conclusion of the more famous IP Asset (i.e. generates more revenue) also has a higher commercial score $C$ in our proposed model. Note that our model further encapsulates an IP Asset's legitimacy while pricing models based on pure royalty revenue do not.

Why Commercial Score at all?

A natural question to ask is that unlike Validity Score which creators and stakers should heavily consider before innovating or staking on the the IP Asset, what is the purpose of commercial score?

First, under an open IP registration and remixing system, a framework for IP Asset legitimacy-adjusted pricing is needed. Users, creators, and investors can all have a better grasp of the underlying IP Asset's commercial value than just from pure royalty revenue.

Secondly, excluding child derivatives considerations, the commercial score $S'$ for an IP Asset is simply just legitimacy adjusted stake weight

$$S' = w \cdot \frac{V}{100}$$

This formula draws a 1:1 equality $w = S'$ between the existing stake on the IP Asset to its commercial value when validity score $V=100$. When validity score $V < 100$, we have existing stake strictly greater than the IP Asset's commercial value $w > S'$. This relationship makes sense when we think about staking intuitively - usually larger valued assets are used to secure lesser valued assets.

Most importantly, the commercial score of an IP Asset plays an important role in dispute. When an IP Asset has a high commercial score (i.e. legitimacy adjusted commercial value), intuitively the threshold for users to dispute on the IP Asset should also be raised significantly. It's like no one should be able to randomly sue Disney by paying 100 bucks. Without dynamic priced commercial scores for IP Assets, the dispute bond price will most likely have to remain fixed among different IP Assets, as well as on the same IP Asset over time. This behavior makes very little sense - if dispute bond price is set to be very high, it's economically disincentivized to dispute lower valued but illegitimate IPs; if dispute bond price is set to be very low, then we welcome spam and low quality disputes on good IPs, which lowers their validity score and consequently deters creators from adopting them when there is actually no real legitimacy concerns. Thus, commercial score plays an important part in Story's ecosystem in setting a bar and threshold for dispute initiations.